Burt Rutan and Paul Allen's spunky-looking little spaceplane had just returned to the runway after winning the $10 million Ansari X Prize, and prize founder Peter Diamandis had a message for investors around the world who might be watching.
"Guys, start investing," Diamandis said after SpaceShipOne's historic flight earlier this month. "The marketplace is here.... There's a real dollar to be made" in space tourism.
Exhibit A for Diamandis' investment pitch: Virgin CEO Richard Branson's deal with Allen's American Mojave Aerospace Ventures to build as many as five spaceplanes for suborbital tourist flights carrying five passengers. Flights could start as early as 2007. Branson said the deal to license the Mojave technology could be worth $20 million, on top of the $100 million it might take to build the spaceplanes.
But the problem for the immediate future of those who want to take people to space, as well as those eager to go, is that there's not much of an Exhibit B to go with Exhibit A.
So far, the world doesn't appear to be full of Allen-style billionaires willing to dump cash into experimental spaceships. More traditional investors, focused on getting a return on their money, say they want to see more results before taking a plunge.
"Money, financing, is what stops us from doing a lot of stuff," said Phillip Storm, whose two-man venture, Washington state-based Space Transport, is trying to develop a suborbital rocket ship on a budget of just $420,000. So far, Storm and partner Eric Meier have raised a little more than half that amount.
"If we had $25 million, we could launch hundreds of the X Prize-type vehicles we planned," said Storm earlier this month. That's the amount Allen reportedly put into development of SpaceShipOne. "We could prove out our concept," he added.
Tiny, hardworking fringe efforts like Space Transport aren't the only ones having a hard time raising money. Some companies that have spent years in the business and are credible enough to attract government rocket technology contracts are also struggling for investment dollars.
"There was no visible change in interest after the June SpaceShipOne flight," said Jeff Greason, president of Xcor Aerospace, headquartered just down the flight line from Rutan's Scaled Composites in Mojave, Calif.
Xcor is working on a suborbital spacecraft called the Xerus, designed to take off like a conventional aircraft, blast out of the atmosphere, then fly back to the runway. Greason says Xerus could fly 18 to 24 months after the project is fully funded, a figure he puts at $10 million. Xcor has already signed a deal with Virginia's Space Adventures to carry tourists on suborbital flights for $98,000 apiece.
"One by one, all the things that have been holding us back have been making a lot of progress," Greason said. "The fundamental barrier that's still left is, 'Can you get the money?'"
Why have space-tour entrepreneurs found it so tough to crack the money barrier? It's not the lack of a public appetite for spaceflight, apparently.
Surveys over the past decade have shown widespread interest in space tourism in the United States and other wealthy nations. And the most affluent Americans are willing to pay up to $250,000 for even a few minutes in space aboard a suborbital flight.
Since Branson unveiled his Virgin Galactic venture a month ago, about 7,000 people have signed up as candidates to be passengers, for a fare of about $200,000 each. If Branson realizes his vision of flying as many as 3,000 passengers a year, his operation's annual revenue would be in the hundreds of millions of dollars.
But that enticing possibility has done little to win over traditional venture capitalists or investment bankers.
"We look for returns in five years," said Peter Levine, a managing director with Mayfield, a venture capital firm in Menlo Park, California. "The payback on this is years and years and years off." He added that fundamental questions surrounding the viability of space tourism, including vehicle reliability and safety and how the industry will be regulated, have to be answered before traditional venture capital gets involved.
However, Levine said companies developing technology – rocket engines, advanced materials for spacecraft, avionics systems – useful for space-tourism firms and other space customers could be attractive investment targets.
That's the logic behind an investment in one of Rutan's principal contractors by New York's Laurus Funds. In August, Laurus, whose hedge funds invest in a wide variety of small, publicly traded firms, put $2.5 million into Southern California's SpaceDev. That's the company that developed and supplied major components of SpaceShipOne's hybrid-fuel rocket engines.
"They're in microsatellites, they have government contracts, they have a core business that was sustainable – the engines, propulsion, the rocket fuel they were doing," said Patrick Regan, senior investment analyst with Laurus. And if space tourism doesn't pan out, "the company still has an existing business."
But Regan says that even with SpaceShipOne's success, investing in space-travel startups remains a gamble. Although the project provided proof of concept, lots of questions remain about development of the space-tourism industry.
"How long is it going to take, what is the revenue you're going to derive, how big of a market it's going to be?" Regan asked. "Who knows how many people are going to pay $200,000 for what is it, a three-minute flight?"
SpaceDev founder and CEO Jim Benson agrees that investment has been slow to come to space startups. One reason he cites is that many of the small space entrepreneurs who appeared in the late 1990s had no management experience and no track record of successful product development. In many cases, he adds, their plans depended on still-to-be-developed technology.
But there was an obstacle in the investment community to overcome, too.
"The funding sources do tend to be sheep, and they run in a herd and they're pretty much single-mindedly focused on whatever the fad of the current time is," Benson said.
Benson says that situation has changed for his company, especially in light of its role in the success of SpaceShipOne. SpaceDev has 35 employees working on projects such as rocket boosters, small satellites and a suborbital space vehicle known as Dream Chaser. The company "is almost being harassed by people trying to fund us," said Benson.
The company continues to seek out and work on government-funded projects that could lead one day to building a reusable orbital spacecraft. For instance, its Dream Chaser project is part of a joint agreement with NASA's Ames Research Center to develop a suborbital craft that takes off vertically, like a conventional rocket, and lands horizontally, like the space shuttle.
"We think that in our way of doing things one step at a time, that this is a good approach to getting an economical suborbital space vehicle in a reasonable amount of time," Benson said.
