Carried Away

Space Ventures Supported By Software Pioneers

It is striking how much of the new blood in the space business is from people who made their fortunes in the software/internet industry (see below for a list).  These fortunes comprise fabulous sums of money, and the people who made the fortunes have a lot of talent and business execution skills.  This new blood is like a breath of fresh air to the space industry, which currently is dominated by those who have been brought low by the government's aversion to risk-taking ventures.  It's an insiduous "cost plus" culture, which kills all manner of technological innovation in the cradle.

The difficulties are so great that I wonder whether these pioneers in space transportation are throwing their money away.  Rocket development is an expensive, risky proposition and can run through fortunes in a heartbeat.  On the other hand, this may represent a class of people dipping their toe into the water to see if the space business can be turned around.  Few fortunes are seriously on the line as of yet.

As laid out in a previous post, the financials for a rocket company are pretty tough.  Because of this, I have been thinking about how future software pioneers turned space businessmen can encourage growth of the industry while making solid business decisions.  The best answer that I can come up with is not to crowd the new space transportation business market, but rather to build businesses that require space transportation in quantity.

This is not to say that there will be no opportunities in the space launch business, of course.  SpaceX could require a round or two of funding for heavier man-rated rockets or capsules, for instance.  Further, if the space transportation business finds it worthwhile to fund non-transportation space ventures, like happened with the build-out of the railroads, then the medium-term opportunities will be tied more directly to the space transportation companies.  However, the space business hasn't followed this path to date, perhaps because of the inordinate weight of the government in all space-related business decisions.

I may write about suitable space ventures from time-to-time in subsequent posts, if I have anything worthwhile to say.  A lot of ink has been devoted to this by others in the past, much of it unsatisfying.  It's a very tough business nut to crack.

Space ventures supported by software pioneers

Elon Musk (PayPal founder) -- Space Exploration Technologies (SpaceX) -- Orbital light to medium kerosene/liquid oxygen rockets.

Paul Allen (Microsoft founder) -- SpaceShipOne -- Suborbital space plane.

John Carmack (Id Software founder) -- Armadillo Aerospace -- Suborbital hydrogen peroxide/methanol rockets.

Jeff Bezos (Amazon.com founder) -- Blue Origin -- Enabling technologies.

How Much Is Google Worth?

Google's Initial Public Offering (IPO) of common stock is the biggest news in business for a long time.  Yesterday, Google filed it's prospectus with the Securities and Exchange Commission (SEC), which detailed the offering and revealed Google's financials since inception.  Much about Google's financials and the way they are going to run their auction (an open Dutch auction) are really fascinating!  Taking only a couple of lines from Google's financials (Net Revenue and Net Income), we can figure out how much Google as a company is worth.

I put together a Net Present Value spreadsheet to give us the answer on how much Google is worth.  Assuming a revenue growth decay of 25% per annum, a net margin going forward of 20%, and a discount rate of 20%, Google is worth $18 billion.

However, changing the revenue growth decay from 25% to 20% per annum, Google is worth $39 billion.  Let's say you further think that Google's business is not as risky as to warrant a 20% discount rate, but rather it warrants only a 15% discount rate, Google is now worth $62 billion.

This huge difference in the value of Google by changing only a few variables slightly shows that Google can be worth almost as much as you want it to be.  It's true that there are some boundaries, such as it's unreasonable to assume that Google's revenues would be 100% of the US economy.  But you can have some pretty wild results from some mundane assumptions.

So how much is Google worth?  My best answer is that it's worth an awful lot of money.

Real GDP Growth in Q1 (Advance Estimates) at 4.2% Annualized Rate

The US Bureau of Economic Analysis (BEA) reported this morning that the economy grew at a real 4.2% annualized rate in the first quarter of 2004, compared to a real 4.1% annualized rate in the fourth quarter last year.  This is slightly under the concensus forecast of real 5% growth.  Since these advance estimates exclude certain data that are still being tabulated, the estimates will be revised each of the next two months.

A week ago, the International Monetary Fund (IMF) forecast real 4.6% growth in the US for the entire year.  This compares to a real 2% annual growth forecast for the European Union and 1.7% for the Euro Area, continuing the divergence between good growth in the US and modest growth in Euro Area economies (see page 10).  German unemployment is expected to top out this year at 10.2%, unless Germany experiences a triple-dip recession.

Expect a lot of handwringing and cross-Atlantic comparisons from the European press regarding their economies in the coming years, as happened in the boom years of the late 1990s.  I find such arguments a little overheated, but it is interesting to listen to the debate in order for us to think about what we can improve in our economy state-side, especially with regard to technological innovation.

Rocket Development NPV Calculator

This afternoon, I was thinking about a more optimum scale for the space launch business.  In a future post, I will go more into that, but in the meantime I put together a simple Net Present Value (NPV) calculator for a rocket development investment decision.  This is based very roughly on the SpaceX Falcon I, which I discussed in a previous post.

I put the development costs as $24 million over 3 years.  The factors used are 6 launches a year, a $4,200 price per pound to Low Earth Orbit (LEO), 45% gross margins, 10% spending on SG&A, and a 25% discount rate.  Using these factors, the business is just barely on the positive side -- a really tough business!  Of course, SpaceX likely uses different figures (such as different total development costs, gross margin percentage, or discount rate), but it's interesting to try to see the parameters under which they are working.

Here's the spreadsheet.

As always, this is released under the Creative Commons:  Share And Share-Alike License.  All edits or corrections are welcomed.

Financial Model For Game Design Start-Up Company

Here is a preliminary draft of a financial model that I am putting together for a hypothetical game design company.  As you can see, it's not much right now -- part of an income statement, with breakout sheets for various categories of expenses.  I will work on the cash flow and balance sheets, additional breakouts, and formatting in the coming months/years.  The objective is to create something that would look professional in a business plan and would be helpful to anybody thinking of starting a company.

This is released under the Creative Commons Share and Share Alike License.  If you would like to use this model as the start of your own and have any special considerations, such as confidentiality necessities, please let me know and we'll work something out.  Obviously, your numbers and company name would not need to be "shared alike", but we would need to work out how to integrate into the main model the functionality you added on your own, if appropriate.

As always, additions, edits, and criticism are always welcome.

SpaceX Seeks to Reduce Cost of Space Launch

As early as May, Space Exploration Technologies (SpaceX), an aerospace startup company in El Segundo, California, hopes to launch its first small rocket called the Falcon I to Low Earth Orbit.  Rocket company startups are nothing new, but the interesting aspect of SpaceX is that it appears that the founders of the company have a solid plan to undercut the American rocket industry on price by about 70%.

Here's a picture of the Falcon I in front of the FAA building in Washington, D.C.  In December of last year, they hauled the rocket from California using a tractor trailer and public highways/freeways.  They say that they didn't have much problem with securing the permits to haul the rocket, which amazes me.  Unfortunately, I didn't get down to see the rocket at that time.

SpaceX is selling launches on the Falcon I for about $6 million apiece for a maximum 1,400 pound payload to Low Earth Orbit.  That works out to about $4,300 per pound.  This compares very favorably to its closest American competition, Orbital Science's Pegasus XL, which is priced at $13.5 million for a maximum 1,000 pound payload, or roughly $14,000 per pound to Low Earth Orbit.  This will even undercut the Russians, who launch the START rocket for $5,400 per pound to Low Earth Orbit.  The US government will not use Russian rockets, so the Falcon I is expected to take a large chunk of the government business at this weight class.  Further, offering a rocket launch from the continental United States should prove attractive to American commercial customers.

How do they plan to offer such low-priced launches on the Falcon I?  Basically, they are using tried and true technology, upgraded to today's standards, and automating the launch process as much as possible.  They designed, manufactured, and received regulatory approval for the Falcon I with about two dozen employees who knew how to design and make rockets.  All in about one and a half years.  Here's a picture of their assembly line.

The rocket technology hearkens back to the Apollo program.  The Falcon I uses the inexpensive and reliable combination of kerosene and liquid oxygen for propulsion.  The first stage is constructed of aluminum and the second stage of an aluminum-lithium alloy.  The new technology includes a flight computer, which uses common modern electronics and looks to my eye like it could be constructed for about $750 per copy.  Here's a picture of the flight computer, which looks like 5 inches by 5 inches.  SpaceX claims that this board has much more capabilities than the flight computer of the Saturn V (the Apollo rocket), even though the Saturn V's flight computer was the size of a house and I'm sure cost tens of millions of dollars per copy!  You can be certain that this board is much, much more reliable.

SpaceX is already taking orders for a larger rocket with 5 engines in the first stage called the Falcon V, which would launch 10,000 pounds to Low Earth Orbit for about $12 million, or $1,200 per pound.  That would be a revolutionary price that even the Russians couldn't hope to match by a long shot.  They hope to launch the first Falcon V in 2005 and have one customer signed up.  It will be only one of two or three American rockets, including the Space Shuttle, to be man-rated, or having specifications suitable for manned missions.

Anyway, even though a lot of startup rocket companies have tried and failed to do what SpaceX is trying to do, I think we should cheer them on.  It would be great to work with these guys!  The space startups with which I have been involved have demonstrated how difficult it is to get a real product to market in the space business, so I appreciate their efforts.

Update 4/24/04:  Space News is reporting that the maiden launch of the Falcon I has been delayed from May until the end of September.  Launch delays are very frequent in the rocket business, so we shouldn't be overly worried.  However, it does push SpaceX about 1 year off of its original development planning.  For a risky start-up business such as SpaceX, the rate you use to discount an investment can be upwards of 25% - 40% per annum.  Because of this, the delay adds very substantially to the costs of development in the business case for SpaceX.  Government-funded rocket development programs -- what we have seen exclusively to date -- don't have to worry about such stuff.

Update 5/16/04:  The U.S. Military Launch Manifest has the maiden launch of the Falcon I scheduled for August.