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Space Colonies - Lunar Settlements: Chapter 7. Attracting Private Investment For Lunar Comerce Toward Economically Sustainable Development

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  • 1. 7 Attracting Private Investment for Lunar Commerce: Toward Economically Sustainable Development Paul Eckert International and Commercial Strategist The Boeing Company “IDS” Space Exploration Paul Eckert, PhD holds the position of international and commercial strat- egist within the Space Exploration division of The Boeing Company. In this role, Dr. Eckert develops strategies to strengthen global business relation- ships and explore new commercial markets. He serves as coordinator of the international Space Investment Summit Coalition, which presents events linking investors and entrepreneurs in order to encourage investment in entrepreneurial innovation. Within the U.S. Chamber of Commerce, Dr. Eckert chairs the Emerging Markets Working Group of the Space Enterprise Council. He also chairs the Entrepreneurship and Investment Technical Committee of the International Astronautical Federation and acts as commercial coordinator for the Lunar Exploration Analysis Group, which is chartered by the NASA Advisory Council. Having joined The Boeing Company in 2003, Dr. Eckert’s prior roles have involved space exploration planning, infrastructure design, Earth observation, space sci- ence, government relations, and communications. Previously, within the U.S. Department of Commerce, he helped promote the growth of the com- mercial space industry, as part of the Office of Space Commercialization. Earlier, in the NASA Office of Legislative Affairs, Dr. Eckert coordinated liaison with the U.S. Congress involving space and aeronautics research, information technology, systems engineering, and technology transfer to industry. Prior to this, he served as science and technology advisor to U.S. Senator John Breaux, a key member of the Senate Commerce Committee, with jurisdiction over NASA. Dr. Eckert holds a bachelor’s degree with high honors from Harvard University and a doctoral degree from Michigan State University. 75© 2010 Taylor and Francis Group, LLC
  • 2. 76 Lunar Settlements Introduction: From Lunar Commerce to Space Commerce A series of roundtable discussions involving industry, government, and aca- demia has helped shed light on issues relevant to lunar commerce.1,2,3 The first Lunar Commerce Roundtable, organized by a mixture of established and startup companies, from within as well as outside the space sector, took place in Dallas, Texas in June of 2005. Like the roundtables to follow, it involved between 75 and 100 participants, emphasizing quality of dialogue and with only limited availability for press coverage. The June 2005 roundtable sur- veyed a broad range of lunar-related business opportunities. There followed in October of the same year a second roundtable, this time in Houston, focus- ing specifically on lunar-related opportunities in four areas: solar power, pro- pellant production, media, and robotics as an enabling technology. Las Vegas welcomed the third roundtable, in July of 2006, this time with a new name “space commerce roundtable” instead of the former lunar focus. The dialogue shifted to an entire Earth-Moon economic system concept, rec- ognizing that lunar commerce could not develop except as an extension of commerce closer to home. There was considerable emphasis on interconnec- tions and synergies among multiple market areas, involving the Moon or other locales. Also of interest were strategically targeted public and private sector options for making good use of identified synergies, by using a single ini- tiative to impact multiple sectors simultaneously. Five areas were addressed, including: space facilities, surface facilities, services (e.g., transportation and fuels, communication/navigation), space solar power, and experience-ori- ented activities (e.g., advertising, entertainment, education, tourism). Space Commerce Markets Energy Entrepre- Platforms Private Surface Investment neurial Innovation Information Lunar Commerce Markets Figure 7.1 Private investment funding entrepreneurial innovation to fuel market growth.© 2010 Taylor and Francis Group, LLC
  • 3. Attracting Private Investment for Lunar Commerce 77 Govt. Facilitation Pooled Resources Market Energy Platforms Multiple Use Surface Multiple Use Facilities Technologies Information Lower Costs Product Variety Growth Interope- rability Market Entry Figure 7.2 Examples of factors facilitating space-related market growth. Core Later Application Technologies Applications 1 Propulsion Cryogenic Fluid Management Robotics/Imaging/Lidar Earth Simulation/Multimedia Moon Seismology/Geology Communic./Navigation Energy Information/Archiving Figure 7.3 Multiple-use core technologies, with terrestrial followed by lunar use.© 2010 Taylor and Francis Group, LLC
  • 4. 78 Lunar Settlements In early 2007, yet another name change occurred, with “space commerce roundtables” becoming “space investment summits.” The relatively small- scale, dialogue oriented format was preserved but with a shift toward focusing on entrepreneurial business ventures and seed and early stage investors. Each summit was envisaged by an industry planning group as involving an effort to educate both entrepreneurs and investors concerning experience from outside the space sector, regarding successful investment and business startups. Although initially the goal of the summits was pri- marily educational, regarding increased understanding by space-related entrepreneurs of the ways in which investors evaluate potential opportu- nities, the ultimate goal was broader. The summit series was ultimately intended to increase the actual flow of capital into space-related startups, thereby stimulating space-related commercial innovation and fueling new market growth. Since June of 2005, a global group of sponsors has chosen to provide finan- cial sponsorship for one or more events in the evolving series just described, including some of the world’s best-known aerospace companies. Among these have been notable firms from outside the United States, including EADS Astrium, Mitsubishi Corporation, and Thales Alenia Space (formerly Alcatel Alenia Space, in conjunction with Alenia Spazio North America). Also involved have been smaller non-U.S. firms, such as MDA, Mansat/SpaceIsle. com, and Odyssey Moon. U.S. industry has been well represented, includ- ing The Boeing Company, Lockheed Martin Corp., Northrop Grumman Corp., Honeywell International, United Space Alliance, Space Systems Loral, Wyle, and AGI, as well as entrepreneurial firms such as Ecliptic Enterprises, Lunar Transportation Systems, and Transformational Space Corporation. Non-profit groups and organizations contributing in-kind support initially included the Space Commerce Roundtable, the Space Frontier Foundation, and the National Space Society (in conjunction with leadership provided by Innovarium Ventures, under the direction of Dr. Burton Lee). Later, additional organizations became involved, including Space Foundation, California Space Authority, X Prize Foundation, Eisenhower Center for Space and Defense Studies, VC Private Equity Roundtable, Alliance for Commercial Enterprises and Education in Space (ACES), Eighth Continent, and the Space Tourism Society. By mid 2007, what had begun as a small roundtable effort had grown into a much larger group of company sponsors and support- ing non-profit groups, known collectively as the Space Investment Summit Coalition. Insights from Roundtable and Summit Dialogue The series of roundtable and summit events has yielded insights regard- ing how to encourage space commerce and thereby help fuel economic© 2010 Taylor and Francis Group, LLC
  • 5. Attracting Private Investment for Lunar Commerce 79 growth in general, with all the benefits to society that business expansion and job growth can bring. First, it is important to involve in dialogue all key stakeholders who stand to contribute to, as well as benefit from, eco- nomic growth. This international stakeholder community includes estab- lished and startup space companies, non-space companies, investors, and additional players such as government, academia, and professional/trade associations. Markets meriting their attention include energy, platforms, surface activities, services (e.g., transportation, communications, naviga- tion) and information/experience (e.g., advertising, branding, sponsorship). As noted earlier, it was the July 2006 roundtable that most effectively drove home the significance of this interconnected mixture of potential commer- cial activities. In such a context, a key principle that became increasingly evident was the importance—for investors and innovators alike—of an incremental approach to reducing risk, so as to justify gradually increasing levels of investment.4 Beyond dialogue, additional steps in an incremental process of entrepre- neurial initiative include research, to subject general ideas generated by dia- logue to empirical validation, demonstration projects, to test out alternatives before selecting the best technical approach, and—only after all these steps have been applied effectively—commitment of major investment to full-scale business projects. This is not to assert that only by following such steps can business success be achieved. The key assertion is that innovative initiatives appear to have a better chance of technical and financial success if such an incremental approach is followed. Beyond this, multiple-use technologies— which can be commercialized in a variety of products and services—may reduce risk more than single “all-or-nothing” commercial applications of a particular technical capability. Throughout the foregoing discussion, the concept of entrepreneurial innovation is paramount—not developing new technology but rather applying existing technology to meet customer needs profitably in the marketplace. The Need for Increased Private Investment A clear conclusion from the roundtables in late 2006 was, as noted previ- ously, that private investment must be significantly increased in order to fuel entrepreneurial innovation with sufficient capital to help create and serve new markets. In a word, problems facing space commerce efforts are as much, if not more, financial than technical. The benefits of commerce— such as lower cost and increased choice of products and services—depend on attracting investment from investors willing to consider early-stage, high-risk, but also high-opportunity initiatives. “Angel” investors are often© 2010 Taylor and Francis Group, LLC
  • 6. 80 Lunar Settlements the most likely to take an interest in such opportunities. However, such independent, wealthy individuals are quite difficult to attract, because they listen more to other investors, whom they already know, than to enthusi- astic strangers from outside the investment community. Add to this that angels often develop highly specialized interests and have many opportu- nities from which to choose, in addition to whatever space-related ventures may cross their paths. In any case, contacts with these and other types of investors have begun to clarify some of their most important considerations in making decisions about where to direct the capital they control. Key risks they would like to limit include: insufficient market size, acces- sibility and flexibility of customer demand, insufficient salvageable value of assets if a project fails, dominance of a market by competitors, unavail- ability of sufficient financial investment, inadequate management skill, ineffective technical approaches, and constraining legal and regulatory factors. The Search for Entrepreneurial Innovation In an effort to minimize such risks while maximizing size and proximity of returns, investors want evidence that entrepreneurial innovation is actu- ally occurring, in development of products and services that effectively meet customer demand. In this quest for profitable innovation, they rec- ognize that entrepreneurial innovation and value creation associated with it involve the “what” of innovation (i.e., product or service) and the “how” of innovation (i.e., market assessment and creation of an industrial entity to serve the market), as well as the “who and why” of innovation (i.e., the personalities that enable creative individuals to pursue entrepreneurship constructively).5,6 The “what” can involve factors such as cost, performance, safety and reliability, with an improvement in an existing product or ser- vice potentially having as much market impact as the entry of a new prod- uct or service offering. The “how” is a multidimensional factor, including such factors as: identifying an opportunity, accumulating the necessary resources to address it, producing attractive products and service, market- ing these to customers, building an organization, and responding to the requirements and reactions of government and society. The “who and why” factor is exceptionally rich in content, and in-depth studies have addressed complex psychological phenomena such as intrinsic vs. extrinsic motiva- tion, as well as the fragile equilibrium balancing risk-taking with a prag- matic sense of business reality.© 2010 Taylor and Francis Group, LLC
  • 7. Attracting Private Investment for Lunar Commerce 81 The Central Role of Market Demand Above all, investors look for actual or potential market demand, without which even the best concepts will never be profitable. Space certainly offers a plethora of potential markets, although many exhibit major challenges when subjected to rigorous evaluation on investor criteria. The market categories already noted are only suggestive of the full breadth of potential commercial applications that might eventually attract investor interest. Some specific examples may prove helpful in illustrating the breadth and scope of potential opportunities. Solar power might involve launch from Earth and assembly in space of orbiting satellites to beam power to the sur- face. Also envisaged is the use of lunar surface resources to produce solar power generation facilities to supply power for lunar surface use, beam power back to Earth, or contribute components that might lower the cost of constructing Earth-orbiting satellites. Supplying propellant for rocket- based chemical propulsion systems might involve sending fuel from Earth to orbiting propellant depots. An additional possibility is the production of propellant from lunar surface materials, for use not only to fuel vehicles operating in the vicinity of the Moon but also as a source of supply for the Earth-orbiting depots—cheaper than transporting fuel from Earth because of the Moon’s weaker gravity. Communications and navigation applications might involve not only increasingly capable Earth-orbiting satellites but also a cislunar network of satellites, extending basic services deeper into space. The domain of observation, similar to communication/navigation, offers opportunities not only for imaging Earth, from orbiting satellites, but also observing the planet from lunar and other space-based locations. Beyond this, commercial imaging and analysis services might also contribute to assessment of availability of valuable chemical and metallic resources on lunar, planetary, and asteroid surfaces. Facilities might be operated in space or on the lunar surface, offering human habitats as well as bases for a variety of space activities. In addi- tion, robotics, as exemplified by the Orbital Express satellite servicing dem- onstration project and the Mars rovers, might offer a number of applications potentially amenable to commercial exploitation. And media-related appli- cations, involving robotic cameras and broadband signal transmission to produce content for advertising, entertainment, and the like, could be among the most attractive initial commercial activities. There is little or no need in such activities for on-site human presence or large-scale infrastructure— provided that at least minimal sensor/camera and signal relay resources can be put into place. How far we are today from the “tipping point” of various markets—the point at which various preliminary economic steps finally culminate in an upward spike customer demand and investor interest—is impossible© 2010 Taylor and Francis Group, LLC
  • 8. 82 Lunar Settlements to assess.7 But in any case, the central importance of encouraging, and responding to, market demand is one of the foundational principles of promoting lunar commercial development. Some Key Market Enablers Transportation For virtually all existing or potential space commerce markets, some form of space transportation is an essential enabler. In the next decade, com- mercial activities on board the International Space Station (ISS) utilization could stimulate demand for transportation services, just as improved avail- ability of transportation could promote ISS utilization.8 The same might be true of other space platforms in development, which could benefit from ISS as an initial pathfinder for technical and economic approaches. The NASA Commercial Orbital Transportation Services (COTS) program may hold promise in providing lower cost and higher reliability transportation services within the next five years.9 In fact, some entrepreneurs view Earth-to-orbit transportation as a stepping stone to commercial efforts involving the Moon and even beyond. The development of transportation as a space-related busi- ness enabler also has international implications, since robust utilization of ISS and other space platforms could create significant demand for non-U.S. as well as U.S. transportation services, thereby expanding market size and capitalization. To the extent that transportation involves a genuinely “open architecture,” with modular and interchangeable components and subsys- tems, it will be more possible for a variety of international and commercial participants to enter the emerging marketplace.10 interoperability Evident in the domain of transportation but also relevant in many other areas, a market growth enabler of particular importance is “interoperabil- ity” of components, subsystems, and systems, so that more individuals and companies can participate in new markets as they grow.11 Interoperability in this context involves standardized interfaces as well as interchangeable items. Standardized interfaces might involve a wide range of commonly-used items, such as: • Pressure vessels (any functional volume pressurized for human habitation: landers, habitats, rovers, logistics modules, etc.) • Electrical outlets and plugs© 2010 Taylor and Francis Group, LLC
  • 9. Attracting Private Investment for Lunar Commerce 83 • Liquid connectors for each type (e.g., water) • Gas connectors for each type (e.g., oxygen) • Data (e.g., Ethernet cables, RF/WiFi) • Airlock control panels • Spacesuit connections with habitat life support and environment control systems (servicing, recharging, umbilical operations) • Robotic manipulating mechanisms (robot to system interfaces) Interchangeable items might involve both assemblies and components. Assembly examples include: life support, power (management, generation, & storage), waste management, thermal management, crew interface panel (e.g., command & control station), airlocks, and command and data handling systems. Interchangeable components could be items such as microproces- sors, valves, tanks, filters, keyboards, software, fans, computers, pumps, bat- teries, solar arrays, circuit boards, and antennas. By enabling development of a larger supplier and customer base due to the opportunity of multiple entities to use common standards to enable buying and selling, interoperability can lead to both increased supply and increased demand for space-related products and services. Several factors can help free up resources for new uses by reducing the cost of basic items. Such fac- tors include: shared infrastructure and consumables, increased competition among providers, decreased logistics overhead (i.e., fewer unique parts), and enhanced reuse and reconfigurability (e.g., lunar lander converted to surface- based propellant depot). In addition, by using common standards for life sup- port and other vital services, interoperability can enhance safety by facilitating rescue and repair, once again reducing risks that might repel investors. government Facilitation Government—at the national, regional, and in some cases even the local level—can encourage early market growth, within limits.12 Discussion above of private investment’s importance should not obscure the significant role to be played by government investment. In fact, because of the technical and financial hurdles that must be overcome for many space-related entrepre- neurial ventures to succeed, a combination of public and private investment may often be necessary. It may be that a transitional model of public pri- vate partnerships is applicable. Here government investment dominates in the earlier and higher-risk stages of a commercial activity and then private investment takes on an increasingly important role as risk is incrementally retired. Public sector promotion of space-related commerce can take a variety of forms. For example, government purchase of commercial products and ser- vices, especially when done in advance to secure supply for an extended© 2010 Taylor and Francis Group, LLC
  • 10. 84 Lunar Settlements period, can serve as a potent stimulus to encourage private investment. The government commitment in effect assures private investors that at least an initial market will in fact exist. Of course, government has also traditionally been recognized as funding research and development activities, on which industry can draw in developing commercial applications. As noted earlier with regard to transportation, NASA’s COTS program exemplifies govern- ment assistance with development and demonstration of initial commercial- ly-relevant capabilities, with the intent of helping create what will eventually be self-sustaining commercial transportation services, with multiple cus- tomers in addition to government. Beyond purchase and R&D, government can use financial incentives, such as investment tax credits, which can encourage private investors because, unlike the case of an income tax credit, the investment credit has economic value even for startup ventures that are not yet profitable. Loan guarantees, subsidized consulting services, and “business incubator” venues represent additional tools that government may choose to employ. Finally, a uniquely governmental function with significant impact on entrepreneurial innova- tion involves legal/regulatory framework development. Key factors facilitat- ing or constraining business innovation involve such matters as limitation of liability and protection of property rights. Multiple-use Technologies Multiple-use technologies can bring market profitability closer in time.13 The concept of a multiple-use technology is straightforward, involving using the same core technical capability to produce products and services that can yield near-term profits in already established Earth markets, while at the same time gradually moving toward applications in more speculative space- related markets. For example, robotics applications already profitably in use to help automate Earth-based mining and undersea operations could later be applied to commercial lunar surface robotic missions. Companies that might find it untenable to invest corporate resources directly in somewhat specu- lative space initiatives at the outset might better tolerate initial exposure in well-known terrestrial markets. Profits gained through technology applica- tions in established markets could then serve as a financial base from which to undertake ventures involving space-related activity. Multiple-use Facilities Multiple-use facilities, whether in space or on the surface of the Moon and elsewhere, could facilitate commercial success by attracting more custom- ers into markets.14 As in shopping centers and office complexes on Earth, with a few large tenants initially moving in to provide a financial base, there may follow the entry of additional tenants that would have been too finan- cially weak to “anchor” a facility alone. By having multiple users of a facility© 2010 Taylor and Francis Group, LLC
  • 11. Attracting Private Investment for Lunar Commerce 85 shoulder together the expense of shared infrastructure (e.g., transportation access, communications and navigation connectivity, power generation, life support functions), significant cost reduction could result, stretching the impact of limited investment dollars. Conclusion Over the last three years, industry dialogue about promotion of space-related economic growth has suggested a number of significant insights. First, lunar commerce cannot be addressed in isolation but only as an integrated part of a larger space commerce system, involving activities on Earth, in Earth orbit, in cislunar space, and eventually extending outward into the Solar System. An incremental process of attracting increased private investment, coupled with a milestone-based approach to business plans for entrepreneurial ventures, could facilitate development of lunar commerce, as well as other kinds of space-related business activity. It is essential to attract private investment into commercial space efforts, because government funding alone will never be adequate to stimulate development of an economically self-sustaining marketplace. To gain the interest, and ultimately the capital, of seed and early-stage investors, leaders of entrepreneurial ventures must recognize that the effec- tive management of risk is perhaps the single most important consideration of those with substantial money to spend. Clearly, the ultimate goal of most investors in managing risk is to succeed in gaining an acceptable financial return by profitably serving customers in a marketplace. Investors’ focus on markets should be a strong signal to entrepreneurs to remain similarly focused. In fact, the very definition of entrepreneurial innovation involves effective application of technology to serve customers at a profit. Key enablers for effectively serving customers, and hence for promoting market growth, constitute a multidimensional portfolio of public and private sector activity. For example, government could facilitate expansion of com- mercial activity through use of a policy toolbox including legal/regulatory clarification, financial incentives, targeted research and development, pub- lic private partnerships, and new business incubation services. Beyond this, an open-architecture approach to transportation services, made possible by industry and public sector collaboration, could encourage market entry by multiple providers. Interoperability in general, based on standardized interfaces and interchangeable components and subsystems, could enable a variety of companies from across the globe to participate in an international interplay of supply and demand. Such factors, approached in an integrated manner, could help hasten the day when a thriving Earth-Moon economic sphere increasingly contributes to societal well-being, through sustainable economic growth.© 2010 Taylor and Francis Group, LLC
  • 12. 86 Lunar Settlements References 1. Space Investment Summit website, www.spaceinvestmentsummit.com [cited 13 April 2008]. 2. Eckert, P. “Financing Entrepreneurship: Outreach to Non-Space Investors.” AIAA Space 2007 Conference, 18–20 September 2007. URL: http://www.aiaa.org [cited 13 April 2008]. 3. Eckert, P. “Innovation, Entrepreneurship, and Investment: Funding the Future.” International Astronautical Congress, Hyderabad, India, 24–28 September 2007. Paper archive URL: http://www.aiaa.org/iacpapers/ [cited 13 April 2008]. 4. Eckert, P. and Mankins, J. (eds.), Bridging the Gap: From Earth Markets to New Space Markets, Report on the Third Lunar Commerce Executive Roundtable. URL: http://www.lunarcommerceroundtable.com/lcr3_report.html [cited 20 August 2006]. 5. Eckert, P., “Linking Entrepreneurial Innovators through Dialogue,” 25th International Space Development Conference, National Space Society, Los Angeles, CA, 4–7 May 2006. URL: http://isdc.xisp.net/~kmiller/isdc_archive/ isdc.php?link=submissionSelectArchive&sort= [cited 20 August 2006]. 6. Fayolle, A., Introduction à l’Entrepreneuriat, Dunod, Paris, 2005, Chap. 1. 7. Gladwell, M., The Tipping Point: How Little Things Can Make A Big Difference. Little, Brown, New York, 2000. 8. Eckert, P. “Expanded ISS Utilization: Catalyst for Commercial Cislunar Transportation.” DGLR International Symposium, To Moon and Beyond, Bremen, Germany, 14–16 March 2007. 9. NASA Commercial Orbital Transportation Services (COTS) acquisition infor- mation website. URL: http://procurement.jsc.nasa.gov/cots/ [cited 5 March 2006]. 10. Eckert, P. “Open Architecture for Sustainable Exploration: Infrastructure Commonality and Flexibility.” Moonbase: Challenge for Humanity, Moscow, Russia, 16 November 2006. URL: http://www.moonbase-russia.org/ [cited 10 February 2007]. 11. Eckert, P. “Interoperability, Exploration, and Commerce: Expanding Industry’s Scope.” Center for Strategic and International Studies, Interoperability and Space Exploration, Arlington, Virginia, 6 September 2006. URL: http://www.csis.org/ component/option,com_csis_events/task,view/id,1042/ [cited 4 February 2007]. 12. Eckert, P. and Lavitola, M. “Promoting Space Commerce through Public-Private Risk Sharing,” AIAA Space Operations Conference, Rome, Italy, 19–23 June, 2006. URL: http://www.aiaa.org/content.cfm?pageid=2 [cited 4 February 2007]. 13. Eckert, P. and Barboza, M., “Attracting Nonspace Industry into Space: A Catalyst for Lunar Commercialization,” International Lunar Conference 2005, Toronto, Canada, 18–23 Sept 2005. 14. Lenard, R. “ISRU Sub-Team Summary,” in Eckert, P., and Mankins, J. (eds.), Bridging the Gap: From Earth Markets to New Space Markets, Report on the Third Lunar Commerce Executive Roundtable. URL: http://www.lunarcommercer- oundtable.com/lcr3_report.html [cited 20 August 2006].© 2010 Taylor and Francis Group, LLC