Elon Musk believes so strongly in building a low-cost space rocket that he's put up $50 million of his own money to try to make his dream a reality.

Musk is perhaps best known as the founder of PayPal, an Internet-based payment system. Five months after it went public in 2002, eBay Inc. (EBAY) paid $1.5 billion for the company. Musk's first venture, Zip2, was sold to Compaq Computer's Alta Vista unit in 1999 for $307 million.

Today, Musk runs Space Exploration Technologies Corp., called SpaceX. It's based in El Segundo, the heart of Southern California's aerospace industry. SpaceX's 22 employees are building a 68-foot, two-stage launch vehicle called Falcon.

Falcon will put small, half-ton satellites into low-earth orbit. LEOs are generally cheaper than high-earth orbit satellites, but still can do lots of things, such as communications. Musk says he has two customers, but can't disclose their satellite plans. He does say the Falcon will be offered for $6 million per launch, which he says is a third of the going price. He recently spoke with IBD about SpaceX's plans.

IBD: How did you go from a dot-com entrepreneur to developing space launch vehicles?

Musk: I've always been interested in space. I like to be involved in industries and sectors that are changing the world. Space is one of those things.

After PayPal, I got interested in trying to figure out NASA's plans. There were many grand plans after the Apollo space program, of going to the moon and setting up a permanent base there, going on to Mars and doing all sorts of great things. None of that stuff has happened.

Why hasn't government exploration progressed past Apollo? Why have we not gone back to the moon in 30 years? As I dove into this, it seemed the linchpin was cost. The fundamental issue was reliable, low-cost access to space.

IBD: What did you do then?

Musk: I put together a feasibility study group of people involved with all the major large vehicle developments of the past few decades. The question I posed to them was: Is it possible to build a low-cost and reliable launch vehicle? If so, what approach would you use? They thought it should be possible, and we came up with a design. That feasibility study ended in May, and I started SpaceX in June.

IBD: Who are your competitors?

Musk: There are three launch vehicle companies in America: Boeing, (BA) Lockheed Martin (LMT) and Orbital Sciences. (ORB) But our real competition is almost an objective benchmark, as opposed to those companies. Our internal targets for cost and reliability are better than what they're able to do. To consider them competitive would not be quite correct. Competitive would be a 10% improvement on their costs. We're aiming for a 60% to 70% reduction in cost while increasing reliability at the same time.

IBD: What about legal and governmental hurdles?

Musk: They're very significant. The regulatory procedures for launching a rocket that goes to orbit are intense. Those regulations are the size of two phone books. It is a difficult and laborious process to be certified to launch an orbital launch vehicle. That is our longest lead item. We've put a lot of effort into addressing those issues.

IBD: When do you expect to launch?

Musk: I think we'll be ready for launch by the end of this year. Whether we actually launch at that time depends on receiving regulatory approval and whether our satellite customers are ready.

IBD: Might your rivals use the regulatory process as a way to slow you down?

Musk: They might. But it would be a mistake. I'm no stranger to the lobbying process. We're organizing a serious campaign in Washington to ensure that if there are any dirty tricks, they're brought to light.

IBD: What type of satellites will you launch?

Musk: There are three main types of satellites: earth observation, such as looking at weather; space observation; and communications. We have two confirmed customers. (All I can say is that) one is a U.S. government customer, the other a foreign government customer.

IBD: How are you funding this venture?

Musk: I personally am providing the funds for SpaceX to launch our first vehicle, which is called Falcon. Assuming it succeeds, we'll be raising a large mezzanine round next year, along the order of $50 million to $100 million.

IBD: Have Lockheed or Boeing expressed any interest in your developments?

Musk: We would have to demonstrate success before they express serious interest. We do expect to have several of our vehicle ideas patented.

IBD: Do you miss being in the Internet business and are you disappointed with its implosion?

Musk: Seven years of intense involvement with the Internet industry is probably enough for me. Am I disappointed with the dot-com bust? Not really. People are irrationally conservative in the same way they were irrationally exuberant. It takes time for that cycle to adjust so that things are relatively in balance.

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