New ways to fund space venturesby Jeff Foust
|
| The real fuel that propels space endeavors is something far more mundane but also far more important: money. |
The current situation offers little in the way of hope in finding additional money. Government space programs are strapped for funds, a situation common not just to NASA but other space agencies: witness the recent ESA decision to cancel the Eddington planet-finding mission and part of the BepiColombo mission to Mercury because of problems with the Ariane 5. On the commercial side, the venture capital (VC) world has rarely been receptive to space, particularly entrepreneurial ventures, forcing companies to either look to the government and/or independently wealthy “angel” investors for funding.
While there is a shortage of funding, there has been no shortage of creativity in efforts to propose alternative means of raising money. Proponents of several of these ideas discussed them during the Sixth International Mars Society Conference held in Oregon in August. These ideas, while somewhat different, share a common theme: broadening the base of financial support from government agencies and institutional investors to a greater number of small investors.
A space investment fund
Mutual funds are among the most popular investment vehicles, allowing large numbers of individual investors to pool their resources into a single fund under professional management. According to the Investment Company Institute, nearly $6.95 trillion was invested in mutual funds of all kinds in the US in September 2003, with nearly half of that—$3.22 trillion—in stock funds. This vast amount of capital has made it possible for funds to specialize to a high degree, based not only on types of investments and levels of risk but on non-financial factors: witness the rise of “socially responsible” funds in recent years. Despite this degree of diversity, there is currently no fund that focuses on investments in space companies.
Two men are trying to change that. Paul Contursi and Tom Olson are the president and CEO, respectively, of The Colony Fund, a New York-based effort to create an investment fund that will focus on entrepreneurial space ventures. The goal of the fund, according to its web site, is to create a “‘virtual community’ of space investors… large numbers of people, of modest means but great vision, each willing to invest small amounts in order to change the world.”
Contursi describes The Colony Fund as a “mutual fund with a strong VC component.” About 70 percent of the fund would be invested in companies that are developing products or services that “enable advancement of the commercial space sector, including those promising cheaper, more reliable transport of people and material to earth orbit and beyond.” An additional five percent would go into what Contursi calls “ADventure” investments, which would be highly publicized projects that could offer an immediate return in either money or marketing. The remaining 25 percent would go into conventional debt and equity investments.
| The goal of The Colony Fund is to create a “‘virtual community’ of space investors… large numbers of people, of modest means but great vision, each willing to invest small amounts in order to change the world.” |
The money for those investments would come from selling shares in various funds organized by The Colony Fund. The first such fund, logically named Colony Fund I and scheduled to open next year, will raise $500 million by selling five million shares at $100 each. Colony Fund II, to follow a few years later, will raise $4.5 billion by selling a larger number of shares at the same price.
Contursi and Olson acknowledge that they need to get people not normally considered space enthusiasts involved in the fund. While the Fund’s web site features a quote by Robert Zubrin claiming that “there are hundreds of millions of people who think it’s vital to our future that humanity expand into space,” in reality the number of people willing to back up that interest with money is far smaller. The total membership of organizations like The Planetary Society and the National Space Society—whose membership fees are less than a single share of The Colony Fund—is, optimistically, still under 200,000.
The payoffs of something like The Colony Fund are more than just a big monetary return for investors. Contursi cited a number of beneficial “side effects” of such a venture, ranging from bringing like-minded people together and encouraging political changes beneficial to the fund’s goals to “embracing hope and alleviating fear”.
Raising prize money
Another popular proposal of encouraging space development has been prizes: monetary rewards for achieving certain milestones. The best-known example of a prize in the space community has been the X Prize, which offers $10 million to the first private venture that can fly a reusable suborbital vehicle capable of carrying three people to 100 kilometers altitude twice in two weeks. The prize has attracted two dozen competitors as well as considerable media interest.
Prizes have been proposed for other aspects of space exploration, including missions to Mars. For a time in the mid-1990s, Newt Gingrich, a space enthusiast who became Speaker of the House, toyed with the idea of establishing prizes for Mars exploration, including $20 billion for the first human mission. Gingrich never seriously pushed for the prizes before leaving Congress in the late ’90s, and little effort has been made since then for similar prizes.
One of the problems with prizes has been raising the prize money itself. The X Prize Foundation struggled for years trying to raise a relative modest sum for its prize. They eventually had to resort to taking an insurance “bet” to fully fund the prize, a decision which means the $10 million is available only through the end of 2004. If it’s that difficult to raise $10 million for a popular prize, imagine trying to raise a similar or larger amount for a prize that may represent only an interim step towards a Mars mission.
| “Prizes are a good way to take one dollar and turn it into ten dollars of effort,” said Fisher. |
At the Mars Society conference, Gary Fisher proposed an alternative way of raising money for prizes. Like The Colony Fund, Fisher would raise money through a large number of smaller contributions: a million-dollar prize would be raised with a thousand $1,000 donations. However, rather than require the full $1,000 donation up front, Fisher’s plan calls for “subscriptions”: a $100 down payment, with the balance due if and when the prize is won. That balance due would be reduced by the pro-rated share of the investment income the initial prize fund generated: if the fund generated $200 for every $100 down payment invested, the subscribers in the above example would owe $700 rather than $900. Should the prize wait long enough—perhaps eight years, according to Fisher—the prize fund would generate enough income to fully fund the prize, and thus the subscribers would not be required to provide anything more than their initial down payment.
“This is a way to connect with space enthusiasts and to allow them to direct their resources in such a way that will reward only successful innovation,” Fisher said. “Prizes are a good way to take one dollar and turn it into ten dollars of effort.”
Fisher foresees an advisory committee within the Mars Society charged with running the prizes, including selecting the challenges, prize amounts, and any deadlines. Management of the prize funds, though, would be turned over to a professional mutual fund company. The society would publish a prospectus of possible prizes and solicit subscriptions for them, but not actually collect any funds and publicly announce the existence of the prize until the prize was fully subscribed.
Do any of these approaches have a chance at succeeding? The Colony Fund and the prize concepts require a sufficiently large number of people interested enough to invest—or donate—non-trivial sums of money for these efforts. Given the relatively small number of people willing to spend $35 to $50 a year to join space enthusiast organizations, this may be a major challenge. Convincing members of the broader public to participate in these projects will require demonstrating that not only is space exploration critical to humanity’s future, but also that it is good business.