NASA Invests in Its Future With Venture Capital Firm
Tuesday, October 31, 2006
Hoping to tap the innovation and daring of small aerospace and biomedical companies, NASA has created and funded a nonprofit venture capital firm that will invest government money in promising but underfinanced companies.
The fund, called Red Planet Capital, is the government's third experiment with venture capitalism, after similar efforts sponsored by the CIA and the Army.
Red Planet marks the first time that the federal government has started a venture capital fund for civilian purposes, but it is hardly a stretch. That is because a former president of the CIA-sponsored venture fund is Michael D. Griffin -- now the administrator of NASA.
"NASA could see that a lot of technical innovation is coming out of companies that don't traditionally do business with the government, and we wanted better and faster access to that creativity," said Lisa L. Lockyer, NASA program manager for the project. "The administrator has been very supportive of the idea."
She said the fund will not only invest on its own in cutting-edge companies but will also join private venture capital firms to form investment syndicates. Together, she said, those partnerships will be able to invest far more money in selected companies than the government could.
The NASA fund, which will be managed by three venture fund veterans selected by the agency through a competitive process, will receive $75 million in taxpayer funds over five years. The money is to be invested only in emerging technologies that might someday be useful to NASA.
"We will invest with others in companies making products that aren't being made elsewhere and that NASA might be able to use," said Peter Banks, one of the organizers and managers of Red Planet. "We don't really expect the companies to be making products that can be used as is on the moon, or in other low-gravity environments. NASA would do the adapting once the technology is developed."
The focus of the initiative is captured in the fund's name. Under President Bush's 2004 space initiative, NASA will be returning astronauts to the moon by 2020 and potentially sending them later to Mars.
"Our focus is not on today or the near tomorrows, since nothing from these new companies can be used before at least the three-to-five-year time frame," Banks said. "What this fund does is set a trajectory towards Mars, and human exploration of Mars."
Banks said that Griffin, an advocate of the moon-Mars initiative, played a major role in selecting the name for the fund.
Griffin, a longtime NASA aerospace engineer and manager, with stints as an academic and business executive, was president of the CIA-sponsored venture capital fund In-Q-Tel for two years. Founded in 1999, In-Q-Tel has a mission parallel to that of Red Planet -- to invest in small companies working on cutting-edge technologies that could be adapted for the agency's use.
The CIA fund reports investments in more than 90 companies that delivered more than 130 technologies to the agency -- sometimes from companies that never knew why the CIA had invested in them. The effort was considered enough of a success that some other intelligence agencies now work through In-Q-Tel.
In-Q-Tel, however, had a number of policies that caused some public controversy -- including generous compensation for its executives, and a system that allows employees to share in profits when stakes in fund-owned companies are sold at prices above the initial investment. Documents filed with the Securities and Exchange Commission showed, for instance, that 45 In-Q-Tel employees profited from the sale of the fund's holdings in fledgling laser weapons maker Ionatron in 2005, and that 17 of them earned more than $50,000 each from the sale.
Lockyer said that Red Planet will have a similar policy of distributing some profits -- sales above the cost of the initial fund investment -- with company managers. She said that the annual salaries of the three partners have not been determined, but that they will be competitive with other venture capital operations, which are far higher than salaries of government employees.
While NASA is very interested in the newest thinking in rocket and space technology, the agency is also looking for strategies and products related to keeping astronauts safe and healthy in space for long periods of time, Lockyer said. The kind of cosmic radiation astronauts will face if they go to Mars or remain on the moon for long periods is known to cause significant bone loss and can lead to central-nervous-system injury and increased risk of cancer. If innovators and researchers cannot find ways to protect the astronauts, then long-term space travel will be impossible.
"This kind of biomedical work is definitely something we're interested in," Lockyer said. "It could be very useful to NASA and could also come up with discoveries that will be useful to people on Earth and so could be commercially profitable."
The Red Planet managers and staff will have an advantage that most other venture capital funds do not have: They will have constant input from NASA officials about what kinds of technologies and services the agency is looking for. As a result, they will be able to invest in companies that may have a better-than-usual chance of someday selling a product to NASA.
"Given our special circumstances," Banks said, "we're hoping that other private venture capital firms will be interested in joining us in our investments.