July 20th, 2021 |
By Lindsey Rogers
Overview:
Outer space is a distant and challenging environment. Getting there and performing significant activity requires remarkable effort and vast sums of capital to finance the various planning, research, developments. The cost of the International Space Station alone has passed $150 Billion. Returning to the moon under NASA’s Artemis program will exceed $30 Billion to land the first crew on the surface for the first time in 50 years. Yet the vision for space exploration and development far exceeds these modest endeavors. Acquiring the resources of space that support future planetary populations will require investment that far exceeds the means of any government and private entities. NASA has made strides in the past decades on sharing costs with the private sector, but the basic public/private partnerships may not be enough to fulfill the vision of establishing new branches of civilizations beyond Earth.
Beyond Earth was created to help build a framework facilitating and building communities beyond Earth. Beyond Earth has also has a space policy regime that focuses on putting humans in space as explorers and scientists. While this research is important, the global space policy is flawed in that it does not yet recognize or accept that the end result of all human activity in space will be the establishment of permanent economically sustainable communities in space, and by expansion of human civilization, out into the solar system. By injecting this into space policy arena, BE is creating frameworks that are intentional to making this happen. The biggest part of this is establishing workable financing mechanisms that will enable and allow us to pay for the construction of these communities in space, which is the overall focus of the webinar. To examine the topic more thoroughly, Beyond Earth initiated a review of advanced financing models to fund large scale space infrastructure and habitat projects. This event also featured financial experts who helped to set the tone for this project. They discussed the complexity of macro scale space investment and the range of possible solutions to spread the investment risk among stakeholders. The panelists also commented on the several financing mechanisms, including a government chartered private corporation, financing through private markets, and government backed investment corporation, among others.
Featured Speakers
Summary of general approaches to investment in large scale space development
The panel started off by summarizing general approaches to investments in large scale space developments. The first question asked revolved around discussing the baseline of where we are today in terms of financing space projects and what the evolution is of moving from all government sponsored to a more public/private arrangement. The general consensus seemed to be that the current model of the government and private companies working together to fund big projects, is working rights now, and has some way to go. Meagan Crawford, Managing Director of Space Fund, answered first by describing fund portfolio companies that are currently good examples of these financing these projects. First was Axiom, a space station company which has raised $150 million to date in private funding and over $200 million in NASA funding. Axiom has been successful in fundraising and it is also in NASA’s best interest to help and support to gain these funds. This partnership is a great example of showing NASA and private companies coming together to finance big projects. Even more successful has been SPACEX, which has raised $6 billion in private funding and $3-4 billion in NASA money. The two companies are working together to build important space capabilities, which has a need that will only continue to increase. Jeff Matthews, Special Lead for Space, Deloitte, seemed to agree with this sentiment, stating that the precipice of change for space is now. Hoyt Davidson, Principal of Near Earth, then moved on to explain the distinction between the satellite and space industry and how this relationship sparked the public and private sectors working together and sparked others to awaken public capital marketers. This would open up into bigger pools of capital, with much lower required rates of return, which helps fund large space projects with lower expectations on return. Grant Anderson, President and CEO, Paragon Space Development Corp. took another route answering by taking a step back, and explaining how Paragon has seen change in financing over the years with few pioneers with ISF. He continued to explain that his company is evolving to a more traditional model of investors looking for opportunity and borrowing money through stocks has begun to change how things are done in terms of speed. Big triggers are the new speed for things happening, which in turn makes more people want to invest, almost too fast.
Are we seeing interest in peak that’s sustainable? How many investors will not see response which will then affect raising of capital? Meagan takes a turn speaking on investor confidence leading to major concern that new companies with high risk will fail and affect others. Currently there are over 163 launch company’s around world and only 20 may survive since the time to invest in launch has passed. Although projects seem long and daunting, timelines to exit, which is important to investors, is within standard investment timelines now. Jeff then brings up the question of distinguishing between natural business failures and not just because money is chasing the wrong thing. Focusing on disconnect can incentivize outcome you want to see is important in this process, not just the event of the launch. It is more about how to build other enabling infrastructure (ground, stations, next generation for humans, etc.) Hoyt brings up some other points by explaining that, overall, some of these companies should survive and those that do will be big household names. Overall, expecting a fallout and consolidation to the best companies is part of the process. The conversation was summed up Steve Wolfe saying that all keys on the nascent emerging commercial markets that relate to LEO, and the immediate coming trillion-dollar economy, will be about small satellites with large estimations (estimation of over 100,000 operation satellites in orbit currently). He finishes by assuring viewers that Beyond Earth is trying to get a handle on what it will take financially on a space settlements or villages where people live and work on the lunar surface or Mars.
Mechanism Recommendations
Questions 2 of the webinar moved on to asking if the mechanisms that exist today are sufficient enough to support a habitat of ~100 people. Meagan begins the conversation by stating that current mechanisms of private and public funding are good for closer-to-home projects building off existing infrastructure and that the government infrastructure needs to exist first. As NASA is retiring the ISS to push further out to develop permanent human presence, it’s the basic government payment infrastructure needed for privately funded projects to build those infrastructures, such as using government transportation. The key is to get agencies like NASA and ESA and the other government agencies out of Low Earth Orbit and getting them to the Moon and Mars, is to build basic infrastructure that the commercial industries can build around first. Once all that is established, traditional funding methods will work. Jeff then responds along the same lines by explaining that infrastructure developed by the government first is how you pull incentivization. Jeff was also optimistic that we can apply current mechanisms to solve problems since companies are looking at how to leverage these methods to deploy them more. Hoyt added that in order for commercial investments to work on moon, we have to have government support on infrastructure side, which is not as likely to get 7-year exit. Anything robotic is one cost level, and adding people to any equation will make things very expensive, which is the main reason the ISS is so expensive. Because of the human presence raise in capital, we may need to get international entities to contribute to funding. This magnitude of capital and long-waiting times for companies to mature make sense to take this case global.
Evaluation of Proposed Funding Models
The third topic the panelists were questioned about revolves around the evaluation of proposed funding models and the criteria and methods used for evaluating them. Question 3 stated: What models may be needed or what project financing is needed as we move forward? The international community has determined that it is a goal of human society to create human communities beyond earth, but how will we manage the financing and risk? Three separate options were discussed and panelists came up with options on how to do it and the relevance to these endeavors. Option 1 is the Tennessee Valley Authority Model. There are a lot of authority models and they are all described as the government body owning an asset that it then provides to the public while charging a utility usage. Hoyt thought it was an interesting model, but may not be diverse enough for the right solution. Another reasoning is because authorities can be prone to corruption, so it is more beneficial to have something international where the government can be mixed with commercial entities. Jeff then agreed, stating that the model did not have enough scope or depth for big projects. Megan echoed the opinions by stating that the model has a lot of limitations and cannot solve a lot of problems and that international may be better because authorities are generally very local. The general consensus is that Option 1 is not a bad model, but is overall not enough for bigger settlements. Option 2 is the Government Sponsored Investment Corporation. These types of models are used to support developing nations in various ways by making money available for favorable repayment terms. These models can support a more purely private investment and put sponsoring governments at less risk. Meagan believed that the government was not the best to manage an investment process and that a hybrid model would be better, like the UK government currently practices. Hoyt agreed and disagreed with this by explaining the government should not be a self-ventured capital firm, but has succeeded in helping as low-cost debt financing first money back to protect taxpayers. Overall, this could also work similarly for space, like developing country and needs government help.
Aside from the first 2 options, Grant brought up the possibility of the Hudson Bay Model. The model did previously did what is currently trying to be done with Mars and the Moon. But the question lies with, how to do you make a return on the investment? Grant then encourages looking into that model and speaks to how the government isn’t good on running these projects themselves. Overall, this model worked well and was useful for a long time. Jeff voiced his opinions by stating that if the government can put some capital in to begin with, it could then help to raise additional capital. There are a lot of options on the table and a combination of all these concepts can be packaged if some centralized entity can come guide these conversations. Lastly, was Option 3: Are private stakeholders coming to table with a plan possible? Could that same mechanism for those projects fund 100-person habitat on the moon? The panelists seemed to agree overall saying that this type of option could work, but not for first time it is executed. This model has to be a proven written and working model before humans can be involved. Hoyt then explains the strategic space reserve. This concept explains the process that if our government and other government operate in space, it would lead to an increase in demand for certain things needed like water, propellant, energy. They then can agree to buy these things and with IDQ contracts, “we will buy x at these locations, at this price, which creates a market.” Then people can raise capital to figure out the technology needed and provide the needed product at various places. If these companies can provide this technology cheaper, than the government allows new businesses to start. The government as an anchor customer is big part of business plans, and the most important thing the government can do right now to help startup communities, is by becoming that anchor customers. Jeff agreed with the value of having that, and explained that he wants to see mechanisms of more target investments or monetization as a standard anchor demand in the long run. Ultimately, the panelists agreed that a mix of all of these mechanisms is the best solution for moving forward.
Ending Topics:
The discussion then changed directions to Elon Musk and sending people to Mars in the next decade, and how each panelist would recommend him financing his vision. Meagan stated that there seems to be no limit to his fundraise capabilities from private markets, and how SpaceX does not plan to go public. There is no business plan for Mars, but spinouts of Star link, IPO project to finance Martian settlements, continued operations of SpaceX, and continued revenue from launched satellites, are expected. Grant then brought up one of the main issues of SpaceX being a vertically integrated company. A very slim number of companies last the 3rd generation of technology, since history shows that no vertically integrated companies can push all the technology they want. SpaceX will always have the 2nd best technology, so they it would be beneficial for them to spread to other companies who will share the risk.
The conversation ended with one final question for panelists – When do you think the first community in space will be operational and constructed with people living there? Grant stated, based on his experience working with Life Support systems, that it will be in the next 25 years in LEO. Looking down at Earth will be the number one reason for attracting people to space and transporting to Mars and back will not be worth it in terms of payment. LEO will most likely be the first viable human spaceflight business around the world. Hoyt agreed with the terms of LEO, but stated that it will take 10 years to get a sustainable outpost for astronauts and scientists for the moon, 15 years to incorporate guest workers from commercial companies, and about 25 years to create communities on the Moon. Meagan then explained that the definition of community is the key to this construction timeline and that within 10 years we may see permanent government outposts. She also agreed with the 20-25 years’ as the timeline for private communities that are self-sustaining, without continuous resupply from Earth. Technology for these communities and outposts needs to start now to be ready for this time period. Jeff added last, with his prediction that 2035 is a reasonable timeframe for the government sponsored for permanent human presence. LEO communities will develop first for habitats and then infrastructure will begin towards the end of this decade – early next decade. Steve Wolfe then closed the webinar excited about these projects Beyond Earth is working on and invited everyone to continue communicating with us for watch out for future presentations.
Lindsey Rogers is currently interning for the Beyond Earth Institute and assisting in research and digital marketing efforts. She received her Bachelor’s in Finance from The College of New Jersey in 2014 and is pursuing her passion for Space while completing her Master’s Degree in Space Studies at the University of North Dakota.
