Monday, March 26, 2007
For over a decade members of the entrepreneurial space transportation communityengineers and executives of startup companies, hobbyists, and advocates of low-cost access to space, among othershave gathered in Phoenix every spring for the annual Space Access meeting. The conference has an informal, lively atmosphere, often punctuated by spirited debates about various elements of reusable launch vehicle (RLV) design, from takeoff and landing modes to choice of propellantdebates that often continued long after attendees adjourned to the hotel bar after the last session of the day.
However, over the last few years, including this years conference, held last week, there has been a gradual transformation in the debates and discussion at the conference. There are still plenty of technical presentations, including videos of engine firings and flight tests, but many of the discussions have shifted from what launch mode or engine design is superior to the best approaches to legal and financial issues, including dealing with export control regulations and lining up financing. One explanation for this change is the realization that different companies have different needs and thus will select different technologies; or, in the words of one speaker, that there is no magic bean theory of spaceflight. This shift may also be a sign that the entrepreneurial space industry is becoming just thatan industryand thus must become increasingly concerned with business issues rather than just rocket science.
Like seemingly every other space conference in the US in the last few years, one topic of discussion was the state of export control, or International Traffic in Arms Regulations (ITAR). Like bigger space companies, emerging ventures also suffer from the strict regulations that govern the export of space-related products; however, for these smaller companies and even hobbyists, the problems are exacerbated by the fact that they rarely have employees dedicated to export control work, unlike larger firms, and sometimes may not even be aware of when ITAR applies.
Its a monster pain in the neck, said Randall Clague, whose duties at XCOR Aerospace include export control compliance. During a panel at the conference about export control, he described having to go around the companys facility on a regular basis, looking for papers left out in workspaces that might have sensitive information and marking them with a stamp labeled ITAR as a reminder that the paper should be secured. I feel like a babysitter. Its just stupid.
Kerry Scarlott, an attorney who specializes in export control law, said that, while difficult, ITAR is something that even small companies can deal with. Its a narrow portal, not a wall, he said. Its not necessarily the biggest issue youre facing. However, even he acknowledged that ITAR is like a sledgehammer hitting a fly and that some type of reform was needed.
Some have hoped that the new Congress, now led by the Democrats, would be in a position to push for reform (see A new hope for export control reform? The Space Review, February 26, 2007) Conference panelists were skeptical, though, because of concerns that some Republicans will use any reform effort as a means of attacking the Democrats as being weak on national security issues. Unless we can find a way to get some Republicans to take the lead and inoculate Democrats from any flanking maneuvers by other Republicans, I dont see anyone taking the lead and actually trying to fix this in a serious way, said Jim Muncy of PoliSpace.
Scarlott was similarly pessimistic of the odds of near-term reform. There are a lot of changes potentially afoot in ITAR. I emphasize potentially because its unlikely significant changes will occur in the next couple of years.
Pat Bahn of TGV Rockets has said on a number pf past occasions, including previous Space Access conferences, Amateurs talk propellant, professional talk insurance. While Bahn wasnt at this years conference, there were a number of professionals there talking about insurance issues facing RLV developers.
Doug Griffith, an aerospace attorney, said companies planning to fly passengers (or spaceflight participants, as theyre called in official FAA documents) need two kinds of insurance: liability insurance against claims made by those participants, and the third-party insurance mandated by federal law. The latter type of insurance covers the maximum probable loss (MPL) to uninvolved parties, as calculated by the FAA when issuing a permit or license. The MPL will depend on the vehicle and where it will be flying from, but will rarely be less than $3 million. That insurance tends to be available and not unduly expensive: John Carmack of Armadillo Aerospace said he obtained a policy that covers unlimited launches for one year with $3 million in coverage for $50,000.
The FAA, though, sets no guidelines on liability insurance for participant claims, and that means that the liability to personal spaceflight companies from spaceflight participants is going to be governed by state law, said Griffith. That creates a potential hodgepodge of different laws, providing varying degrees of protection against liability claims by participants and making insurance difficult and expensive to obtain.
State legislation is really the next great frontier for us space lawyers, said attorney Jim Dunstan. The goal, I think, by the Personal Spaceflight Federation and many operators, is to try and pass state legislation to provide immunity for operators who complied with the federal licensing environment and obtained informed consent from spaceflight participants.
The first state tackling that issue is Virginia. The state legislature there unanimously passed earlier this year the Spaceflight Liability and Immunity Act, designed to give spaceflight operators in the state immunity from liability claims. That is particularly important in Virginia, said Dunstan, because liability waivers are not valid in the state, a precedent established in state law nearly 200 years ago.
While the bill breezed through the legislature, the bill was then effectively rewritten by the Federation and lawyers like Dunstan, taking advantage of a process in the state known as the governors amendment that allows the governor to change the bill and then resubmit it to the legislature for approval. That rewrite was needed since the original bill was essentially copied from one passed last year that covered agricultural tourism; the original bill, for example, made mention of the risks of injury inherent to land, equipment, and animals. The legislature will take up the bill, along with nearly 500 others, in a one-day special session next month.
Beyond Virginia, Dunstan said there is already interest in similar legislation in Oklahoma and New Mexico, both home to commercial spaceports and spaceflight operators. California will take more time and effort, he said, because of the difficulties in passing such measures there, which effectively require amending the states constitution. California is going to be a very difficult row to hoe, he said.
One of the evergreen issues in the entrepreneurial space industry has been the difficulties such ventures have faced raising money. Unless one has a wealthy patron (such as Paul Allens funding the development of SpaceShipOne) or is independently wealthy (Jeff Bezos, Elon Musk, and Carmack), companies have to scrape up money, typically from individual investors rather than institutional ones.
In a reprise of a panel from last years conference, three investors provided their assessment of funding for companies in the industry. All of them saw evidence that its becoming less difficult for companies to deal with potential investors. Every year that goes by where there are practical successes like the X Prize Cup and space tourist visits to the International Space Station, said Joe Pistritto, decreases the giggle factor, to the point where the giggle factor is almost gone in this industry.
Theres more excitement among investors, said Esther Dyson, citing the increase in money in investment markets. In other words, theyre more ready to be stupid.
Just because theres a lot of money and excitement out there, though, doesnt mean that all investors, such as venture capitalists, are ready to sink money into space companies. Youre not ready for them yet, Stephen Fleming said, speaking specifically of VCs firms, who are looking for investments that will provide a healthy return in the short term. One of the things theyre going to insist on is, whats your exit strategy? Well, guess what, there arent any exits in this industry yet. Companies would do better, he said, to focus on angel investors and others with long-term horizons.
Dyson said she was concerned that the emphasis by many potential investors was on NASA. The fitness function is always on NASA. Its not can you build something that people want to fly in, its what does NASA want, what does NASA want to do its kind of distressing.
She believes companies in the fieldand their potential investorsneed to focus on consumer markets, like space tourism. XCOR is now talking about the user experience, and not just the rocketship, Dyson, an investor in the company, said. If youre doing anything that can talk directly to consumers, you need to start thinking about doing that both in terms of finding customers as well as finding investors. Make it something thats attractive to people on a personal level.
While institutional investors are not necessarily at the point where they will put their money into space ventures, Pistritto said that time is not far off. Its getting to the point where a rational investor might soon write the first rational investor check.
Jeff Foust (email@example.com) is the editor and publisher of The Space Review. He also operates the Spacetoday.net web site and the Space Politics and Personal Spaceflight weblogs. Views and opinions expressed in this article are those of the author alone, and do not represent the official positions of any organization or company, including the Futron Corporation, the authors employer.