Headlines > News > Space Pioneer Musk Betting $100 Million

Space Pioneer Musk Betting $100 Million

Published by Robin on Wed Nov 17, 2004 8:38 pm
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Brian Deagon, Investor’s Business Daily, Tuesday November 16, 7:00 pm ET

For an entrepreneur who launched one of the riskiest ventures ever — a rocket ship maker called SpaceX — Elon Musk looks calm.

From his modest office in El Segundo, Calif., where a seven-story, two-stage rocket is being readied to launch a Navy satellite, Musk speaks in a gentle voice that nonetheless conveys his excitement about what’s ahead.

His first launch, of SpaceX’s Falcon 1, is set to take place at California’s Vandenberg Air Force Base in January. He’s building a second and much larger rocket, Falcon 5.

“I think I’ll end up personally investing about $100 million in SpaceX,” he said. “That’s a lot of dough for one person, but I’m feeling pretty comfortable.”

The South African-born Musk, 33, made his wealth building and selling two successful Internet companies. He had no experience in the space industry until he founded SpaceX two years ago. It was a lifelong dream that he began to pursue after selling his company, PayPal, to eBay for about $1.5 billion.

Musk has little room for failure. If his first Falcon launch is a wash, he has enough money for just two more tries. “If we have three failures in a row, it would be almost impossible to recover,” he said. “If we blow three launches in a row, I don’t think anyone will ever want to try another launch with us.”

Given his track record, Musk might have been able to attract other investors for his space venture. But he went it alone.

“The investors would ask about prior successes in this field,” he said. “In the launch area, there are none. But there are plenty of failures.”

Privately held Kistler Aerospace has made the most ambitious recent attempt to create a private-sector rocket ship company from scratch. That’s opposed to the work of Boeing (NYSE:BA – News), Lockheed Martin (NYSE:LMT – News) and Orbital Sciences (NYSE:ORB – News), the three longtime commercial rocket ship companies, which all have depended heavily on government and defense funding and research and development.

Kistler has spent $800 million over eight years on a rocket system that it says is 75% done. The company, though, is operating under Chapter 11 bankruptcy proceedings.

Kistler was founded by a management team with decades of experience in the U.S. space program. Musk has a different approach. “To succeed in this business, you need to be someone from outside the aerospace arena to bring a fresh perspective,” he said. “And someone who could bring their own capital to the game.”

If SpaceX succeeds, Musk expects it will turn the aerospace industry on its head. “We will absolutely crush the launch business of Boeing, Lockheed and Orbital,” he said. “Launching rockets is only a small portion of their business, but we will absolutely demolish them.”

About $4.5 billion is spent each year launching satellites, commercial and military. Musk says SpaceX can initially capture 20% of that global market. Beyond that, he expects to tap into other U.S. space programs, such as ferrying passengers to the space station and new goals by NASA to return to the moon and someday put a man on Mars. Another market, only now being seriously considered, is commercial space tourism and business ventures.

The commercial space business got a huge shot in the arm in October when Scaled Composites won the $10 million X Prize by being the first company to launch a ship into suborbit — that’s 62 miles above Earth — twice in two weeks.

The company did that with SpaceShipOne, designed by aviation pioneer Burt Rutan, with $20 million in funding from Microsoft co-founder Paul Allen.

Analysts say space tourism, and related business ventures, can become a $2 billion market in a few years. Musk didn’t compete for the X-Prize, fearing that would distract from his core business.

“The X-Prize was good in that it drew in new entrepreneurs and capital and generated public interest around spaceflight,” he said. “It’s chipping away at this sense of impossibility associated with commercial space ventures.”

Musk wants to break the mold on old ways of launching satellites and the cost of sending humans into orbit. The way to do that is to dramatically cut the cost of space travel.

His Falcon 1 rocket cost $6 million to build. He says the closest comparable rocket is the Pegasus 1, made by Orbital Sciences. It cost more than $25 million to build, he says.

Now it costs about $10,000 per pound of weight to launch something into orbit. Falcon 1 costs about $4,000 a pound. Falcon 5, he says, will bring the cost to less than $1,500. His goal is sub-$1,000.

Musk hopes he’ll open the door to similar ventures and to more venture capital investments.

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