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Rocket Man - Paypal Co-Founder
now Banks on Space Thirty-one-year-old Elon Musk is one of those people who like to conquer new frontiers. First Silicon Valley, now space! A physics student at Stanford in 1995, South African native Musk dropped out to start his first venture, Zip2. The fascination with the Internet craze paid off, as Zip2 was sold to Compaq's AltaVista unit in 1999 for an all-cash transaction of $307 million. From Zip2, Musk co-founded his next venture, X.com, which later acquired and became PayPal - one of 2002's most remarkable startup stories. PayPal went IPO in February, 2002, only to be acquired five months later by eBay for $1.5 billion. The deal closed in October 2002, garnering Musk more than $165 million. Six years, two hits, and hundreds of millions of dollars later, Musk is now banking on space as the next big thing with his new startup, SpaceX. "Space is really fun," says Musk. "I'm enjoying it more than the previous two." SpaceX - for Space Exploration Technologies and perhaps a bit of karma from his recent X.com venture - is a launch vehicle provider (LVP) company that started up in mid-2002. Based in El Segundo, CA, SpaceX has more than a dozen employees working to build the Falcon, a 68-foot vehicle for transporting small payloads into LEO (Low Earth Orbit). Musk maintains there is a demand for transportation to space that isn't being supplied by the current aerospace industry. Government-backed programs are slow and costly, and Musk is promoting that SpaceX, if successful, will be the first all-privately-funded launch vehicle in space, delivering a service at a third of the cost of competitors such as Boeing, Lockheed-Martin, Europe's Arianespace and Orbital Sciences. Musk will pony up to $50 million to launch the Falcon on its first mission. Falcon is a two-stage, semi-usable rocket: The second stage is not reusable, whereas the first stage has a life expectancy of up to a dozen flights. Currently, there are a handful of LVPs world-wide that perform these services with government support and backing. Musk says his closest competitor is Orbital Science's Pegasus, which has had 28 successful launches over the past 14 years. A trip on Pegasus costs $14 million to $20 million, whereas the Falcon fare may range around $6 million to $9 million per trip. Why space and why now? Musk started on his third venture with a feasibility study called Mars Oasis in early 2002 to determine what it takes to have life exist on Mars. One of the most dominating observations was the lack of transportation to space. It was this finding that set Musk on track to build the Falcon. "Most [launch programs] take four years to build; we'll do ours in one year," claims Musk. Musk is looking at additional suppliers outside the aerospace industry as well as other transportation specialists that build robust products for rail systems and trucking, as his point of differentiation is building the engines rather than utilizing refurbished ICBMs. He is convinced that by looking at the challenge outside of the aerospace industry and applying the principles of other heavy-duty transportation industries, such as tanks and railways, he can succeed where others have failed. "Rockets are built like exotica cars - they break down easily," says Musk. "Our approach is to build like a truck, scaling up the engine size vs. trying to optimize the efficiency of a given engine size." The payoff is in the payload. If Musk can deliver what he terms "proof of execution" with the Falcon, a second rocket is in design. It would be the largest LVP at 208 feet, with a payload capacity of 25 to 30 tons. Critics point out that payload customers like NASA will be hesitant to risk flights on a new LVP. However, Tom Bleier, CTO for QuakeFinder, a private company in Palo Alto, CA, says companies like SpaceX have a good market. QuakeFinder has built the QuakeSat, which will monitor magnetic field fluctuations on the Earth's surface for early earthquake detection. "Anything in the $50,000 to $6 million range [payload price] is an untapped market," Bleier states. He says while space is risky, more companies are willing to risk transport with new companies to bypass the one- to two-year waiting game for launch availability, especially with a lower price. Bleier says there are more than 60 universities worldwide building nano-satellites. The barrier is affordable space transportation, which has the space community up in arms for fear that students will turn away from the field due to the inability to launch their work. "Venture-backed companies are the only way to get to space quicker, as military and NASA objectives are GEO-based for larger satellites," Bleier says. SpaceX's pipeline includes three customers for its first trip: one from the U.S. government, one commercial and one foreign government. Musk could possibly break even on his first trip, and his forecast for SpaceX is to be cash flow positive in 2005. He has not been seeking investments for SpaceX and doesn't recommend space transportation as a good investment until proof of execution can be shown. If successful, he will seek a Series B round of up to $100 million to build the next LVP. And if he fails? "I'll be a bitter and broken man," he jokes. Musk says he's in to see it through and doesn't think about the possibility of failure. Musk still finds time for other private capital endeavors as he recently participated in Everdream's $12 million round, and continues his work in philanthropy with Musk Foundation that contributes to non-profits working in the areas of clean energy, education and space exploration. Does he believe in aliens? "Well, I am one," he quickly replies. "At least according to the INS." And one might agree: Another hit with SpaceX could label him out of this world. Cheryl Hammer is President and Co-Founder of Futuredex |
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