Transterrestrial Musings

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There was also a press release floating around that said
XCOR had $1.5M investment. If you go to the Boston Harbor
Angels website you find:
Round: $0.5-1.5M

Total Equity financing needs Our members are looking to invest in companies with total equity financing needs (including follow-on rounds)

Pre-money valuation For wider discussion on the topic, please review the article "Considering Valuation".

Exit strategy: 10X+ in 4 years

(Okay, so they did the maximum size round for the group.
Now, seriously, is XCOR going to do XERUS for $5M?
Are they going to do with $1.5M enough work to
get in Positive Cash Flow? They have been working for
8 years and still aren't positively profitable.
They sold half the company for a million and a half,
so, that means at best they generated $400K in value for 8 years. Wow. How much have the investors to date spent?
What is the valuation then? Now? Jeez, Simberg loves these
little Sci-Fi guys like Clapp and Greason, but, seriously
you would think Dinkins would discuss the details of
valuation)

Posted by anonymous at June 8, 2007 11:32 AM

The article linked to indicated specifically the investors were sold on the potential for future USAF contracts, similar to the one they have for their methane rocket engine, NOT the space tourism vehicle.

So rather then a vote for space tourism it looks like Xcor is going more the DOD contractor route. That would also fit with the five year exit strategy of the VCs.

My predicition is that Xcor more and more on developing engines for future USAF unmanned vehicles then space tourism. Instead space tourism will most likely end of just being a wish on their press releases. Although adapting easy flyers for rocket racing might remain a good side business if rocket racing succeeds.

This is actually a good strategy for a small alt.space firm without the deep pockets needed to play with the billionaires. They may actually have a chance for survival with it and is an indication their firm is maturing.

Posted by Thomas Matula at June 8, 2007 11:54 AM

Thomas,
XCOR does indeed seem on a path to become another Orbital Sciences, schlepping government contracts with their commercial ambitions all but forgotten. It's sad really--their methane rockets are extremely innovative, but if DoD gets its hands on the development process, what comes out the other side won't be of much use to New Space.

Posted by Brian Swiderski at June 8, 2007 07:44 PM

Brian,

Really, such a contractor focused strategy is the only real hope for an alt.space firm not bank rolled by an investor with very, very deep pockets. The only other option is to focus on the components, services and supplies firms like Virgin Galactic or Blue origin need and hope they will pick you as a sub-contractor if they are successful.

Unforunately the high barriers to entry that emerged as a result of Spacehipone have killed any chance that a small shoe-string start would be able to raise funding to build a space tourism system. What angel investors would want to compete with folks like Richard Branson or Jeff Bezos? I just hope they succeed so their success will be able to trickle down to support the alt.space contractors.

Posted by Thomas Matula at June 9, 2007 11:48 AM

What angel investors would want to compete with folks like Richard Branson or Jeff Bezos?

I would. I think they can be beat, and I think there's sufficient market for more than two players, or even three. Don't forget that Alex Tai, Virgin's COO, is the chairman of the Personal Spaceflight Federation, which has membership from all of the players. I think that he and Sir Richard are smart enough to know that it's important to get a competitive industry off the ground, with a variety of first, second and third-tier providers, for it to be healthy one. Bezos is playing it more as a loner, but he strikes me as doing it as more of a hobby than a real business.

Posted by Rand Simberg at June 9, 2007 11:54 AM

Thomas: Really, such a contractor focused strategy is the only real hope for an alt.space firm not bank rolled by an investor with very, very deep pockets.

However, it's a real question whether a firm can go that route and stay commercial. To depend this heavily on public contracts, it's almost like an artist getting a steady job and deluding himself that he'll still paint on weekends. It's not impossible that Xcor can leverage its DoD work into funding for Xerus, but history would suggest it will become a committed Pentagon contractor with too much overhead to rejoin New Space. The tech is cool, but the flesh is weak.

Rand: I think they can be beat

By whom?

and I think there's sufficient market for more than two players, or even three.

There will be, but I doubt there is now. The first player(s) will be creating it as they go along, building on the core market, and there's no guarantee they could create it fast enough for more than two to continue operating. And it doesn't actually matter whether there's enough to go around--all it would take is a price war to whittle the field back to two or even one.

I think that he and Sir Richard are smart enough to know that it's important to get a competitive industry off the ground, with a variety of first, second and third-tier providers, for it to be healthy one.

But they're also smart enough to know that doesn't have to happen immediately, and that getting the price down is the best way to increase the size of the market. If VG quickly finds itself in a position to offer $100k for (what appears to be) the best experience, they would not hold back for fear of monopolizing customers. Even if every other firm were wiped out, what would be the medium-term result? Investors would see how much money VG is making, flock to startups that buy or lease SS2s from Scaled, and VG and Scaled would have that much more money to explore their SS3 orbital concept.

Bezos is playing it more as a loner, but he strikes me as doing it as more of a hobby than a real business.

That private Area 51 he built in Van Horn sure doesn't look like a "hobby" to me. But given that he'll never need a single red cent of outside investment, his company is important as a hedge against industry catastrophes. My only complaint is the secrecy--he sure hasn't delivered any shocking achievements that would justify it as showmanship, and none of his serious competitors are interested in VTVL. "Gradatim ferociter obscuriter." :D

Posted by Brian Swiderski at June 9, 2007 04:56 PM

Rand,

Serious Angel investors like the ones found in the Boston Harbor group, those that are able to put a million or two, in a start-up would likely disagree. Their passion is for ROI and very much govern by their business experience. You only go against the big boys when you know you have a chance to beat them and beat them big. It may make a good story for the media, but its not a good business plan.

This is not the case for space tourism where it takes deep pockets to develop a rocket and even deeper pockets to hire the lawyers needed to get it through the licensing process. Richard Branson and Jeff Bazos have those deep pockets. The rest don't and their only hope are government contracts or working as contractors to those with the deep pockets. I predict SpaceSHipTwo will fly a hundred or more times without passengers and without incident before it comes anywhere near getting a license. Unfair perhaps, but the real world of commercial human spaceflight. How many shoe-string start-ups could hope to do that?

This isn't a snap decision based on passion like a space advocate would make. Its a well considered one backed up with research and an understanding of the nature of the industry and its real prospects for success. And that is exactly why many space start-ups have problems approaching VC and Angel Investors. They live in far different worlds. And it amkes the success of Xcor, and their approach to financial viability, all the more commendable. They are clearly replacing passion with practical design making.

Posted by Thomas Matula at June 10, 2007 04:26 PM

Tom, you remind me of the economist who is walking down the street, denying that the twenty dollar bill could be sitting on the sidewalk, because someone would have picked it up by now.

Just because Bezos and Branson have a lot of money doesn't make them the "big boys" in this business. Your comments about the licensing process indicate your cluelessness in this regard, because SpaceShipOne got a launch license with minimal test flights, and had Burt wanted to risk the liability, he could have flown with passengers on the X-Prize flight. Yes, I do expect that SpaceShipTwo will have many test flights, but that's for marketing and business reasons, not because they will have to do so to get a license.

Your comment is utterly negated by the very foundation of this post--that XCOR has in fact found angel investors, and they're not Jeff Bezos or Richard Branson. Are you in denial about that as well? You seem to recognize this in your last paragraph, so I don't understand your point at all. It seems quite incoherent to me.

Posted by Rand Simberg at June 10, 2007 04:42 PM

Rand,

You need to check your facts. The license for Spaceshipone was for test flights.

http://www.msnbc.msn.com/id/4686400/

SpaceShipOne gets federal go-ahead
FAA issues license for expanded test flights

Now Burt MIGHT have been able to carry “passengers” listed as “crew” without violating his license, but not any paying ones, not on a test flight license. So it was more then a question of simple liability for not flying them, it was a matter of a regulatory requirement.

As of March 12, 2007 VG plans a one year extensive test flight program before certification.

http://news.com.com/8301-10784_3-6166446-7.html

[[[SpaceShipTwo, Virgin Galactic's spacecraft, "will be ready in 12 months. Then we'll do 12 months of extensive testing," Branson said during an interview on stage at the conference. "So in 24 months, people will be able to take a run into space."]]]

I expect the test program will go on for more then 12 months, but next year will tell if Burt Rutan keeps his schedule. I Predict we will see a hundred flights or more before any certificate, but tike will tell. In any case that is not something for those with shallow pockets/

As for Xcor, their press release clearly states:

http://www.xcor.com/press-releases/2007/07-06-07_Boston_Harbor_Angels_Invests_in_XCOR.html

[[[XCOR was recently awarded a Small Business Innovative Research (SBIR) Phase 1 contract from the Air Force to design and analyze a rocket-powered vehicle that will reach 200,000 feet altitude and supersonic speeds. Using private investment matched with USAF resources XCOR will construct an all-rocket powered vehicle that will fly suborbital missions for the Air Force SBIR.]]]

I don’t know if you are aware of how SBIRs work, but a SBIR Phase 2 requires raising outside capital which Xcor was in successful doing thanks to the Boston Harbor group. But as the press releases states they are building it not for space tourists, but for USAF use. And as YOUR link shows it was this that swayed the investors, not the space tourist potential.

http://cosmiclog.msnbc.msn.com/archive/2007/06/07/217503.aspx

[[[He said the group was also swayed by XCOR's development strategy, which focuses on going after government contracts that move the company closer to creating its own commercial space vehicle. XCOR has worked on methane-powered rocket technology for NASA, and was recently awarded an Air Force contract to design a rocket-powered supersonic vehicle that can reach altitudes of 200,000 feet.]]]

Now maybe they will be able to use that design as a commercial craft in the future, but for now it was the reality of an USAF SBIR Phase 2 and the hope of follow on work (and big USAF $$$)that carried the day with the investors, not its potential as a tourist vehicle.

Posted by Thomas Matula at June 10, 2007 08:14 PM

I predict we will see a hundred flights or more before any certificate, but time will tell. In any case that is not something for those with shallow pockets.

There will be no "certificate." There will be a launch license. Words means things.

I doubt if it will take that many, but I do expect at least a couple dozen.

But I'm curious to know why you imagine that it will take such deep pockets. I would expect (for example) the Xerus to have a marginal cost of a few hundred bucks a flight. If it's a thousand (I can't imagine that it would be that high, but just to use a nice round number) that would be a hundred thousand dollars. Equivalent to a Phase I SBIR... Or something that a single angel could pay for.

Posted by Rand Simberg at June 11, 2007 05:37 AM

Rand,

Yes, they do mean things.

Spaceshiptwo will first get a test license for its experimental test flights. And Mojave will get a new license as a spaceport since its a new vehicle.

But Spaceshiptwo will not be allowed to carry revenue generating passengers until the FAA AST Certifies it to do so. SO no Certificate, No license, no space tourists.

And before the FAA AST signs off on Spaceshiptwo carrying tourists they will be sure it is as safe and reliable as technology is able to make it. So expect many, many flights under various conditions to prove this to the FAA AST. And the FAA AST will say when to stop testing.

Posted by Thomas Matula at June 12, 2007 12:48 PM

Yes, they do mean things.

One wouldn't know that to read the rest of your comment.

But Spaceshiptwo will not be allowed to carry revenue generating passengers until the FAA AST Certifies it to do so.

FAA-AST does not certify vehicles. It issues launch licenses, period. And whether or not there are passengers aboard is currently irrelevant to the process. Their only obligation is to protect the uninvolved public. That is the law.

The fact that you don't understand the meaning of these words damages your credibility here. I talk to and work with the FAA-AST on these kinds of issues. Do you?

Posted by Rand Simberg at June 12, 2007 01:22 PM

Rand,

I know exactly the meaning of certification, and how it seems to terrorize space advocates without an understanding of the advantage it provides to the firms. And why deep pocket first movers will push for it. And like it or not VG, with very deep pockets, is the first mover.

The advantage of first movers is they have the most say in making the rules. They are the first ones going through the process and so they set the precedent. And given their deep pockets it is to VG’s (and Blue Origins) advantage to push the FAA AST into a certification process, both in terms of limiting their legal liability and in blocking competitors. And that is exactly what you will see. Why do you think they are planning on spending a year testing Spaceshiptwo?

I know many space advocates dance around the term certification because of what is required for commercial aircraft. But forget why its required. It nice to think of a regime where suborbital vehicles may crash and no one is sued, but that is not reality. And certification will be both the first line of legal defense AND the tool to keep marginal operators out of the industry so it doesn’t get a bad reputation which will make it an easier target. This is exactly how the original airlines used the CAB. SO you will see VG push for it. Not one a strict as commercial aircraft, but one workable for suborbital. They might dance around the “certification” word, but even if its called licensing it will create the same barrier to follow-on firms.

Of course if you are with one of the smaller firms you will fight it, and fight the use of the word, but you see it for what it is, a tool that raises the barrier to competition. Which is why the best hope of firms like XCor are military contracts like the ones they are pursuing.

Posted by Thomas Matula at June 12, 2007 06:25 PM

I know exactly the meaning of certification, and how it seems to terrorize space advocates without an understanding of the advantage it provides to the firms.

Regardless of whether or not you pretend to understand it, or whether or not it "terrorizes" anyone, it is not a legal reality. Again, your continuing to harp on the subject just continues to sink your credibility as someone who understands what's actually going on in this industry.

Posted by Rand Simberg at June 12, 2007 06:28 PM

Rand,

Its clear this could go on foever.

We will just see who is right when the first revenue paying passengers are flown. And the legal process to getto that point is finished.

Posted by Thomas Matula at June 12, 2007 06:34 PM

We will just see who is right when the first revenue paying passengers are flown.

The legal process to do so is clearly established, by the legislation passed a couple years ago, with the support of the entire industry (with the exception of people at Rocketplane who are no longer influential there, and Burt Rutan). It does not involve certification, and it is not contingent on the safety of the passengers. To change this reality would require a change in legislation. That may happen, but to confidently predict that it will would required a much clearer crystal ball than mine. If you have a better one, there are probably more fiscally remunerative uses for it than foreseeing the future of launch regulation legislation, particularly since the Personal Spaceflight Federation (of which Alex Tai, COO of Virgin Atlantic, is the chairman) is supportive of the current legal regime.

If you want to continue to indulge in your fantasies of how you wish the legal process should be, I certainly can't stop you. I can only deal with the world as it is (and the way we fought very hard to make it), as does XCOR and others.

Posted by Rand Simberg at June 12, 2007 06:55 PM

Rand,

I just hope this thread will be archived and accessible in 2-3 years.

I recall a great thread on the space policy board in 2002 when I argue that the shuttle replacement would be a capsule. Everyone argued that was impossible as all the OSP proposals were for reusuable spaceplanes. NASA would never contract for a manned capsule again...

One thing you could count on in any industry regulation is that government regulators aways go back to form and industry's big players always seek to use regulation as a barrier to competition. Space tourism will be no different and the process Spaceshiptwo will go through before flying passengers will look very much like a certification process to the business world, even if the ceritification word is not used to be politically correct for alt.space.

But that is for a discussion after Spaceshiptwo, or some other suborbital U.S. space tourist vehicle, actually starts earning revenue hauling space tourists, or adventure travellers or whatever word alt.space is using at the time for space tourists.

Posted by Thomas Matula at June 12, 2007 09:59 PM

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