National Aeronautics and Space Administration

Economic Development

OF LOW EARTH ORBIT

Edited by

Patrick Besha and Alexander MacDonald
On the cover: Fire acts differently in space than on Earth. Sandra Olson, 

an aerospace engineer at NASA’s Glenn Research Center, demonstrates 

just how differently in her art. This artwork is comprised of multiple overlays of three separate microgravity flame images. Each image is of flame 

spread over cellulose paper in a spacecraft ventilation flow in microgravity. The different colors represent different chemical reactions within the 

flame. The blue areas are caused by chemiluminescence (light produced 

by a chemical reaction). The white, yellow and orange regions are due to 

glowing soot within the flame zone.

This image won first place in the 2011 Combustion Art Competition, held 

at the 7th U.S. National Combustion Meeting. 

Image Credit: NASA
Economic Development

OF LOW EARTH ORBIT

Edited by Patrick Besha and Alexander MacDonald

National Aeronautics and Space Administration

NASA Headquarters

300 E Street SW

Washington, DC 20546

NP-2016-03-2140-HQ

iii

Table of Contents

PREFACE v

Patrick Besha and Alexander MacDonald, Editors

CHAPTER 1 1

Selecting Policy Tools to Expand NASA’s Contribution to Technology 

Commercialization

Gregory Tassey

CHAPTER 2 23

Protein Crystallization for Drug Development: A Prospective Empirical

Appraisal of Economic Effects of ISS Microgravity

Nicholas S. Vonortas

CHAPTER 3 43

Does Information About Previous Projects Promote R&D on the International

Space Station?

Albert N. Link and Eric S. Maskin

CHAPTER 4 61

Venture Capital Activity in the Low-Earth Orbit Sector

Josh Lerner, Ann Leamon, and Andrew Speen

CHAPTER 5 113

Directing vs. Facilitating the Economic Development of Low Earth Orbit

Mariana Mazzucato and Douglas K. R. Robinson

ACRONYMS 131

v

Preface

Patrick Besha, Editor, Senior Policy Advisor, NASA

Alexander MacDonald, Editor, Senior Economic Advisor, NASA

IN THE NEXT DECADE, NASA will seek to expand humanity’s presence in space beyond the International Space Station (ISS) in low Earth orbit to a new habitation 

platform around the Moon. By the late 2020s, astronauts will live and work far deeper 

in space than ever before. As part of our push outward into the solar system, NASA 

is working to help commercialize human spaceflight in low Earth orbit. After the 

government pioneers, develops, and demonstrates a space capability—from rockets 

to space-based communications to Earth observation satellites—the private sector 

realizes its market potential and continues innovating. As new companies establish 

a presence, the government often withdraws from the market or becomes one of 

many customers.

In 2016, we are once again at a critical stage in the development of space. The 

most successful long-term human habitation in space, orbiting the Earth continuously since 1998, is the ISS. Currently at the apex of its capabilities and the pinnacle 

of state-of-the-art space systems, it was developed through the investments and labors 

of more than a dozen nations and is regularly resupplied by cargo delivery services. 

Its occupants include six astronauts and numerous other organisms from Earth’s ecosystems, from bacteria to plants to mice. Research is conducted on the spacecraft 

from hundreds of organizations worldwide, ranging from academic institutions to 

large industrial companies and from high-tech start-ups to high school science classes. 

However, its operational lifetime may be exceeded by the late 2020s, compelling its 

retirement to make way for new spacecraft and new missions. 

As NASA begins moving astronauts out to the lunar vicinity, Mars, and beyond, 

the Agency will leave the further development of low Earth orbit to private sector 

companies. This has the potential to be a historic transition—from a government-run 

laboratory in orbit to an independent human spaceflight economy. 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

vi

In order for a viable, sustainable economy based on human spaceflight to emerge 

in low Earth orbit (LEO), a number of elements must be present. First, the marketplace dynamics of supply and demand must exist. Second, the overwhelming reliance 

on government demand and public procurement must be transitioned to a market 

in which industry and other private sector demand is the primary market force, met 

by industry supply. The transition from government-led to private sector–led human 

spaceflight activity in LEO will constitute a great experiment in the development of 

American spaceflight capabilities, and the careful management of the dynamics of 

this transition will be of paramount importance.

NASA has taken a number of productive steps to support the fledgling commercial human spaceflight industry, including the creation of several programs aimed 

at supporting private sector firms’ development of essential space infrastructure and 

transportation. Examples include the Commercial Orbital Transportation Services 

(COTS) program, which funded both SpaceX and Orbital ATK (formerly Orbital 

Sciences) to develop the capability to ferry cargo from Earth to the ISS. Building 

on its success, NASA then awarded commercial resupply services contracts to these 

providers and initiated the Commercial Crew Program, which is currently funding 

Boeing and SpaceX to develop spacecraft capable of transporting astronauts to the 

ISS. In 2015, NASA awarded a second round of resupply contracts to SpaceX and 

Orbital ATK, as well as a new provider, the Sierra Nevada Corporation. As contracted 

commercial suppliers, these companies, and the Commercial Crew Program companies, will also have the legal right to sell flights of their vehicles to other customers, 

opening up opportunities for broader LEO commercialization. 

Similarly, NASA established the Center for the Advancement of Science in Space 

(CASIS) in 2011 to be the manager of the ISS National Laboratory. Given direction 

to fund commercial R&D, the Center has seeded dozens of projects that have flown 

in space. As the primary portal for companies interested in utilizing the ISS, CASIS 

is crucial to expanding private sector interest in LEO.

Recent developments in spaceflight suggest there is ample cause to be optimistic 

about the future. The next generation of habitation modules, such as those that can 

operate in low Earth orbit and also around the Moon, are currently under development. In 2016, Bigelow Aerospace is slated to dock its experimental prototype module 

to the ISS in a first-of-its-kind demonstration and a clear signal that the beginning of 

the ISS transition era is upon us.

Furthermore, the landings of reusable rockets by SpaceX and Blue Origin represent a groundbreaking milestone in the history of spaceflight. In addition to greatly 

advancing the state of rocketry, the new capability may have a significant democratization and commercialization effect, potentially enabling low-cost access to space for 

entrepreneurs, scientists, educators, and the general public. 

As the overall strategy for the economic development of LEO emerges, NASA asked 

a small group of prominent economists to examine some of the most important questions facing the Agency as it enters into this historic transition. These papers provide 
vii

Preface

independent perspectives that do not necessarily reflect NASA policy but which we 

find to be valuable in raising important issues and asking challenging questions. 

In order to stimulate demand-side LEO commercialization activities effectively, 

the Agency will need a policy road map to make the best technology development 

decisions. Gregory Tassey offers a complex but logical path to success by outlining 

a system of policies based on the level and breadth of technology platforms desired. 

Such a plan could be used to implement elements of an active innovation policy and 

to integrate LEO activities more closely into the national innovation system.

Nicholas Vonortas examines a crucial piece of this puzzle: what intrinsic qualities 

of space enable and support economic activity? He finds that the unique microgravity 

environment of space is perhaps its greatest untapped value. One of the most likely 

beneficiaries of microgravity research may be the biotech industry. A promising line 

of research suggests that the microgravity environment enables protein crystals to be 

grown significantly better than in terrestrial laboratories. Such crystals play a fundamental role in pharmaceutical development. But how can we measure the additionality of microgravity? How might it improve pharmaceutical development? The paper 

provides a practical application of economic theory to a vexing measurement problem 

in the emerging LEO economy.

What are the costs, both in time and money, associated with commercial operations in space and how does knowing—or not knowing—that information affect 

investment decisions? To answer this crucial question, Albert Link and co-author Eric 

Maskin, a Nobel prize-winning economist, consider the current R&D environment 

on the ISS, with a goal to offer policy suggestions for improvement. They find that 

a lack of information about past projects, experimental success rates, and the flight 

process in general were major factors inhibiting both R&D and commercial growth. 

Without such information, researchers and companies were unable to accurately 

assess the risks involved. The solution? An easily searchable, highly transparent database could provide the necessary information to lower the barrier to entry for commercial operations in space.

How will innovative companies emerge? Josh Lerner, Ann Leamon, and Andrew 

Speen present a detailed examination of venture capital (VC) interest in the sector. 

While investors are perhaps understandably less cognizant of the opportunities LEO 

offers, VC may be an important source of funding for early-stage companies once 

the market matures. Furthermore, the emergence of significant near-term start-up 

successes that utilize human spaceflight capabilities in LEO could spur increased VC 

investment in the sector.

To close out the collection, Mariana Mazzucato and Douglas Robinson highlight 

some of the challenges associated with facilitating and directing development and suggest that NASA should seek to foster a robust innovation and industrial policy ecosystem to achieve mission-focused goals in LEO. Such goals would include NASA being 

at the forefront of strategic, high-risk investments in the near-term and channeling 

any resulting technology or knowledge to the private sector to spur economic growth.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

viii

This collection of papers identifies a number of important policy questions that 

will be of rising importance as NASA transitions human spaceflight in LEO to the 

private sector, as well as a number of economic analysis methods for addressing those 

questions. Life off of the Earth is a new field of social and economic organization that 

will have vast implications for our evolution and our future. Economic development 

in orbit is necessary for that future growth. It is our hope that this volume may serve 

to guide decisions and spark the intellectual curiosity of space policy makers, NASA 

program managers, economic researchers, and all others interested in the continued 

economic development of human spaceflight.
1

CHAPTER 1

Selecting Policy Tools to 

Expand NASA’s Contribution to 

Technology Commercialization

Gregory Tassey

ORIGINALLY CHARTERED TO ADVANCE the U.S. science and technology enterprise, NASA’s efforts are strengthened by its enduring relevance to the national economy. 

The Agency plays a role in developing core technology platforms and supporting 

technical infrastructures upon which many applied technologies can be built. While 

NASA may primarily serve as a foundational technology development agency, its 

investments and policies should consider the entire technology lifecycle, including commercial applications that provide desired economic benefits. In order for 

the LEO commercialization endeavor to be successful it will need to contribute 

to the Nation’s economic growth. Doing so will require effective management of 

technology investment. 

Why is investment in technology important? Consider that in spite of a modest economic recovery, including increases in employment, median real household 

income is 9 percent lower than in 2000. In addition, income inequality has reached 

the historic highs set in the late 1920s. Consequently, U.S. policy makers have become 

increasingly concerned about the lack of wage and income growth for the majority of 

Americans. Polls show that the American public ranks “jobs” as its number 1 concern. 

The reason for low income growth is a lack of sustained investment in productivity-enhancing assets: technology, hardware and software that embody new technology, skilled labor to use the new technology, and technical infrastructure that enables 

Disclaimer: The views and opinions of the authors do not necessarily state or reflect those of the U.S. Government or NASA.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

2

the technology-based economic process.1 Economic studies show that the technology-based economy not only enables the realization of social goals (national security, 

energy independence, environmental quality, space exploration, and health) but also 

enables higher overall productivity. The economic impact of productivity growth is 

the creation of higher paying jobs. BLS data show that in all but one of 71 technology-oriented occupations, the median income exceeds the median for all occupations. 

Moreover, in 57 of these occupations, the median income is 50 percent or more above 

the overall industry median.2

However, modern technologies are complex systems of hardware and software. 

This means that a number of technology trajectories must be initiated in parallel and 

managed efficiently to achieve high rates of innovation in the shorter times required 

by increasing global competition. The imperative to expand the high-tech economy 

has pushed industrialized nations to invest in steadily higher amounts of research and 

development (R&D). The world now spends $1.5 trillion per year on R&D. While 

this is a large investment by itself, it is only the tip of the global economic iceberg. 

Every dollar of R&D spawns many dollars of subsequent capital investment, manufacturing, and marketing activity. 

More recently, governments have begun to experiment with new research and 

commercialization infrastructures to better manage the composition of R&D over a 

technology’s development cycle and to attain greater efficiency with respect to both 

the rate and breadth of innovation.3 The evolution of R&D portfolio management 

techniques, research consortia, “innovation clusters,” incubators and accelerators, and 

national research and testing facilities have proliferated across the world’s economy to 

improve the efficiency dimension. 

The pursuit of R&D efficiency is resulting in significant “institutional” innovations. A major policy thrust in this regard has been the creation of new research entities such as the National Network for Manufacturing Innovation (NNMI), which 

involves cooperative investment by both the public and private sectors at regional 

Manufacturing Innovation Institutes (MII). The objective is to combine research 

1 Gregory Tassey, “Why the US Needs a New Tech-Driven Growth Strategy,” Christian Science 

Monitor, February 8, 2016 (http://www.csmonitor.com/Technology/Breakthroughs-Voices/2016/0208/

Why-the-US-needs-a-new-tech-driven-growth-strategy). The full report is available from the Information Technology and Innovation Foundation Web site.

2 Daniel Hecker, “High-Technology Employment: A NAICS-based Update,” Monthly Labor 

Review (July 2005): 57–72.

3 Gregory Tassey, “Beyond the Business Cycle: The Need for a Technology-Based Growth Strategy,” Science and Public Policy 40:3 (2013): 1‒23, and “Competing in Advanced Manufacturing: 

The Need for Improved Growth Models and Policies,” Journal of Economic Perspectives 28:1 (Winter 2014): 27‒48.
3

Chapter 1 § Selecting Policy Tools to Expand NASA’s Contribution to Technology Commercialization

assets from public and private sources and thereby more efficiently advance new 

manufacturing technologies.4

As part of this major adjustment to economic growth strategy, the National Laboratory System is being pushed to increase its efficiency in not only delivering technologies that meet the respective parent agencies’ missions but also to contribute to 

the increasingly important “dual use” mandate. Specifically, this mandate emphasizes 

(1) the spinoff/transfer of agency technologies to the private sector for further development and eventual commercialization, and (2) participation in the development of 

new commercial technologies through deployment of the agency’s unique research 

capabilities in partnership with private companies. 

In summary, the new institutional innovations are characterized by the integration of the multiple technology-related assets developed through complementary 

public-private investment strategies. Such integration increases the productivity 

of R&D, the diffusion of technical knowledge, and the efficiency of scale-up for 

initial production. 

Section 1. Toward a NASA Technology Commercialization 

Strategy

One of the prominent categories of research assets in the United States is the National 

Laboratory System.5

 However, having been developed to meet a number of critical 

national objectives, these laboratories have pursued a set of technology trajectories 

determined by development and utilization criteria adapted for each agency’s specific 

mission. In many cases, an agency is the consumer of its technology program’s output. Examples are the Department of Defense (DOD) and the National Aeronautics 

and Space Administration (NASA). This “closed” R&D system leads to management 

methods that are optimized for Agency use of the resulting technology, but which 

are different from those required for technology commercialization objectives that 

respond to the national economic growth and competitiveness imperative.

Globally, governments have been restructuring their national labs to be more 

effective in leveraging technology assets in support of economic growth. In effect, 

U.S. R&D agencies are being directed to develop and implement dual use strategies 

for their laboratories and other institutional assets. As indicated above, the technology 

4 Five MII have been formed in the areas of additive manufacturing, digital manufacturing and 

design, lightweight innovations, energy (NBG semiconductors), and advanced composites manufacturing. Three other MII are in the startup phase; they will focus on flexible hybrid electronics, integrated photonics, and clean energy manufacturing. See http://www.manufacturing.gov/nnmi.html.

5 There are 22 laboratories in the “National Laboratory System,” 17 of which are operated by the 

Department of Energy. One of the four non-DOE labs is NASA’s Center for the Advancement 

of Science in Space, operated within the International Space Station. See http://en.wikipedia.org/

wiki/United_States_national_laboratories. 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

4

commercialization objective is forcing adoption of a management strategy driven by 

the three major R&D metrics identified above: amount, composition, and efficiency.

In this context, NASA management has initiated a process to develop a strategy for expanding and effectively utilizing its R&D assets to help meet the national 

goal of increased LEO commercialization. While NASA has considerable and varied 

R&D assets, the potential role of the International Space Station (ISS) has attracted 

attention as a potential comparative advantage for NASA based on the expectation 

that the uniqueness of a microgravity environment has abundant potential for the 

development of superior technologies, especially where molecular structure and its 

manipulation is a critical factor in a product technology’s development and subsequent manufacture. Early efforts have focused on conducting scientific experiments in 

areas such as protein crystallization, where the microgravity environment has enabled 

the production of larger and purer crystals. This, in turn, increases the efficiency of 

subsequent research into protein drug development.6

However, a singular focus on the use of the ISS for early-phase research will likely 

underutilize NASA’s much greater resources, which can potentially contribute to 

multiple phases of the R&D process beyond basic research and do so sooner in time. 

The follow-on phases of technology research—proof-of-concept research (technology 

platform development), subsequent applied research, and then the final development 

phase that leads directly to proprietary technology commercialization and hence economic growth—require a coordinated investment and an advanced R&D management infrastructure. 

Although some future technologies may be amenable to full technology development and even manufacturing in low Earth orbit (LEO), the current experience is 

largely limited to scientific studies. Because of the multi-phased development path 

from scientific discovery to eventual market-ready technology, follow-on R&D and 

eventual manufacturing will likely be terrestrial based for some time. NASA therefore 

should consider a structured full-cycle R&D process strategy to significantly increase 

the probability of eventual commercialization and hence effective utilization of its 

considerable R&D resources. 

For NASA to explore significant dual use of its major research facilities, it needs 

a comprehensive innovation framework that moves beyond traditional mission-oriented R&D management practices to a set of market-oriented policy tools that recognize private-sector barriers to investing in the several phases of the R&D process.

In response to the above economic trends and the mandate to more fully utilize 

U.S. government R&D assets, a policy model is presented for NASA management to 

use in supporting the development and commercialization of advanced technologies 

6 An example is NASA’s support of protein crystallization research using their National 

Laboratory (International Space Station (ISS). See http://www.spaceflorida.gov/news/2012/11/01/

casis-announces-first-grants-for-protein-crystallization and http://www.iss-casis.org/NewsEvents/

PressReleases/tabid/111/ArticleID/49/ArtMID/586/CASIS-Announces-First-Grants-for-ProteinCrystallization.aspx#sthash.EubPuDfd.dpuf.
5

Chapter 1 § Selecting Policy Tools to Expand NASA’s Contribution to Technology Commercialization

that benefit from the unique characteristics of the International Space Station (ISS) 

and other R&D assets currently within NASA or from assets that could be acquired 

by NASA as part of a comprehensive technology commercialization strategy. 

By focusing on the major elements that make up modern technologies, the policy 

model can enable NASA management to identify and characterize underinvestment 

across the R&D process and thereby drive the selection of appropriate policy instruments for supporting each phase of the target technology’s life cycle. This broader 

and structured approach should increase expectations for and the probability of earlier success of NASA’s initiatives to create a competitive institutional ecosystem for 

advanced R&D and subsequent manufacturing innovation.

In summary, having a national laboratory with unique research facilities as part 

of the ISS plus a broad technology development capability, NASA should consider 

pursuing opportunities to (1) expand the use of the ISS’s unique research capabilities, 

(2) participate in early- and mid-R&D process institutions (MII), and (3) support 

commercialization efforts by companies participating in an MII and other “innovation cluster” related infrastructures. 

Section 2. The Evolving Role of National Laboratories

A major feature of the evolving technology-based growth model pursued by economies around the world is the integration of national laboratories into the technology life cycle. For many decades, national laboratories were largely independent 

research entities whose research results were diffused/transferred at arm’s length 

to other research institutions focusing on later phases of the R&D process and 

eventual commercialization. 

However, industrialized nations have begun to address the need for greater R&D 

efficiency in response to a relentless expansion of the technology-driven global economy by broadening the roles of and more closely integrating their national laboratories into their economies’ innovation infrastructures. 

Once thought of solely as a source of scientific advances, the effectiveness of a 

national laboratory is now being assessed using a broad range of metrics, including both science and technological advances based on utilization of unique research 

facilities and increasing rates of transfer of technology to the private sector for 

commercialization. 

This emphasis on commercialization requires a comprehensive set of tools. Examples are:

n collaborative research

n broader support of innovation infrastructure (cluster models)

n user facilities at national laboratories for academic and private-sector researchers doing both product and process technology development
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

6

n licensing of internally developed technologies

n technical assistance to companies for follow-on technology development

In response, the U.S. National Laboratory System is changing. In October 2011, 

President Obama issued a memorandum directing agencies with federal laboratories 

to accelerate technology transfer and commercialization of research, and to take steps 

to increase partnerships between businesses and laboratories.7

The Department of Defense (DOD) and the Department of Energy (DOE) have 

taken steps to respond to this shift in national strategy. However, distinctions between 

the two agencies’ efforts are important for NASA strategic planning relating to the 

technology commercialization objective. While DOD’s rationale for a full technology 

life cycle strategy is straightforward—it is the user of the ultimate technologies developed—DOE’s mission relies on a market-based based process in which industry must 

make applied R&D and subsequent commercialization decisions to achieve society’s 

objectives of energy efficiency and clean energy. Thus, DOE was already more oriented toward understanding private sector investment incentives and incorporating 

them into its R&D management structure than other R&D agencies and was therefore both more able and motivated to expand its set of policy tools. 

DOE’s core role is primarily focused on early- and mid-phase technology development to which its laboratories make major contributions.8

 However, the agency 

does to varying degrees subsidize later-phase R&D and in some areas, such as solar 

energy and electric vehicles, it has provided subsidies for production scale-up. Congress added tax incentives to spur commercialization of solar energy. This expanding 

array of policy tools being implemented by DOE is the direct result of the need to 

combine complementary assets by government and industry to eventually achieve 

technology commercialization. NASA will have to adopt a similar public-private 

technology development model.

DOE describes its laboratories’ roles in terms of a set of capabilities with broad 

applications:

n execute long-term government scientific and technological missions, often with 

complex security, safety, project management, or other operational challenges;

7 “Presidential Memorandum—Accelerating Technology Transfer and Commercialization 

of Federal Research in Support of High-Growth Businesses” (https://www.

whitehouse.gov/the-press-office/2011/10/28/presidential-memorandum-acceleratingtechnology-transfer-and-commercialization and http://thehill.com/blogs/congress-blog/

technology/216835-national-labs-play-unique-role-in-working-for-america).

8 The DOE laboratories are located across 14 states and employ 30,000 scientists. Once focused 

almost entirely on scientific research, DOE now views these labs as foundries of future technologies, occupying a research niche that universities and the profit-driven private sector cannot 

match. Examples of these laboratories’ research topics include novel materials for lighter transportation vehicles, genomic tools that improve drought resistant crops, the Ebola virus, and cancer 

research. Paul Alivisatos, Dan Arvizu, Charlie McMillan and Terry Michalske, “National Labs 

Play a Unique Role in Working for America,” The Hill, September 9, 2014.
7

Chapter 1 § Selecting Policy Tools to Expand NASA’s Contribution to Technology Commercialization

n develop unique, often multidisciplinary, scientific capabilities beyond the 

scope of academic and industrial institutions, to benefit the nation’s researchers and national strategic priorities; and 

n develop and sustain critical scientific and technical capabilities to which the 

government requires assured access.

To help implement its technology commercialization strategy, DOE issued an 

Agreements for Commercializing Technology (ACT)—a set of guidelines to help companies bring new clean energy technologies and other innovations to the market faster 

through technology transfer and commercialization of research in cooperation with 

its laboratories.9

 To specifically help small businesses and entrepreneurs with limited 

resources and licensing experience, the agency issued a Licensing Guide and Sample 

License to increase the transparency of the licensing process and to explain the laws and 

policies governing the licensing of federally funded research, thereby helping reduce 

both time and cost to acquire intellectual property (IP) from DOE’s Laboratories.10

Section 3. Issues for NASA

The broad scope of an R&D agency’s role in developing technology for its core mission has led to detailed taxonomies for managing the R&D process. Originated by 

NASA and strongly embraced by DOD, this taxonomy consists of nine Technology 

Readiness Levels (TRLs).11 Although the TRL’s are not grouped by phase of R&D, 

their descriptions allow them to be grouped under the major phases of the R&D 

process as follows: TRL 1 is “scientific” research, TRLs 2 and 3 are “technology 

proof-of-concept” research (conducted largely in corporate central research laboratories, national laboratories and other research institutes), TRLs 4, 5, and 6 are the 

equivalent of “applied” research, and TRLs 7 and 8 are “development.” TRL 9 is 

post-deployment or actual utilization experience (the equivalent of post-commercialization support), which drives ongoing improvements over a technology’s life cycle.

However, the TRL structure only provides metrics for levels of technology development. This taxonomy may be sufficient when the agency is the user of the technology, which is the case for the DOD and NASA core missions. However, when 

the ultimate goal is innovation for commercial markets, this structure by itself is 

9 Department of Energy, “Energy Department Announces New Initiative to Remove Barriers for Industry to Work with National Labs, Commercialize Technology,” December 2011 (http://energy.gov/articles/

energy-department-announces-new-initiative-remove-barriers-industry-work-national-labs).

10 See http://technologytransfer.energy.gov/LicensingGuideFINAL.pdf. 

11 Various descriptions of the nine TRSs exist. See http://en.wikipedia.org/wiki/Technology_

readiness_level for a description of the nine levels. NASA’s characterization of the TRLs is 

summarized at http://www.esto.nasa.gov/files/TRL_definitions.pdf and http://www.nasa.gov/content/

technology-readiness-level. 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

8

inadequate because it does not include or is not mapped on to industry investment 

assessments/metrics at each TRL. Industry investment in R&D is driven by technical and market risk vs. expected reward and their investment behavior therefore 

reflects both factors, which therefore must be taken into account for government 

policy tool selection.

The fact that DOE must rely on industry to progressively take over the R&D 

investment as the technology matures creates the need to map industry investment 

(or, more accurately, underinvestment) at each phase of the R&D process and to 

use such assessments to drive selection of policy mechanisms. As explicitly indicated 

by the following policy model, such strategies are complicated because simultaneous investment is required by both industry and government, especially during the 

early and middle stages of the R&D process. Joint conduct of the research, including 

within national laboratories, is a challenging management strategy.

To better focus the previous discussion with respect to the needed policy framework, the issues for NASA are to determine (1) how far forward in the R&D process 

to provide support for technology development and (2) what policy tools to use in 

doing so. These decisions will be driven by assessments of the desirability of a “dualuse” role for NASA assets, such as but not limited to the ISS, in order to more fully 

utilize NASA’s unique capabilities. More specifically, a policy framework is mandatory to manage the R&D process in order to (1) select optimal R&D portfolios for 

the ultimate objective of technology commercialization, and (2) facilitate follow-on 

R&D and commercialization activities by industry. The bottom-line metric will be 

the ultimate return on investment and subsequent contribution to meeting national 

goals for increasing the economic benefits from federal investment in R&D.12

Early experiments on the ISS indicate that certain emerging technologies with 

substantial economic potential can be more efficiently advanced in a microgravity 

environment, specifically at the early technology development phase of the R&D 

process. Further experience will illuminate the scope and magnitude of the potential 

for the ISS to execute the role of a National Laboratory in facilitating downstream 

technology development and subsequent commercialization. Only additional properly constructed projects and accurate assessment of their results can determine if 

latter-phase R&D (development) and possibly manufacturing in cooperation with 

industry will be attractive in economic terms across a number of technologies initially 

supported by NASA. 

12 To this end, the Department of Energy’s Office of Energy Efficiency and Renewable Energy 

(EERE) has made a considerable effort to measure the downstream impacts of its supported 

research not just on subsequent R&D investment by industry but also on evolving industry 

structure, including small firm formation and supply-chain integration that constitute lasting 

economic impacts from the original R&D investments. See, for example, Gretchen Jordan et al, 

A Framework for Evaluating R&D Impacts and Supply Chain Dynamics Early in the Product Life 

Cycle. DOE, Office of Energy Efficiency and Renewable Energy, June 2014.
9

Chapter 1 § Selecting Policy Tools to Expand NASA’s Contribution to Technology Commercialization

Section 4. The Technology Element Model for Driving 

Government Policy Management

A consensus conceptual model for selecting among the set of available policy instruments is needed to assure stakeholders (Congress and the White House) that the 

proposed support for private sector investment at each phase in the development and 

commercialization of new technologies is efficient in design and therefore likely to 

lead to positive results. Such a model also must provide a framework for designing 

and implementing an evaluation of the resulting economic impacts to respond to 

increasing demands for accountability and to enable future improvements in the 

policy tools. 

Corporate strategic behavior clearly shows that technology investment is not 

homogenous and that technologies are not black boxes. Rather, the transition from 

basic science to commercial product requires development of three major elements: 

technology platforms, infratechnologies, and ultimately proprietary technologies. 

The two additional elements, “technology platforms” and “infratechnologies,” exhibit 

degrees of “public good” content. 

These elements are depicted in Figure 1.1. The red-shaded boxes represent “private” goods—meaning that private investment incentives are sufficient to create and 

Infratechnologies

Technology

Platforms

Proprietary

Technologies

Entrepreneurial

Activity

Market

Development

Value

Added

Risk

Reduction

Private Good Public Good Mixed Public-Private Good

Production System

Integration

Strategic

Planning

Joint IndustryGovernment 

Planning

Interface 

Standards

Scale-Up/

Capital Formation 

Incentives

Market Targeting 

Assistance and 

Procurement Incentives

Acceptance Test 

Standards, National 

Test Facilities

National Labs, Consortia

Direct Funding of Firms and 

Universities, Consortia

National Labs

Tax Incentives

Intellectual Property Rights

Incubators

Technology Transfer/Diffusion

Science Base

FIGURE 1.1: Managing the Entire Technology Life Cycle: Policy Roles in Response to Market Failures
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

10

use optimal amounts of these technology elements or activities. The blue-shaded 

boxes conversely represent “public” goods, whose character is such that industry substantially underinvests in them, leaving their funding largely, or at least partially, to 

government. Traditional economic growth models recognize basic science as a pure 

public good and Congress has a long history of funding scientific research. The policy 

problem arises in the boxes that are partially red and partially blue. These elements 

or activities are called “quasi-public” goods. As the label implies, their availability 

requires joint investment by public and private sources.

It is this last phenomenon that has led to efforts by technology-based economies 

to improve their growth models and thereby the efficiency of their domestic R&D 

through the creation of “innovation clusters” and broader and more effective use of 

national laboratories. The quasi-public technology elements or activities are the primary target for these policy initiatives. In the United States, the U.S. R&D agencies 

with the most advanced technological capabilities—DOD, DOE, and NASA, and 

NIST—are the logical agents of new policy initiatives.13

Within the R&D process, one of the most important policy targets is the “proofof-concept” phase of research and development. The result of such research is the 

creation of broad technology-platforms, whose existence both confirms the potential 

for multiple market applications and provides a set of technical conceptualizations 

that drive the applied research and development leading to commercialization (i.e., 

innovations). 

The existence of economies of scope, together with the high degree of technical and 

market uncertainty, means that individual firms will likely not capture many or most 

of the potential markets resulting from this type of research. However, large economies of scope (many potential market applications of the platform technology) are 

exactly what government support of technology commercialization wants to achieve 

because their existence means large potential economic impact. Such a result can only 

be achieved by enabling access to new technology platforms by many companies.

As an example, consider NASA’s funding of a number of experiments using the 

ISS in the area of protein crystallization. This research is demonstrating that much 

larger and purer protein crystals can be grown in a microgravity environment. As 

large, high-quality crystals are essential to protein therapeutics design, the potential economic impact through eventual commercialization is significant. Moreover, 

13 The attributes of such a model also include a time dimension; that is, management mechanisms 

are required to enable selection among suitable policy instruments as the technology evolves. The 

dynamic character of government support of the process of innovation makes this area of economic 

growth policy particularly difficult to manage, as private sector investment incentives continuously 

change over the R&D process and thus require continual shifts in the policy tool mix.
11

Chapter 1 § Selecting Policy Tools to Expand NASA’s Contribution to Technology Commercialization

significant economies of scope are possible, given the large number of diseases potentially treatable by protein therapeutics.14

The implications for a NASA technology commercialization strategy are several. 

NASA could be satisfied with the singular contribution of increasing the productivity 

of university and biopharmaceutical company research with, say, the provision of particular biomolecules such as protein crystals. How and to what extent this advance in 

research capability/infrastructure affects future protein drug development would be 

left to the biopharmaceutical industry.15

Alternatively, NASA could support several early phases of the R&D process, 

beginning with proof-of-concept technology research for a new multidiscipline-based 

technology platform where NASA either applies other assets available within its R&D 

infrastructure or acquires them. This second option would require supporting a broad 

portfolio of research targeting the new technology platform that would enable a broad 

range of applications based in new protein therapeutic concepts.16 The long-run goal 

would be substantial economic impact through achievement of economies of scope 

in market applications (many new drugs). A management strategy embodying tools 

for determining the appropriate R&D portfolio and then managing and coordinating 

the needed research at each phase of the R&D process would constitute the strategic 

scope of NASA support. Such a strategy is more complex and requires considerably 

more resources, but it is necessary if significant economic impact is to be realized. In 

the pharmaceutical industry, a technology platform involves a complete conceptual 

(proof-of-concept) model of the proposed new drug mechanism: specific biological 

targets, bioavailability, toxicity, and the like (see Table 1.1). 

In contrast, smaller and ad hoc support of technology development is likely to 

yield little economic impact. In fact, even with considerable resources, the wrong 

policy model will likely yield poor results.

For several decades, the National Institutes of Health (NIH) spent billions of 

dollars on life-science research and then waited for private venture capital to fund the 

development of new biopharmaceuticals beginning with proof-of-concept/technology 

platform research. But although the basic science may be established, private risk 

14 The protein therapeutics market includes peptide hormones, therapeutic enzymes, cytokines, monoclonal antibodies, blood factors, vaccines, and peptide antibodies. The global protein therapeutics 

market reached $138.3 billion in 2012 and is expected to increase to approximately $180 billion 

in 2018. Many companies participate in this market drawing upon existing technology platforms. 

Source: Boston Consulting Group (http://www.giiresearch.com/report/bc63235-protein-drug.html).

15 Protein drug development is used as an example because NASA is already supporting research 

in protein crystallization. Clearly a “lead agency” issue exists. However, if NASA has unique 

R&D assets appropriate for follow-on technology development or can rationalize acquiring them, 

supporting subsequent phases of the R&D process is justified. 

16 For example, DOD’s Defense Advanced Research Projects Agency (DARPA) has a project area 

entitled “Biological Technologies Office” (http://www.darpa.mil/our_work/BTO), which is targeting a set of technology trajectories aimed at integrating biology with other scientific disciplines to 

achieve radically new technology platforms.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

12

capital does not like to assume the burden of developing new technology platforms 

due to the long time to market and the remaining high technical and market risk. 

In fact, over the last decade, venture capital has shifted toward later-stage product 

development (in this example, later-stage clinical trials). As a result, biopharmaceutical firms have attempted to develop new drugs directly from the underlying science, 

basically by using clinical trials (specifically, Phase II) to prove a new drug design. 

Phase II tests a specific drug design at considerable time at cost, but because this 

approach largely skips a true proof-of-concept phase, the probability of selecting a 

successful drug design is lowered. A study by the National Institute of Standards and 

Technology (NIST) found that this traditional drug development approach has led 

TABLE 1.1: Application of the Technology-Element Model: Biotechnology

Science Base Infratechnologies

Technology Platforms 

(Proof of Concept) Commercial 

Products

Product Process

n Genomics

n Immunology

n Microbiology/

virology

n Molecular and 

cellular biology

n Nanoscience

n Neuroscience

n Phramacology

n Physiology

n Proteomics

n Bioinformatics

n Bioimaging

n Biomarkers

n Combinatorial 

chemistry

n DNA sequencing 

and profiling

n Electrophoresis

n Fluorescence

n Gene expression 

analysis

n Magnetic 

resonance 

spectrometry

n Mass 

spectrometry

n Nucleic acid 

diagnostics

n Protein structure 

modeling 

and analysis 

techniques

n Antiangiogenesis

n Antisense

n Apoptosis

n Biolelectronics

n Biomaterials

n Biosensors

n Functional 

genomics

n Monoclonal

antibodies

n Pharmacogenomics

n Stem cell

n Tissue engineering

n Cell 

encapsulation

n Cell culture

n Microarrays

n Gene transfer

n Gene testing

n Immunoassays

n Implantable 

delivery systems

n Nucleic acid 

amplification

n Recombinant 

DNA/genetic 

engineering

n Separation 

technologies

n Transgenic 

animals gene 

delivery systems

n Gene therapy

n Gene expression 

systems

n Coagulation 

inhibators

n DNA probes

n Inflammation 

inhibitors

n Hormone 

restorations

n Nanodevices

n Neuroactive 

steroids

n Neurotransmitter 

inhibitors

n Protease 

inhibitors

n Vaccines

Public 

Technology Goods

Private 

Technology Goods Mixed Technology Goods

Source: Gregory Tassey, The Technology Imperative, Edwared Elgard, 2007.
13

Chapter 1 § Selecting Policy Tools to Expand NASA’s Contribution to Technology Commercialization

to low probabilities for drug candidates advancing through additional clinical testing 

and eventual approval by the Food and Drug Administration (FDA).17

Infratechnologies are the second of the quasi-public technology elements and 

suffers from similar public-private investment coordination, funding and conduct 

failures. The NIST study also examined the negative impact of inadequate infratechnologies in the biopharmaceutical industry. Based on industry surveys, it was 

estimated that more adequate and timely provisions of infratechnologies could lower 

the cost of taking a new drug candidate from conception to FDA approval by 25–48 

percent and reduce the time to approval by 20 percent. 

Infratechnologies are a diverse set of technical tools that are necessary to conduct all phases of research and development, to control production processes, and to 

execute marketplace transactions for complex technology-based goods. They include 

research tools such as measurement and test methods, scientific and engineering 

data, quality control techniques, and the functional as well as physical basis for the 

interfaces between components of modern technology systems. These tools are called 

“infratechnologies” because they provide a complex but essential technical infrastructure, which is as critical to achieving adequate private investment, and hence an adequate growth rate for the modern technology-based economy, as traditional economic 

infrastructure was for the Industrial Revolution.18

Proof-of-concept research, infratechnologies, and applied research and development exhibit distinctly different incentives and degrees of public good content. Each 

of these technology elements therefore requires a unique set of policy responses. Basic 

science is close to a pure public good, which is why it makes sense that the lion’s share 

of basic research is funded by the government. Proof-of-concept (technology-platform) research and infratechnology research are typically co-funded by industry and 

government—hence the overall rationale for the evolving partnership mechanisms 

increasingly observed in the global manufacturing economy. The third element, proprietary technology, is closest to a pure private good, but even in this case, relatively 

high risk leads to underinvestment, which explains the existence of a “research and 

development” tax credit.

U.S. policy makers are finally responding by adopting R&D strategies that have 

already appeared in competing economies in Europe and Asia. National laboratories are increasingly making their unique research facilities available to companies to 

17 Gallaher, M., J. Petrusa, A. O’Conner, and S. Houghton (2007). Economic Assessment of the Technical Infrastructure Needs of the Biopharmaceutical Industry. Gaithersburg, MD: National Institute 

of Standards and Technology (http://www.nist.gov/director/planning/upload/report07-2.pdf ). 

18 Infratechnologies are often embodied in standards that are ubiquitous in high-tech industries. 

The semiconductor industry has over 1,000 standards without which that industry could not 

function. Without the availability of this technical infrastructure (most of which is codified as 

industry standards), transaction costs would be higher not just at the research and development 

stage, but also during production and even marketing. Gallaher et al. (2007b) estimated that this 

industry spent $12 billion on measurement infratechnologies in the period 1996–2006, which 

generated gross benefits of $52 billion in 2006 dollars.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

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conduct proprietary research. Cooperative research centers are being established to 

combine public and private R&D assets to more efficiently achieve major advances in 

emerging technologies. Such public-private cooperative research efforts have finally 

been officially embraced by recent Congressional passage of legislation authorizing 

the National Network for Manufacturing Innovation (NNMI). An Advanced Manufacturing National Program Office (AMNPO) at NIST coordinates the growing 

number of Manufacturing Innovation Institutes (MII). 

One of the major foci of the MII is nanotechnology. The same rationale for the 

technology element model applies here. In fact, investment in nanotechnology research 

is more coordinated and comprehensive in terms of investment in private and public 

elements than any previous national technology development effort (see Table 1.2).

TABLE 1.2: Application of the Technology-Element Model: Nanotechnology Platforms

Science Base Infratechnologies

Technology Platforms 

(Proof of Concept) Commercial 

Products

Product Process

n Carbon-based 

nanomaterials

n Cellulosic 

nanomaterials

n Magnetic 

nanostructures

n Molecular 

nanoelectronic 

materials

n Quantum dots

n Optical 

metamaterials

n Solid-state 

quantum-effect 

nanostructures

n Functionalized 

fluorescent 

nanocrystals

n Quantumconfined 

structures

n Biological 

detection and 

analysis tools

n In silico modeling 

and simulation 

tools

n In-line 

measurement 

techniques to 

enable closedloop process 

control

n Sub-nanometer 

microscopy

n High-resolution 

nanoparticle 

detection

n Thermally stable 

nanocatalysts for 

high-temperature 

reactions

n Carbon 

nanotubes

n Dendrimers

n Hybrid 

nanoelectronic 

devices

n Ultra-low-power 

devices

n Self-powered 

nanowire devices

n Nanoparticle 

fluorescent labels 

for cell cultures 

and diagnostics

n Metal 

nanoparticles 

and conductive 

polymers for 

soldering/

bonding

n Nanoparticle 

sensors

n Epitaxy

n Nanoimprint 

lithography

n Nanoparticle 

manufacture

n Rapid curing 

techniques

n Self-assembling 

and selforganizing 

processes

n Scalable 

deposition 

method for 

polymer-fullerene 

photovoltaics

n Injet processes 

for printable 

elctronics

n Purification 

of fluids with 

nanomaterials

n Roll-to-roll 

processing

n Hardened 

nanomaterials for 

machining/drilling

n Flame-retardant 

nanocoatings

n Sporting goods

n Solar cells

n Sunscreens/

cosmetics

n Targeted delivery 

of anticancer 

therapies

n Biodegradable 

and lipid-based 

drug delivery 

systems

n Self-repairing and 

long-life wood 

composites

n Antimicrobial 

coatings for 

medical devices

n Nanoscale 

motion 

microscopes

Public

Technology Goods

Private

Technology Goods Mixed Technology Goods

Source: Gregory Tassey, The Technology Imperative, Edwared Elgard, 2007.
15

Chapter 1 § Selecting Policy Tools to Expand NASA’s Contribution to Technology Commercialization

However, the NNMI program has recently been authorized by Congress but has 

not been funded directly. Instead, mission R&D agencies, such as DOD and DOE, 

have funded the MII that have already been established. Nevertheless, this approach 

could work if the portfolios of the MII are structured to ensure that the target technology platforms and supporting technical infrastructure are broad and deep enough 

to support follow-on applied R&D aimed at commercial markets. This situation is a 

major strategic issue for NASA management. 

Going forward with a successful strategy requires a more accurate technology-element growth model that recognizes that growing technological complexity and the 

need to shorten R&D process times. Specific mechanisms are required to operationalize the characterization and assessment of the magnitude of the type of underinvestment occurring at each phase of R&D and subsequent commercialization. For 

example, at a specific phase of the R&D process, how can the policy process select 

between direct funding and the use of tax incentives? For underinvestment phenomena where direct funding is deemed the appropriate mechanism, how would NASA 

choose among options such as

n research within NASA laboratories;

n direct funding to individual companies;

n direct funding to research consortia; and

n promotion of full-scale innovation clusters.

Section 5. Summary of a Proposed NASA Strategy to Support 

Technology Commercialization

Because the majority of federal agency budgets support portfolios of R&D projects optimized for achieving their respective missions, programs aimed at economic 

growth as the final impact are served less well by traditional funding criteria. Thus, for 

an objective such as manufacturing in space for commercial purposes, an appropriate 

portfolio management framework must be developed using ongoing technology and 

economic assessments that reflect the commercialization objectives and the dynamic 

evolution of advanced manufacturing technologies. Such assessments include (1) regular projections of technical and market requirements, (2) analytical techniques that can 

determine the nature and magnitude of underinvestment at each phase of the technology life cycle, (3) the causes of underinvestment, (4) the selection of appropriate policy 

tools for each type of underinvestment, and, finally (5) an evaluation framework to 

collect impact data over the entire R&D process and subsequent commercialization.

The ultimate economic impact metric for technology platform development is the 

number and variety of products that can be developed from the underlying technology concept. The greater the “economies of scope,” the greater the aggregate economic 

impact. An example involving NASA is “machine learning.” Being developed to analyze enormous amounts of data now being generated from observations of the Milky 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

16

Way, the generic technology (technology platform) can be applied across a number of 

terrestrial applications, such as medical diagnosis and software engineering.19

Finally, it should be noted that this discussion is focused on the development of a 

single technology. Modern manufacturing technologies are systems of hardware and 

software. Developing each one of a technology system’s components requires a multidisciplinary research effort over all phases of the R&D process. This is enough of 

a challenge, but then the technology system must be created through an integration 

process of all components, which requires functional standardized interfaces that are 

based on technologically sophisticated “infratechnologies.”

For the potential productivity of such a “technology system” to be realized, all 

components must advance at some minimum rate for system productivity objectives 

to be realized. For example, automobiles used to be a modestly complex set of hardware components: engine, drive train, suspension, and the like. However, by 2011, 

the average automobile contained 17 subsystems for which electronics is a central 

element. These subsystems are controlled and connected to each other by nearly 100 

microprocessors and five miles of wiring. Today, the number of processers has likely 

doubled.20 Effective integration of the many hardware and software components 

into an efficient system is challenging and requires considerable system integration 

expertise, as well as an overall management structure that produce the desired system technology efficiently.

In this context, the following “policy elements” should be considered in formulating a technology commercialization:

1. Adopt the multi-element technology model to accurately define and manage the 

multiple government roles required to promote technology commercialization.

2. Emphasize “precompetitive” funding primarily through innovation clusters, 

which reduces IP issue (with respect to companies), increases research efficiency, and broadens the participating research base thereby accelerating technical knowledge diffusion/transfer. 

3. Policy mechanisms for each phase of technology commercialization promotion 

pursued must be regularly assessed and their impacts monitored with respect 

to their appropriateness for each technology element and phase of R&D plus 

early commercialization efforts (especially scale-up to efficient production volumes); i.e., a real-time evaluation mechanism should be implemented. 

19 NASA Jet Propulsion Laboratory, “Machines Teach Astronomers about Stars,” January 8, 

2015 (http://www.jpl.nasa.gov/news/news.php?feature=4433 and http://en.wikipedia.org/wiki/

Machine_learning).

20 International Center for Automotive Research. See Thomas R. Kurfess, “The Growing Role of 

Electronics in Automobiles: A Timeline of Electronics in Cars,” 2011 (http://www.chicagofed.org/

digital_assets/others/events/2011/automotive_outlook_symposium/kurfess_060211.pdf ).
17

Chapter 1 § Selecting Policy Tools to Expand NASA’s Contribution to Technology Commercialization

4. Label funded projects using the ISS and other laboratory research facilities as

experimental/demonstration projects to more easily rationalize funding a large

and broad portfolio, given the substantial risk associated with a new program.

5. Develop evaluation metrics for each phase of R&D supported projects to

enable NASA management to track and assess progress and to make midcourse corrections as needed.

The various policy objectives, targets and mechanisms, and expected economic 

impacts associated with a comprehensive technology commercialization strategy are 

listed in Table 1.3 (p. 18). The critical overall message from the table is the need 

to first state the policy objective as a response to a specific market failure and then 

match the right policy tool with the nature of the underinvestment associated with a 

particular type of technology investment activity. These “policy tools” will consist of 

financial or in-kind support, where in-kind support includes the provision of government laboratories’ unique research and testing facilities. As made clear in Table 1.3, 

the variety of economic activities and hence outcomes result in a number of impact 

metrics that can characterize the impact on economic growth.

The overall economic rationale for Table 1.3 is the fact that a set of substantial 

risks exists for technology investment that must be taken into account by government R&D funding programs. While economic growth impacts are larger from 

investments in technology than from any other asset, so-called “market failures” or 

underinvestment phenomena exist. Thus, investment incentives for technology are 

on average reduced by the fact that much of the required investment (R&D) must 

be undertaken years before initial commercialization with additional time required 

before major markets are established.21

Thus, even if the technology element model in Figure 1.1 (p. 9) is accepted by 

stakeholders, particularly Congress, and funding is initially provided, the long 

time required to develop a technology to the point of commercialization creates 

budget justification problems for the R&D agency. Congress funds agency R&D 

programs in one-year increments and expects evidence of progress in order to continue such funding. Obtaining funding for multiple years of research support for 

technologies projected to have economic growth impacts even farther in the future 

can thus be difficult.

21 When a technology is early in its development, both technical and market risks are at their highest levels. The corporate expected rate of return (ROR) calculation is lowered when the nominal 

expected ROR is reduced to account for these risks. The nominal expected ROR can be quite 

large for an entire industry and eventually even more so for the entire economy. However, the 

industry developing the new technology and especially individual companies in that industry can 

only expect to capture a fraction of the ultimate total economic benefits due a number of factors. 

This is a fundamental rationale for government R&D support. Moreover, the risk-adjusted 

expected ROR is further reduced for the time interval between R&D investment and commercialization, which can be years. Corporations apply a significant discount rate to the expected 

profits to account for the fact that the profits will be realized in the future. The discounting 

further discourages private-sector R&D investment. 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

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TABLE 1.3: National Laboratories: Policy Needs, Mechanisms, and Implementation Targets for

Technology Commercialization

POLICY NEED POLICY OBJECTIVES/

TARGETS

IMPLMENTATION 

MECHANISMS ECONOMIC IMPACTS

R&D portfolios with 

broad commercial 

market potential

n Reorient research 

funding

n Support manufacturing 

and product 

technologies benefiting 

from unique federal 

research assets

n Add market potential 

assessments to 

research portfolio 

selection criteria

n Expand joint strategic 

planning with industry

n Adopt industry 

portfolio management 

techniques

n Stimulate larger industry 

investment in followon R&D and eventual 

commercialization

n Realize economies of 

scope; i.e., more market 

applications from 

technology platforms 

(proofs of concept)

Effective research 

programs and 

supporting 

technical 

infrastructures

n Update and expand 

research infrastructure

n Promote R&D and 

commercialization 

efficiency

n Promote more and 

better timed technical 

infrastructure

n Expand regional 

technology-based 

clusters involving 

universities, 

government, and 

industry

n Expand and coordinate 

infratechnology 

research to support 

standards early in R&D 

cycle

n Promote high-tech 

startups, SMEs, 

incubators, and 

accelerators

n Implement intellectual 

property rights 

management for 

cooperative search

n Stimulate privatesector participation 

early in technology life 

cycle by firms of all 

sizes, enabling product 

diversity, competitive 

industry structures, 

and efficient system 

integration

n Achieve shorter time to 

market

n Enhance 

complementary asset 

sourcing, risk pooling, 

and rapid technology 

transfer

Modern 

educational 

infrastructure

n Provide highlyskilled research and 

manufacturing labor 

force

n Adjust college curricula 

(especially within 

innovation clusters)

n Support STEM students 

through scholarships 

and career promotion

n Update vocational, 

apprenticeship 

programs

n Promote broad and 

deep skilled labor pool

n Achieve flexible 

and rapid skill mix 

adjustments in 

response to emerging 

technologies

Rapid scale-up 

to commercial 

production 

volumes

n Promote advanced 

manufacture 

process technology 

infrastructure

n Capital formation

n Create demonstration 

projects

n Provide production 

scale-up assistance

n Provide shared 

production facilities

n Accelerated 

commercialization and 

market share growth

n Increased industry rates 

of return and value 

added
19

Chapter 1 § Selecting Policy Tools to Expand NASA’s Contribution to Technology Commercialization

Figure 1.2 shows how this problem must be managed by the R&D agency. The 

economic impacts that a comprehensive technology commercialization strategy can 

be expected to eventually generate must be preceded by interim sets of impact metrics 

that characterize positive results in the early and middle phases of the R&D process 

and then during early (post-innovation) commercialization. The necessary use of sets 

of interim metrics is indicated for major time phases of a technology’s development. 

These interim impact metrics provide assurance of progress for each phase and set up 

the rationales for support of succeeding phases. Eventually, technology commercialization is achieved, markets are developed, and the innovating industry’s contribution 

to the economy’s growth becomes substantial. The top growth curve represents the 

fact that the newly commercialized technology exerts a multiplier effect on national 

economic growth through its enhancement of other (user) industries’ productivity. 

Thus, the aggregate direct economic benefits to the target industries generate even 

larger benefits for the economy as a whole.

FIGURE 1.2: Nature and Timeline of Economic Impacts from Enhanced Technology Commercialization Strategies
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

20

Conclusion

NASA faces three alternative strategic directions for promoting technology 

commercialization:

1. Fund a limited set of largely independent research projects in LEO. This

approach will provide unique but limited advances in scientific and technical

knowledge with no direct path to further technology development.

2. Combine terrestrial and LEO R&D assets to fund a broader range of projects

in specific technical areas, emphasizing the early pre-competitive phases of

technology development (platform technologies and infratechnologies). The

resulting larger scale/scope is more likely to promote follow-on investment by

industry. NASA may or may not continue to support later phases of the R&D

process depending on the continued existence of private underinvestment

(market failures).

3. Invest in a holistic technology development infrastructure that allows joint

management with industry partners of R&D project portfolios. These project

portfolios will target new technology platforms and supporting infratechnologies and do so through new research infrastructures (R&D consortia, innovation clusters), followed by more limited support for the latter-phase R&D

leading to eventual commercialization by industry partners.

To achieve meaningful commercialization over time, option 3 is required because 

modern manufacturing technologies are complex systems of hardware and software 

and the holistic set of funding plus institutional strategies pulls more private R&D 

resources and future innovators into the nascent industry (or, more accurately, set of 

industries; i.e., the target supply chain). It is the “system” that competes in the global 

marketplace. Therefore, the productivity of the entire supply chain is the critical metric in determining commercial success. This can only be achieved through a holistic 

approach to R&D portfolio management, combined industry-government partnerships to increase R&D efficiency, and technology transfer across component suppliers 

and system integrators.

NASA has unique expertise in system design and integration of the system components, having decades of experience in the design, construction and operation of 

systems that function in an extremely hostile environment. This expertise lies in existing NASA terrestrial and low Earth orbit laboratories and the staff that operate them. 

Thus, a broad implication for NASA’s technology commercialization efforts is that 

given the likely continued focus of the ISS on the conduct of experiments associated 

with early-phase technology development, follow-on Earth-based efforts should be 

implemented to enable the entire R&D process and even initial commercialization 

efforts to occur until the time comes when the entire R&D process and even manufacturing will benefit from a microgravity environment. 
21

Chapter 1 § Selecting Policy Tools to Expand NASA’s Contribution to Technology Commercialization

Using the technology element model described in this chapter, NASA can adopt 

the appropriate policy tools for each phase of a new technology’s development and 

effectively manage the technology’s life cycle in order to achieve successful commercialization. Such “dual use” of existing and future NASA R&D assets can result in 

overall efficiency gains with respect to utilization of these assets and a significant contribution to U.S. efforts to meet the growing competition from the rapidly evolving 

technology-based global economy.

23

CHAPTER 2

Protein Crystallization 

for Drug Development

A Prospective Empirical Appraisal of Economic Effects

of ISS Microgravity

Nicholas S. Vonortas1

Executive Summary

One of the basic missions of NASA is to use the International Space Station (ISS) 

to facilitate the growth of a commercial marketplace in low Earth orbit (LEO) for 

scientific research, technology development, observation and communications, and 

human and cargo transportation. While the private sector has shown some interest, 

and while there exists significant potential commercial applications, the future of 

LEO commercialization nonetheless has significant technical, financial, and policy 

barriers. Oft cited barriers include (1) transportation costs, frequency, and risk for 

cargo and research crew, (2) intellectual property rights, and (3) lack of appropriate 

investment and tax incentives to entice the private sector. An additional barrier has 

been the relative newness of the operation and, consequently, the lack of awareness of 

the possibilities across industry until recently.2

1 Center for International Science and Technology Policy and Department of Economics, The 

George Washington University.

2 Link and Maskin’s chapter in this collection drives home the idea that the lack of information 

about previous projects has hindered the willingness of additional users to engage in R&D on the 

ISS. This message is picked up by the Lerner, Leamon, and Speen’s chapter in this collection who 

provide a lot of detail through their VC interviews and literature review about what are the weak 

points of LEO tech business in the eyes of the private sector, what information is missing, and 

what types of information, regulation, and regular service provision will make business calculations more favorable toward LEO. 

Disclaimer: The views and opinions of the authors do not necessarily state or reflect those of the U.S. 

Government or NASA.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

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Bioscience has long been promoted as one of the more promising applications in 

the effort to commercialize LEO. A specific application—expanding research in protein crystallization on the ISS’s microgravity environment—could prove important in 

the development and design of drugs to treat diseases such as arthritis, cardiovascular 

disease, multiple sclerosis, osteoporosis, cystic fibrosis, and even cancer. Identifying 

a method for evaluating the economic additionality of microgravity for this type of 

application is the focus of this chapter.

Humans contain over 100,000 proteins that are vital in their everyday functions. 

Full understanding of protein function requires information on the three-dimensional structure of these proteins and leads to the development of better drugs that 

target these proteins more effectively. To obtain this information, scientists model 

proteins with a process called X-ray crystallography, whose effectiveness, in turn, 

depends on the use of good quality protein crystals.

The ISS has for long been argued as the ideal place for protein crystallization. 

Crystals grown in microgravity do not face the same convection forces seen on 

Earth—such as wind and gravity—which adversely affect the orientation and size of 

crystals. While crystals grow much slower in microgravity, they can also grow larger 

and provide massively more data points as crystals grown on Earth. Because of this, it 

is argued that the ISS has the potential of becoming the new frontier of pharmaceutical research, assisting in the discovery of new uses of proteins never before thought 

possible when tested on Earth.

The promise of opportunity notwithstanding, several constraints remain for the 

establishment of high-budget (i.e., viable) protein crystallization research on the ISS: 

proof of concept, experiment duration, size restraints, and transportation. At present, 

it is questioned whether there is strong enough evidence that crystal quality improvement is high enough to justify the effort of sending proteins to space (McPherson & 

DeLucas 2015). 

There are four stages of research with heavy contribution by protein crystallization 

to drug development:

1. production of high quality crystals

2. collection of generic information to identify and validate possible drugs

3. modeling of a drug to a specific target during the preclinical stage

4. fine tuning of the drug during the clinical stage

The first two stages can be described as generic research, with the results being 

of interest across the pharmaceutical industry (also including biotech). The last two 

stages are appropriately described as private research of interest to individual companies. The ISS’s contribution as currently envisioned falls squarely in the very first stage 

but its effects are very much felt all the way across. Assuming the distinction between 

more generic and more applied research stages holds, the policy approaches to address 

them are different. 
25

Chapter 2 § Protein Crystallization for Drug Development 

On the one hand, the more generic research stages may be addressed through a collaborative agreement between the main stakeholders on the supply side. This is a tool 

well-tried out in the previous two to three decades in various sectors to alleviate the 

conditions for suboptimal investment in generic (or precompetitive) research by the 

private sector (1) due to the presence of uncertainty regarding research paths and the 

prospective applicability of the results within the confines of individual companies 

and (2) due to expectations of imperfect appropriability of the results. Compounded 

with the four barriers listed earlier in relation to the ISS, this creates a straightforward 

need for government intervention through the sanctioning of collaborative research 

as well as its subsidization. 

On the other hand, the more applied research stages may be addressed with better 

information about the expected benefits and costs and risks involved in order to facilitate private sector investment. It is these stages of research that are the major focus 

of the latter part of this chapter. The purpose here is to expose a specific model that 

can be utilized to empirically analyze the effect of protein crystallization in space to 

the pharmaceutical sector. To achieve this goal one needs to take two steps. First, 

one must evaluate the effect of improved (larger, clearer) protein crystals on drug 

development. Second, one must evaluate the additionality of ISS in developing such 

improved crystals in microgravity as compared to other channels of doing so.

It is shown that a detailed model recently developed by RTI researchers sponsored 

by the New York Academy of Sciences can indeed be used in carrying out the first 

step, i.e., evaluating the effect of improved (larger, clearer) protein crystals on drug 

development. The attraction of this model is that it estimates the effect of better 

infrastructure for research on the productivity of R&D for a specific disease. The 

availability of better quality protein crystals can be considered in economic terms as 

better infrastructure leading to increased productivity of pharmaceutical R&D. A 

model like the one showcased here can help assess the benefits of improved protein 

crystals on drug development much more precisely than has been the case until now.

For the second step we must wait for the full results of DeLucas’s study. Preliminary reported results of the study find considerable additionality. Assuming this 

holds, the improvement in commercial drug costs would be quite significant.

Section 1. Introduction

There are several potential commercial applications for the ISS. As has been argued 

throughout the years by a long list of experts and NASA itself, one of the more promising applications in the effort to commercialize LEO is bioscience. In particular, it is 

argued that expanding research in protein crystallization on the ISS is a low hanging 

fruit in terms of allowing CASIS—the manager of the federal laboratory—to develop 

a sustainable activity by leveraging an extant bioscience sector. There are strong expectations that the space station’s microgravity environment will prove important in the 

development and design of drugs to treat diseases such as arthritis, cardiovascular 

disease, multiple sclerosis, osteoporosis, cystic fibrosis, and even cancer. 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

26

This chapter explicitly addresses this issue. In a short time period we have tried to 

understand the added value of the ISS microgravity environment for building better 

quality protein crystals than is possible on the ground. The scientific implications of 

our study are quite broad as it involves a huge potential area of biomedical research 

spanning across diseases and NIH centers. In this case study, we are more interested 

in the economic aspects of protein crystallization on the ISS. Within a time span of 

3–4 months we have tried to understand both what scientists say about it and how 

economists would approach the cost-benefit analysis of this activity. At this point, we 

think we understand to some extent the basic scientific idea and can propose a model 

that can guide a collection of appropriate data from industry experts in order to quantify microgravity’s “value added,” while taking into account the expected benefits, 

expected costs, and risks involved. Obviously, as any analysis of its kind, what is proposed here is based on certain assumptions and the required data for estimation will 

depend on past experience in pharmaceuticals (e.g., Tufts database) as well as on certain opinions from industry experts. In other words, there is some margin for error.

This chapter proceeds as follows: Section 2 discusses the topic of protein crystallization in biomedical research as well as our current understanding regarding the 

contribution of microgravity in developing better quality crystals. Section 3 addresses 

possible policy intervention, also including the introduction of a government funded 

consortium to diffuse risk. Section 4 outlines a specific model that has recently been 

developed by RTI International, which provides an interesting quantitative framework for measuring private sector costs.3

 The outcome of this section is essentially a 

list of needed data and data sources. Finally, Section 5 concludes.

Section 2. Protein Crystallization and Biopharmaceutical 

Research

2.1 Declining Research Productivity in New Drug Development

The white paper published by the Federal Drug Administration more than 10 years 

ago (FDA 2004)4

 openly identified a critical challenge in biomedical research: an 

ever faster pace of basic science discoveries are not being translated quickly into more 

effective, affordable, and safe medical products for patients. In economic parlance, 

one would describe the problem as a decrease in biomedical research productivity. The problem was identified as concentrating on an outmoded medical product 

development path that has become increasingly complex, inefficient and, thus, very 

costly, resulting in decreased numbers of both new drug and biologic applications 

submitted to FDA and medical device applications. In contrast, the costs of product 

3 We are indebted here to our co-panelist, Professor Al Link, who had participated in the specific 

RTI project and pointed out to us two critical outputs of it.

4 And revisited more recently (FDA 2014).
27

Chapter 2 § Protein Crystallization for Drug Development 

development reportedly had soared over the previous decade. If the calculation of the 

cost of successful drug development reported in the academic literature is anything to 

go by, the situation has not improved since then. On the contrary, it is getting worse 

(DiMasi et al. 2003, 2007, 2014).

In the FDA’s view, the problem was said to be that applied sciences needed for 

medical product development have not kept pace with the tremendous advances in 

the basic sciences. The discovery process had accelerated much more rapidly than 

the technology development process. “[N]ot enough applied scientific work has been 

done to create new tools to get fundamentally better answers about how the safety 

and effectiveness of new products can be demonstrated, in faster time frames, with 

more certainty, and at lower costs”(FDA 2014, p.ii). Developers were said to often 

use antiquated tools and concepts, resulting in high product failure during clinical 

trials and significant loss of time and resources. Obviously, as in any industry, producers cross-subsidize failures from successes. In an industry where the costs of drug 

development are already high due to extensive regulation and complicated science, 

antiquated drug development structure further amplifies costs. It consequently also 

leads to greater attention toward a few potential megaproducts. 

The FDA white paper called for a new product development toolkit containing 

powerful new scientific and technical methods such as animal- or computer-based 

predictive models, biomarkers for safety and effectiveness, and new clinical evaluation techniques (p. ii). Such a toolkit would improve predictability and efficiency 

along the path from laboratory concept to commercial product. 

While there is no silver bullet to achieve this objective, this opens up a window of 

opportunity for improvements in the process of protein crystallization. Better crystals can be considered as part of better research infrastructure—exactly like better 

biomarkers, for instance—that would contribute to decreasing risk in the preclinical 

phase of new drug development and allow better compounds to be differentiated 

from the chuff much earlier in the follow-up clinical research phases.

2.2 Use of Protein Crystals in Biomedical Research

Humans contain over 100,000 proteins that are vital in their everyday functions. 

Without them, our bodies could not “repair, regulate, or protect themselves” (NASA 

2015). Full understanding of protein function requires information on the three-dimensional structure of these proteins and leads to the development of better drugs 

that target these proteins more effectively. To obtain this information scientists model 

proteins with a process called X-ray crystallography, whose effectiveness depends on 

the use of good quality protein crystals.

2.2.1 Protein Crystallization History and Process

Protein crystallization is the process by which protein molecules are formed into 3D 

crystals so they can be studied much more effectively under a process called X-ray 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

28

crystallography. Using X-ray crystallography, scientists study the way proteins interact with other molecules, how they undergo conformational changes, and how they 

perform catalysis in the case of enzymes.

Protein crystallization is a 100-year-old process that has gained renown as a drug 

discovery tool over history. Max von Laue has been credited for the discovery of 

the diffraction of X-rays by crystals in 1914. Using the process of X-ray diffraction, 

William Henry Bragg and William Lawrence Bragg won the Nobel Prize in 1915 for 

analyzing crystal structures at the atomic level. It was John Bernal and his student 

Dorothy Hodgkin in 1934 who produced the first X-ray diffraction photograph of 

a digestive enzyme, pepsin, marking what many scientists consider the beginning 

of protein crystallography. Hodgkin went on to discover the structure of penicillin through protein crystallography, which allowed pharmaceutical companies to 

mass-produce the antibiotic. Herb Hauptman and Jerome Karle, who won the Nobel 

Prize in 1985, found a more efficient method for determining crystal structures that 

improved the accuracy and time of experiments. 

Hauptman and Karle’s improvement of protein crystallography has become an 

essential tool in today’s drug discovery industry. More than 85 percent of known 

protein structures have been discovered through the process of protein crystallography (NIH 2007, 14). In this process, a pure, highly concentrated sample of a protein 

is combined with a variety of liquids that will eventually evaporate, resulting in the 

formation of a crystallized protein. The best crystals are long, three dimensional, and 

tightly packed with organized molecules. Since diffraction-quality crystals can be 

hard to produce; thousands of samples are often created for just one protein.

After creating a successful protein crystal, X-ray diffraction is performed. Using 

a large machine called a synchrotron, X-rays are blasted through the crystals, which 

are being automatically rotated, to capture the full scope of diffraction data. Given 

data on diffraction patterns, proteins can be accurately modeled in three dimensions.

With the resulting three-dimensional protein model, pharmaceutical companies 

can design novel drugs that target a particular protein or engineer an enzyme for a 

specific industrial process. This development process is known as structure-based drug 

design. There are several empirical examples of protein crystallography’s contribution 

to medicine throughout history. Notably in the 1980s, protein crystallography was 

vital in producing treatments for HIV. Scientists were able to model the structure 

of HIV protease, a protein that causes HIV to spread throughout the body. Using 

the three-dimensional structure, scientists engineered protein inhibitors—such as the 

drug nelfinavir mesylaty (Viracept)—to slow down the progress of the disease. 

Pharmaceutical companies often utilize protein crystallization during the early 

phases of the drug discovery process, even prior to the preclinical phase. When scientists want more information about the receptor site of the target drug, protein 

crystallization is used to identify and validate the target. Once there is a general idea 

of a leading target, protein crystallization can be used further during the drug design 

phase to model a drug specific to the target. Specifically, scientists use software to 
29

Chapter 2 § Protein Crystallization for Drug Development 

test fit a drug candidate to the molecule’s receptor site. Protein crystallization is more 

commonly used in the drug discovery process due to the time it takes to effectively 

analyze crystals for new targets. 

While the key to accurate 3D protein modeling is high-quality protein crystals, 

protein crystallization has historically been the most difficult part of the crystallography process. Protein crystals are very fragile and can be affected by small changes 

in heat or pressure. With a very low margin of error, scientists must increase the 

sample sizes of possible crystals, this way increasing both the cost and time of experiment. Another issue is that protein structure in a crystal is not always the same as 

in an actual cell. Biological structures are difficult to measure solely through a representative crystal. To address this, scientists complement their analysis of the crystal 

structure with a protein’s activity, which provides more accurate data but increases 

the time of experiment further. In the past 15 years, technology and automation of 

the process has significantly lowered costs and increased the purity of tested proteins 

(Netterwald 2007).5

In 1992, Dr. Lawrence J. DeLucas argued that the microgravity environment on 

the ISS would be ideal for growing better quality protein crystals. The question of the 

benefit from space crystallization still remains today. Why are crystals grown on the 

ISS better than the alternatives obtained on the ground? How much better are they 

and at what additional cost?

2.2.2 ISS Additionality for Protein Crystallization

The ISS is argued as the ideal place for protein crystallization due to the Space 

Station’s microgravity environment and the existing MERLIN hardware. Crystals 

grown in microgravity do not face the same convection forces seen on Earth—such 

as wind and gravity—which adversely affect the orientation and size of crystals. 

While crystals grow much slower in microgravity, they provide approximately twice 

as many data points as crystals grown on Earth (Pool 1989). Because of this, it 

is argued that the ISS has the potential of becoming a frontier of pharmaceutical 

research, assisting in the discovery of new uses of proteins never before thought 

possible when tested on Earth. 

The promise of opportunity notwithstanding, several constraints remain for the 

establishment of high-budget (i.e., viable) protein crystallization research on the ISS: 

proof of concept, experiment duration, size restraints, and transportation. 

n Proof of concept: While it is generally understood that proteins crystallize better in microgravity than Earth, it is still unknown to what extent exactly this 

is true and which proteins may be exceptions. According to CASIS, protein 

resolution in low Earth orbit improves about 20–30% over crystals grown on 

Earth (CASIS Opportunity Map 2012, 27). 

5 See Appendix A for more detailed Protein Crystallization costs on Earth surface.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

30

n Experiment duration: Length of experiment may be a most important issue. 

What might take 1–2 weeks on Earth could take 6 months on the ISS. CASIS 

interviews indicate that the biotech industry would ideally like their results in 

4–8 weeks.

n Lab size: The small volume of the ISS available for new facilities could hinder pharmaceutical companies from testing large samples and executing a 

scalable model.

n Transportation to and from the ISS: The absence of regular and frequent flights 

with reliable long-term schedules places a limit on what can be done and at 

what cost (including operational and insurance).

At present, some within the community of possible business investors argue that 

there is not yet strong enough evidence that crystal quality improvement is high 

enough to justify the effort of sending proteins to space (CASIS Opportunity Map 

2012, 27). Still, CASIS finds that protein crystallization has the potential to become 

one of the strongest commercial applications to the ISS. 

Dr. Lawrence DeLucas from the University of Alabama is currently leading a 

blind study of 2,000 membrane protein crystals grown in space versus Earth, which 

will likely be completed in the summer of 2015.6 DeLucas’ April 2014 expedition7

purported to accomplish two goals: (1) inform scientists on the structures of membrane proteins and (2) conclusively measure the overall impact of microgravity on 

protein crystallization. The entire analysis is being performed as a “double blind” 

experiment to eliminate any perceived bias. They use a statistically relevant number 

of different proteins and for each analyzed protein a statistically relevant number of 

crystals. Assuming results in well-defined statistical confidence intervals, DeLucas’ 

project becomes of critical importance in determining the additionality of the ISS in 

protein crystallization and thus enabling cost-benefit analysis of this line of activity 

on the ISS.8

The most relevant results of DeLucas’ project to the question under investigation in our study will be the measured differences of protein crystals in microgravity 

and on Earth. Evidence of significant additional value of microgravity will support 

NASA’s goal to commercialize this capability of the ISS and LEO more generally. 

6 Membrane proteins make up a 67% of commercial drugs, yet information about the structure 

of these proteins is lacking due to inability to grow proper crystals on Earth. For this reason, Dr. 

DeLucas believes that membrane protein crystallization has the potential to be a strong piece of 

a commercial space industry. Other useful proteins with potential commercial application are 

“high-value aqueous proteins and protein complexes” (NASA 2015).

7 The protein samples were launched to the ISS on April 18, 2014, and returned to the investigator 

on October 27, 2014.

8 Participants included government labs (Oak Ridge, Los Alamos, Scripps, NIH), industry (Emerald Biostructures, Astra-Zeneca, Ixpress Genes, St. Jude Research Hospital), and 24 universities 

(including the University of California, the California Institute of Technology, New York University, Columbia University, University of Leeds, and Martin Luther University). 
31

Chapter 2 § Protein Crystallization for Drug Development 

DeLucas’ earlier press release notes that even a small improvement in crystals would 

have “a significant impact on scientists’ ability to use the resulting structures to provide insights into biological mechanisms” (NASA 2015). This “significant impact” 

can be critical in reducing the cost of existing infrastructure and R&D.

At the very last moment of this writing, Larry DeLucas announced preliminary results of his study (DeLucas 2015). The data were interesting and the pictures 

compelling in the sense of pointing out that in certain cases of those examined the 

obtained protein crystals were largely improved in microgravity as compared to those 

created on Earth. More information regarding the costs of and demand for protein 

crystallization in microgravity can be seen in Appendix A (p. 42).

Section 3. Policy Considerations

One can distinguish four stages of research with heavy contribution by protein crystallization to drug development that may be liable for possible policy intervention. 

These stages are:

1. production of high quality crystals

2. collection of generic information to identify and validate possible drugs

3. modeling of a drug to a specific target during the preclinical stage

4. fine tuning of the drug during the clinical stage

The first two stages can be described as generic research, with the results being 

of interest across the pharmaceutical industry (also including biotech). The last two 

stages are appropriately described as private research of interest to individual companies. The ISS’s contribution as envisioned comes squarely in the very first stage but 

its effects are very much felt all the way across. Assuming the distinction between 

more generic and more applied research stages holds, the policy approaches to address 

them are different. The more generic stages may be addressed through a collaborative 

agreement between the main stakeholders on the supply side. The more applied stages 

may be addressed with better information about the expected benefits and costs and 

risks involved in order to facilitate private sector investment.

3.1 Collaborative Agreement

There has been a long strand of research in the economics, business management, and 

policy literatures on collaborative research.9

 The reason for the development of this 

extensive literature in its earlier phases in the 1980s and 1990s sounds tantalizingly 

9 Starting in the early 1980s, the literature on collaborative R&D has grown really large. There 

are several surveys of this literature, some contributed by two members of this panel. See, for 

example, Vonortas (1997), Jankowski, Link, and Vonortas (2001), Vonortas and Zirulia (2015), 

and Hagedoorn, Link and Vonortas (2000).
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

32

similar to the first two stages of protein crystallization contribution seen above. In a 

few words, generic (or precompetitive) research creates the conditions of suboptimal 

investment by the private sector (1) due to the presence of uncertainty regarding 

research paths and the prospective applicability of the results within the confines of 

individual companies and (2) due to expectations of imperfect appropriability of the 

results (Arrow 1962, Nelson 1959). Compounded with the four barriers listed earlier 

in relation to the International Space Station (Section 2.2.2), this creates a straightforward need for government intervention through the sanctioning of collaborative 

research as well as its subsidization. 

3.2 Key Questions

As the manager of the U. S. National Lab, CASIS already subsidizes research related 

to protein crystallization on the ISS. The question, of course, is if the subsidy is 

enough and if it is used to support applied research rather than just basic research.10

In order to understand whether the subsidy is at the appropriate level, one needs 

to consider several issues:

1. Is there additionality of the ISS microgravity environment in building better 

protein crystals?

2. Assuming significant additionality, should there be a collaborative undertaking involving protein crystallization using the ISS microgravity environment? 

3. What does it take to build such a collaborative agreement? Does it make sense 

to build it solely among American firms and research institutes or, given that 

ISS is a 15-nation endeavor, build it across all partners?

4. How should the latter two stages of protein crystallization’s contribution to the 

private sector—specifically pharmaceutical research—be considered in these 

calculations?

5. What are the true private and social benefits to consider in a proper cost-benefit analysis?

We must await the full results of DeLucas’ ongoing study (Section 2.2.2) to gain 

better insight into the first question. Assuming significant additionality, the argument to answer the second question should be affirmative. A recent study of the 

National Research Council (2015) summarizes this argument for collaborative generic 

research in a different technology area (flexible electronics) in a form that can readily 

be applied here. But the argument has been settled long ago in detailed investigations 

of the theoretical and empirical aspects of the rationale of cooperative R&D needed 

10 Basic research produces, of course, a public good that is supported by the public purse.
33

Chapter 2 § Protein Crystallization for Drug Development 

to support legislation like the National Cooperative Research Act (NCRA) of 1984 

and its sequel, the National Cooperative Research and Production Act (NCRPA) 

of 1993.11

Calculating the optimal level of support for this type of consortium (third question) could be the subject of an entirely separate analysis. The government could take 

several approaches in determining the size of public expenditure. One approach is to 

match private investment, as seen in other consortiums. Alternatively, the government could fund all costs associated with obtaining better protein crystals from space 

(e.g., space travel and samples). Generic protein crystals could then be distributed (or 

sold) to pharmaceutical companies for further collaboration and examination. No 

matter what method, the government must contribute enough to ease the uncertainty 

and risk involved from obtaining space crystals.

The remaining two questions pertain to the cost-benefit analysis of protein crystallization contribution to new drug development. It would be easier, but misguided, 

to build the argument on the basis of the first two stages of protein crystallization 

contribution only (first paragraph Section 3). All four stages should be considered 

instead. The estimation can follow the standard approach in health economics of calculating the costs and benefits of new drug development, then trying to disentangle 

the purely private from the purely social benefits.

Section 4. Modeling Drug Development Costs

The purpose of this section is to explore a specific model that can be utilized to empirically analyze the effect of protein crystallization in space (ISS) to the pharmaceutical 

sector. To achieve this goal one needs to take two steps. First, one must evaluate the 

effect of improved (larger, clearer) protein crystals on drug development. Second, one 

must evaluate the additionality of ISS in developing such improved crystals in microgravity as compared to other channels of doing so.

4.1 Phases of Pharmaceutical Research

The literature has advanced an aggregate model paradigm that depicts the drug development process as pretty much linear with several phases. 

Preclinical. The preclinical phase of the drug development process typically encompasses discovery and preclinical development testing. Discovery programs aim at synthesizing compounds that then undergo preclinical testing in assays and animal models. 

11 Vonortas (1997) provides an almost exhaustive review of the theoretical and empirical arguments 

utilizing mainstream economic concepts from transaction cost economics, public goods and 

externalities, and investment behavior under conditions of uncertainty, impactedness, and opportunism. Hemphill and Vonortas (2003) expand to arguments from the management literature 

such as real options and competitive advantage. 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

34

Clinical. The clinical part of the drug development process refers to human testing. 

Clinical testing typically proceeds through three successive phases:

n Phase I: a small number of usually healthy volunteers are tested to establish 

safe dosages and to gather information on the absorption, distribution, metabolic effects, excretion, and toxicity of the compound. 

n Phase II: trials are conducted with human subjects who have the targeted disease or condition. These trials are conducted on larger numbers of subjects 

than in phase I (maybe hundreds) and are designed to obtain evidence on 

safety and preliminary data on efficacy. 

n Phase III: testing typically consists of a number of large-scale trials designed 

to establish efficacy and to uncover side effects that occur infrequently. The 

number of subjects is now the largest and can total in the thousands. 

4.2 Effect of Improved Protein Crystals: Model Development and 

an Example12

We use as a base the model by Scott et al. (2014) [also in New York Academy of 

Sciences (2013)], which measures the cost of drug development as a function of cost, 

time, and risk. The expected cost of developing a new drug is given by the sum of the 

risk-adjusted, capitalized cost of each phase of development:

∙c ∙

tstart

tend

ert/12 dt∙ / p = ∙

c

p ∙∙12r ∙(ertstart/12 – e 

rtend/12)

where tstart denotes time in months from start of phase to date of new drug approval

tend denotes time in months from end of phase to date of new drug approval

c is cost per month per compound in phase

p is the probability that a compound undergoing this phase of development is ultimately approved for marketing

r is cost of capital as an annual interest rate.

Drug development is a lengthy process, implying substantial time costs to investing in R&D long before any potential returns can be earned. The time costs of drug 

development can be captured by capitalizing costs forward to the point of marketing 

approval at an appropriate discount rate. Capitalization is achieved by continuous 

compounding at the annual interest rate r, which can be set at 10.5–11% through the 

12 This section borrows heavily from Scott et al. (2014) and New York Academy of Sciences (2013). 

It also consults extensively DiMasi and Grabowski (2007) and DiMasi, Hansen, and Grabowski 

(2003). A new study recently released by the Tufts Center for Drug Development (DiMasi 2014) 

was not available to us at the time of this writing.
35

Chapter 2 § Protein Crystallization for Drug Development 

CAPM model or otherwise for the biopharmaceutical industry (Harrington 2012; 

DiMasi and Grabowski 2007). 

Capitalized costs are the sum of out-of-pocket (money) costs and time costs. It 

should be noticed that in order to obtain time costs one needs—in addition to an 

appropriate discount rate—a timeline over which out-of-pocket costs are capitalized forward to marketing approval. Using data for several compounds, DiMasi and 

Grabowski (2007) and DiMasi et al. (2003) estimate average phase and regulatory 

review lengths. On the other hand, in their case study on Alzheimer’s disease Scott et 

al. (2014) obtain estimates of duration—as well as estimates of cost and probability 

(to progress to next phase)—by experts in Alzheimer’s research and drug development. They used data provided by experts. See Tables 2.1, 2.2, and 2.3.

TABLE 2.1: Duration of Drug Development Phases (Months)

PHASE

TYPICAL NEW 

BIOPHARMACEUTICAL 

(DiMasi and Grabowski 

2007)

ALZHEIMER’S DISEASE*

EXISTING

(Scott et al. 2014) IMPROVED

Preclinical 52.0 50.1 49.9

Phase I 12.3 12.8 12.6

Phase II 26.0 27.7 25.2

Phase III 33.8 50.9 39.4

Regulatory Review 18.2 18.0 16.9

* Durations are presented with 95% confidence

Source: Adapted from New York Academy of Sciences (2013), Table B-2.

TABLE 2.2: Transition Probabilities* Between Phases

PHASE

TYPICAL NEW 

BIOPHARMACEUTICAL 

(DiMasi and Grabowski 

2007)

ALZHEIMER’S DISEASE*

EXISTING

(Scott et al. 2014) IMPROVED

Phase I to II (1) 0.71 0.67 0.69

Phase II to III (2) 0.44 0.47 0.42

Phase III to Approval (3) 0.68 0.24 0.58

Phase II to Approval (2) × (3) 0.30 0.11 0.24

Phase I to Approval (1) × (2) × (3) 0.21 0.07 0.16

Ratio of Phase II failures to total failures in 

Phase II and III

0.80 0.60 0.77

* Average reported

Source: Adapted from New York Academy of Sciences (2013), Table B-3.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

36

TABLE 2.3: Average Costs (typical new biopharmaceutical—$M)

PHASE

OUT-OF-POCKET (MONTHLY)

TYPICAL NEW BIOPHARMACEUTICAL ($M/

MOLECULE IN DEVELOPMENT) (DiMasi and 

Grabowski 2007; DiMasi et al. 2003)

CAPITALIZED AT 11% 

TYPICAL NEW BIOPHARMACEUTICAL 

($M/NEW DRUG APPROVED) (DiMasi and 

Grabowski, 2007; DiMasi et al. 2003)

Preclinical 0.72 510

Phase I 2.73 338

Phase II 2.00 312

Phase III 5.64 385

Total 11.09 1,565

Source: Adapted from New York Academy of Sciences (2013), Table B-4.

The older estimates above have been calculated on the basis of data from the Tufts 

database on drugs developed by traditional pharmaceutical companies (DiMasi et al. 

2003) and by biotechnology companies (DiMasi and Grabowski 2007). The latter 

paper concentrated on the types of molecules on which biotech companies focus, specifically recombinant proteins and monoclonal antibodies (mAbs). Thirteen of a total 

seventeen examined compounds13 first entered clinical testing during 1990–2003; 

the remaining four compounds examined in this study were from the Tufts database. 

The newer estimates specific to Alzheimer’s disease were developed on the basis of 

detailed expert interviews from the pharmaceutical industry and academia (Scott et 

al. 2014; New York Academy of Sciences 2013).

Tables 2.4 and 2.5 use steps mathematically identical to the formula presented 

earlier in this section to highlight (1) the expected cost of entering a drug candidate in 

Phase I trials and (2) the total capitalized cost of a new drug approval. The important 

takeaway here is how even small (apparent) changes in the cost, likelihood of successful completion, and time length of a phase lead to dramatic decreases in overall costs 

of successful drug development.

Finally, Table 2.6 shows the estimated costs of developing a disease-modifying 

drug for Alzheimer’s across the industry (New York Academy of Sciences 2013). This 

is the typical way the literature has reported estimates for drug development costs 

and include the cost of failures by multiple companies expected by the interviewed 

experts before one drug is approved by the FDA for marketing. Notice that totals of 

each column match the totals in Tables 2.4 and 2.5 respectively.

13 The sample consisted of 9 recombinant proteins and 8 mAbs.
37

Chapter 2 § Protein Crystallization for Drug Development 

TABLE 2.4: Cost of Alzheimer’s Disease-Modifying Development with Existing Infrastructure

EVENTUAL OUTCOME 

FOR A COMPOUND 

ENTERING PHASE I

OUT-OF-POCKET 

COST ($M)

COST CAPITALIZED TO 

DATE DEVELOPMENT 

STOPS OR DRUG 

APPROVED ($M)

COST AT PHASE I 

START (PRESENT 

VALUE) ($M, 11% 

DISCOUNT RATE)

PROBABILITY

Development stops 

after Phase I

71 89 79 0.33

Development stops 

after Phase II

126 177 122 0.35

Development stops 

after Phase III

413 648 280 0.24

Drug is approved 413 765 280 0.07

Expected present-value cost = (79 × 0.33) + (122 × 0.35) + (280 × 0.24) + (280 × 0.07) = $157M

Cost per new drug approval = $157M/0.07 = $2,087M

Cost capitalized to date of drug approval = $2,087M × e(109.4)(0.11/12) = $5,693M

(Phase I starts an average of 109.4 months prior to approval)

Notes

1. Numbers have been rounded. For example, $2,087M comes from dividing approximately $156.5M by approximately 0.075.

2. Out-of-pocket cost is the monthly cost for each phase (Table 2.3) times the number of months spent in that phase 

(Table 2.1): 71 = (0.72)(50.1) + (2.73)(12.8); 126 = 71 + (2.00)(27.7); 413 = 126 + (5.64)(50.9).

3. Present-value cost is the value of costs incurred at the beginning of Phase I.

4. Probabilities are derived from Table 2.2 (they may not sum to 1 because of rounding): 0.33 = 1 – 0.67, 0.35 = (0.67)(1 – 0.47), 

0.24 = (0.67)(0.47)(1 – 0.24).

Source: New York Academy of Sciences (2013), Table B-5.

TABLE 2.5: Cost of Alzheimer’s Disease-Modifying Development with Recommended Infrastructure

EVENTUAL OUTCOME 

FOR A COMPOUND 

ENTERING PHASE I

OUT-OFPOCKET COST 

($M)

COST CAPITALIZED TO 

DATE DEVELOPMENT 

STOPS OR DRUG 

APPROVED ($M)

COST AT PHASE I 

START (PRESENT 

VALUE) ($M, 11% 

DISCOUNT RATE)

PROBABILITY

Development stops after 

Phase I

70 87 78 0.31

Development stops after 

Phase II

121 167 118 0.40

Development stops after 

Phase III

343 507 250 0.12

Drug is approved 343 592 250 0.17

Expected present-value cost = (78 × 0.31) + (118 × 0.40) + (250 × 0.12) + (250 × 0.17) = $144M

Cost per new drug approval = $144M / 0.17 = $855M

Cost capitalized to date of drug approval = $855M × e(94.1)(0.11/12) = $2,027M

(Phase I starts an average of 94.1 months prior to approval)

Notes

1. Numbers have been rounded. For example, $855M comes from dividing approximately $143.5M by approximately 0.168.

2. Out-of-pocket cost is the monthly cost for each phase (Table 2.3) times the number of months spent in that phase 

(Table 2.1): 70 = (0.72)(49.9) + (2.73)(12.6); 121 = 70 + (2.00)(25.2); 343 = 121 + (5.64)(39.4).

3. Present-value cost is the value of costs incurred at the beginning of Phase I.

4. Probabilities are derived from Table 2.2 (they may not sum to 1 because of rounding): 0.31 = 1 – 0.69, 0.40 = (0.69)(1 – 0.42), 

0.12 = (0.69)(0.42)(1 – 0.58).

Source: New York Academy of Sciences (2013), Table B-6.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

38

TABLE 2.6: Average Costs (Alzheimer’s disease—$M)

PHASE

CAPITALIZED AT 11% 

EXISTING INFRASTRUCTURE 

($M/NEW DRUG APPROVED)

CAPITALIZED AT 11% 

RECOMMENDED INFRASTRUCTURE 

($M/NEW DRUG APPROVED)

Preclinical 1,658 642

Phase I 1,193 458

Phase II 1,048 387

Phase III 1,794 539

Total 5,693 2,027

Source: Adapted from New York Academy of Sciences (2013), Table B-4.

4.3 Summing Up

The same, or very similar, model to that outlined in Section 4.2 can be utilized to 

assess the effect of improved protein crystals on R&D targeting a specific disease. 

Assuming the use of average data regarding the effects across various types of diseases—across all types of cancer or all types of diabetes, for example—one can estimate average estimates for the industry. The important limitation currently is missing 

data on

n the duration (number of months) of the various phases of drug development,

n the cost per month, and 

n the probabilities that the compounds under investigation will pass through 

each phase successfully.

Appendix 1 of the New York Academy of Sciences (2013) study provides the 

questionnaire utilized in that study14 to elicit such data through interviews with a 

significant number experts including 27 industry representatives and 5 academics. 

The majority of the industry interviewees were reported to be at the level of vice president (or equivalent) and above in 11 companies pursuing Alzheimer’s disease drug 

discovery and development, and they themselves were responsible for research either 

on Alzheimer’s disease directly or on diseases of the central nervous system more 

broadly. The five non-industry interviewees each had more than 20 years experience 

in Alzheimer’s related research.

The interviewees were provided with estimates on cost, cycle times, and transition 

possibilities found for pharmaceuticals in general and were asked to customize them 

for Alzheimer’s disease twice: with and without a new environment of better infrastructure which was clearly defined.

14 Troy Scott, Alan O’Connor, and Al Link for RTI and Diana L. van de Hoef for the New York 

Academy of Sciences.
39

Chapter 2 § Protein Crystallization for Drug Development 

How does this translate to our research project on protein crystallization in 

microgravity? The availability of better quality protein crystals can be considered in 

economic terms as better infrastructure leading to increased productivity of pharmaceutical R&D.15 A model like the one shown in this section should then help assess 

the benefits of improved protein crystals on drug development much more precisely 

than has been the case until now.

If a questionnaire is to be utilized to collect data, a well-defined target must be 

selected in order for the interviewed experts to provide more accurate answers. A follow-up final step would be to calculate the societal cost savings from reducing disease.

Section 5. Concluding Remarks

Protein crystallization is an essential part of protein crystallography—the main process used in drug discovery today. Advancements in the technology of protein crystallization over the last hundred years have been remarkable. The prospect of improving 

protein crystals through the use of the International Space Station has the potential 

to be the next great chapter in drug discovery history. 

For the private sector, better protein crystals mean better 3D models of proteins 

in the preclinical stage. The improved modeling should carry over in clinical stages 

as well, advancing overall drug infrastructure. Recent relevant work supported by 

the New York Academy of Sciences for a specific disease strongly indicates that even 

marginal improvements in infrastructure can significantly reduce costs in overall 

drug development.

The leap from Earth crystals to drastically pricier (yet better quality) space crystals 

may be too risky of an investment to expect from private pharmaceutical companies, 

even with significant projected cost reductions. A government-subsidized consortium 

may be the best plan to alleviate some of the early-stage, precompetitive financial 

risk. The government therefore may wish to fund space missions for protein crystals for generic use, where improvements in these proteins’ 3D models could lead 

to extensive efficiencies in drug discovery and development for a wide range of diseases. While pharmaceutical companies would still be in competition, improving 

their overall infrastructure of basic protein knowledge could provide strong public 

and private benefit.

While private cost reduction can be measured with the model seen in Section 4, 

public benefit from disease treatment and potential government revenue are difficult 

to measure. The potential costs to pharmaceutical companies—even with the easing 

of a consortium—must also be measured to gauge private interest. If public/private 

benefits outweigh public/private costs, then investment in protein crystallization on 

space is a fiscally viable use of ISS resources. 

15 One could think of it as analogous to what economists argue about basic research and its impact 

on applied research and development.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

40

References

Arrow, Kenneth (1962). “Economic welfare and the allocation of resources for invention,” in Richard R. Nelson (ed.) The Rate and Direction of Inventive Activity, 

Princeton University Press.

CASIS Opportunity Map (2012). “Maximizing the Value of the CASIS platform—

Bioscience Opportunity Map.”

DeLucas Larry (2015). “Comprehensive Analysis of Microgravity Protein Crystallization”, Presentation, March 19.

DiMasi, Joseph A., Ronald W. Hansen, and Henry G. Grabowski (2014). “Innovation 

in the Pharmaceutical Industry: New Estimates of R&D Costs,” Report, Tufts 

Center for the Study of Drug Development, Tufts University. http://csdd.tufts.edu/

files/uploads/Tufts_CSDD_briefing_on_RD_cost_study_-_Nov_18,_2014.pdf and 

http://csdd.tufts.edu/news/complete_story/cost_study_press_event_webcast.

DiMasi, Joseph A. and Henry G. Grabowski (2007). “The cost of biopharmaceutical 

R&D: Is biotech different?” Managerial and Decision Economics, 28: 469–479.

DiMasi, Joseph A., Ronald W. Hansen, and Henry G. Grabowski (2003). “The price 

of innovation: New estimates of drug development costs,” Journal of Health Economics, 22: 151–185.

Food and Drug Administration (2004). “Innovation Stagnation: Challenge and 

Opportunity on the Critical Path to New Medical Products”, US Department of 

Health and Human Services. Revised 2014.

Hagedoorn, John, Albert N. Link, and Nicholas S. Vonortas (2000). “Research Partnerships,” Research Policy, 29(4–5): 567–586.

Harrington, S. E. (2012). “Cost of Capital for Pharmaceutical, Biotechnology, and 

Medical Device Firms” In P. M. Danzon and S. Nicholson (eds), The Oxford 

Handbook of the Economics of the Biopharmaceuticals Industry (pp. 75–99). Oxford 

University Press.

Hemphill, Thomas and Nicholas S. Vonortas (2003). “Strategic Research Partnerships: A Managerial Perspective,” Technology Analysis and Strategic Management, 

15(2): 255–271.

Jankowski, John E., Albert N. Link, and Nicholas S. Vonortas (eds) (2001). Strategic 

Research Partnerships, National Science Foundation.

McPherson, Alexander and DeLucas, Larry (2015). “Microgravity Protein Crystallization” NPJ Microgravity. 1, 15010. Doi:10.1038/npjmgrav.2015.10, published 

online 3 September 2015.

NASA (2015) “Commercial Protein Crystal Growth—High Density Protein Crystal 

Growth Modified (CPCG-HM),” U.S. Department of Defense.

National Institutes of Health (2007). “The Structures of Life,” U.S. Department of 

Health and Human Services.

National Research Council (2015). The Flexible Electronics Opportunity, Board on Science, Technology and Economic Policy, Washington, DC: National Academies Press.
41

Chapter 2 § Protein Crystallization for Drug Development 

Nelson, Richard R. (1959). “The simple economics of basic scientific research,” Journal of Political Economy, June: 297–306.

Netterwald, James, ed. (2007). “Crystallography Illuminates Drug Targets.” Drug 

Discovery & Development. N.p., 6 Sept. Web. 09 Apr. 2015.

New York Academy of Sciences (2013). “Economic Analysis of Opportunities to 

Accelerate Alzheimer’s Disease Research and Development,” Report, The New 

York Academy of Sciences.

Pool, Robert. (1989). “Zero Gravity Produces Weighty Improvements,” Science

246.4930: 580.

Scott, Troy J., Alan C. O’Connor, Albert N. Link, Travis J. Beaulieu (2014). “Economic analysis of opportunities to accelerate Alzheimer’s disease research and 

development”, Annals of the New York Academy of Sciences, 1313: 17–34.

US Department of Defense (1997). “SEMATECH 1987–1997: A Final Report to the 

Department of Defense,” U.S. Department of Defense.

Vonortas, Nicholas S. (1997). Cooperation in Research and Development, Kluwer Academic Publishers.

Vonortas, Nicholas S. and Lorenzo Zirulia (2015). “Strategic Technology Alliances 

and Networks,” Economics of Innovation and New Technology, 24(5): 490–509.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

42

Appendix A. New Details Regarding Costs of and Demand for 

Protein Crystallization in Microgravity16

Estimated Protein Crystallization Costs on Earth17

PROTEIN TYPE DESCRIPTION COST

Aqueous protein Most common $10K–$30K

Large/complex proteins Make up a substantial percentage of proteins of 

interest to pharmaceutical companies

$100K

Membrane proteins, protein-protein 

complexes, protein-ligand complexes

Wide range of applications $1M

Added Protein Crystallizations Costs in Space (Estimations)18

ISS SPECIFICATION COST

Price/lb in flight $15K/lb

Flight cost for protein crystallization unit $1.5M

Market for Protein Crystallization19

PROJECT PERIOD NUMBER OF 

CENTERS TOTAL COSTS NUMBER OF PSI 

STRUCTURES

AVERAGE VALUE OF 

PROTEIN STRUCTURE

July 2005–

June 2010

14 $325M (funded mostly 

by National Institute 

of General Medical 

Sciences) 

4,800 $325M/4,800

= $67K 

There is large demand for high quality protein crystals. There are over 8,000 highly valued 

proteins that have not been crystallized with significant quality on Earth and over 100,000 of 

general interest to medicine, according to the NIH.20 As a response, the NIH created the Protein Structure Initiative (PSI) to assemble a collection of three-dimensional protein structures 

for research and drug development.

16 All information courtesy of Lynn Harper (June 8 e-mail). It is preliminary; strong caveats apply.

17 Cost includes isolation, crystallization, diffraction, and determination of protein structure.

18 One ISS protein crystallization unit can hold about 1000 crystallization samples (25 lb) plus the 

incubator holding the proteins (80 lb).

19 PSI data as of August 2010.

20 See http://www.nature.com/nrd/journal/v5/n10/full/nrd2132.html for list generated in 2006.
43

CHAPTER 3

Does Information About Previous 

Projects Promote R&D on the 

International Space Station?

Albert N. Link1

Eric S. Maskin2

America has always been greatest when we dared to be great. We can reach for greatness again. We can follow our dreams to distant stars, living and working in space for 

peaceful, economic, and scientific gain. Tonight, I am directing NASA to develop a 

permanently manned space station and to do it within a decade.

– President Ronald Reagan

State of the Union Address January 25, 1984 

Section 1. Introduction

The epigram above marks 1984 as the beginning of U.S. efforts to develop a space station.3

 Later in that decade, NASA succeeded in creating a partnership with Canada, 

Japan, and several European nations, and a formal agreement was reached to build 

Space Station Freedom in 1988 (Smith 2001). Following the U.S.–Russian cooperation agreement established by President George H.W. Bush, President Bill Clinton 

1 University of North Carolina at Greensboro.

2 Harvard University.

3 According to Smith (2001, p. 1): “NASA had wanted permission to build a space station that 

could be permanently occupied by rotating crews since the late 1960s. Budget constraints, 

however, forced the agency to choose between a space station and a reusable space transportation 

system—the space shuttle. NASA decided to build the shuttle first. Soon after the first shuttle 

launch in 1981, NASA intensified efforts to win approval for a permanently occupied space station. President Reagan’s 1984 speech was the culmination.”

Disclaimer: The views and opinions of the authors do not necessarily state or reflect those of the U.S. 

Government or NASA.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

44

announced in 1993 that Russia would join with the United States in the effort to 

build the International Space Station (ISS). The ISS represented the culmination of 

collaboration among nations for the purpose of designing, developing, operating, and 

utilizing a permanently occupied civil space station (NASA 2007, p. 3). 

Fifteen years after President Reagan’s 1984 State of the Union Address, two elements of the ISS were launched into low Earth orbit (LEO). In November 1998 the 

Zarya module was launched by Russia, and in December 1998 the Utility module was 

launched by NASA; both modules were paid for by NASA (Smith 2001). Although 

the ISS was not complete, its first crew launched on October 31, 2000, and docked 

on November 2, 2000.4 In 2010, the ISS was completed at a cost of over $100 billion.

The National Aeronautics and Space Administration Authorization Act of 2005 

(Public Law 109-155) stated in Section 501(a): “It is the policy of the United States 

to possess the capability for human access to space on a continuous basis.” And in 

Section 505(a, b), the Act stated: 

It is the policy of the United States to achieve diverse and growing utilization of, 

and benefits from, the ISS...The ISS will...support any diagnostic human research, 

on-orbit characterization of molecular crystal growth, cellular research, and other 

research that NASA believes is necessary to conduct, but for which NASA lacks the 

capacity to return the materials that need to be analyzed to Earth.

Toward accomplishing these policy directives, Section 507(a, b) of the Act designated the ISS as a national laboratory (NL) and it charged the Administrator of 

NASA to “enter into a contract with a nongovernmental entity to operate the ISS 

national laboratory.”

In February 2011, NASA issued a Cooperative Agreement Notice (CAN) (NASA 

2011, p. 1):5

The National Aeronautics and Space Administration (NASA) is soliciting proposals 

for competitive evaluation and award of a Cooperative Agreement to a non-profit 

entity to develop the capability to implement research and development (R&D) projects utilizing the International Space Station (ISS) National Laboratory (NL) and to 

manage the activities of the ISS NL.

The CAN defined the mission of the NL (NASA 2011, p. 4):

The NL Entity will be responsible for maximizing the value of ISS to the Nation by 

developing and managing a diversified R&D portfolio based on U.S. national needs 

for basic and applied research and by using the ISS as a venue for Science, Technology, 

Engineering, and Mathematics (STEM) educational activities. 

4 See http://www.nasa.gov/mission_pages/station/main/onthestation/facts_and_figures.html.

5 The solicitation document is at: http://nspires.nasaprs.com/external/solicitations/summary.

do?method=init&solId={BFE2288E-88A6-1FE1-DCFB-F94B9102C646}&path=future.
45

Chapter 3 § Does Information About Previous Projects Promote R&D on the ISS?

On July 13, 2011, the Center for the Advancement of Science in Space (CASIS) 

was selected to manage the ISS.6

This chapter is part of the broader LEO Economic Development and Industrial 

Policy Study sponsored by NASA. Specifically, we propose a way that NASA might 

promote more commercial R&D conducted on the ISS, and thereby expand the commercial possibilities of LEO.7

ISS R&D is conducted on behalf of (1) academic institutions and research institutions (hereafter, universities) and (2) commercial entities (hereafter, firms). In this 

chapter we focus only on the second group, the commercial firms. Our emphasis on 

firms should not be interpreted as downplaying the importance of university research. 

Rather, this chapter represents an exploratory effort to offer strategic guidance to 

NASA for expanding ISS R&D for commercial purposes, and so emphasis on firms 

is a natural starting point. Of course, over time university-based research leads to the 

development of new technologies, and those technologies can be transferred to the 

private sector and later commercialized. However, the technology transfer process 

takes time, and ISS R&D is too recent to have yielded much data on this process yet. 

In Section 2 of the paper, we outline our particular proposal for expanding the 

commercial possibilities of LEO. Specifically, we present a model that suggests how 

NASA might promote more R&D on the ISS by providing candidate firms with more 

information about previous R&D projects and experiments. In Section 3, we describe 

some of the R&D being conducted on the ISS by universities and firms. In Section 4, 

we “test” our model with the results of an exploratory survey we conducted. The survey involved both firms that had completed R&D projects on the ISS and those that 

had recently applied to do such projects. Finally, in Section 5, we offer some recommendations to NASA about how it might implement our proposed strategy.

Section 2. A Model for Promoting R&D on the ISS

Our approach rests on the idea that if firms have more information about previous 

R&D projects and experiments on the ISS, then they are likely to do more R&D 

there themselves. 

More specifically, suppose that information about other firms’ R&D experiments 

is correlated with a firm’s rate of return from current R&D on the ISS. Assume, in 

addition, that there are diminishing returns to the firm’s investment in R&D (at 

least, after a certain point). Then, if NASA provides this past information to the firm, 

6 See http://www.iss-casis.org/About/AboutISSNationalLab.aspx and http://www.iss-casis.org/About/

AboutCASIS.aspx.

7 This objective follows from The White House memorandum on Accelerating Technology 

Transfer and Commercialization of Federal Research in Support of High-Growth Businesses. 

Therein: “Agencies with Federal laboratories shall develop plans that establish performance goals 

to increase the number and pace of effective technology transfer and commercialization activities 

in partnership with non-federal entities, including private firms, research organizations, and nonprofit entities.” 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

46

uncertainty about the firm’s rate of return will be reduced, and so the firm will wish 

to increase its R&D investment.

Formally, the argument can be made formal as follows: Suppose that if a firm 

invests a dollars in R&D on the ISS, it gets back a gross return f (x

∼a), where f is an 

increasing, strictly concave function (the concavity reflects the idea that there are 

eventually diminishing returns to additional investment). The firm wants to maximize its expected net return and so solves

maax Ef (x

∼a) – a. (1)

Let a* be the value of a that solves (1).

Next, suppose that y

∼ is a random variable correlated with x∼, and that the realization 

of y

∼ —call this y—can be discovered by NASA (perhaps by surveying firms that have 

previously invested in ISS R&D). Assume that NASA has the option of committing 

itself to revealing the realization y to the firm. In that case, the firm solves 

maax [Ef (x

∼a) – a |y]. (2)

For each y, let a** (y) be the value of a that solves (2) and let a** = Ea**(y

∼) It can 

be shown that 

a** > a*. (3)

That is, the expected investment in ISS R&D is higher when NASA reveals y than 

when it does not.

Less formally, the reason why the firm’s expected investment in ISS R&D is higher 

when it knows the value of y is as follows. Because x

∼ and y∼ are correlated, knowledge 

of y decreases the variability (i.e., the dispersion) of the firm’s return on investment 

(the dispersion of x

∼ conditional on y is lower than x∼’s unconditional dispersion. Since 

there are diminishing returns to investment, this reduction in variability encourages 

the firm to invest more.

For example, suppose that if a firm invests a dollars in R&D it gets back 

$√2a with probability 1⁄2

and

$√4a with probability 1⁄2

The firm will choose a to maximize 

1⁄2 √2a + 1⁄2 √4a – a,

i.e., a = 3⁄8 + √2⁄4 Now, suppose that by giving the firm information about R&D 

projects, NASA can resolve the uncertainty about the rate of return, i.e., either the 

firm knows it will get √2a or it knows that it will get √4a. In the former case, it will 

choose a to maximize
47

Chapter 3 § Does Information About Previous Projects Promote R&D on the ISS?

√2a – a,

i.e., a = 1⁄2. In the latter case, it will choose a to maximize

√4a – a,

i.e., a = 1. Thus, the average investment when NASA provides information is 3⁄4, 

which is bigger than 3⁄8 + √2⁄4, the investment without information.

Section 3. Background Information on CASIS Activities

As noted in the Introduction, CASIS was selected in July 2011 to manage research and 

technology projects within the ISS U.S. National Laboratory. According to CASIS’s 

Annual Report for FY 2013, its mission (p. 1), which is based on the 2011 CAN, is:

To enable and increase the use of the International Space Station U.S. National Laboratory as a unique dynamic platform for scientific discovery, technology development 

and education for the benefit of life on Earth. CASIS is responsible for maximizing 

the value of the ISS to the nation by developing and managing a diversified R&D 

portfolio based on U.S. national needs for basic and applied research and by using 

the ISS as a venue for Science, Technology, Engineering and Mathematics (STEM) 

educational activities.

Its vision (p. 5) is:

To fully realize the unique scientific, technological and educational potential of the 

ISS NL by focusing both outwardly—toward exposing the scientific, technological 

and educational communities to the benefits that can come from research and operations in space—and inwardly—toward improving humankind’s wellbeing on Earth. 

The outward and inward-looking aspects of the CASIS Vision are intertwined and 

will require close collaboration with NASA, other government agencies, research and 

educational institutions, industry partners and commercial entities committed to 

exploring the intellectual, technological and economic opportunities offered by space. 

An important focus of the CASIS mission is to engage and connect to new stakeholders who have not been traditionally involved with NASA or with space research.

And its goals (p. 6) are to:

n Establish a robust “innovation cycle” where first-class science will drive the 

development of technologies, new intellectual property and commercial opportunities, which in turn drive new ideas and novel first-class science.

n Utilize the ISS for developing new capabilities based on existing proof-of-concept technologies, while allowing time for longer-term scientific commercial 

initiatives to develop.

n Undertake a strong public outreach promoting the value of the ISS NL to the 

nation, and establish the ISS NL as a leading laboratory and environment for 

STEM education.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

48

Toward fulfilling its mission, vision, and goals, CASIS solicits proposals and considers unsolicited proposals for R&D projects to be conducted on the ISS. Proposals 

are welcome from both universities and firms. 

Table 3.1 describes solicited proposals from FY 2012 through FY 2014.8 Clearly, 

the majority of solicited proposals received and sponsored come from universities. Of 

the 75 solicited proposals from universities, 20 have been selected for CASIS sponsorship;9

 of the 43 solicited proposals from firms, 6 have been selected; and of the 5 

solicited proposals from other government agencies, none have been selected. 

From FY 2012 through FY 2014, 27 unsolicited projects were received from universities, 66 from firms, and 2 from other government agencies; 12 of the unsolicited 

university proposals, 40 of the unsolicited firm proposals, and both of the unsolicited 

proposals from other government agencies were selected for CASIS sponsorship. 

The evaluation criteria for solicited and unsolicited proposals are similar, and 

according to CASIS they have and will continue to evolve over time. Basically, the 

evaluation process involves five stages:10

n Operations Evaluation. Expedited review by the CASIS Operations team to 

determine technical feasibility of the proposed project and achievability of the 

estimated budget and timeline.

n Scientific Evaluation. Evaluation by subject matter experts to score scientific 

merit and potential impact.

n Economic Evaluation. A two-pronged economic evaluation led by the CASIS 

economic staff, sometimes with external subject matter experts, to score potential tangible and intangible value.

n Risk and Compliance Review. Review by the CASIS Compliance team for regulatory and legal risks.

n Final Determination. The Executive Director, with input from the review process as well as advice from senior CASIS management, will perform the final 

prioritization and award determination.

8 CASIS’s fiscal year (FY) ends September 30.

9 CASIS sponsorship includes a mix of direct and indirect costs as well as costs related to all of the 

operational, safety, and science verification tests that take place to ensure safety and maximize 

chances of successful function while on the ISS. According to CASIS, the approximate marginal 

cost for a firm experiment on the ISS is $1.54 million of which the firm contributes approximately between 15% and 30%. This cost estimate is based on a payload mass of 20 kgs, 18 

months of payload development time, and 2 hours of crew time intervention, and the use of flight 

hardware. CASIS also estimates that NASA funding for programmatic support—overhead, infrastructure, and expertise that has built up over time that was required to initiate and maintain the 

ISS R&D program—is $7.4 million.

10 These criteria are described in each Request for Proposals. See also, http://www.iss-casis.org/

Opportunities/UnsolicitedProposals.aspx.
49

Chapter 3 § Does Information About Previous Projects Promote R&D on the ISS?

TABLE 3.1: Solicited Proposals Received and Selected

SOLICITATION 

YEAR RESEARCH AREA/DESCRIPTION

UNIVERSITY 

PROPOSALS

RECEIVED/ 

SELECTED

FIRM 

PROPOSALS 

RECEIVED/ 

SELECTED

OTHER GOV’T 

AGENCY 

PROPOSALS 

RECEIVED/ 

SELECTED

2012 Material Science: To exploit the space 

environment for testing of materials and devices. 

It is expected that applications will utilize the 

NanoRacks External Platform for development 

or testing of advanced sensors, electronics or 

materials that have commercial applications on 

Earth.a

5/1 5/1 0/0

2012 Crystallography: To exploit the microgravity 

environment to improve quality and yield of 

protein crystals and to establish the benefits of 

space science for understanding and applying 

crystallization methods.b

12/5 4/1 0/0

2013 Stem Cells: To investigate the impact of the 

spaceflight environment on the fundamental 

properties of mammalian stem cells.c

35/7 13/0 1/0

2014 Remote Sensing: To support use of facilities 

currently aboard the ISS to promote technology 

development and short-duration instrument 

demonstration (maximum of 90 days) for the 

specific purpose of remote sensing.d

12/5* 10/0 4/0

2014 Enabling Technology to Support Science: To 

solicit flight projects for enabling technologies 

for the development, testing, and/or utilization of 

new technologies, components and/or systems 

that will enable science-based investigations for 

Earth-based applications.e

5/1 7/2 0/0

2014 Material Science: To support flight research 

projects in the field of materials science for 

development and testing of materials and 

components that will lead to Earth-based 

applications.f

6/1 4/2 0/0

2014 Energy Technology: To use the ISS for studies 

of Earth for identifying or improving upon 

Earth-based energy applications such as energy 

capture, storage, or sustainability.g

underway — —

Information in this table came from the sources listed below and from personal correspondence with CASIS management. 

The statistics in the table are for solicited proposals. Step-1 proposals that were not invited or did not submit full step-2 

proposals are not included. CASIS administers a two step-solicitation process that includes an abbreviated proposal first, 

which is then reviewed and either invited to submit a full step-2 proposal or not.

* Two of the five proposals are collaborating on a project but they are counted as two selections here as they were two 

separate proposals. Upon award, CASIS urged them to collaborate, and they have altered their plans to do so.

Sources: 

a http://www.iss-casis.org/Portals/0/docs/RFP_MaterialsScience.pdf.

b http://www.iss-casis.org/Portals/0/docs/CASIS%20Request%20for%20Proposals-Crystallography%2006%2026%20

2012.pdf.

c http://www.iss-casis.org/Portals/0/docs/CASIS_RFP_Stem_Cell_v1.01.pdf.

d http://www.iss-casis.org/Portals/0/docs/CASIS_RFP_2013-3_Remote_Sensing_v.1.04.pdf.

e http://www.iss-casis.org/files/CASIS_2014-2_Enabling_Technology_022514_FINAL.pdf.

f http://www.iss-casis.org/files/CASIS_2014-4_RFP_Materials_Science.pdf.

g http://www.iss-casis.org/files/RFP_CASIS_2015-2_Earth_Observation_to_Benefit_Energy_Technology_v1-02.pdf.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

50

Section 4. Survey-Based Information

Our model in Section 2 suggests that providing information about past R&D projects and experiments on the ISS might induce firms to increase their ISS R&D. We 

wanted to collect data to test this idea. Specifically, we wanted to see what information firms used when proposing to conduct ISS R&D. And we wanted to see whether 

there was information firms wished they had had when making proposals.

We developed three survey instruments and requested, through NASA, that 

CASIS solicit responses to the survey questions. One instrument was administered 

to firms selected in FY 2014 and FY 2015 to conduct ISS R&D. A second instrument was directed to firms that submitted a proposal in FY 2014 or FY 2015 but 

were not selected. The third instrument was given to firms that had already completed ISS R&D. The three survey instruments are reproduced in Tables 3.2, 3.3, 

and 3.4, respectively.

We did not seek Office of Management and Budget (OMB) clearance under the 

Paperwork Reduction Act to administer these surveys because of time constraints 

imposed by NASA on this project. Thus, we asked CASIS to randomly select a maximum of 9 firms to survey from each of the three categories. CASIS administered the 

appropriate survey to 9 of the 52 firms selected in FY 2014 or FY 2015 to conduct ISS 

R&D projects and received responses from all of them;11 they also administered the 

appropriate survey to 9 of the 139 firms that were not selected and received 6 responses.12 To date, 7 firms have completed R&D projects on the ISS; CASIS received survey responses from all 7. We discuss the responses from each survey below.

4.1 Responses from Firms Selected to Conduct ISS R&D in

FY 2014 and FY 2015

Firm-identifying information on the survey instruments was generally masked by 

CASIS. However, a number of the open-ended responses contain descriptors of the 

surveyed firms’ projects. For the sake of confidentiality, we do not report all these 

responses fully. Rather, we summarize them and selectively include non-identifying 

comments in our summary interpretations. 

11 Of the 52 firms that were selected to conduct ISS R&D in FY 2014 or FY2015 year-to-date, 

18 had submitted solicited proposals. Of the 9 responses, 0 were from firms that submitted 

solicited proposals.

12 Of the 139 firms that were not selected to conduct ISS R&D in FY 2014 or FY 2015 year-to-date, 

110 had submitted solicited proposals. Of the 6 responses, 5 were from firms that submitted solicited proposals. Of the 5 solicited proposals, 4 failed the Scientific Evaluation stage of the review 

process. The 5th proposal wanted to modify a piece of ISS hardware that NASA did not want to 

modify. The non-solicited firm failed the Operations Evaluation stage of the review process.
51

Chapter 3 § Does Information About Previous Projects Promote R&D on the ISS?

TABLE 3.2: Survey Instrument for Commercial Firms that Were Selected in CASIS FY 2014 or FY 2015 to 

Conduct ISS R&D Projects 

Thank you for participating in this survey for our NASA project on commercializing the ISS. 

Please be assured that your responses will remain confidential and only a summary of our findings will be reported to NASA in our final report without attribution to you or your firm.

1. We are interested in the sources of information that influenced your decision to propose an 

R&D project to be conducted on the ISS. Briefly, please list the 3 most influential sources 

from most to least influential.

 a.

 b.

 c.

2. We are also interested in additional types of information you would have liked to have had 

when deciding to propose an R&D project to be conducted on the ISS. Briefly, please list 

what that information might have been from most to least important.

 a.

 b.

 c.

Please respond to the following statements using a 7-point Likert scale of 1 = strongly disagree, 2 = moderately disagree, 3 = disagree, 4 = neither disagree nor agree, 5 = agree, 

6 = moderately agree, and 7 = strongly agree.

3. My firm expects to be able to commercialize the technology that is expected to result from 

the ISS R&D. _____ 

Mean = 5.08 Median = 5.50 Range = 2–7 

(We use the term technology to refer to the application of new knowledge, learned through 

science, to some practical problem(s). R&D is critical to this application process. In contrast, 

we think of an innovation as technology put into use or commercialized.)

4. My firm expects to conduct additional R&D projects on the ISS. _____ 

Mean = 4.42 Median = 4.00 Range = 3–7

5. My firm would have proposed an ISS R&D project sooner if it had had information about 

other firms’ successes on the ISS. _____

 If such information would have made a difference, please indicate what form it could have 

taken (e.g., information about other firms’ returns).

Mean = 3.67 Median = 4.00 Range = 1–7

Question 1 (see Table 3.2) asked firms to state what information influenced their 

decision to propose a project. In response, most selected firms (6 of 9) mentioned the 

importance of prior formal and informal interactions with CASIS and NASA. Several 

respondents (3 of 9) also cited the existing scientific literature as significant in their 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

52

decision process. Indeed, one firm noted that the literature related to its experiment 

was the most influential source of information. A second firm responded that it had 

“performed a general review of the literature around the experiments [it was] looking 

at” and that this review was the most important form of information. A third respondent noted the particular influence of “technical knowledge gained” (presumably 

gained as background for the application process).

Question 2 asked firms what additional types of information would have been 

useful to them when deciding to propose an ISS R&D project. In their answers, a 

large majority of firms (7 of 9) mentioned wanting more data about previous R&D 

experiments and about the ISS environment. Here are some representative responses: 

n More information on past, present and planned space experiments, particularly around the area of [our research].

n More information on what is feasible for experiments on the ISS.

n A better way to search for experiments that have been done...and what they 

set out to explore and what they learned.

n Planning information of other previous firm projects, to better understand 

how long is the time frame between the first contact with CASIS to the project 

approval and completion.

n Typical final costs and schedules of previously successful projects most similar 

to the one I was proposing.

n More background materials on experiment design and implementation.

n It would have been nice to understand the different hosting options and the 

costs and details of those options for ISS flight experiments.

We think the fact that a large proportion of selected firms surveyed wished they 

had had more information about previous R&D experiments is the strongest empirical confirmation of our theoretical suggestion that such information would likely 

expand R&D (albeit our sample size of 9 was small). It should be noted, however, that 

we uncovered little evidence that this information would encourage R&D to be done 

earlier than otherwise. Specifically, we also asked (Question 5 in Table 3.2) firms to 

respond to the following statement using a 7-point Likert scale of 1 = strongly disagree to 7 = strongly agree: My firm would have proposed an ISS R&D project sooner if it 

had had information about other firms’ successes on the ISS. The mean response was 3.67 

and the median response was 4.00.13 That is, the response was, on average, neutral.

We also got a fairly neutral responses to other questions: Question 3 asked firms to 

respond to the statement: My firm expects to be able to commercialize the technology that 

is expected to result from the ISS R&D. The average response was 5.08 and the median 

13 There were 9 firms that responded to this survey, but one firm will be conducting 4 experiments. 

Thus, there were 12 numerical responses in all.
53

Chapter 3 § Does Information About Previous Projects Promote R&D on the ISS?

response was 5.50. That is, firms, on balance, seem to have fairly modest expectations 

about being able to commercialize their ISS R&D. Question 4 (in Table 3.2) asked 

firms to respond to the statement: My firm expects to conduct additional R&D projects 

on the ISS. The average response was 4.42 and the median response was 4.00.14 In 

other words, firms are apparently quite uncertain about the prospect doing further 

ISS R&D. 

TABLE 3.3: Survey Instrument for Commercial Firms that Were Not Selected in CASIS FY 2014 or 

FY 2015 to Conduct ISS R&D Projects

Thank you for participating in this survey for our NASA project on commercializing the ISS. 

Please be assured that your responses will remain confidential and only a summary of our 

findings will be reported to NASA in our final report without attribution to you or your firm.

1. We are interested in the sources of information that influenced your decision to propose an 

R&D project to be conducted on the ISS. Briefly, please list the 3 most influential sources 

from most influential to least influential.

 a.

 b.

 c.

2. We are also interested in additional types of information you would have liked to have had 

when deciding to propose an R&D project to be conducted on the ISS. Briefly, please list 

what that information might have been from most important to least important.

 a.

 b.

 c.

3 Do you expect to submit another proposal to conduct R&D on the ISS? _____ (yes/no) 

If “no” what additional information would your firm need to submit another proposal?

 a.

 b.

 c.

14 These two responses appear to be related. For example, Pearson’s correlation coefficient between 

responses to Question 3 and responses to Question 4 is 0.52, and it is significant at the 0.10 level; 

and Spearman’s rank order correlation coefficient is 0.63, and it is significant at the .05 level. 

Prior to beginning their ISS R&D, those firms that expect to commercialize the technology from 

their ISS R&D are also those firms that expect to conduct additional R&D projects on the ISS.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

54

TABLE 3.4: Survey Instrument for Commercial Firms that Completed ISS R&D Projects

Thank you for participating in this survey for our NASA project on commercializing the ISS. 

Please be assured that your responses will remain confidential and only summary data will be 

reported to NASA in our final report without attribution to you or your firm.

1. Briefly, what information was/could have been helpful in your decision to undertake this ISS 

R&D project?

 a.

 b.

 c.

In the statements below we use the term technology to refer to the application of new knowledge, learned through science, to some practical problem(s). R&D is critical to this application 

process. In contrast, we think of an innovation as technology put into use or commercialized.

Please respond to the following statements using a 7-point Likert scale of 1 = strongly 

disagree, 2 = moderately disagree, 3 = disagree, 4 = neither disagree nor agree, 5 = agree, 

6 = moderately agree, and 7 = strongly agree.

If this project alternatively could have been conducted as an on-Earth R&D project, please 

respond only to statements 2, 3, 4, and 5 below. 

However, if this project, for technical reasons, could not possibly have been conducted as an 

on-Earth R&D project regardless of cost, please respond only to statements 6, 7, and 8.

2. The depth/breadth of research success realized from this ISS R&D project was greater than if 

the project had been conducted as an on-Earth R&D project. _____ n = 4

Mean = 4.50 Median = 5.00 Range = 2–6

3. Once this project began, it took a longer time to complete than if it had been conducted as 

an on-Earth R&D project. _____ n = 4

Mean = 6.50 Median = 6.50 Range = 6–7

4. Taking into account the research success of this project, and the time and cost it took to 

complete it, the total expected returns from a commercialized version of this technology will 

be greater than if the project was conducted as an on-Earth R&D project. _____ n = 4

Mean = 4.00 Median = 4.00 Range = 1–7

5. The results of this research have resulted in a “go” decision for the next phase of R&D. 

______ n = 4

Mean = 3.25 Median = 3.00 Range = 1–6

Questions 6 through 8 ask for a comparison between this ISS R&D project and a previously 

completed on-Earth project that concerned a similar technology and was of comparable scale 

and scope.

6. The depth/breadth of research success realized from this ISS R&D project was greater than 

from a previously completed on-Earth project that concerned a similar technology and was 

of comparable scale and scope. _____ n = 6

Mean = 4.83 Median = 4.50 Range = 3–7
55

Chapter 3 § Does Information About Previous Projects Promote R&D on the ISS?

7. Once this ISS R&D project began, it took a longer time to complete than a previously 

completed on-Earth project that concerned a similar technology and was of comparable 

scale and scope. _____ n = 5

Mean = 6.60 Median = 7.00 Range = 6–7

8. Taking into account the research success of this ISS R&D project, and the time and cost 

it took to complete it, the total expected returns from a commercialized version of this 

technology will be greater than those from a previously completed on-Earth project that 

concerned a similar technology and was of comparable scale and scope. _____ n = 6

Mean = 4.83 Median = 4.00 Range = 3–7

4.2 Responses from Firms Not Selected to Conduct ISS R&D in 

FY 2014 and FY 2015

Like most selected firms, some non-selected firms mentioned prior interactions with 

CASIS and NASA as important to their decision to propose a project; however, only 

half of them (3 of 6 did so), by contrast with two thirds (6 of 9) of the selected firms. 

None of the non-selected firms cited the scientific literature as crucial to their decision 

to make a proposal, whereas 33 percent of the selected firms did.

As for additional types of information that they wished they had had (Question 2 

in Table 3.3), none of the non-selected firms mentioned that they would have benefitted from more information about past R&D projects and experiments. Some firms 

(3 of 6) said that they would have liked more information about to the application 

process. Such information included:

n technical details regarding integration support in the call for proposals;

n clearer picture of selection criteria and

n better [understanding of] the recommended sequence of events from identification of proposal opportunity, to proposal selection through to sample 

recovery at the mission’s conclusions.

Also, several firms (3 of 6) stated that they would have liked to know more about 

additional funding. These firms responded that the following information would 

have been useful: 

n information about other possible sources of funding to supplement CASIS award;

n alternative funding sources [if] not selected; and

n what sources [are] available to provide [for a] shortfall between funding provided and funding required to complete the mission.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

56

4.3 Comparison of Selected and Non-Selected Firm Responses

Table 3.5 summarizes the difference between selected and non-selected firms concerning information that influenced their decision to apply to NASA. Both groups 

mentioned interactions with NASA and CASIS, but only the selected firms emphasized the previous scientific literature.

There was an even sharper difference between the two groups over “information 

they wished they had had” (see Table 3.6). The selected firms stressed past R&D 

experiments and the ISS environment; the non-selected firms cited the application 

process and additional funding opportunities. 

We can only speculate on the reasons for these differences, but perhaps non-selected firms’ responses were, in part, a way of rationalizing their failure to be selected.

TABLE 3.5: Comparative Findings About Information that Influenced Firms’ Decision to Propose an ISS 

R&D Project

INFORMATION SELECTED FIRMS NOT SELECTED FIRMS

Formal/informal interactions with CASIS 

and/or NASA ü ü

Academic/scientific literature related to 

ISS R&D project ü

TABLE 3.6: Comparative Findings About Information that Firms Would Like to Have Had When Deciding 

to Propose an ISS R&D Project

INFORMATION SELECTED FIRMS NOT SELECTED FIRMS

About past R&D experiments ü

About ISS environment ü

About application process ü

About additional funding opportunities ü

4.4 Responses from Firms that Completed ISS R&D Projects

To date, 7 firms have completed ISS R&D projects. Each firm was asked (Question 1 

in Table 3.4): What information was/could have been helpful in your decision to undertake this ISS R&D project? 

Below is a representative sample of responses. In our opinion, all of these touch on 

information that might be relevant to a firm’s decision to expand its ISS R&D:

n positive results from previous microgravity [experiments like ours];

n better connection with NASA and ISS administrators around project management;

n knowing that there was a system in place to perform our specific type of experiment;
57

Chapter 3 § Does Information About Previous Projects Promote R&D on the ISS?

n helpful to know in advance which other companies that we would need to 

work with to make the experiments a reality; 

n support material that show the ISS as a research resource at a level deeper than 

what is currently presented. Working through safety and integration processes 

seems that you need to have insider knowledge for a lot of processes;

n estimated costs; and

n knowledge of flight hardware and reasonable expectations of success.

Only one firm (1 of 7) mentioned that information about past R&D projects and 

experiments would have been beneficial when deciding to undertake its ISS R&D 

project: “Positive results from previous [experiments like ours]” would have been helpful. Of course, this is not terribly surprising, because at the time that these firms 

proposed their projects, there were few prior experiments from which they could have 

learned. They were, in a real sense, the pioneers of ISS R&D.

The remaining survey questions were intended to find out what types of information from R&D projects might be useful to subsequent project proposers. These 

questions were divided into two categories.

Questions in the first category were prefaced by: If this project alternatively could 

have been conducted as an on-Earth R&D project. Four of the 7 firms responded to 

these questions; their answers were given as numbers along the 7-point Likert scale 

and are summarized in Table 3.4. 

The results show that there is general agreement that the ISS R&D project took 

longer to complete than if it had been conducted as an on-Earth project (Question 3 in 

Table 3.4). The mean and median responses were 6.50. 

There was some agreement that the depth/breadth of research success realized from the 

ISS R&D project was greater than if the project had been conducted as an on-Earth project (Question 2 in Table 3.4). The mean response was 4.50 and the median response 

was 5.00. 

We got a neutral response to the following question (Question 4 in Table 3.4): 

Taking into account the research success of this project, and the time and cost it took to 

complete it, the total expected returns from a commercialized version of this technology 

will be greater than if the project was conducted as an on-Earth R&D project. The mean 

and median responses were 4.00. 

Finally, firms slightly disagreed with the idea that their results from the completed 

R&D project were sufficient for a “go” decision for the next phase of R&D (Question 5 

in Table 3.4). The mean response to Question 5 was 3.25 and the median response 

was 3.00. 

The second category of questions asked each firm for a comparison between its ISS 

R&D project and a previously completed on-Earth project that concerned a similar technology and was of comparable scale and scope. 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

58

There was strong agreement among the 5 respondents that the ISS R&D project 

took a longer time to complete (Question 7 in Table 3.4). The mean response was 6.60 

and the median response was 7.00. 

There was mild agreement among the 6 respondents that the research success from 

the ISS R&D project was greater than from a comparable on-Earth project (Question 6 in Table 3.4). The mean response to Question 6 was 4.83 and the median 

response was 4.50.

Finally, there was also modest agreement among the 6 respondents that the total 

expected returns from a commercialized version of this technology will be greater than 

those from a comparable on-Earth project (Question 8 in Table 3.4). The mean 

response was 4.83 and the median response was 4.00.

All in all, apart from the fact that ISS R&D takes longer than Earth-bound R&D, 

we do not feel we learned a great deal from these firms about what information might 

be useful for their successors to have.

Section 5. Recommendations to NASA

Our recommendation to NASA is to provide candidate firms with more information 

about past R&D projects and experiments conducted on the ISS. This recommendation has an economic logic that we developed in Section 2. It is also backed up by 

survey data, in particular, by the responses from firms recently selected to conduct 

ISS R&D.

To implement our recommendation we suggest that NASA, through CASIS, systematically collect information about past R&D projects and experiments conducted 

on the ISS and make that information available to all R&D firms. Our own survey 

of firms with completed projects did not clearly identify what the nature of that 

information should be. But we are not experts on R&D in LEO. Thus, it might be 

a good idea to assemble an advisory group to formulate survey questions for firms 

during and after their ISS projects are completed. Over time, a database of information about experiences from ISS R&D could be constructed, perhaps segmented by 

technology.15 Firms contemplating ISS R&D could access this database before deciding how much to invest. We believe that this information will increase R&D on the 

International Space Station and thereby help expand the commercial possibilities of 

low Earth orbit. 

15 The Advanced Technology Program (ATP) that operated at the National Institute of Standards 

and Technology (NIST) from 1990 to 2007 funded firms both individually and as part of a 

research joint venture to conduct R&D to develop pre-competitive generic technologies. The 

General Terms and Conditions for these awards has Technical Progress Reporting requirements 

and Business and Economic Reporting requirements. See http://www.atp.nist.gov/atp/2007_

atp_gen_terms_cond_9_24_07_final.pdf. The Business and Economic Reporting requirements 

included an annual survey, end-of-project survey, and often a post-project survey. ATP made 

this information publicly available. Thus, not only might this information have influenced the 

decision of candidate firms to apply for ATP support but it also created a database for studying 

economic aspects of ATP’s activities. See Powell (1998) for a discussion about the development 

and use of such a database. 
59

Chapter 3 § Does Information About Previous Projects Promote R&D on the ISS?

References

NASA (2007). “NASA Report to Congress Regarding a Plan for the International 

Space Station National Laboratory,” http://www.nasa.gov/pdf/181149main_ISS_

National_Lab_Final_Report_rev2.pdf, accessed on February 1, 2015.

NASA (2011). “Cooperative Agreement Notice: ISS National Laboratory Management Entity,” Reference Number: NNH11SOMD002C, February 14.

Powell, Jeanne (1998). “Pathways to National Economic Benefits from ATP-Funded 

Technologies,” Journal of Technology Transfer 23(2): 21–32.

Smith, Marcia S. (2001). “NASA’s Space Station Program: Evolution and Current 

Status,” Testimony before the House Science Committee, April 4.

The White House (2011). “Presidential Memorandum: Accelerating Technology 

Transfer and Commercialization of Federal Research in Support of High-Growth 

Businesses,” October 28.

61

CHAPTER 4

Venture Capital Activity in the 

Low-Earth Orbit Sector

Josh Lerner1,2

Ann Leamon2

Andrew Speen2

Executive Summary

NASA seeks to understand the challenges and opportunities inherent in the economic development of the low-Earth orbit (LEO) sector.3

 This sector comprises private companies seeking to commercialize LEO-related technologies. The Center for 

the Advancement of Science in Space (CASIS) has been managing the International 

Space Station (ISS) U.S. National Laboratory since 2011 and supports space-related 

projects intended for terrestrial benefit. 

We assess the LEO sector with respect to ISS commercialization activities as 

well as LEO activity outside of direct NASA-supported efforts. More specifically, 

we explore these trends in LEO and their potential for innovation through the lens 

of venture capital (VC). Because venture capitalists invest in innovative, high-tech 

companies, the degree of viable LEO activity in general and ISS commercialization 

specifically would likely be reflected in trends of VC-backed companies addressing 

opportunities in LEO. We track LEO VC activity in three ways: 

n First, we qualitatively analyze VC interest in the LEO sector and the degree to 

which it has waxed and waned over time. To do so, we first review academic studies, market forecasts, conference reports/proceedings/lectures, NASA reports, 

 1 Harvard Business School.

 2 Bella Research Group. 

 3 LEO is technically defined as an orbit at an altitude between 80 km and 2000 km above the 

Earth’s surface. See, National Aeronautics and Space Administration. Ancillary Description 

Writer’s Guide: Global Change Master Directory, 2016.

Disclaimer: The views and opinions of the authors do not necessarily state or reflect those of the U.S. 

Government or NASA.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

62

press releases, news articles, and VC and corporate blogs. We also conduct two 

case study investigations of LEO companies—one of which has utilized the 

ISS, the other has not, to date—to highlight emerging trends in the sector. To 

support these analyses, we interview a small group of venture capitalists and an 

aerospace lawyer active in LEO to better understand their perspectives on the 

risks and opportunities of LEO at its current state. 

We find that the LEO sector has historically been unattractive to venture 

capitalists due to the prohibitively infrequent launch and expensive opportunities; high capital requirements for satellite designs; regulatory barriers, 

and a lack of commercially viable applications. Over the last 5 to 10 years, 

however, VC interest has emerged as a result of technological developments 

enabling medium- and high-resolution images from miniature satellites, more 

frequent miniature satellite launch opportunities, and rising interest of “big 

data” analytics for various types of monitoring activities (e.g., agricultural, 

maritime, mining) and financial trading intelligence. Additionally, “emerging”—although largely unproven—advances in higher frequency, miniature 

satellite-dedicated launches reflect a more conducive environment for LEO 

startups to access space. 

n Second, we empirically examine trends in U.S. VC activity (i.e., equity invested 

and deal counts) related to LEO companies. Our analysis confirms an emergence of VC activity and suggests that the focus is on launch vehicles and 

miniature earth observation/remote sensing satellites. In addition, we find that 

the primary VC backers of LEO companies seem to have a history of investing 

in Internet- and software-related companies, which suggests that LEO-related 

firms may exhibit features similar to these more traditional VC subsectors. 

n Third, we analyze the performance of VC-backed LEO firms. We first look 

to see if any successful exits (i.e., initial public offering (IPO), acquisition) 

were achieved, as well as if any bankruptcies have been reported in the industry. Because exit opportunities have been limited due to the relative youth of 

LEO-related startups, we also look to see if VC-backed firms achieve multiple 

rounds of financing. We find that over half of the companies that received an 

initial VC investment between 2008 and 2014 have received additional rounds 

of financing as of January 2015. Importantly, this subset of LEO companies 

has also seen one high-profile exit—Google’s acquisition of SkyBox for $500 

million—and, a major valuation success with SpaceX, a private company that 

was valued at over $10 billion when it raised money in January 2015.4 No 

bankruptcies have been identified. 

Our findings collectively suggest that venture capitalists are increasingly interested in LEO-related companies. The majority of this interest stems from launch and 

miniature satellite startups. We note that while some miniature satellite companies 

 4 SpaceX raised $1 billion in a round led by Google and Fidelity for roughly 10 percent equity. 
63

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

deploy via ISS, others avoid the ISS. Companies servicing miniature satellites, such 

as dedicated launch vehicles and propulsion systems, also appear to be of interest, as 

evidenced by recent deals from notable investors in each subsector. 

Outside of the launch and miniature satellite domains, however, LEO entrepreneurship that directly relates to technology developed or researched on the ISS—e.g., 

microgravity enabled products (materials, pharmaceuticals, vaccines)—appears to 

have attracted little interest from venture capitalists to date. This finding reflects most 

directly a scarcity of startup companies formed to exploit microgravity-related technology. We hypothesize that entrepreneurship has been restrained by the logistics of 

LEO manufacturing—most notably, prohibitive launch costs and infrequent, sometimes unpredictable launch opportunities—in spite of clear developments in both 

of these areas. Another barrier seems to be a general lack of awareness on the part of 

venture investors that the ISS goes beyond the realm of basic science and can serve as 

a platform for entrepreneurial enterprises. 

In light of this analysis we develop four recommendations on how NASA and 

CASIS can promote VC involvement in the sector and spur economic development 

via the ISS. 

1. Expand efforts to raise awareness among LEO-oriented entrepreneurs and relevant angel networks/VC groups of the ISS, its benefits, and how to utilize it 

for applied commercial research. NASA and CASIS should focus these efforts 

on disseminating information regarding (i) the intersections of the ISS with 

such industries as biotechnology and miniature satellites, (ii) the steps needed 

to use the ISS efficiently, and (iii) the relevant successes to date. 

2. Set up a committee of venture capitalists to advise NASA and CASIS management on strategy of private sector ISS involvement. Venture capitalists could 

offer a fresh strategic perspective on ISS commercialization by (i) identifying 

current trends in LEO entrepreneurship, (ii) providing subtle knowledge of the 

challenges entrepreneurs encounter with the ISS, and (iii) further raising VC 

awareness of the ISS’s commercial applications. 

3. Continue to collaborate with relevant angel networks. Given academic research 

suggesting complementarities between VC and angel investments, we suggest 

continued relationships with specialist angel networks in the fields applicable 

to LEO entrepreneurship (e.g., biotechnology, materials, data and analytics). 

4. Continue to partner with accelerator programs and offer additional funds to 

ease the “proof-of-concept” process for accelerated startups. Accelerator programs can help mature the “formation-stage” LEO companies that may not 

be appealing to traditional venture capitalists or even some angel investors. In 

fact, graduates of accelerator programs have been found to attract VC investments. With CASIS supporting ISS-oriented accelerated startups with timely 

and inexpensive access to the ISS, such companies will more likely garner 

VC attention. 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

64

Section 1. Introduction

In this analysis, we examine the private LEO sector through the lens of venture capitalists. We ask the following questions: 

n What have traditionally been and what are currently the main opportunities 

and challenges in the LEO sector for venture capitalists?

n What is the extent of VC activity in LEO—especially with respect to LEO 

companies utilizing the ISS—and how has it changed over time? 

n In what specific areas of LEO do venture capitalists invest and how do these 

areas intersect with the ISS?

n What has been the performance to date of VC-backed LEO firms? 

We investigate the evolution of the sector since the late 1980s and identify entrepreneurial trends shaping the sector today. We begin, however, with a brief overview 

of why we explore the private LEO sector and, in particular, why we do so from the 

perspective of venture capitalists. 

1.1 Why Examine the Private LEO Sector? 

Commercial activities on the International Space Station (ISS) are fundamental to 

its very existence. The 1984 amendment to the National Aeronautics and Space Act 

of 1958—the law that created NASA—declared that commercialization was a necessary ingredient (an explicit statutory requirement) to promote the general welfare and 

security of the United States via aeronautical and space activities.5

 This sentiment was 

further encouraged by subsequent pieces of legislation, such as in the Commercial 

Space Launch Amendments Act of 2004 and NASA Authorization Acts.6

Given the statutory emphasis on private sector participation in LEO and on the 

ISS, this chapter explores commercial activity in LEO and the extent to which the 

ISS is viewed as a viable source of start-up opportunities. In particular, we look at 

 5 National Aeronautics and Space Administration Authorization Act, 1985, Pub. L. No. 98-361, 

Sec. 110(a), 98 Stat. 426 (July 16, 1984). The law stated: “Congress declares that the general 

welfare of the United States requires that the National Aeronautics and Space Administration...seek and encourage, to the maximum extent possible, the fullest commercial use of 

space.” See also, “Commercialization of Space: Commercial Space Launch Amendments Act of 

2004.” Harvard Journal of Law & Technology 17, no. 2 (Spring 2004): 622.

 6 See, Commercial Space Launch Amendments Act of 2004, Pub. L. No. 108-492, 108th Congress, 118 Stat. 3974 (Dec. 23, 2004). Examples of NASA Authorization Acts include: National 

Aeronautics and Space Administration Authorization Act of 2005, Pub. L. No. 109-155, 109th 

Congress, 119 Stat. 2895 (Dec. 30, 2005); National Aeronautics and Space Administration 

Authorization Act of 2010, Pub. L. No. 111-267, 111th Congress, 124 Stat. 2805, Sec. 202(b)(1) 

(Oct. 11, 2010); and National Aeronautics and Space Administration Authorization Act of 2014, 

H.R. 4412, 113th Congress, Sec. 211(a)(2) (June 23, 2014).
65

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

VC activity in the LEO space. Broadly speaking, VC activity in the LEO sector 

would indicate the existence of innovative, high-tech companies—not only technologies—in the sector. Before exploring VC activity in LEO, though, we provide an 

overview of the venture capital model of financing to better understand our rationale 

for this study.

1.2 Why Examine the Private LEO Sector Via Venture Capital 

Activity? 

Venture capital is a key financing source for high-quality entrepreneurial firms. To be 

sure, VC is a relatively small financial institution. In each of the five years from 2009 

to 2013, the National Venture Capital Association (NVCA) Yearbook reported that 

fewer than 1,500 companies received VC for the first time in the United States.7

 This 

is a very small fraction—roughly 1 in 400, or 0.25%—of the roughly 600,000 firms 

(with employees) that are started each year.8

 But VC funding has had a disproportionate impact on the U.S. economy. Samuel Kortum and Josh Lerner found that VC 

was roughly three times more powerful than corporate R&D in stimulating patenting.9

 Furthermore, Steve Kaplan and Josh Lerner found that roughly 60 percent of 

the “entrepreneurial” IPOs from 1999 to July 2009 were venture-backed, despite the 

small fraction of all firms that receive venture funding at all.10

By way of background, the VC model is built around financing innovative ventures with uncertain futures. As noted by Paul Gompers and Josh Lerner, “[v]enture 

investors typically concentrate in industries with a great deal of uncertainty, where 

the information gaps among entrepreneurs and investors are commonplace.”11 William Kerr, Ramana Nanda, and Matthew Rhodes-Kropf in fact describe VC investors 

 7 Thomson Reuters. National Venture Capital Association Yearbook 2014. Arlington: NVCA, 

2014, p. 55.

 8 This figure is calculated as average “employer births” from 2005 to 2010. See U.S. Small Business Administration, 2012, The Small Business Economy, Washington, DC: SBA.

 9 Samuel Kortum and Josh Lerner. “Assessing the Contribution of Venture Capital to Innovation.” Rand Journal of Economics 31, (2000): 674–692, 675. A positive contribution of venture 

capitalists to their portfolio companies is also found in Shai Bernstein, Xavier Giroud, and 

Richard Townsend. “The Impact of Venture Capital Monitoring: Evidence from a Natural 

Experiment.” (February 23, 2014).

10 The authors also noted that in only two of these 11 years have fewer than 50 percent of IPOs been 

VC-backed. “Entrepreneurial IPOs” defined as non-financial, non-reverse LBO, non-REIT, nonSPAC IPOs. See Steven N. Kaplan and Josh Lerner. “It Ain’t Broke: The Past, Present, and Future 

of Venture Capital.” Journal of Applied Corporate Finance 22, no. 2 (2010): 36–47.

11 Paul Gompers and Josh Lerner. The Venture Capital Cycle. 2nd ed. Cambridge, MA: MIT 

Press, 2004. See also, Paul A. Gompers. “Optimal Investment, Monitoring, and the Staging of 

Venture Capital.” The Journal of Finance 50, no. 5 (December 1995): 1461–1489.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

66

as “conducting a portfolio of tests across...highly uncertain ideas.”12 VC firms pool 

funds from investors and offer an illiquid, long-term investment in a portfolio of these 

young, unproven companies. The investors typically include insurance companies, 

foundations, endowments, and public and private pension funds and act as the limited partners (LPs) in a fund. The equity stake that VC firms receive in exchange for 

capital in portfolio companies offers potentially lucrative rewards that counterbalance 

the high investment risks. At the exit, the LPs receive their invested capital and the 

profits are split; the LPs typically receive 80 percent and the VC firm (the general 

partner, or “GP”) 20 percent. The LPs also pay fees to the GPs to cover the costs of 

doing business. 

To mitigate risk, venture capitalists perform extensive due diligence to identify 

companies best suited for successful exits. Due diligence investigation typically 

involves a look into management team capabilities, technological innovation, and 

market potential, as well as various other characteristics of the company.13 Research 

suggests that for every 100 business plans submitted to VC groups only one receives 

funding on average.14

To further mitigate risk and align interests, venture capitalists stage financing 

by funding companies based on the milestones they achieve. This approach acts as 

a control mechanism to keep entrepreneurs tightly focused on creating value for the 

firm. It also allows the venture capitalists to evaluate the firm’s progress, especially in 

light of possibilities that entrepreneurs may pursue projects with high private returns 

but low monetary returns for investors.15 In addition, by allowing investors to terminate funding in light of negative signals (e.g., failed technologies, unfavorable patent 

decisions, and so on), venture capitalists can pursue projects that would be too risky 

in an “all-or-nothing bet.”16 Sequential investments further allow venture investors to 

adjust investment paths as information emerges that enables more accurate estimates 

of the venture’s probability of success.17

12 William R. Kerr, Ramana Nanda, and Matthew Rhodes-Kropf. “Entrepreneurship as Experimentation.” The Journal of Economic Perspectives 28, no. 3 (2014): 29.

13 Andrew Metrick and Ayako Yasuda. Venture Capital & the Finance of Innovation. 2nd ed. Wiley, 

2011: 139–141.

14 Thomson Reuters. National Venture Capital Association Yearbook 2014. Arlington: NVCA, 

2014, 7.

15 Paul A. Gompers. “Optimal Investment, Monitoring, and the Staging of Venture Capital.” The 

Journal of Finance 50, no. 5 (Dec., 1995): 1461–1489.

16 This theory is described in William R. Kerr, Ramana Nanda, and Matthew Rhodes-Kropf. 

“Entrepreneurship as Experimentation.” The Journal of Economic Perspectives 28, no. 3 (2014): 

25–48, 28.

17 This idea is discussed in, Dirk Bergemann, Ulrich Hege, and Liang Peng. “Venture Capital and 

Sequential Investments.” Cowles Foundation Discussion Paper no. 1682R (March 2009). The 

authors explain, “...learning about the expected final value of the failure probability is incorporated in all subsequent investment decisions [of venture capitalists]. If there is a positive news 

update then the value of the project increases as well as the investment flow” (p. 3).
67

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

It is important to emphasize that venture capitalists’ foremost goal is to maximize financial return by exiting their portfolio companies via initial public offering 

(IPO) or acquisition. Given an average fund lifetime of roughly 10 years, venture 

capitalists consider exit options, as well as the expected time required to exit, prior to 

investment.18 As a result, although venture capitalists do invest in “raw startups”—

companies composed of a few talented individuals and an idea—they generally avoid 

investing in raw technology without a management team at all. Most U.S.-based VC 

firms seek to invest in high-tech companies at the point of rapid growth potential.19

According to the NVCA, only 11 percent of companies receiving VC financing in 

2013 were considered “non-high technology.”20 Venture capitalists are particularly 

interested in software and biotechnology, which respectively represented 37 percent 

and 15 percent of investments in 2013.21

With this background of VC financing, Section 2 continues with a qualitative 

overview of LEO-related entrepreneurship to examine the extent of VC interest in the 

sector in general and in ISS-related companies specifically. In Section 3, we empirically track VC activity in the U.S. LEO sector and describe specific characteristics of 

such deals (e.g., frequency of different subsectors and primary investors involved). In 

Section 4 we look at the extent of subsequent funding rounds and exits in our sample 

of VC-backed LEO firms. Section 5 offers a set of recommendations on how to spur 

VC interest in the sector. Section 6 concludes with some final thoughts. 

Section 2. Qualitative Overview of VC Involvement in LEO

In this section we review the literature related to VC investment in the LEO sector. Because there is limited academic material related specifically to VC interest in 

LEO, we also examine market forecasts, conference reports/proceedings/lectures, 

news reports, and VC and corporate blogs. This overview includes two case studies, 

which distill key themes relating to the current VC perspective on the LEO sector, 

as well as insights from interviews with venture capitalists and an attorney involved 

in the sector. We note that our review is not exhaustive in nature and instead aims to 

capture the central challenges and opportunities in the sector at large and for the ISS 

specifically from the perspective of venture capitalists. 

18 For a discussion of exit dynamics for U.S. VC funds, see Pierre Giot and Armin Schwienbacher. “IPOs, Trade Sales and Liquidations: Modelling Venture Capital Exits using Survival 

Analysis.” Journal of Banking and Finance 31, no. 3 (2007): 679–702.

19 Andrew Metrick and Ayako Yasuda. Venture Capital & The Finance of Innovation. 2nd ed. 

Wiley, 2011, p. 6.

20 Thomson Reuters. National Venture Capital Association Yearbook 2014. Arlington: NVCA, 2014.

21 Thomson Reuters. National Venture Capital Association Yearbook 2014. Arlington: NVCA, 2014.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

68

2.1. Terminology

Before proceeding, it is important to clarify the terminology used throughout 

this chapter. 

A. Orbit Altitudes

At the most general level, orbit altitudes can be divided into four types. Low Earth 

orbit (LEO) is between 80 km and 2,000 km; medium Earth orbit (MEO), also 

known as intermediate circular orbit, is between 2,000 km and 35,786 km, geosynchronous orbit (GSO) is at 35,786 km; and high Earth orbit (HEO) is above 35,786 

km.22 We note that the ISS is situated in LEO at an orbit altitude of 370–460 km. In 

this chapter, we focus on the commercial activity in LEO and on the ISS specifically. 

B. Miniature Satellite Classes

Satellites are generally classified according to their mass and/or structure. We use 

“miniature satellites” as an umbrella term encompassing nanosatellites (1–10 kg), 

microsatellites (10–100 kg), or small satellite (100–500 kg). While miniature satellites technically also include femtosatellites (10–100g) and picosatellites (less than 1 

kg), these classes are of minimal relevance to the chapter. In addition, “CubeSats” 

typically refer to nanosatellites built by 10×10×10-centimeter blocks, or units, each 

weighting between 1 kg and 1.33 kg. CubeSats are typically configured as one (1U), 

two (2U), or three (3U) units in length. CubeSats adhere to standard launch containers mounted to launch vehicles, which promotes flexibility in launch options 

for developers.23

C. Payload Classes

Similarly, commercial cargo, or the “payload” of a launch vehicle (satellites, research 

experiments, etc.), can be divided into two classes: primary and secondary. A primary 

payload fills the majority of vehicle capacity and determines the launch schedule and 

mission parameters, such as the orbit altitude. A secondary payload “hitches” a ride 

with the primary payload on a launch vehicle that has excess capacity, but the group 

that provides the secondary payload typically possesses no authority over mission 

dates or parameters.

22 For more information, see NASA. Ancillary Description Writer’s Guide: Global Change Master 

Directory. 2015, http://gcmd.nasa.gov/add/ancillaryguide/platforms/orbit.html. 

23 For a discussion of CubeSats, see, Michael Swartwout. “The First One Hundred CubeSats: A 

Statistical Look.” Journal of Small Satellites 2, no. 2 (2013): 213–233.
69

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

2.2 VC Interest in LEO

We begin with an overview of the historic challenges faced by entrepreneurial startups and VC involvement in the LEO sector. We track the progression of these challenges in the following section with an investigation of the current (post-2010) VC 

perspective on entrepreneurial activity in LEO.

Historic Challenges of the LEO Sector for Venture Capitalists 

Entrepreneurial interest in LEO has historically been constrained by a number of 

logistical, technical, and regulatory issues. Early studies that surveyed a number of 

actors in space-related industries between 1988 and 1999 found that high costs associated with launch and insurance, scarcity of managerial experience, limited market 

size, and long development times (relative to the life cycle of VC funds) collectively 

inhibited VC involvement in the sector.24 Below, we more closely examine some of 

the key barriers to LEO investments in a review of related literature. We specifically 

explore: (A) high costs to access LEO; (B) launch challenges, especially those associated with secondary payloads; (C) price opacity associated with launch; (D) regulatory risks of space operations and investor perception problems of NASA; and finally 

(E) uncertain exit routes and financing risks for the sector. In short, though, the biggest barriers were cost, information uncertainty, regulatory risk, and uncertain exits.

24 David Livingston (now adjunct professor at the University of North Dakota in The School of 

Graduate Studies of Space Studies) used survey data (1988, 1996, 1998, and 1999) to gather 

practitioner and investor perspectives of space-related (dubbed “New Space”) industries. The 

surveys reached a wide variety of audiences: aerospace executives, academia, VC firms (1996 

and 1998 surveys), and commercial space entrepreneurs, space advocates, and representatives 

from space agencies such as NASA. Livingston noted that in spite of the diverse audience the 

surveys revealed common barriers to space commercialization: high costs of entering space, high 

insurance expenses, long development times, unfavorable government policies, overwhelming 

uncertainties, inexperienced space company management, and legal issues. The venture capitalists were particularly concerned with a lack of managerial experience in new space ventures, as 

well as high business and political risks, limited market size, and project costs. Given these risks, 

venture capitalists demanded returns in excess of 50 percent. See, David M. Livingston “The 

Obstacles to Financing New Space Industries.” Mars Society (August 13, 1999); Condensed 

from a doctoral dissertation, Golden Gate University, San Francisco, California, 1999. Steve Jurvetson echoed these statements in reflecting on the space startups (launch vehicles, rail guns for 

fuel depots, space elevators, subcomponents for new propulsion systems) he met with over the 

roughly 10 year period to between 1995 and 2005 and noted similar barriers, namely, “...the 

amount of money required; the size of the market; [and] the timing and dependency on others, 

be it governments or other industry giants...to make your business model work.” In fact, he 

stated that “conventional wisdom [held] that [the private space industry] wasn’t a venture investment.” See Steve “Small Sat 2014: Keynote Steve Jurvetson.” YouTube video, 1:08:27. Posted by 

Small Sat Conference, August 18, 2014. https://www.youtube.com/watch?v=qzudBqGyPTY#t=340

[7:30–8:18].
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

70

A. High Costs of Entry 

We first look more closely into costs associated with LEO access, which have traditionally been viewed as among the largest obstacles for private players.25 In response to 

a rising focus on launch costs among policy makers, space-related entrepreneurs, and 

satellite operators looking to commercialize space, one study undertook an in-depth 

analysis of payload costs from 1990 to 2000. To obtain the most accurate per-pound 

launch prices, the authors divided launch prices (or alternatively the average price for 

that launch vehicle) by the actual total mass of payloads, rather than payload capacities. Using this method, the authors found non-geosynchronous orbits (NGSO) payloads typically charged around $10,000 (constant year 2000 U.S. dollars) per pound 

in the late 1990s.26

Launch costs were exacerbated by the unknown but nontrivial chance of failure, 

which would not just destroy the product but cost the company its place in the launch 

sequence and send it back to the end of the line. Estimated in 1998 at roughly nine 

percent, LEO launch failure could instantly bankrupt a young competitor.27 Even if 

the project got into space, space debris or component failure could render technologies inoperable.28 Given these risks, insurance encompassing launch, delivery, and 

liability has historically reached 15 percent of vehicle, payload, service, and ground 

facility costs.29

To contextualize the capital constraints faced by LEO entrepreneurs, we look at 

the total costs for the three main commercial NGSO satellite systems in the late1990s that together accounted for 86 percent of worldwide commercial non-geosynchronous orbit (NGSO) launches from 1997 to 1999: Iridium, Globalstar, and 

25 A NASA-sponsored report on space commercialization noted, for example, that “commercial 

and government space market growth has been severely limited by decades of consistently high 

costs of space access.” See, Hoyt Davidson, John Stone, and Ian Fichtenbaum. “Part 2: Support 

Alternatives Versus NASA Commercialization Priorities.” In Supporting Commercial Space 

Development, New York, NY: Near Earth LLC, November 2010. This view was expressed by 

Alex Saltman, formerly the Executive Director of the Commercial Spaceflight Federation (a private spaceflight industry group founded in 2005), who noted, “The high cost of space launch has 

been the single biggest barrier to the broader exploration and development of space in the last 

forty years.” See, Alex Saltman. “Commercial Spaceflight for Science and Exploration.” Commercial Spaceflight Federation (April 2, 2014).

26 Authors used constant 2000 USD. These prices likely are not indicative of the per pound price 

for small payloads. See, Futron Corporation. Space Transportation Costs: Trends in Price Per 

Pound to Orbit 1990–2000, September 2002.

27 Ed Kyle. “Space Launch Report: 1998 Launch Log and Launch Vehicle/Site Statistics,” 

Spacelaunchreport.com (1998).

28 Hoyt Davidson, John Stone, and Ian Fichtenbaum. “Part 1: Support Alternatives Versus Investor 

Risk Perceptions & Tolerances.” In Supporting Commercial Space Development. New York, NY: 

Near Earth LLC, p. 36. 

29 John Jurist, Sam Dinkin, and David Livingston. When Physics, Economics, and Reality Collide: The Challenge of Cheap Orbital Access. Colony Fund, 2007.
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Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

ORBCOMM.30 These systems respectively cost an estimated $5 billion, $3 billion, 

and $500 million. Each of Iridium’s 66 LEO satellites weighed 1,500 pounds (first 

launch occurred in 1997), and each of Globalstar’s 48 LEO satellite constellation 

weighed 985 pounds.31 ORBCOMM instead operated a 48-unit constellation of 

smaller 95-pound satellites. Iridium was originally developed and backed by telecommunications giant Motorola; Globalstar was backed by a consortium of 10 telecommunications companies; and ORBCOMM was originally founded by publicly 

traded Orbital Sciences Corporation and received additional backing from Canadian 

telecommunications firm Teleglobe Resources Industries and Technology Resources 

Industries, which controlled the largest cellular operator in Malaysia. The vast capital 

requirements of LEO satellites and deep pockets of industry incumbents generally 

rendered entrepreneurial competition infeasible. 

B. “Secondary” Status of Miniature Satellites and Infrequent Launches 

Critically, miniature satellites—a component of rising interest in the LEO sector and 

often deployed via ISS—have typically been restricted to “secondary payload” launch 

opportunities. As noted above, secondary payloads are stowed in the extra space 

remaining in launch vehicles after they have taken on their primary payloads.32 The 

availability of secondary payload opportunities for miniature satellites has been further constrained by the limited number of launches available. In 2010, Jason Andrews 

and Jeff Cannon of Spaceflight Services, for example, noted that secondary payload 

opportunities have historically been “limited and sporadic” due to logistical issues, 

such as mismatched orbit destinations and a lack of available capacity.33 While precise 

data on the average wait time for secondary payloads to access LEO are unclear, practitioners have reported launch lead times of “years.”34

C. Price Opacity to Enter LEO 

Even the true price of launching an item into LEO has historically been shrouded 

in mystery. In our interviews, one venture capitalist backing a miniature satellite 

company explained that actual costs to launch the firm’s first satellite into LEO were 

30 See, Federal Aviation Administration and the Commercial Space Transportation Advisory Committee. 2002 Commercial Space Transportation Forecasts. FAA and COMSTAC, May 2002, 

p. 30. 

31 Numbers do not include spare satellites. 

32 Shahed Aziz, Paul Gloyer, Joel Pedlikin, and Kimberly Kohlhepp. “Universal Small Payload Interface—an Assessment of U.S. Piggyback Launch Capability.” Technical Session XI: 

Advanced Subsystems and Components II. SSC00-XI-3. Proceedings of the 14th Annual 

AIAA/USU Conference on Small Satellites. 2000.

33 Jason Andrews and Jeff Cannon. “Routine Scheduled Space Access for Secondary Payloads.” 

Technical Session IX: From Earth To Orbit. SSC10-IX-8. Proceedings of the 24th Annual 

AIAA/USU Conference on Small Satellites. 2010, 1.

34 See, for instance, Peter M. Wegner, Jeff Ganley, and Joseph R. Maly. “EELV Secondary Payload 

Adapter (ESPA): Providing Increased Access to Space.” Proceedings from IEEE Aerospace Conference. Big Sky, MT: IEEE, March 2001.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

72

three times the projected estimates. Such opacity, unsurprisingly, has consistently 

dissuaded entrepreneurs from considering space as a medium for development and 

thus reduced any interest that venture capitalists might have had in investing there. In 

fact, Futron Corporation found that final negotiated launch costs varied greatly and 

were contingent on “...customer requirements, the existing supply of and demand 

for launch services, and any special provisions.”35 Without widely published figures 

on the costs of payloads, entrepreneurs, in the words of venture capitalist Steve Jurvetson, had to be or know of an “insider” to get the “real” launch price.36 With the 

final negotiated prices a “black art of the insiders,” would-be entrepreneurs could not 

answer the most basic questions about getting to space.37

D. Regulatory Barriers and NASA Perception Problem

Entrepreneurial efforts in the LEO sector have historically been further inhibited 

by regulatory uncertainty and compliance costs. Most notably, a 2010 report of the 

aerospace investment bank Near Earth found that the U.S. Department of State’s 

International Traffic in Arms Regulations (ITAR)—which implements the Arms 

Export Control Act of 1976 

38—was a serious concern for the satellite manufacturing 

and launch services markets.39 The authors specifically noted that ITAR has constrained fundraising in the market for low cost reliable access to space (primarily 

launch vehicles). 

The way in which entrepreneurs viewed NASA has also impeded early stage investment in commercial space ventures. The report authors found that NASA’s requirements were generally viewed as “unachievable” or “too costly” for the space industry 

and that NASA demotivated entrepreneurs through subsidization of competing systems.40 In addition, NASA’s sheer size overwhelmed small startups. Bill Claybaugh, 

previously Senior Director for human space systems at Orbital Sciences Corporation, 

explained, “[o]ne of the shocking things that all startups go through in dealing with 

the government is the day that they’re holding some review and the company has four 

35 Futron Corporation. Space Transportation Costs: Trends in Price Per Pound to Orbit 1990–

2000, September 2002. The opaqueness of industry prices is also express in David Kestenbaum. 

“Spaceflight Is Getting Cheaper. But It’s Still Not Cheap Enough.” NPR.org (July 21, 2011).

36 “Small Sat 2014: Keynote Steve Jurvetson.” YouTube video, 1:08:27. Posted by Small Sat 

Conference, August 18, 2014. https://www.youtube.com/watch?v=qzudBqGyPTY#t=340

[12:59–14:00].

37 “Small Sat 2014: Keynote Steve Jurvetson.” YouTube video, 1:08:27. Posted by Small Sat 

Conference, August 18, 2014. https://www.youtube.com/watch?v=qzudBqGyPTY#t=340

[12:59–14:00].

38 Arms Export Control Act, 22 U.S.C. 39, § 2751 et seq.

39 Hoyt Davidson, John Stone, and Ian Fichtenbaum. “Part 2: Support Alternatives Versus NASA 

Commercialization Priorities.” In Supporting Commercial Space Development. New York, NY: 

Near Earth LLC, November 2010, p. 8.

40 Hoyt Davidson, John Stone, and Ian Fichtenbaum. “Part 1: Support Alternatives Versus NASA 

Commercialization Priorities.” In Supporting Commercial Space Development, New York, NY: 

Near Earth LLC, November 2010, p. 58.
73

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

people and the government shows up with fourteen...Boeing and Lockheed know 

to send twenty even though the presentation only takes four because this is a contact 

sport. You need to be one-on-one with every one of those government guys to make 

sure they are getting what they want.”41

E. Uncertain Exit Routes and Financing Risk 

Finally, inchoate markets without any “shining star” benchmarks have historically been unattractive to venture capitalists. Because VC firms prefer to have an 

exit strategy in mind when they make an investment—and the first notable exit of 

a VC-backed space firm happened recently—few firms were interested in a sector 

that seemed so unlikely to provide gains to their investors.42 The report authors further emphasized that for companies enabling low cost reliable access to space a “[c]

ombination of large capital needs and high return expectations given the high risks 

involved makes it difficult to close business cases,” especially given a “[h]istory of 

costly commercial failures.”43 In fact, each of the three major LEO satellite companies 

of the late 1990s (Iridium, Globalstar, and ORBCOMM) had filed for bankruptcy 

between 1999 and early 2002 due to commercially impractical business models and 

a lack of market demand.44

With respect to the ISS, the commercial laboratory subsector also faced a variety 

of distinct barriers that limited exit potential. Most notably, the report authors ascribe 

much of the limited LEO laboratory-related market development to a lack of industry 

awareness of the benefits of manufacturing in microgravity by pharmaceutical and 

materials companies.45

41 Ted O’Callahan. “Is There Profit in Outer Space?” Yale Insights (December, 2011).

42 This challenge was echoed by Stephen Fleming of the Space Angels Network. See, Jeff Foust. 

“Lawyers, Insurance, and Money: The Business Challenges of NewSpace.” Thespacereview.

com (March 26, 2007).

43 Hoyt Davidson, John Stone, and Ian Fichtenbaum. “Part 2: Support Alternatives Versus NASA 

Commercialization Priorities.” In Supporting Commercial Space Development. New York, NY: 

Near Earth LLC, November 2010, 43–44.

44 See, Federal Aviation Administration and the Commercial Space Transportation Advisory Committee. 2002 Commercial Space Transportation Forecasts. FAA and COMSTAC, May 2002, 

p. 30. For example, one author wrote, “...Globalstar’s phones were quite large, worked only in 

open fields, had frequent dropped calls, and cost over $1000...its telephone calls cost $2–$3 per 

minute...and its coverage areas were very limited. As a result, in 2000, it was reported that Globalstar actually had only a few thousand paying customers who typically used their phones for 

less than 30 minutes per month.” The same author explained that in 1999 ORBCOMM’s investors were “...not prepared to absorb substantial ongoing losses associated with debt repayments, 

additional facilities, and operating expenses, as “...many customers were simply not willing to 

purchase equipment and sign onto a brand new type of service until that service had been fully 

deployed and operating for some time.” See, Roger Cochetti. Mobile Satellite Communications 

Handbook. Hoboken, NJ: Wiley, 2014.

45 Hoyt Davidson, John Stone, and Ian Fichtenbaum. “Part 2: Support Alternatives Versus NASA 

Commercialization Priorities.” In Supporting Commercial Space Development, New York, NY: 

Near Earth LLC, November 2010, 85, 88.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

74

A natural question is whether the maturation of the industry (and overlapping 

industries) has reduced skepticism among venture capitalists today. 

The Current VC Perspective of and Emerging Opportunities in the LEO Sector 

Despite these many challenges, venture capitalists have shown emerging interest in 

the LEO sector over the past five years. The sector’s rising attraction is attributable to 

a variety of factors, including (A) lower launch costs and more transparent prices; (B) 

more frequent launch options and opportunities, especially for miniature satellites; 

and (C) the emergence of miniature satellites with commercial applications. While 

improving, complex and cumbersome federal regulations govern the sector, and it 

does not appear that venture capitalists have been attracted to the microgravity (ISS) 

manufacturing subsector. We explore each of these topics in more detail below.

A. The Beginnings of Reduced Launch Costs and More Transparent Prices 

Given the barriers noted earlier, VC interest in LEO opportunities—such as they 

were—could only be expected after some sort of role-model company appeared. 

According to prominent LEO venture capitalist Steve Jurvetson of Draper Fisher 

Jurvetson (DFJ), that model emerged in 2002 with the founding of Space Exploration Technologies (SpaceX), a commercial launch company designed to lower the 

cost of entry to space.46 SpaceX was founded by Elon Musk, who had co-founded 

the VC-backed online payment service provider PayPal in 1999. As of January 2015, 

SpaceX was valued at $12 billion. 

Musk started SpaceX with $100 million of personal capital in 2002. NASA 

awarded SpaceX $278 million in seed funding under the Commercial Orbital Transportation Services (COTS) program to stimulate commercial transportation to the 

ISS.47 By September 2008 and after three failed attempts, SpaceX’s prototype launch 

vehicle (the Falcon 1), which was designed for smaller LEO payloads, became the 

first privately developed liquid-fueled rocket to orbit Earth. While SpaceX eventually 

abandoned the Falcon 1, the firm received $1.6 billion from NASA in 2008 for 12 ISS 

cargo resupply to the ISS. As of January 2015, SpaceX had completed 14 successful 

missions with its Falcon 9 vehicle, five of which were commercial resupply service 

missions to the ISS.48 SpaceX’s current version of the Falcon 9 (Falcon 9 v1.1) can 

46 “Small Sat 2014: Keynote Steve Jurvetson.” YouTube video, 1:08. Posted by Small Sat Conference, August 18, 2014. https://www.youtube.com/watch?v=qzudBqGyPTY#t=340 [8:00–13:00].

47 Brian Berger. “SpaceX, Rocketplane Kistler Win NASA COTS Competition.” Space.com

(August 18, 2006).

48 For a list of completed missions, see http://www.spacex.com/missions. For information regarding 

SpaceX’s fifth resupply trip to the ISS, see, “SpaceX Launches Fifth Official Mission to Resupply 

the Space Station.” SpaceX Blog (January 10, 2015). We do note that SpaceX was unable to 

deploy a secondary payload into the planned orbit on its October 2012 launch. See, “First Outing for SpaceX.” nytimes.com (October 29, 2012).
75

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

lift payloads of almost 30,000 pounds (15 tons) to LEO and costs $61.2 million per 

launch, which experts suggest is the lowest figure in the industry.49

As of 2015, the company had made major strides in validating a “game-changing” 

low-cost launch technology critical to the LEO sector. Jurvetson compared the impact 

of reductions in launch costs to the impact of fiber optics for internet services companies, explaining that just as fiber optics encouraged the emergence of new business 

models such as Hotmail and Skype, so too [would] reduced launch costs provide a 

“ray of hope” to spur innovative business models from space-focused entrepreneurs.50

Although the $61.2 million price tag for a 2016 Falcon 9 launch is likely to be 

a high barrier for many entrepreneurs, SpaceX also offers secondary launch services 

aboard the Falcon 9 for miniature satellites, which helps to support this emerging 

subsector (discussed in more detail below). According to Dustin Doud, et al., SpaceX 

utilizes secondary payloads if the primary payload fills less than 80 percent capacity.51

Another major advancement in launch costs and price transparency for miniature 

satellites comes from “specialist” small satellite coordinators, which leverage international partnerships with launch vehicles to create a pipeline of launches at commercial 

prices. Space logistics company Spaceflight Industries, for example, offers baseline 

price quotes for the launch of miniature satellites based on the weight/size of the 

payload and orbit destination. CubeSats (5 kg) can access LEO for roughly $295,000 

and 100 kg microsatellites for under $4 million.52 Companies such as Spaceflight 

not only reduce launch costs, but also enable entrepreneurs to more accurately gauge 

budgetary requirements with relative ease. 

B. Infrequent Launches Remain an Issue, But Progress is Being Made 

While lower launch costs have helped spur entrepreneurial efforts in the LEO sector, 

launch frequencies remain suboptimal. For example, research suggests substantial 

delays for launches on which satellites seek rideshare opportunities.53 As evidence, a 

SpaceWorks report found that that “[t]here was little excess capacity for nano/micro49 Justin Bachman. “To Reuse Rockets, SpaceX Needs to Stick a Tricky Landing.” Bloomberg.

com (January 5, 2015).

50 “Small Sat 2014: Keynote Steve Jurvetson.” YouTube video, 1:08:27. Posted by Small Sat 

Conference, August 18, 2014 https://www.youtube.com/watch?v=qzudBqGyPTY#t=340

[12:00–13:00]. 

51 Dustin Doud, Brian Bjelde, Christian Melbostad, and Lauren Dreyer. “Secondary Launch Services and Payload Hosting Aboard the Falcon and Dragon Product Lines.” Technical Session V: 

Getting There. SSC12-V-3. Proceedings of the 26th Annual AIAA/USU Conference on Small 

Satellites. 2012.

52 See http://spaceflightservices.com/pricing-plans, accessed January 15, 2015. 

53 Adam Snow, Elizabeth Buchen, and John R. Olds. Global Launch Vehicle Market Assessment: A Study of Launch Services for Nano/Microsatellites in 2013. Atlanta: SpaceWorks, July 

2014, 11. Smallsat dedicated launch company Rocket Lab (discussed below) noted a lack of 

“responsiveness” in launch opportunities for LEO small satellites. See, Peter Beck, Interview 

by Spacevidcast. “The Electron Rocket – 7.24.” YouTube video, 48:53. Posted by Spacevidcast, 

August 10, 2014. https://www.youtube.com/watch?v=tkmrZVDmio4 [25:00–27:00].
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

76

satellites (1–50 kg) on 2013 launches [to LEO] given vehicle integration limitations” 

and concludes that “...the current supply of launch vehicles will not sufficiently serve 

future nano/microsatellite market demand.”54

In response to this challenge, as well as a spike in demand for miniature satellite 

launches (discussed below), the LEO sector has seen two key advances: (i) miniature 

satellite launch brokerage and “concierge-type” deployment via ISS, and (ii) the development of low-cost dedicated small satellite launches.

i. Miniature Satellite Launch Brokerage and “Concierge-Type” Deployment Via ISS

We identified a number of companies that were expanding launch opportunities to 

LEO for miniature satellites. We examine two such companies in more detail: Spaceflight Industries (referenced above) and NanoRacks. 

One venture capitalist explained that Spaceflight works with a broad network of 

commercially accessible launch operators worldwide (such as SpaceX, Orbital Sciences, Roscosmos, and Virgin Galactic) and has emerged as “the principal broker 

for secondary market launches.” Spaceflight provides the manifests for, certifies, and 

integrates secondary payloads on launch transportation vehicles, such as those from 

SpaceX and Orbital Sciences. Spaceflight also facilitates launch opportunities with 

integration services, and provides ITAR expertise and technical assistance to minimize the risk of regulatory snafus or malfunction. Spaceflight documentation (as of 

March 2013) suggests that it can provide launches between 18 and 24 months after 

contract signing.55

Another company that facilitates launches for miniature satellites is NanoRacks. 

NanoRacks is a privately funded, VC-backed startup founded in 2009 that entered 

into a Space Act Agreement with NASA in September 2009 to develop proprietary 

commercial research facilities on the ISS. Of particular interest to venture capitalists, the NanoRacks Smallsat Deployment Program utilizes launch vehicles to the 

ISS for small satellite deployment. Importantly, NanoRacks offers relatively frequent 

launch opportunities given consistent cargo missions servicing the ISS. NanoRacks 

also coordinates “...payload integration, payload design and development, and interfacing with NASA and foreign space agencies.”56 The firm’s documentation suggests 

varied turnaround times from contract signing to launch, from nine months57 to 

12–14 months.58

54 Adam Snow, Elizabeth Buchen, and John R. Olds. Global Launch Vehicle Market Assessment: A Study of Launch Services for Nano/Microsatellites in 2013. Atlanta: SpaceWorks, 

July 2014, 10–11.

55 Spaceflight, Inc. Secondary Payload Users Guide: Spaceflight Inc., 2013. 

56 For overview of the NanoRacks Smallsat Deployment Program, see, http://nanoracks.com/

products/smallsat-deployment. 

57 See NanoRacks slide deck, at http://www.nasa.gov/sites/default/files/accelerating_innovation_

through_microgravity_research.pdf.

58 NanoRacks. NanoRacks CubeSat Deployer (NRCSD) Interface Control Document. Houston: 

Nano-Racks, 2013.
77

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

As of October 2014, NanoRacks had deployed over 40 CubeSats.59 While NanoRacks’ deployment is mostly limited to the “nano” end of small satellites and has 

encountered technical difficulties resulting in suspended missions, the program may 

spur entrepreneurial and VC activity in the LEO sector by offering more affordable, 

more frequent, and more reliable—even if not perfect—access to the domain. 

ii. Low-Cost Miniature Satellite Dedicated Launches

To date, Spaceflight and NanoRacks have streamlined the launch process for miniature satellites via secondary payloads. The constraints inherent to flying secondary 

remain, however. For example, deployment via NanoRacks necessitates launch at the 

orbit of the ISS, which several of our interviewees explained may be suboptimal for 

some payloads.60 In addition, launch and integration schedules are still in the hands 

of the primary payload operators, which adds additional layers of uncertainty. As a 

result, startups are building low-cost launchers dedicated to miniature payloads. 

A new low-cost, miniature satellite-dedicated launcher is being developed by 

Khosla Ventures-backed Rocket Lab. Rocket Lab’s Electron launch vehicle is currently planned to deliver payloads up to 110 kg to LEO. According to Rocket Lab 

CEO Peter Beck, the company hopes to provide a solution to the two key barriers to 

space commercialization: launch cost and “responsiveness.” First, Rocket Lab aims to 

reduce the total amount of capital that must be raised to enter space. Beck explained 

in a Spacevidcast interview: “For the same price [roughly $4.9 million for approximately 110 kg] of a rideshare you get to where you want to go, when you want to 

go.”61 He noted, however, that reasonable cost is largely irrelevant without timely, 

“responsive” launches. As a result, the company is aiming for 100 launches per year.62

Rocket Lab is not alone in its mission to provide high-frequency, low-cost small satellite-dedicated launches. The first launch of Virgin Galactic’s miniature satellite-dedicated vehicle LauncherOne, for example, is scheduled in 2016 with customers such 

as Skybox Imaging, GeoOptics, and Planetary Resources.63 If proven efficient, the 

vehicles may collectively reduce entrepreneurial barriers and spur VC interest in the 

sector. We note, however, that while the venture capitalists we interviewed generally 

59 See “NanoRacks CubeSat Deployer (NRCSD) on the ISS.” YouTube video, 1:31. Posted by 

Nano-Racks, October 1, 2014. https://www.youtube.com/watch?v=AdtiVFwlXdw&t=19. 

60 Note, however, that Altius Space Machines’ HatchBasket smallsat deployer carrier is working with NanoRacks to solve this problem by enabling deployment of spacecraft at altitudes 

higher than the ISS. See, Jonathan Goff, “HatchBasket: Genesis of a Concept.” Altius-Space.

com (August 4, 2014).

61 Peter Beck, Interview by Spacevidcast. “The Electron Rocket–7.24.” YouTube video, 48:53. 

Posted by Spacevidcast, August 10, 2014. https://www.youtube.com/watch?v=tkmrZVDmio4

[25:00–27:00].

62 See Rocket Lab website, at http://www.rocketlabusa.com/our-mission.

63 Jeff Foust. “Virgin Galactic’s LauncherOne on Schedule for 2016 First Launch.” Spacenews.com

(March 16, 2015).
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

78

saw such launch vehicles as a step in the right direction, opinion was divided as to 

whether rideshares will likely remain dominant, at least in the near future. 

C. Technological Advancement and “Big Data” Applications for Miniature Satellites 

This increase in secondary and miniature satellite dedicated launch opportunities has 

largely been a response to the emergence of commercial nanosatellite and microsatellite startups. Recent projections suggest strong growth among nano/microsatellites 

(1–50 kg), stemming in large part from demand in the commercial sector. Whereas 

historically (2009–2013) the commercial sector was responsible for roughly 8 percent of nano/microsatellites globally, this figure is expected to spike to 56 percent 

for 2014–2016.64 In fact, 2013 saw a 330 percent increase in attempted nanosatellite 

(1–10 kg) deliveries, compared to 2012.65

To further explore the changes contributing to recent VC interest in LEO, 

we explore the histories of two VC-backed LEO satellite companies: Planet Labs 

and Skybox. 

i. Miniature Satellite Case Study: Planet Labs 

Company Background: Planet Labs is a San Francisco-based startup founded in 2010 

by three former NASA employees who sought to create a constellation of Earth-imaging nanosatellites (called “Doves”) with data distribution applicable to commercial 

enterprises and humanitarian purposes. The company deploys its fleet of CubeSats, 

which typically weigh between five and six kilograms each, to collect global imagery 

data with an optical resolution of three to five meters at a much faster pace (daily) 

than that of traditional satellites.66 These lightweight, shoebox-sized satellites travel 

as secondary payloads on larger launch vehicles.67 In February 2014, Planet Labs 

deployed its “Flock 1” 28-satellite fleet from the ISS.68 Subsequent successful deployments (as of January 2015) have included 22 satellites as part of the 28-satellite “Flock 

64 Dominic DePasquale and Elizabeth Buchen. 2014 Nano/Microsatellite Market Assessment. 

Atlanta: SpaceWorks Enterprises, 2014, p. 9.

65 Dominic DePasquale and Elizabeth Buchen. 2014 Nano/Microsatellite Market Assessment. 

Atlanta: SpaceWorks Enterprises, 2014.

66 Kirk Woellert, Pascale Ehrenfreund, Antonio J. Ricco, and Henry Hertzfeld. “Cubesats: 

Cost-Effective Science and Technology Platforms for Emerging and Developing 

Nations.” Advances in Space Research 47, no. 4 (February 15, 2011): 663–684.

67 “Flock 1 – Planet Labs Earth Observation Satellites.” Spaceflight101.com (January 5, 2015). 

James Mason of Planet Labs noted that because the firm’s satellites fly as secondary payloads, 

Planet Labs has no authority over final orbit parameters and sometimes accepts less-than-ideal 

orbit regions. See, James Mason. “Keeping Space Clean: Responsible Satellite Fleet Operations.” Planet Labs Blog (October 16, 2014).

68 Mike Wall. “First ‘Cubesats’ in Record-Breaking Fleet Launched from Space Station.” Space.

com (February 11, 2014). See also, “Flock 1 – Planet Labs Earth Observation 

Satellites.” Spaceflight101.com (January 5, 2015).
79

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

1b,”69 an 11-satellite “Flock 1c,” and a two-satellite “Flock-1d Prime,” which came 

after a fleet of 26 “Flock 1d” satellites were destroyed by rocket failure.70

Planet Labs works in close partnership with NanoRacks and thus primarily (with 

the exception of Flock 1c) deploys satellites from the ISS. An issue associated with ISS 

deployment is a short orbital lifetime that inhibits commercial viability. As a result, 

Planet Labs’ satellites have a lifespan of just one to three years, notably shorter than 

larger communications satellites.71 The “replenishment model,” however, allows for 

more frequent technology updates for each subsequent flock.72

Planet Labs distinguishes itself from traditional satellite companies in both its 

manufacturing methods and imaging rates. Planet Labs leverages consumer technology (e.g., mobile phones, laptops) to manufacture its satellites at a fraction of typical 

costs.73 In a discussion of Planet Labs’ Commercial, Off-the-Shelf (confusingly also 

bearing the acronym COTS associated with NASA’s Commercial Orbital Transportation Services program) investment strategy, Planet Labs explained “...we look a 

lot more like a cell phone manufacturer than we do an aerospace company.”74 In 

line with an observation by Steve Jurvetson that space-related companies were integrating software economics into operations,75 they noted that the company follows 

the software adage to “release early and often” and contrasted Planet Labs’ 8–12 

week iteration from design to manufacture of its Dove satellites with the years or 

decades for other devices in the aerospace industry.76 The company leverage an “agile 

development” strategy, adopted from the software industry, achieving 10 builds in 

69 For more detailed information, see http://space.skyrocket.de/doc_sdat/flock-1.htm.

70 For detailed information on Planet Labs’ Flock 1 launches, see “Flock 1 – Planet Labs Earth 

Observation Satellites.” Spaceflight101.com (January 5, 2015).

71 Ryan Lawler. “After Sending 2 ‘Doves’ into Orbit, Planet Labs Prepares Largest Satellite Constellation for Launch.” Techcrunch.com (November 26, 2013). For more detail as to the specifications of Planet Labs’ satellites, see Christopher R. Boshuizen, James Mason, Pete Klupar, 

and Shannon Spanhake. “Results from the Planet Labs Flock Constellation.” Technical Session 

I: Private Endeavors. SSC14-I-1. Proceedings of the 28th Annual AIAA/USU Conference on 

Small Satellites. 2014.

72 Debra Werner. “Profile: Chris Boshuizen, Chief Technology Officer, Planet Labs 

Inc.” Spacenews.com (January 27, 2014).

73 Quentin Hardy and Nick Bilton. “Start-Ups Aim to Conquer Space Market.” nytimes.com

(March 16, 2014). One article suggested that cost is “substantially less than $100,000.” See, 

Rakesh Sharma. “All Set for Take-Off: Silicon Valley Startups Redefine Space Imaging Market.” Forbes.com (February 26, 2014).

74 Christopher R. Boshuizen, James Mason, Pete Klupar, and Shannon Spanhake. “Results from 

the Planet Labs Flock Constellation.” Technical Session I: Private Endeavors. SSC14-I-1. Proceedings of the 28th Annual AIAA/USU Conference on Small Satellites. 2014, 2.

75 Jeff Foust. “The Silicon Valley of Space could be Silicon Valley.” Thespacereview.com (July 29, 

2013).

76 Christopher R. Boshuizen, James Mason, Pete Klupar, and Shannon Spanhake. “Results from 

the Planet Labs Flock Constellation.” Technical Session I: Private Endeavors. SSC14-I-1. Proceedings of the 28th Annual AIAA/USU Conference on Small Satellites. 2014, 5.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

80

36 months. Their approach is akin to “beta-testing” in the software industry, as the 

engineers release early and iterate often.

VC Investments: As of January 2015, Planet Labs had raised more than $135 million 

in entire funding along with $25 million in debt. The first investment, a $13.1 million Series A round that closed in June 2013, came just a few months after Planet 

Labs successfully deployed two demonstration satellites to validate key technologies, 

such as the resolution of its imagery data.77 Backers were a consortium of VC firms, 

including DFJ, Capricorn, O’Reilly AlphaTech Ventures, Founders Fund, Innovation 

Endeavors, Data Collective, and First Round Capital. In November 2013, the company launched two additional demonstration satellites and, in the following month, 

secured $52 million in Series B funding, led by Russian billionaire Yuri Milner and 

with additional investment from existing investors such as DFJ. In January 2015, the 

company secured an additional $70 million in Series C funding, which was led by 

San Francisco-based VC fund Data Collective. As part of this round, Planet Labs also 

announced a $25 million debt facility from Western Technology Investment. 

Investment Thesis: The VC groups backing Planet Labs have expressed excitement 

about LEO and, more specifically, the miniature satellite industry. Steve Jurvetson of 

DFJ affirmed, “We’re seeing unprecedented innovation in the space industry, starting 

with SpaceX reducing the cost of access, and now with Planet Labs revolutionizing 

the satellite segment.”78 Jurvetson noted two specific developments in the satellite 

industry that were spawning high-potential startups: the standardization of secondary payloads and specialized launch services for small satellites.79

Another industry trend attractive to venture capitalists is the adoption of low-cost 

technologies used in other industries to speed development times, as opposed to the 

capital-intensive business model of traditional space-related companies. This trend is 

abundantly clear with Planet Labs, which utilizes, for example, facilities built by the 

automobile industry to perform heat transfer analysis and electronic design tools and 

testing houses from consumer electronics.80 In broad terms, they found that advances 

77 For example, its Dove-1 satellite demonstrated its forestry application potential by capturing 

detailed imagery of a forest in Portland, Oregon. See Debra Werner. “Planet Labs Unveils Plan 

to Launch 28 Nanosats on Antares’ 1st Cargo Run.” Spacenews.com (June 26, 2013).

78 See Leena Rao. “Planet Labs Raises $13M from DFJ, OATV, Founders Fund to Build the 

World’s Largest Fleet of Earth-Imaging Satellites.” Techcrunch.com (June 25, 2013).

79 “SN Profile: Steve Jurvetson, Managing Director, Draper Fisher Jurvetson (DFJ).” Spacenews.

com (July 29, 2013).

80 Christopher R. Boshuizen, James Mason, Pete Klupar, and Shannon Spanhake. “Results from 

the Planet Labs Flock Constellation.” Technical Session I: Private Endeavors. SSC14-I-1. Proceedings of the 28th Annual AIAA/USU Conference on Small Satellites. 2014.
81

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

in commercial technology have led to advances in CubeSats’ power and reliability, 

which historically have been primary limiting factors.81 

Finally, the investors see substantial commercial value in the data applications of 

Planet Labs’ satellites. In fact, its most recent round of fundraising was led by a VC 

firm (Data Collective) that focuses specifically on “big data” startups. Tim O’Reilly 

of O’Reilly AlphaTech Ventures, which has invested in two rounds, further affirmed 

the transformative nature of “regularly and frequently” updated Earth imagery data.82

As of early-February 2015, the company disclosed three clients: 

n Woolpert: Design, geospatial, and infrastructure management firm (October 2014). 

n Geoplex: Mapping and geographic information systems (GIS) firm (November 2014). Major applications include emergency management, agriculture, 

and forestry.83

n Wilbur-Ellis: Agricultural and industrial products marketer and distributor 

(February 2015).84

VC investors remain aware of substantial risk inherent to the LEO sector, as 

clearly demonstrated in the October 2014 explosion of the Antares rocket carrying 26 

satellites.85 The company anticipates such mishaps, however, and spreads launch risk 

across multiple vehicles from multiple vendors, such that the Antares explosion was 

“not catastrophic” to the firm.86

ii. Miniature Satellite Case Study: Skybox 

Now, we turn to another LEO player. Skybox is developing larger microsatellites, but 

in many ways it operates under the same philosophy as Planet Labs. We note, however, that Skybox has, to date, not deployed its satellites via ISS.

Company Background: Skybox Imaging is a Mountain View, California-based firm 

founded in 2009 that builds high-resolution earth observation microsatellites. Similar to Planet Labs, the firm uses its satellites as a platform to generate data applicable 

to such industries as agriculture, oil and gas, finance, and mining, as well as a variety 

of humanitarian efforts. As explained by co-founder Dan Berkenstock, “What’s exciting to [Skybox]...[is] not just the picture of the parking lot, but an answer for how 

81 Christopher R. Boshuizen, James Mason, Pete Klupar, and Shannon Spanhake. “Results from 

the Planet Labs Flock Constellation.” Technical Session I: Private Endeavors. SSC14-I-1. Proceedings of the 28th Annual AIAA/USU Conference on Small Satellites. 2014, 3.

82 “Planet Labs Reveals First Images from Space; Announces Plans to Launch Fleet of Satellites to 

Understand the Changing Planet.” BusinessWire.com (June 23, 2013).

83 Beau Jarvis. “Geoplex and Planet Labs Partner to Supply Australia and New Zealand with Satellite Imagery.” Planet Labs Blog (November 20, 2014).

84 Josh Alban. “Planet Labs Strikes Agreement with Wilbur-Ellis to Enhance AgVerdict® Data 

Tool.” Planet Labs Blog (February 2, 2015).

85 Will Marshall. “Space is Hard: Antares Rocket Failure.” Planet Labs Blog (October 28, 2014).

86 Will Marshall. “Space is Hard: Antares Rocket Failure.” Planet Labs Blog (October 28, 2014).
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

82

many cars are within it and how...that [number] compare[s] to what happened last 

week, last month, last year.”87

Skybox aims to build an LEO satellite constellation to capture imagery and collect 

data of a single spot on a frequent basis (five to seven times per day).88 Skybox’s first 

satellite—dubbed the SkySat 1—was launched aboard the Russian Dnepr rocket in 

November 2013. The company subsequently launched SkySat 2 in July 2014 aboard 

the Soyuz-2/Fregat rocket from Kazakhstan. Each of these satellites weighed roughly 

100 kg—substantially larger than Planet Labs’ 5–6 kg satellites—but was equipped 

with sub-meter resolution imagery (relative to three-to-five meters for Planet Labs), 

as well as high definition video capabilities.89 Working toward a 24-satellite constellation, Skybox partnered with Space Systems/Loral (SSL) in February 2014 to 

build 13 additional 120 kg satellites that would capture images of any point on Earth 

three times per day.90 In the same month, Skybox signed a contract with American 

launch company Orbital Sciences Corporation to launch six of the SSL manufactured 

devices aboard the Minotaur-C rocket from California, which will be equipped with 

a specially designed SkySat satellite dispenser.91

Skybox builds its low-cost satellites with COTS technologies. Ethan Kurzweil, 

partner at Bessemer Venture Partners and board observer, explained, “[i]ncumbents...launch these massive satellites that cost 10 years to make. By the time you 

launch, you’re three cycles behind.... By taking off-the-shelf parts [and] putting 

them together in a rapid design and test methodology, you shorten up those cycles.”92

Using designs based on COTS components such as oscillators and circuit boards,93

one source suggested that Skybox’s first satellite (SkySat-1) cost roughly $2 million to 

$5 million to build.94

VC Investments (Pre-exit): Skybox raised a total of $94 million prior to its acquisition 

by Google in August 2014. Skybox received Series A financing of $3 million from 

Khosla Ventures in July 2009. With this funding, the founders moved operations out 

87 “Stanford Seminar—Dan Berkenstock, Julian Mann, John Fenwick, and Ching-Yu Hu.” 

YouTube video, 57:49. Posted by stanfordonline, March 22, 2013. https://youtu.be/

i-1dlUS3rEo?t=270 [4:31–5:15]. 

88 Andreas Jelinek. “Entering the Final Stretch for the European Space Imaging & Skybox Imaging High-Res Challenge.” Skybox Imaging Blog (June 24, 2014).

89 “SkySat-1 First Light.” Skybox Imaging Blog (December 11, 2013).

90 Space Systems/Loral (SSL). “Skybox Imaging Selects SSL to Build 13 Low Earth Orbit Imaging 

Satellites.” (February 10, 2014).

91 Peter B. de Selding. “Skybox Taps Orbital Sciences for 2015 Minotaur Launch.” Spacenews.com

(February 20, 2014).

92 Liz Gannes and James Temple. “Everything You Need to Know about Skybox, Google’s Big 

Satellite Play.” Recode.net (June 11, 2014).

93 Debra Werner. “Skybox Imaging’s Hopes High as Launch of First Satellites Draws Near.”

Spacenews.com (October 14, 2013).

94 Liz Gannes and James Temple. “Everything You Need to Know about Skybox, Google’s Big 

Satellite Play.” Recode.Net (June 11, 2014).
83

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

of co-founder John Fenwick’s living room and into an office in Palo Alto and began to 

expand the team. One year later—after becoming the fifth U.S. company to receive a 

NOAA license to operate a high-resolution satellite—the firm closed Series B financing of $18 million from investors including Khosla Ventures and Bessemer Venture 

Partners. In April 2012, Skybox closed a $70 million Series C round to support the 

launches of SkySat-1 and SkySat-2 and expand strategic alliances. Finally, the company received an additional $3 million investment post Series C. 

Investment Thesis: Skybox’s initial fundraising efforts were marked by extreme skepticism among venture capitalists. According to Berkenstock, the founders had pitched 

Skybox over 50 times in the previous 6.5 months before closing its Series A financing.95 In 2009, the Skybox team was introduced to Pierre Lamond of Khosla Ventures 

by their Stanford professor Mark Leslie, a former VC-backed CEO. With fewer than 

30 global miniature satellite (1–50 kg) launches in 2009 from the technology, its 

commercial value was uncertain.96 One venture capitalist explained that most other 

venture capitalists at the time were extremely skeptical of the investment. 

By 2010, however, market viability was becoming increasingly clear. At the time 

Skybox closed its Series B round, Berkenstock spoke of a disequilibrium in the supply and demand equation of Earth observation satellites, “Commercial customers, 

including those in the oil-and-gas, mining, financial trading, agriculture and forestry 

industries, are hungry for more timely, high-resolution images for space. There simply aren’t enough satellites out there...to provide the kind of daily, or even hourly 

updates that companies need.”97 While Skybox raised $18 million in July 2010, investors were still hesitant about the technology. David Cowan, who regarded Skybox 

as a “naïve pipe dream” in 2009, stated that he “built up the nerve” to invest in 

Series B.98 Beyond technology questions, venture capitalists explained that another 

key constraint was the limited number of launch vehicles on which Skybox satellites 

could ride. 

Nonetheless, of critical importance was the rising “big data” market in which 

Skybox (like Planet Labs) had a unique position. A March 2012 report by market 

intelligence firm IDC projected that the “Big Data technology and services market” 

would balloon from $3.2 billion in 2010 to $16.9 billion in 2015, which would represent a compound annual growth rate (CAGR) roughly seven times that of the overall 

95 “Stanford Seminar—Dan Berkenstock, Julian Mann, John Fenwick, and Ching-Yu Hu.” 

YouTube video, 57:49. Posted by stanfordonline, March 22, 2013. https://youtu.be/

i-1dlUS3rEo?t=706 [11:40–13:08].

96 Dominic DePasquale and John Bradford. 2013 Nano/Microsatellite Market Assessment. 

Atlanta: SpaceWorks Enterprises, February 2013.

97 “Skybox Imaging Raises $18M in Series B Financing.” Skybox Imaging Blog (July 26, 2010).

98 Seth Fiegerman. “How 4 Students Got a Satellite Startup Off the Ground and $500 Million 

from Google.” Mashable.com (June 11, 2014).
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

84

information and communication technology (ICT) market.99 In particular, IDC projected the Big Data services segment to increase at CAGR 39.5 percent from $1.2 

billion to $6.5 billion.100 As a result, VC firms saw major potential in the industry. 

IDC found that VC funding in the big data and analytics software market increased 

from $155 million in 2009 to $726 million in 2011.101

In our interview, one venture capitalist further emphasized that VC backing, 

rather than NASA backing, could itself actually remove many of the historical impediments to the sector. He explained that VC backing “removed rules” in the domain, 

as ventures could bypass restrictions and liabilities stemming from government risk 

aversion. “Every time you build redundancy into a system, you add weight and cost.”

The Exit: A turning point came in November 2013 when Skybox launched its SkySat-1 aboard the Dnepr rocket. The following month Skybox validated its sub-meter 

resolution technology, as it released several high-resolution images and a high-definition video. As noted by one venture capitalist, “[Once Skybox] sent down the first 

pretty picture, VCs changed their minds [about the company].” One board member 

also noted that post-launch, “...all sorts of suitors came out of the woodwork.”102 In 

February 2014, Skybox secured a launch agreement for six follow-on satellites (to be 

manufactured by Space Systems/Loral) in late 2015.

In August 2014, Google acquired Skybox for $500 million. While the acquisition 

would allow Google to improve its maps services, the primary applications were much 

broader: bringing satellite-based internet access to developing countries and capitalizing on data that could be extracted from the satellites. 

Regardless of eventual applications, Skybox’s acquisition closed the VC circle by 

demonstrating an exit for a LEO company. As one venture capitalist explained, “With 

Skybox’s sale to Google and SpaceX [valued at $10 billion in January 2015], there 

were two winners in space and you could say that space [became] open for business.”

Skybox and Planet Labs represent a new commercial model for satellite imaging. 

Each is in essence a big data company employing relatively low-cost miniature satellite technology to collect imagery data with high-value commercial applications. The 

revolution in such satellite technology is largely attributable to major advancements in 

the power and size of COTS hardware. The “softwarization” of R&D attitudes—e.g., 

the Agile principle of “iterate often”—has further driven down costs and development 

times, while allowing for greater risk and innovation. Relatedly, the development and 

integration of big data software that transforms sensory output into valuable commercial insights creates exit options for venture capitalists. 

99 International Data Corporation. Worldwide Big Data Technology and Services 2012–2015 

Forecast. IDC, March 2012.

100 International Data Corporation. Worldwide Big Data Technology and Services 2012–2015 

Forecast. IDC, March 2012.

101 “VC Funding Trends in Big Data (IDC Report).” Experfy.com (June 11, 2014).

102 Seth Fiegerman. “How 4 Students Got a Satellite Startup Off the Ground and $500 Million 

from Google.” Mashable.com (June 11, 2014).
85

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

D. Federal Regulations Remain a Hurdle but Are Improving 

While miniature satellite companies like Planet Labs and Skybox have penetrated the 

LEO market, federal regulation has nonetheless remained problematic. In November 2011, Julian Mann, VP of Product Development & Research and co-founder of 

Skybox, alluded to major obstacles in adherence to Federal Communications Commission (FCC) requirements. In particular, he noted that FCC licenses for Earth 

observation satellites have extremely high capital requirements. Mann explained that 

ITAR has inflated manufacturing time and costs due to the requirement that every 

component be manufactured by ITAR-certified machine shops, and it has diminished domestic competitiveness by inhibiting collaboration with international developers who generally have client bases outside of the United States.103

We note, however, that the ITAR was since amended, and as of November 2014 

most commercial satellites have become subject to the less onerous Bureau of Industry 

and Security’s Export Administration Regulations (EAR).104 In talks with a lawyer 

who specializes in regulatory issues for LEO miniature satellite firms, we found that 

while this change in regulation will ultimately relieve LEO companies like Skybox of 

much of the time and money devoted to ITAR compliance, it is not a “game-changing” law shift for the entrepreneurial miniature satellite community. This is because 

the shift in regulation does not constitute “decontrol,” but rather a change in applicable regulations to a sometimes more complex regime. The shift in regulation does, 

however, allow commercial satellite companies to utilize License Exception Strategic 

Trade Authorization (STA) with respect to exports of to a number of countries in 

developed markets, such as Western Europe, Australia, New Zealand, Canada, and 

Japan, which he suggested will substantially reduce the administrative burden. In 

addition, “concierge-style” secondary payload brokers (such as Spaceflight) streamline 

compliance with federal regulations. Venture capitalists nonetheless continue to find 

that complicated federal regulations impose compliance costs and additional time to 

properly arrange export-related transactions. 

We also note major concerns with respect to intellectual property (IP) and commercial users’ willingness to conduct applied research. In the NASA Office of the 

Inspector General’s Audit Report of September 2014, the authors explained that 

“[u]nder the 2011 cooperative agreement with NASA, CASIS and its partners must 

transfer patent licenses and data rights related to federally supported research conducted on Station to the Government...[which includes] discoveries funded by the 

103 See Julian Mann’s written statement from Creating and Growing New Businesses: Fostering U.S. Innovation. 112 Congress, First sess., November 2, 2011. For detailed information 

on FCC requirements, see, Michael Swartwout. Secondary Payloads in 2014: Assessing the 

Numbers. 2014 IEEE Aerospace Conference, 2014. See also, http://www.hallikainen.com/

FccRules/2014/25/165/index.php.

104 “State and Commerce Departments Publish Interim Final Rules Implementing Satellite Export 

Control Reform.” Covington & Burling (May 23, 2014).
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

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Federal government via NASA’s annual $15 million award.”105 The authors explicitly 

noted that such provisions dissuaded pharmaceutical and consumer product companies from working with the ISS. While amendments were made in 2012 to give 

private researchers “more control” of their research, they failed to assuage commercial 

users’ concerns (according to CASIS). Finally, in 2013 the NASA Advisory Council 

recommended a legislative amendment to ensure that users (both large and small 

entities) retain all IP rights. The authors stated that as of July 2014 the proposal had 

not been implemented into congressional legislation.106

E. VC Interest in Non-Satellite-Related LEO Activity is Slim 

Although venture capitalists have shown interest in launch vehicles and miniature 

satellites, they have expressed little interest in companies using microgravity in the 

biotechnology, pharmaceutical, and semiconductor industries. In our talks with 

venture capitalists involved in the sector, none mentioned any current interest in 

LEO pharmaceutical/biotechnology manufacturing. One company has received 

VC funding however.

ACME Advanced Materials (A2M) is an Albuquerque-based company established in 2014 that produces semiconductor materials in microgravity conditions.107

While A2M has disclosed negligible operational detail to date, the firm announced 

commercialization of its “process to produce large quantities of low loss, electrically 

defect free (EDF) Silicon Carbide (SiC) wafers in a microgravity environment.”108 The 

commercial value of SiC lies primarily in applications to power electronic devices, as 

the material properties of SiC are more energy efficient relative to standard silicon 

(Si) wafers.109 A2M received “seven-figure”110 seed funding from New Mexico-based 

Cottonwood Technology Fund and Canada-based Pangaea Ventures. Cottonwood 

Technology Fund is a seed and early stage technology commercialization fund investing primarily in chemistry/material sciences, photonics, biosciences, and new energy 

related businesses.111

105 National Aeronautics and Space Administration. Extending the Operational Life of the International Space Station Until 2024. Washington, DC: NASA Office of Inspector, 2014, 132.

106 National Aeronautics and Space Administration. Extending the Operational Life of the International Space Station Until 2024. Washington, DC: NASA Office of Inspector, 2014.

107 A2M started as Medusa Space (founded in 2012). After an investor failed to provide promised 

funds, Medusa Space was reestablished as Masterson Industries. Once Masterson achieved proof 

of concept and received funding from new investors, the firm become A2M. See, Keith Cowing. 

“Playing 20 Questions with A Microgravity Company.” Nasawatch.com (December 9, 2014).

108 “ACME Advanced Materials, Inc Announces First Commercial Production of 4" SiC Wafers in 

Microgravity.” PRWeb.com(September 9, 2014).

109 F. Roccaforte, F. Giannazzo, and V. Raineri. “Nanoscale Transport Properties at Silicon Carbide 

Interfaces.” Journal of Physics D: Applied Physics 43, no. 22 (2010): 223001.

110 Kevin Robinson-Avila. “Made in Space.” Albuquerque Journal (October 13, 2014).

111 “ACME Advanced Materials, Inc. Announces First Commercial Production of 4" SiC Wafers in 

Microgravity.” PRWeb.com (September 9, 2014).
87

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

Other than this investment, however, we have found VC interest in this niche to 

be thus far nonexistent. We have been unable to find any VC deals other than A2M 

that directly fall into the “microgravity-enabled” subsector, although there may be 

angel-funded deals that do not reach our databases.112 Still, A2M President Glover 

asserted in late 2014 that while most commercial space-based investments are currently in the area of launch facilitation, “...the real bonanza will come from the 

materials and products that are manufacturable in microgravity.”113

We note, however, a major “red flag” with respect to microgravity manufacturing 

entrepreneurship: there is currently a very limited supply of investable start-up companies in this nascent sector. In other words, microgravity manufacturing itself is in the 

development/seed stage, as it has no track record of market validation and no notable 

“role model” companies against which venture capitalists can benchmark. The establishment, however, of a demonstrated commercial success in this area could—like 

with the case of SpaceX and SkyBox—generate increased interest. 

Section 3. A Quantitative Look at Venture Capital Activity

in LEO

3.1 Methodology and Data Sources 

In this section we quantitatively investigate the extent of VC investment in the U.S. 

LEO sector. As a baseline, we tracked VC activity in this sector from commercial 

private equity data provider Thomson ONE. Thomson ONE is widely used by academics and should provide a reliable dataset to study the sector. To capture deals that 

the database did not identify, we supplemented this material with Google searches. 

We first identified all U.S. LEO deals in Thomson ONE through business description keyword searches. We obtained our list of keywords by reviewing the business 

descriptions of notable deals (e.g., Planet Labs, Skybox), as well as words or phrases 

that consistently appeared in our review of the literature. We then conducted a number of Google searches to identify any VC-backed LEO companies not captured in 

our Thomson ONE search. 

With this list of preliminary “hits” from keyword searches, we next investigated 

company backgrounds to determine their relevance to LEO. After refining this list 

112 We do note that while CrunchBase reports that Zero Gravity Solutions received $1.7 million 

in venture financing, it appears that such financing was not sourced from VC groups. See, Zero 

Gravity Solutions, Inc., SEC Filing Form D, July 16, 2014.

113 “ACME Advanced Materials, Inc. Announces First Commercial Production of 4" SiC Wafers in 

Microgravity.” PRWeb.com (September 9, 2014). 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

88

of companies, we searched for investment specifics.114 Key details included dates of 

investment, venture capital firms involved, and transaction amounts. For this information, we primarily used press releases and news articles, as well as Thomson ONE 

and another commercial database, Preqin, which also is a widely referenced source 

for private equity and venture capital activity. We also investigated the company’s 

subsector within LEO. 

It is important to emphasize that we focused exclusively on VC deals for this analysis. We excluded leveraged buyouts (LBOs), as well as deals that exclusively involved 

angel investors/angel networks or former venture capitalists and those that were solely 

financed through debt. In addition, we excluded grants and crowdsourced funding, 

such as those from Kickstarter, as well as funding from accelerator programs. Finally, 

we excluded deals where the transaction size was under $1 million. In each of these 

cases, the investment preferences would likely be unrepresentative of the VC community and the company’s future viability more open to question. 

While every effort was taken to identify all U.S. VC investments in LEO to date, 

certain investments may not have been identified given little public disclosure. Other 

startups may have been missed due to difficulty in identifying their involvement 

in LEO.

3.2 An Empirical Look at VC Activity in the U.S. LEO Sector 

We break down our analysis into three categories: (A) number of transactions and 

amount invested over time, (B) LEO subsectors over time, and (C) identity of the 

investors. Broadly speaking, we have found an emergence of VC activity in the miniature satellite and launch subsectors since 2008. All other subsectors such as microgravity manufacturing and laboratory services, propulsion, and asteroid mining appear to 

compose roughly a quarter of deals and less than 10 percent of the equity invested. 

Venture investments in LEO are dominated by Internet- and software-focused VC 

firms—as opposed to space “specialists,”—that often have partners with deep knowledge of the sector. While we discuss these industry trends at a more macro level in this 

section, transaction-level data and related details (investment dates, investors, amount 

invested, and subsectors) are summarized in Appendix A (pp. 110–112).

We stress that these figures (i.e., aggregate deal counts and amount invested) must 

be interpreted with caution given discrepancies among our data sources and the possibility that certain financing events were not captured in our analysis. 

114 For all possible cases we verify investment details with press releases. In some cases, certain deals 

are contained in one database, while others are not. In these cases, we investigate whether such 

deals are merely identified differently or if they are unique. To do so, we search for company 

statements on the deal and ultimately use our discretion to determine if the deal fits our criteria 

for a VC investment. 
89

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

A. Number of Companies/Transactions and Amount Invested in LEO Sector 

(All Dates)

Number of Companies/Transactions

Our research suggests that 18 U.S. LEO-related companies have received VC financing to date, in a total of 37 transactions (including what appear to be three round 

extensions). Some companies were only involved in one transaction, others in several. As noted previously, we excluded leveraged buyout (LBO) deals from our dataset—for example, Thermo Capital Partners’ acquisition of satellite communications 

company Globalstar in 2003 and Artemis Capital Partners’ acquisition of sun sensor 

supplier Adcole Corporation in 2014. We also omitted investments solely by angels/

angel networks and investments in non-U.S. LEO companies, such as UrtheCast, a 

Canadian company. 

Figure 4.1 tracks VC transactions in the LEO sector and illustrates the growing 

interest in the sector. The red bars indicate the first identified transaction for the 18 

U.S. companies, while the black bars include all 37 identified transactions (including 

three round extensions).115 From 1983 to 1999, we identified only three companies 

received VC funding. Between 2000 and 2007, five firms were funded—more than 

in the prior 17 years. That number doubled to 10 from 2008 to just January 2015. 

Looking instead at all identified transactions (including round extensions) we find a 

similar pattern: four transactions from 1983 to 1999, nine transactions from 2000 to 

2007, and 24 from 2008 to January 20, 2015.

5

4

3

2

1

0

Number of

Transactions

Year of Investment

198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015

 (YTD)

Earliest Transaction Identified All Transactions Identified

FIGURE 4.1: U.S. Venture Capital Transactions in LEO Sector, as at Jan. 20, 2015

115 We identify round extensions as investments that do not represent full funding rounds. If 

not explicitly stated, these typically are deals by current investors and represent insignificant 

amounts relative to the previous round. 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

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Amount Invested

Among the subset of deals with transaction sizes disclosed (32 of 37), VC investment 

in the U.S. LEO sector totaled $1.64 billion (see Figure 4.2).116 Given the small sample size, a few investments make up the majority of this figure (most notably, a $1 

billion investment in SpaceX in 2015). Still, we find that in each five-year increment 

since 2000, aggregate transaction amounts have steadily increased: $89 million from 

2000–2004; $184 million from 2005–2009; and $284 million from 2010–2014. In 

the first month of 2015, LEO investment levels skyrocketed as a result of Google and 

Fidelity’s $1 billion investment in SpaceX. The SpaceX investment round accounts 

for over 60 percent of all VC funding to date in the U.S. LEO sector.117

1100

1050

150

100

50

Aggregate Transaction 

0

Value ($M)

Year of Investment

198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015

 (YTD)

> $1 billion

FIGURE 4.2: U.S. Venture Capital Transaction Value in LEO Sector, as at January 20, 2015

B. LEO Subsectors of Current Interest to VC Firms (2008–Jan. 20, 2015)

In this section, we take a closer look at the U.S. LEO companies in which VC firms 

have invested. The LEO sector can be broken down into a number of subsectors: 

satellites of varying sizes (e.g., nanosats, microsats) and for varying purposes (e.g., 

communication, Earth monitoring, space tourism); launch vehicles; commercial 

space services and scientific experimentation; propulsion; and asteroid mining. To see 

which of these subsectors has attracted the most attention from VCs, we break down 

deals and investment dollars by subsector since 2008. 

Figure 4.3A charts the proportion of U.S. LEO VC deals by subsector. Because of 

a small sample size, we exclude deals that appear to be “round extensions,” as they do 

not reflect the same type of VC interest as a full financing round.118 We find that separate transactions in nanosatellites (Spire, Planet Labs) and microsatellites (Skybox) 

116 Transaction values are missing in 2006, 2008, 2012, 2013, and 2014.

117 We include Google and Fidelity’s $1 billion investment in SpaceX since appears to be structured 

as a standard VC deal and is reflective of rising VC interest. 

118 We identify “round extensions” as investments that do not represent full funding rounds. If 

not explicitly stated in reports/databases as such, we define round extensions as deals by current 

investors that represent insignificant amounts relative to the previous round. 
91

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

make up eight of the 21 deals, or 38 percent. We find another eight transactions in 

launch vehicles (SpaceX, Rocket Lab, Xcor Aerospace119), two in commercial laboratory services/microgravity-enabled technologies (NanoRacks; ACME Advancement 

Materials);120 one in propulsion (Accion Systems); and two in asteroid mining (Planetary Resources).121

Launch Vehicle

(SpaceX, Rocket Lab,

Xcor Aerospace)

Nanosat Developer

(Spire, Planet Labs)

Microsat Developer 

(SkyBox)

Other

Planetary Resources, 

NanoRacks, ACME

Advanced Materials, 

Accion Systems)

14%

3

24%

5 

24%

5 

38%

8

FIGURE 4.3A: Proportion of U.S. LEO VC Transactions (ex. Round Extensions), by LEO Subsector, 2008–

January 20, 2015

Launch Vehicle

(SpaceX, Rocket Lab,

Xcor Aerospace)

Nanosat Developer

(Spire, Planet Labs)

Microsat Developer 

(SkyBox)

Other

Planetary Resources (2013),

NanoRacks, Accion Systems)

12%

161

6%

91

0.4%

6.1

82%

1145 

FIGURE 4.3B: Proportion of U.S. LEO VC Investments ($M; Ex. Round Extensions), by LEO Subsector, 2008–

January 20, 2015

119 We note that Xcor is also developing rocket propulsion systems. 

120 After the date of this analysis, Spaceflight Industries, a launch service provider, announced a 

$20 million Series B funding round (March 2015) from RRE Venture Capital, Vulcan Capital, 

and Razor’s Edge Ventures. Prior to this announcement, however, Series A funding ($7.5 million 

from Chugach Alaska Corporation and Apogee) appears to have been undisclosed. 

121 Planetary Resources’ financing history is not entirely transparent. We find it unclear as to 

whether the firm had two separate financing transactions in July 2013, as the company reportedly raised $1.5 million in a crowdfunding effort, as well as $1.5 million in “seed” funding 

during the same month from the investors noted in Appendix A.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

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In Figure 4.3B we break down VC activity by deal value. For consistency, we 

exclude round extensions, although they made up a trivial portion (less than 1 percent). It is important to note that Planetary Resources, Rocket Lab, Xcor Aerospace, 

and ACME Advancement Systems have not disclosed their respective VC funding 

amounts and thus are not included in Figure 4.3B. Among the 17 remaining deals, 

launch vehicles make up 82 percent of all deal value since 2008. We note, however, 

that this largely stems from SpaceX’s $1 billion deal led by Google and Fidelity. 

Excluding this deal, nanosats and microsats represent 63 percent of investment dollars, launch vehicles account for 36 percent, and commercial lab facilities/microgravity-related products, propulsion, and asteroid mining under two percent combined.122

C. Key VC Firms Active in the LEO Sector 

The VC backers of LEO companies have been dominated by six main groups: Bessemer Venture Partners, Draper Fisher Jurvetson (DFJ); Khosla Ventures; Founders 

Fund; E-Merge; and RRE Ventures. With the exception of Bessemer Venture Partners, each of these groups has reported at least two deals since 2008 in the LEO sector. While Bessemer Venture Partners (BVP) has only disclosed one deal to date, they 

are rumored to be involved in at least one other LEO company.123

Table 4.1 compares the industry preferences of these LEO-oriented VC firms. 

To do so, we tracked the proportion of deals since 2007 within Preqin’s industry 

categories (which admittedly are slightly ambiguous). We find that these VC groups 

typically invest in Internet- and software-related companies. Among all deals from 

2007 to present, the VC firms invested roughly 32 percent on average in “Internet” 

companies and 23 percent in “software and related” companies.124 To put this into 

context, Preqin reported that among North American VC deals from 2008 to February 20, 2013, roughly 24 percent of deals were in “Internet” and 18 percent of deals 

were in “software and related” companies.125 While the time periods do not align 

precisely, these figures suggest that the industry preferences of LEO-oriented VC 

firms may make them keenly alert to opportunities at the intersection in these sectors. 

122 We again note that after the date of this analysis (March 2015), Spaceflight Industries, a 

launch service provider, announced a $20 million Series B funding round from RRE Venture 

Capital, Vulcan Capital, and Razor’s Edge Ventures. Prior to this announcement, however, 

Series A funding ($7.5 million from Chugach Alaska Corporation and Apogee) appears to have 

been undisclosed. 

123 Indeed, after date of this analysis BVP led Series B financing with Rocket Lab, which was 

announced on March 2, 2015. 

124 These percentages represent a simple average since 2007 (i.e., average the proportion in these industries among the six groups). If we instead take a pooled average (i.e., dividing the total number of 

“Internet” and “software and related” deals among the six VC firms since 2007 by the total number of transactions during this period), we find that “Internet” companies composed 28 percent of 

transactions and software & related companies composed 18 percent of transactions. 

125 Gemma Morris. “Venture Capital Deals: Industry Trends.” In Private Equity Spotlight, March 

2013: Preqin, 2013, Figure 4.
93

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

In Table 4.1 we note the partners from the firms who serve on the board of directors of their respective portfolio companies. Our research suggests that much interest 

among these firms in the LEO sector often originates from individual partners. One 

interviewee brought up the apparently personal nature of VC investing in LEO, noting, “It’s not really that a firm has a practice in it. There is one partner who’s interested in it.” This toe-in-the-water approach is similar to the way in which many VC 

firms became involved in such then-unknown sectors as the nascent Internet in the 

early 1990s. 

TABLE 4.1: Major VC Groups in U.S. LEO Sector126

NAME 

(YEAR FOUNDED)

LEO SECTOR 

INVESTMENTS 

PARTNER SERVING 

(OR WHO SERVED) ON 

BOARD OF PORTFOLIO 

COMPANY

TOP THREE INDUSTRY 

PREFERENCES OF VC FIRM 

(2007–JAN. 19, 2015)

Bessemer Venture 

Partners

(1911)a

Skybox David Cowan (Skybox); 

Ethan Kurzweil (Board 

Observer on Skybox)

Total Deals: 428

Internet (27%)

Software & Related (23%)

Telecoms (11%)

Draper Fisher 

Jurvetson

(1985)

SpaceX; Planet Labs Steve Jurvetson 

(SpaceX; Planet Labs)

Total Deals: 548

Internet (27%)

Telecoms (18%)

Clean Tech (16%)

Khosla Ventures 

(2004)

Skybox; Rocket Lab Pierre Lamondb (Skybox) Total Deals: 382

Clean Tech (21%)

Internet (16%)

Software & Related (15%)

Founders Fund

(2005)

SpaceX; Planet Labs; 

Accion Systems

Luke Nosek (SpaceX) Total Deals: 122

Internet (48%)

Software & Related (21%)

Other IT (12%)

E-Merge 

(1998)

Spire; NanoRacks N/A Total Deals: 12

Software & Related (42%)

Internet (33%)

Industrials (17%)

RRE Venturesc

(1994)

Spire; Accion Systems N/A Total Deals: 243

Internet (38%)

Software & Related (23%)

Telecoms (14%)

a After date of this analysis BVP led Series B financing with Rocket Lab, which was announced on March 2, 2015.

b Lamond formally left Khosla Ventures in June 2014. 

c As previously noted, after the date of this analysis (March 2015), Spaceflight Industries, a launch service provider, 

announced a $20 million Series B funding round from RRE Venture Capital, Vulcan Capital, and Razor’s Edge Ventures. 

Prior to this announcement, however, Series A funding from Chugach Alaska Corporation and Apogee appears to have 

been undisclosed. 

126 Deal count data from Preqin, accessed January 19, 2015. Deal counts may not be exhaustive. 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

94

We find evidence of this phenomenon in our analysis: Khosla Venture’s 2009 

investment in nascent Skybox Imaging was primarily the work of then-Partner Pierre 

Lamond. One source commented that Lamond invested the first $3 million in Skybox Imaging after being charged by Vinod Khosla, founder of Khosla Ventures, to 

identify high-risk science ventures in which the firm could invest a quarter of its $1 

billion fund.127 In addition, Steve Jurvetson—a long-time rocket enthusiast—represents Draper Fisher Jurvetson (DFJ) on the board of its two LEO sector investments. In fact, at the 2014 “Small Satellite Conference,” Jurvetson explained that out 

of “personal curiosity” he had been meeting with entrepreneurs in the space-related 

industries for 10 years before DFJ’s investment in SpaceX.128

We do find, however, recent trends suggesting that the space sector is becoming 

more a firm-wide area of focus. In one such example, Bessemer Venture Partners, 

backers of SkyBox and, recently, Rocket Lab, has announced a “spacetech” practice 

that includes David Cowan, Sunil Nagaraj, and Scott Smith, the COO and board 

member of Iridium Communications.129

Section 4. Performance of Venture Capital Investment in LEO

4.1 Setting the Context: The Importance of Strong Management 

Teams and the “Early Performers” in Young Industries 

In this section, we look at the performance of VC-backed firms in the LEO sector. 

Before we explain our methodology, however, we emphasize that early success in the 

industry would be a testament to venture capitalists’ abilities to partner with high 

potential, commercially driven firms, not merely fascinating technologies. As noted 

in Section 1.2, VC firms conduct extensive due diligence to assess management team 

strength and market attractiveness. 

A large amount of empirical literature further links managerial strength and VC 

financing. A classic study by Tyzoon Tyebjee and Albert Bruno published in 1984 

found that managerial capabilities had the strongest effect among all evaluation 

127 David Samuels. “Inside a Startup’s Plan to Turn a Swarm of DIY Satellites into an all-Seeing 

Eye.” Wired.com (June 18, 2013).

128 See “Small Sat 2014: Keynote Steve Jurvetson.” YouTube video, 1:08:27. Posted by Small 

Sat Conference, August 18, 2014. https://www.youtube.com/watch?v=qzudBqGyPTY#t=340

[5:40–8:00]. 

129 “Iridium COO Scott Smith Joins Bessemer Venture Partners as an Operating Partner.” BusinessWire (March 2, 2015).
95

Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

dimensions on reducing the riskiness of a deal.130 In addition, a number of more 

recent studies help substantiate this finding:

n Steven Kaplan and Per Strömberg studied 67 portfolio investments made by 11 

VC firms and found that managerial and leadership experience is a crucial part 

of the VC decision-making process. In fact, venture capitalists cited management quality as a reason for investing in nearly 60 percent of the investments.131

n Judith Behrens, et al. used data from 138 VC financing rounds in the United 

States and Europe and found that young biopharmaceutical ventures run by 

management teams with educational backgrounds in the fields of management, 

law, medicine, and biosciences acquire more money in VC financing rounds.132

n Eli Gimmon and Jonathan Levie studied 193 high-tech startups that were 

participants in the Israeli Technology Incubator Program and found that new 

high-tech ventures whose founders have business management expertise had 

better odds of attracting venture funding.133

Venture investors also seek companies operating in large, expanding markets. 

Tyebjee and Bruno’s study (referenced above) found that market attractiveness (size, 

growth, and access to customers) was the strongest driver of expected returns for 

venture capitalists. Kaplan and Strömberg’s study (also referenced above) reported 

that market size was cited as an important factor in close to 70 percent of investments 

in the sample. As a result, high-performing “role-model” ventures are especially critical to the development of nascent markets. This phenomenon is noted by entrepreneurship professor Lowell Busenitz in his examination of venture capital’s ability to 

develop new industries: “When there are no industry benchmarks, no established 

ventures in a specific industry and there is no clear market, most venture capitalists 

seem to be very reluctant to pursue such opportunities.”134

130 The authors studied five major “dimensions” (market attractiveness, product differentiation, 

managerial capabilities, environmental threat resistance, cash-out potential) of expected return 

and perceived risk. See Tyzoon Tyebjee and Albert Bruno. “A Model of Venture Capital Investment Activity.” Management Science 30, no. 6 (1984): 1051–1066, 1060.

131 Interestingly, the study also found that this education could have a negative effect on VC funding for older ventures. Steven N. Kaplan and Per Strömberg. “Characteristics, Contracts, and 

Actions: Evidence from Venture Capitalist Analyses.” The Journal of Finance 59, no. 5 (2004): 

2177–2210.

132 Judith Behrens, Holger Patzelt, Lars Schweizer, and Robin Bürger. “Specific Managerial Human 

Capital, Firm Age, and Venture Capital Financing of Biopharmaceutical Ventures: A Contingency Approach.” Journal of High Technology Management Research 23, no. 2 (2012): 112–121.

133 Eli Gimmon and Jonathan Levie. “Founder’s Human Capital, External Investment, and the Survival of New High-Technology Ventures.” Research Policy 39, no. 9 (2010): 1214–1226, 1222.

134 Lowell W. Busenitz. “Innovation and Performance Implications of Venture Capital Involvement 

in the Ventures they Fund.” In Handbook of Research on Venture Capital, edited by Hans Landström, 219–235. Northampton, MA: Edward Elgar Publishing, 2007.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

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In other words, infant markets without any so-called “shining stars” or notable 

exits are largely unattractive to venture capitalists. Irrespective of the innovative capabilities of a given technology or the visions of a strong management team, venture 

investors only back companies that they believe to be operating in a perceived healthy 

market. As a result, a major exit representing a theretofore-untapped opportunity 

would likely have a mushrooming effect in the VC community. 

4.2 Methodology

With the importance of early performance for the LEO sector in mind, we need 

to determine the prospects of startups currently operating in the sector. While an 

in-depth analysis of the stock of entrepreneurial talent in the LEO market is outside the scope of the study, we seek to identify the performance to date of emerging 

VC-backed companies. Because the private LEO market was largely undefined prior 

to the funding of SpaceX—with a few notable examples indicated in Appendix A—we 

suggest that successes (“role models”) in our small sample of VC-backed U.S. startups 

could draw more mainstream involvement in the sector. 

Determining the performance of private companies is notoriously difficult. Ideally, we examine the exit results of these investments and the gains that accrued to 

the investors when the companies were acquired or went public. Many of these companies, though, are very young and have not had either an exit event or a financing 

round at such an impressive figure that additional information was forthcoming. The 

valuation of companies that raise subsequent financing rounds (B, C, and so forth) 

can suggest success or failure, as can whether the transaction attracts new backers. But 

this information is not always easy to find. VC firms often do their best to obscure the 

valuation at which their companies are funded, unless doing so is to their advantage. 

Thus, we are constrained by the availability of the data. 

For this assessment, we turn again to publicly available data from press releases, 

news articles, Thomson ONE, and Preqin. We note again that we exclude all non-VC 

investments (i.e., LBOs, angel investors/former venture capitalists, corporations, and 

so on) from this analysis. We include deals as of 2008 (i.e., SpaceX’s first external 

investment), as these companies best reflect the current direction of the industry. We 

exclude deals that occurred after 2014, because there would be no follow-on funding 

data as of the date of our writing. We then measure performance in two ways, which 

we describe below. 

A. Successive Funding Rounds 

As discussed in Section 1.2, venture capitalists typically structure deals to reward the 

achievement of milestones. This “staged” model of financing helps venture capitalists 

control for costly, private information held by entrepreneurs (information asymmetries), as well as the high levels of uncertainty associated with the value of intangible 
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Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

assets—often intellectual property or trade secrets—held by startups.135 Using this 

approach, VC firms can optimize investment strategies as technologies and markets 

are proven.136

It is important to note, however, that more funding rounds do not necessarily 

imply greater success, as research suggests that ventures that succeed quickly would 

likely receive fewer rounds of funding. In other words, startups with low probabilities of failure would likely lead venture investors to avoid the costs associated with 

renewal of funding, such as contract negotiations, lawyer fees, and time spent on 

evaluations137 and instead provide the startup with more capital within each round.138

Given this insight, we only consider whether the company achieved multiple rounds 

of financing—i.e., not the number of investment rounds. 

Second, we look at the size of successive investments. Research suggests that thriving startups tend to receive larger investments in each round, as the value of abandonment diminishes for the VC firm.139

B. Exit Via Acquisition or IPO 

The performance of a venture-backed company is also indicated by a successful exit. 

Venture capitalists only invest in companies with the belief that their equity stakes 

can be liquidated at a premium. Josh Lerner, et al. explain, “Companies accrete value 

in specific steps [in such a way that they]...reach the point where the gains due to 

135 Paul A. Gompers. “Optimal Investment, Monitoring, and the Staging of Venture Capital.” The 

Journal of Finance 50, no. 5 (Dec., 1995): 1461–1489. With regard to asset intangibility, Gompers writes, “As asset tangibility and liquidation value increase, venture capitalists can recover 

more of their money if liquidation occurs, and the need to monitor declines. By gathering 

information, venture capitalists determine whether projects are likely to succeed and continue 

funding only those that have high potential” (p. 1484). 

136 This idea is discussed in, Dirk Bergemann, Ulrich Hege, and Liang Peng. “Venture Capital and 

Sequential Investments.” Cowles Foundation Discussion Paper no. 1682R (March 2009).

137 Gompers discusses these transaction costs in more detail in, Paul A. Gompers. “Optimal 

Investment, Monitoring, and the Staging of Venture Capital.” The Journal of Finance 50, no. 5 

(December 1995): 1464.

138 This insight is drawn from Dirk Bergemann, Ulrich Hege, and Liang Peng. “Venture Capital 

and Sequential Investments.” Cowles Foundation Discussion Paper no. 1682R (March, 2009). 

In their theoretical analysis, the authors explain, “As the project advances and the probability 

of eventual success increases, investment flows should be optimally increasing.... The optimal 

staging sequence depends on the value of the real option to abandon: The higher the estimated 

final value of the project, and the larger the estimated success probability, the fewer rounds will 

be used.... At the same time...the capital allocation for each of these rounds will increase” (p. 

35). They support these findings in their empirical analysis of U.S. VC investments from 1987 

to 2002. 

139 Dirk Bergemann, Ulrich Hege, and Liang Peng. “Venture Capital and Sequential Investments.” Cowles Foundation Discussion Paper no. 1682R (March 2009).
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

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additional time under the current investors flatten out.”140 Exit routes can take a variety of forms: IPO, acquisition, secondary sale, or shutdown. 

In line with recent academic research from Shai Bernstein, et al., we identify “successful” exits as exits via IPO or acquisition.141 It is important to note that because the 

average time to exit for the U.S. VC industry in aggregate is roughly 5.9 years among 

M&A exits and 7.2 years among IPO exits from 2010 to 2013, we expect to see few 

exits for these companies.142 We also search for any bankruptcies to date. 

While the outcomes of many of the privately held firms remains uncertain, our 

analysis of the results to date should be reflective of the ultimate performance.

4.3 Performance of Recent U.S. LEO Companies (2008–2014)

Table 4.2 summarizes the performance of recent LEO deals (excluding round extensions). Because of the unclear nature of its funding and contradictory media reports, 

we exclude Planetary Resources from this analysis. We find that of the remaining 

eight companies that received VC funding between 2008 and 2014, five (SpaceX, 

Skybox Imaging, Spire, Planet Labs, and Xcor Aerospace) have raised additional VC 

funding as of Jan. 20, 2015.143 We also note that all three deals without follow-on 

funding took place in 2013 or 2014, giving them a lower probability of second rounds 

within the sample. We find that the size of the transaction generally increased in 

sequential rounds. 

Furthermore, the companies that have yet to receive an additional round of VC 

funding have either received other types of funding or achieved significant milestones 

that validate their technology:

n NanoRacks helped validate its technology by successfully deploying Planet 

Labs’ Flock 1 CubeSats from the ISS in February 2014.144

n Rocket Lab has received grants from the New Zealand government in January 

2014 and completed an important developmental step for its carbon composite 

Electron rocket, in September 2014.145

140 Josh Lerner, Ann Leamon, and Felda Hardymon. Venture Capital, Private Equity, and the 

Financing of Entrepreneurship. New York: John Wiley & Sons, Inc., 2012, p. 200.

141 Shai Bernstein, Xavier Giroud, and Richard Townsend. “The Impact of Venture Capital Monitoring: Evidence from a Natural Experiment.” (February 23, 2014). 

142 Thomson Reuters. National Venture Capital Association Yearbook 2014. Arlington, NVCA, 2014, 

p. 73, 77.

143 We note that Xcor Aerospace’s second deal was not from a traditional VC group. See Appendix A

for more details. 

144 Irene Klotz. “Satellite ‘Flock’ Launched from ISS Cubesat Cannon: Photos.” News.Discovery.

com (February 18, 2014).

145 “NZ Govt. Funding Secured.” RocklabUSA.com (January 2014). See also, “First Off-Tool Fairing 

Complete.” RocklabUSA.com (September 2014).
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Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

n ACME Advancement Materials (A2M), which “...develops and produces 

unique materials in a microgravity environment,” announced the ability to 

produce its Silicon Carbide wafers in “commercially viable quantities” in 

October 2014.

We also find one exit via strategic acquisition, which suggests viability in the sector for venture capitalists. We emphasize that Google’s acquisition of SkyBox demonstrates large-scale commercial applications of the type of data small satellites can 

acquire and will likely serve as a benchmark against which other satellite companies 

can be assessed. 

TABLE 4.2: Amount Invested ($ Million) by Round of U.S. LEO VC Companies (Ex. Round Extensions), 

2008–January 20, 2015 

COMPANY NAME ROUND 1 ROUND 2 ROUND 3 ROUND 4 ROUND 5 EXIT 

Xcor 

Aerospacea

Aug. 2008

Equity Inv.: 

N/A

—

Note: NonVC funding 

(Feb. 2012)

May 2014

Equity Inv.: 

14.2

— — —

SpaceX Aug. 2008

Equity Inv.: 

20.0

Aug. 2009

Equity Inv.: 

30.4

Nov. 2010

Equity Inv.: 

50.2

Dec. 2012

Equity Inv.: 

30.0

Jan. 2015

Equity Inv.: 

1,000.0

—

Skybox Imaging July 2009

Equity Inv.: 

3.0

July 2010

Equity Inv.: 

18.0

April 2012

Equity Inv. 

70.0

— — Aug. 2014

Acquisition 

by Google 

($500M)

Spire (formerly 

Nanosatisfi)

Feb. 2013

Equity Inv.: 

1.2 

July 2014

Equity Inv.: 

25.0

— — — —

Planet Labs 

(formerly 

Cosmogia)

June 2013

Equity Inv.: 

13.1

Dec. 2013

Equity Inv.: 

52.0

Jan. 2015

Equity Inv.: 

70.0

— — —

NanoRacks June 2013

Equity Inv.: 

2.6

— — — — —

Rocket Labb Oct. 2013

Equity Inv.: 

N/A

— — — — —

ACME 

Advancement 

Materials

Feb. 2014

Equity Inv.: 

N/A (note: 

reported 

as “sevenfigure”)c

— — — — —

a For more details on Xcor Aerospace’s VC funding, see Appendix A.

b As previously noted, Rocket Lab indeed received Series B financing in a round led by BVP announced on March 2, 2015. 

c Kevin Robinson-Avila. “Made in Space.” Albuquerque Journal (October 13, 2014).
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Section 5. The Logistics of Future Involvement 

In this section we touch on a few points to emphasize the issues currently inhibiting 

venture capital development in LEO, ISS-connected companies. We follow with a set 

of recommendations on how NASA/CASIS can best leverage the ISS to boost VC 

activity in LEO. 

5.1 The Overarching Issues 

In its efforts to stimulate VC investment in LEO, NASA faces several interlinked 

challenges. It is clear that venture capitalists are interested in LEO, as seen by over 

$250 million of equity invested in miniature satellites and over $1 billion in launch 

vehicles since 2008. The emergent sector has attracted widespread media attention, 

with Google’s $500 million acquisition of Skybox and SpaceX’s $12 billion valuation. Entrepreneurial development in ancillary services, such as launch vehicles and 

propulsion systems dedicated to miniature satellites, as well as favorable regulatory 

reforms, suggest continued innovation in this arena. 

We find, however, that there is much less VC interest directed specifically at the 

ISS for several reasons. These include a lack of demonstrated commercial success in 

entrepreneurial microgravity manufacturing; limited opportunities to access the ISS; 

the physical constraints of the ISS; and lack of awareness of ISS as a viable national 

lab for applied commercial research.

We describe these and some possible responses below and follow with recommendations for future action. 

A. Lack of Demonstrated Commercial Success in Entrepreneurial Microgravity Manufacturing 

Venture capitalists very rarely invest in technology qua technology. They invest in 

companies, which include technology but house it within the context of a management team and a defined market. Within the VC community, there is a lively debate 

regarding whether one backs the horse (technology), the jockey (the management 

team), or the race course (the market). Venture capitalists have backed world-changing companies by pursuing any of these three strategies, but in general, the management team is viewed as among the top, if not the most important, component of 

a startup. A talented team, it is argued, can respond to failure in the technology or 

changes in the market, while a weak team may trip up a good technology or fail to 

address obvious market needs. Microsoft’s IP Ventures effort, for example, serves as a 

fitting case study: Microsoft sought to spin out innovative technology that did not fit 
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Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

its product road maps in exchange for an equity share in the operation, but found no 

interest until it also supplied a management team.146

Thus, for example, although research shows how a microgravity environment may 

be conducive to enhanced protein crystallization and cell and tissue culturing, each 

of which has clear commercial applications in biotechnology, venture capitalists will 

not be interested in investing in such research in and of itself. The process would 

need to have a start-up company pursuing a commercial application and a strong 

likelihood of creating something—whether a product or a method—that could be 

sold. Historically, those VC firms that focused on applied materials soon moved into 

more commercial applications, as one GP noted: “You may have a great chemical 

compound but the money is when the compound is put into paint or roofing or solar 

collectors that people can buy.”147

B. Limited Opportunities to Access the ISS 

The complexities inherent in accessing space manufacturing inhibit entrepreneurial activity in this area. While NanoRacks coordinates spaceflights on virtually any 

cargo ship to the space station and develops innovative platforms (most notably, its 

NanoLab payload hardware permanently installed on the U.S. National Laboratory) 

on which entrepreneurial firms can conduct microgravity research, official documentation suggests it takes between nine and 14 months on average from contract signing 

to launch for its research laboratory services (taking into account the time needed to 

comply with NASA regulations).148

As alluded to by many of our interviewees, a robust emerging entrepreneurial 

market for LEO R&D would require much more readily available access. Currently, 

NanoRacks supplies secondary payload opportunities to the ISS via all six launch 

vehicles—but only one, the SpaceX Dragon, can presently return substantial cargo 

back to earth (Soyuz has limited capacity and others burn up in the atmosphere). 

Such cargo, though, may be absolutely critical for further analysis—or for supplying 

the product that is to be sold.149 In fact, of the roughly 740 kg of research resources 

brought to the ISS (“upmass”) from September 2013 to March 2014, only 38 kg was 

returned (“downmass”).150 We do note, however, that CASIS is working with the 

146 Josh Lerner and Ann Leamon. “Microsoft’s IP Ventures” Harvard Business School Case no. 

810-096 (Boston: Harvard Business School Publishing, 2011).

147 Personal conversation with GP at Ampersand.

148 For details, see http://nanoracks.com/wp-content/uploads/NanoRacks-Commercial-SpacelabPresentation-1.pdf. See also, NanoRacks. NanoRacks CubeSat Deployer (NRCSD) Interface 

Control Document. Houston, NanoRacks, 2013.

149 National Aeronautics and Space Administration. NASA’s Efforts to Maximize Research 

on the International Space Station: NASA Office of Inspector General, 2013, p. III. See 

also, Steven Clark. “Commercial Dragon Supply Ship Returns to Earth.” Spaceflightnow.

com (February 1, 2015). 

150 International Space Station Utilization Statistics Expeditions 0–38: December 1998–March 

2014. NASA, August 2014.
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private sector to enable more rapid sample return and NASA has awarded the Sierra 

Nevada Corporation a Commercial Resupply Services 2 contract for the services of 

its Dreamchaser vehicle with payload return capabilities.151

This need for more frequent access to LEO is attracting substantial attention on 

the part of the miniature satellite market. As emphasized in Table 4.1, dedicated 

launch vehicles such as VC-backed Rocket Lab are being developed to provide weekly 

LEO access. According to Rocket Lab CEO Peter Beck, “We can’t do anything substantial if we can’t get the frequency up.... There are all sorts of inspiring things people want to do in space, but it’s hard if we can’t increase launch capacity and reduce 

cost.”152 In fact, one of the venture capitalists in our interviews explained that space 

access has been the single largest inhibitor to space entrepreneurship. As a result, we 

find that along with other issues to be discussed below, the mere ability to access the 

ISS is a substantial obstacle to attracting entrepreneurial and venture capital interest 

in the ISS.

C. Physical and Time Constraints on ISS

The ISS is also replete with physical limitations. Port capacity is limited, so additional launches will eventually be unable to offload their cargo quickly. The orbit is 

at an angle and a speed that presents challenges to commercial Earth observation. 

Crew time is already constrained, limiting the number of additional experiments 

that can be undertaken. As noted by an ISS research scientist, while the station’s total 

research capacity is underutilized in terms of occupancy of allocated space, personnel 

is limited: “We’re oversubscribed in crew time: we actually have more things people 

would like to do than the crew has time to help with.”153 More specifically, roughly 81 

percent of the internal space allocated for research in the U.S. portion of the ISS was 

occupied from April 2013 to March 2014. Moreover, roughly 37 percent of external 

sites—which, according to NASA, are generally used for “astronomical studies, Earth 

observation and technology development and demonstration for robotics, materials, 

and space systems”—were occupied during the same period. While NASA aims to 

allocate about 35 hours per week of crew time to research-related activities, this figure 

was over 40 on average from April 2013 to March 2014.154 Despite this effort, however, crewmembers may lack the specialized training to ensure that the experiments 

yield the most critical results. 

All of these constraints could be solved—additional ports, additional dormitory 

space—but all require additional investment. Here ISS encounters another constraint: 

its time horizon. The United States has committed to ISS operations through 2024, 

151 Jeff Foust. “Commercial Vehicle Promises More Frequent Return of ISS 

Experiments.” Spacenews.com (October 31, 2014).

152 See Khosla Venture’s Rocket Lab cast study, at http://www.khoslaventures.com/portfolio/rocket-lab. 

153 Jeff Foust. “Making the most of the ISS.” Thespacereview.com (March 24, 2014). 

154 National Aeronautics and Space Administration. Extending the Operational Life of the International Space Station Until 2024. Washington, DC: NASA Office of Inspector, 2014.
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and operations are likely to be technically feasible for a number of years after that, but 

there is recognition that at some point in the future there is most likely going to be 

an end-of-life (EOL) determination for the ISS, at least in its current configuration. 

D. Lack Of Awareness of ISS as a Viable National Lab for Applied Commercial Research 

For much of the VC community, ISS is not recognized as a national lab along the 

lines of Lawrence Livermore or Los Alamos, which are themselves rarely considered 

as possible locations for civilian entrepreneurs to do research. Research tends to spin 

out of these national labs into entrepreneurial ventures; not the other way around. 

As noted in NASA Office of the Inspector General’s Audit Report, “...the majority 

of the research activities conducted aboard the ISS have related to basic research as 

opposed to applied research.”155 Even NanoRacks, which created commercial research 

modules inside the ISS, has found miniature satellite deployment to be its most popular service.156

5.2 Our Recommendations to Spur Economic Development Via ISS 

In light of our analysis we offer five recommendations of future action to bring 

together venture capitalists and LEO entrepreneurs. Our main recommendations 

focus on three types of efforts: awareness, knowledge, and funding. More specifically, 

we suggest: 

n Awareness: Continued efforts to raise awareness among entrepreneurs and 

venture capitalists regarding the intersections of the ISS with such industries 

as biotechnology and miniature satellites, as well as the steps needed to use the 

ISS efficiently.

n Knowledge: A venture capital advisory committee offering feedback to senior 

management at NASA on how entrepreneurs could utilize the ISS. 

155 National Aeronautics and Space Administration. Extending the Operational Life of the International Space Station Until 2024. Washington, DC: NASA Office of Inspector, 2014, p. 47.

156 Jeff Foust. “Space Station’s Commercial Users Hitting Bottlenecks.” Spacenews.com (February 

27, 2015).
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n Investment: Investment could come in two forms. First, continued collaboration with relevant angel networks. Second, NASA could consider its own 

accelerator program geared towards ISS-connected companies.157

We rank our suggestions for addressing these concerns from shorter-term to longer-term and explain each below. It is important to note that these recommendations 

are not mutually exclusive.

A. Raise Awareness Among LEO-Oriented Entrepreneurs and Relevant Angel Networks/VC Groups of ISS and Its Benefits, and How to Make Use of It

In line with CASIS’ overarching mission, we suggest continued effort to promote 

awareness among entrepreneurs of the ISS as a national laboratory and the role it can 

play to speed research for entrepreneurial efforts. The recent partnership between 

CASIS and the Space Commerce Conference and Exposition (SpaceCom), as well 

as its sponsorship of the ISS R&D Conference represent the type of awareness campaigns that could catalyze private sector involvement in space.

We emphasize, however, the importance of continued attendance at professional 

gatherings outside of those specifically dedicated to space commerce. We support 

CASIS’ current involvement in such trade shows as the BIO International Convention 

and the World Stem Cell Summit, and suggest involvement in similar opportunities 

dedicated to each area of applied science that could benefit from a microgravity environment. We also note the importance of publicizing projects that have succeeded 

more quickly due to research done in microgravity. 

Few venture capitalists recognize the extent to which the ISS could serve as a 

platform for applied research breakthroughs for startups. We therefore also suggest 

involvement in major angel and VC conferences to spark interest in this community. 

Critically, such involvement need not—in fact, should not—be solely dedicated to 

space-related groups, but instead also to groups specializing in such areas as life sciences and physical sciences, as well as the software-related groups that have already 

demonstrated an interest in miniature satellite companies and the vast amounts of 

data that they generate. 

As an area of future research, we also suggest a survey of startups in industries 

that could potentially benefit from a microgravity environment to quantify the level 

of awareness of the ISS as a national research platform. Perhaps certain industries are 

keenly aware of CASIS and the steps necessary to access the ISS, while others are less 

so. A diagnostic test—for example, a simple three question survey handed out during 

157 An accelerator provides space, mentorship, and a small amount of money, which may be a loan, 

grant, or equity investment, to very young startups. Angel investors typically are individuals or 

small groups who have not raised a formal fund. They generally invest in the form of a subordinated loan that converts to equity at the terms of the first formal VC investment. A VC investment tends to be standard investment where the investor provides cash and advice in exchange 

for an equity position in the company. Not all three of these funding strategies occur in a given 

start-up: some may go directly to VC investment; others may take VC investment while in an 

accelerator; yet others receive angel funding and never raise subsequent money. 
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Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

conferences—measuring awareness levels among these groups may help optimize a 

marketing strategy. We could not find any such data as of the date of our writing. 

B. Set Up a Committee of Venture Capitalists to Advise NASA Management 

on Strategy of Private Sector ISS Involvement

We also suggest that NASA and/or CASIS establish a VC advisory committee to 

guide the LEO commercialization strategy. Venture capital advisors could (i) identify current trends in LEO entrepreneurship; (ii) provide subtle knowledge of the 

challenges that entrepreneurs encounter with the ISS and advise management on 

how to optimally address these; and (iii) raise the VC industry’s awareness of the 

ISS, CASIS, and NASA by providing a contact point. We examine points i and ii 

in more detail below. 

i. Identification of Current Trends in LEO Entrepreneurship

Venture capitalists are aware of the most recent entrepreneurial trends. First, venture 

capitalists examine hundreds or thousands of startup solicitations each year. 158 As a 

result, they possess knowledge of the emerging types of LEO-oriented companies, 

whether they be miniature satellites or microgravity-enabled pharmaceuticals.159

Gompers, et al. lend empirical support to the agile market responsiveness of “specialist” venture capitalists—that is, those that specialize in certain industries (software, hardware, life sciences, and so on). The authors found that in light of positive 

market signals about the attractiveness of certain sectors, “specialist” venture capitalists respond favorably by increasing their investment rates.160

Armed with this knowledge, CASIS management could orient ISS marketing/

awareness efforts to these subsectors, as well as align initiatives on the ISS to intersect 

with entrepreneurial interest. 

ii. Subtle Knowledge of the Challenges that Entrepreneurs Encounter with the ISS and 

Advice on How to Address Them

Venture capitalists are also in a strong position to advise NASA and/or CASIS management on the specific challenges that entrepreneurs face in the LEO sector. They 

acquire this knowledge in the due diligence process, as well as in their active involvement with portfolio companies. 

158 David Kirsch, Brent Goldfarb, and Azi Gera. “Form Or Substance: The Role of Business Plans 

in Venture Capital Decision Making.” Strategy Management Journal 30, no. 5 (2009): 487–515.

159 According to William Meehan III, et al., “VC investment activity provides outsiders with early 

signs of key trends emerging in high tech, communications, and biotechnology. These early signs 

can help executives monitor technology transitions that may fundamentally disrupt business 

processes....” See, William F. Meehan III, Ron Lemmens, and Matthew R. Cohler. “What 

Venture Trends can Tell You.” HBR.org (July 2003).

160 Paul Gompers, Anna Kovner, and Josh Lerner. “Specialization and Success: Evidence from 

Venture Capital.” Journal of Economics & Management Strategy 18, no. 3 (2009): 817–844.
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For each startup that passes the “screening” and “pitch” phases, venture capitalists 

invest significant time to study (among many other details) whether the company 

operates in a growing market, has a solid base of potential customers, and possesses 

adequate distribution channels to reach customers. For the roughly one percent of 

companies in which the VC firm invests, venture investors serve on boards to professionalize operations, refine strategy, and consider exit options. 

NASA/CASIS could leverage such knowledge to identify challenges that LEO 

entrepreneurs commonly face and find ways of addressing these issues from the viewpoint of the financers of these entrepreneurs. Such information may shape awareness 

strategies, spawn new initiatives, and/or retire ineffective projects. 

It is critical to recognize that the best VC firms are those least likely to be able 

to dedicate substantial time to a project like this. Should this recommendation be 

pursued, we highly recommend that meetings be held twice a year for no more than 

an hour at a time. Meetings should be guided with a detailed agenda and it should be 

expected that many of the venture capitalists will attend via telephone. 

C. Expand Collaboration with Angel Networks

Another important initiative involves partnering with and funding relevant angel 

networks. Angel networks match entrepreneurs with angel investors who can provide 

crucial seed/early stage funding for startups. We understand that CASIS has partnered with the Space Angels Network and the Houston Angel Network to provide 

introductions to companies with promising ideas. We applaud these sponsorships and 

see the potential for others. 

We emphasize that academic research supports the complementary relationship 

between angel investment and VC investment. As explained by Andrew Wong, et al. 

who examined a dataset of angel-backed firms between 1994 and 2001, “Angels take 

on more risks and invest smaller amounts in younger firms than venture capitalists. 

Angel investors appear to nurture younger firms until the company is established 

enough for venture consideration.”161 This complementary relationship has also been 

found in the UK context, as, for example, survey results in one study suggested that 

angel-backing in itself was often perceived as a positive signal by VC firms (45%) and 

that cross-referring investment opportunities was common.162

Because many LEO-related companies are often compete with terrestrial peers 

(e.g., analytics, vaccines, pharmaceuticals), we suggest that CASIS increase involvement with angel networks that can provide expertise in these domains. For example, 

161 Andrew Wong, Mihir Bhatia, and Zachary Freeman. “Angel Finance: The Other Venture Capital.” Strategic Change 18, no. 7 (2009): 221–230.

162 We do note that 5 percent of respondents generated perceptions depending on the business 

angel and the remaining half stated angel backing had no bearing on an investment decision. 

Richard T. Harrison and Colin M. Mason. “Venture Capital Market Complementarities: The 

Links between Business Angels and Venture Capital Funds in the United Kingdom.” Venture 

Capital 2, no. 3 (2000): 223–242.
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Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

software and “big data” expertise is critical to miniature satellite companies (such as 

Skybox, Planet Labs, Spire), while semiconductor expertise is critical to companies 

developing wafers in microgravity (such as A2M). Given “space-side” and “terrestrial-application” angel expertise, angel-funded LEO startups will more likely attract 

VC and be better equipped to commercialize. 

D. Catalyze Private Sector Involvement Via Accelerator Program Partnerships for ISS-Oriented Firms

Our final recommendation would be to continue to fund seed stage commercial 

ventures via partnerships with seed accelerator programs (like the MassChallenge 

Startup Accelerator).163 As it stands, angel investors and independent venture capitalists back companies, not technologies. This idea was consistent with our interviews 

and is explicitly noted by CASIS’ angel network partners. The Space Angels Network notes, “...members generally will not fund ideas or technologies.”164 Similarly, 

Houston Angel Network notes, “In order to be seriously considered, a company must 

have a completed, working prototype and have market validation (pilot, beta users, 

revenue).”165 Accelerators may offer to early, “formation-stage” startups the resources 

to reach this stage of development. 

While academic literature has been dedicated to the learning effects of accelerators, we find the most telling way to evaluate such programs is the level of follow-on funding raised by the accelerated ventures.166 As explained by Fehder and 

Hochberg, VC investors view accelerators as “deal sorters” and “deal aggregators”; in 

other words, accelerators screen and co-locate a large population of startups to reduce 

search costs for venture capitalists.167 An emerging strand of academic literature in 

163 By way of background, we note that a seed accelerator is formally defined as “[a] fixed-term, 

cohort-based program, including mentorship and educational components, that culminates in a 

public pitch event or demo-day.” It is important to clearly identify the differences between angel 

investments and accelerator programs. Most generally, whereas angel investors generally provide 

longer term investments with minimal education and mentorship given on an as-needed basis, 

accelerator programs are short-duration programs (often three months) that offer extensive mentorship (often with venture capitalists) and typically culminate in “demo days” where founders 

pitch businesses to potential investors. See, Susan G. Cohen and Yael V. Hochberg. “Accelerating Startups: The Seed Accelerator Phenomenon.” Working Paper (March, 2014). 

164 See Web site, at http://spaceangelsnetwork.com/selection-criteria.

165 See Web site, at http://houstonanglenetwork.weebly.com/entrepreneurs.html.

166 An example of such literature is Susan L. Cohen and Christopher B. Bingham. “How to Accelerate Learning: Entrepreneurial Ventures Participating in Accelerator Programs.” Academy of 

Management Proceedings (January, 2013).

167 Daniel C. Fehder and Yael V. Hochberg. “Accelerators and the Regional Supply of Venture 

Capital Investment.” Working Paper (September 19, 2014).
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fact has found that accelerator-backed startups achieve higher levels of VC financing 

than their non-accelerator-backed counterparts.168

Because accelerators may be the missing link in the chain between idea generation 

and angel and/or VC investment, we suggest expanded collaboration with a geographically diverse base of accelerator programs. By partnering with accelerators willing to 

fund projects ranging from life sciences to earth observation/remote sensing and offering additional funding to ship technologies to the ISS, we suggest that promising LEO 

ventures will have the external validation and proofs of concept necessary to entice 

angel investors and venture capitalists. More specifically, we suggest that accelerated 

projects should receive preferential access to the ISS as well as highly subsidized (50–

100 percent) launches. From the perspective of the entrepreneurs, these accommodations would knock down several barriers inhibiting VC financing. At the same time, 

CASIS would be investing in the companies most likely to achieve commercialization. 

Section 6. Conclusion

In its efforts to increase the commercial use of the ISS, NASA faces several challenges. 

Keen venture capital interest exists in commercial opportunities in LEO, as shown 

in SpaceX’s $12 billion valuation, Skybox’s $500 million acquisition price tag, and 

the other companies that have raised money for projects such as launch services and 

image collection. While some of these involve the ISS, few use the ISS as a laboratory, 

as it was envisioned. 

To increase the VC community’s interest in the ISS, we recommend that NASA 

and CASIS continue to address the issues of information that preclude consideration 

of the ISS as a tool for applied, commercial research. In addition to the sort of outreach described earlier, providing and directing commercial users to information such 

as time schedules, pricing, equipment availability, and a simple checklist of the steps 

required to get a project on the ISS would render the facility much more accessible.169

Commented one stakeholder cited in the 2012 CASIS report on Bioscience research 

at the ISS, “I don’t see why we would want to do our experiments in space; we have 

perfectly good mice models on Earth.”170 It is always easier to say “no” to a new idea 

than “yes.” CASIS and NASA must provide compelling reasons for entrepreneurs and 

their VC investors to do research and manufacturing on the ISS. 

168 For relevant discussions see: David Lynn Hoffman and Nina Radojevich-Kelley. “Analysis of 

Accelerator Companies: An Exploratory Case Study of their Programs, Processes, and Early 

Results.” Small Business Institute Journal 8, no. 2 (2012): 54–70.; Benjamin L. Hallen, Christopher B. Bingham, and Susan Cohen. “Do Accelerators Accelerate? A Study of Venture Accelerators as a Path to Success?” Academy of Management Proceedings (January, 2014).; and Daniel 

C. Fehder and Yael V. Hochberg. “Accelerators and the Regional Supply of Venture Capital 

Investment.” Working Paper (September 19, 2014).

169 As described by Link and Maskin in an earlier chapter of this book. 

170 CASIS. Maximizing the Value of the CASIS Platform–Biosciences Opportunity Map, 2012. 
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Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

NASA and CASIS must also be realistic when considering the impact of the ISS’s 

longevity on entrepreneurial interest. A company will be less eager to base its business 

model on a product that requires microgravity manufacturing if there is a strong 

chance that the manufacturing facility will be unavailable in a dozen years. 

In the short term, though, we believe that NASA and CASIS could arouse interest 

in the VC community if it promoted its successes, facilitated company development 

through current and future angels/accelerators, and possibly provided financing to 

defray the costs of trials on the ISS. With information and access, the ISS could 

very likely attract some interest from VC-backed entrepreneurs. With the current 

fascination among entrepreneurs and venture capitalists for LEO opportunities, a few 

successes based on microgravity research may very well inspire another land rush, but 

this time, to space on the ISS. 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

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Appendix AVC Involvement in U.S. LEO Sector as of January 20, 2015 (Excluding Round Extensions)aNote: While every effort was taken to identify all U.S. VC investments in LEO to date, certain investments may not have been identified given little public disclosure. Other startups may have been missed due to difficulty in identifying their involvement in LEO. Explanations of ambiguities within certain deals are described in footnotes. 

Investment Details

COMPANY NAME 

(YEAR FOUNDED)

INVESTMENT 

DATE(S) INVESTORS 

AMOUNT 

INVESTED 

(U.S.$M)

SUBSECTOR AROUND 

TIME OF INVESTMENT

Orbital Sciences Corporation(1982)b

1983 Rothschild Inc.; Brentwood Associates; Northwest Bank 2.0 Transfer Orbit Stage (TOS) vehicles. 

Began investigating LEO in 1987.

SPACEHAB (now Astrotech) (1983)

1987 Poly Ventures; BEA Associates, Other undisclosed investors 1.8 Commercial space services 

(laboratory modules/cargo carries)

Constellation Communications(1991)c

1995/1996Sep. 1997

SpaceVest (renamed Redshift Ventures)SpaceVest

2.52.5

Telecommunications satellites

Iridium Satellite, Inc.(1990s)d

2000 Syncom Venture Partners, Other undisclosed investors 25.0 Telecommunications satellites 

SkyBitz(1993)

July 2000Nov. 2002Jan. 2004Feb. 2007

Zero Gravity Venture Partners AIG Highstar Capital, Cordova Ventures AIG Highstar Capital; Cordova Ventures; Inverness Capital Partners; Motorola VenturesCIBC Capital Partners, AIG Highstar Capital, Inverness Capital Partners, Cordova Ventures, and Motorola Ventures 

4.018.016.010.0

Asset tracking solutions operating over LEO and geostationary satellite systems 

CartaSite(2004)e

March 2007 Canterbury Partners; Acadia Woods Partners 4.35 Remote monitoring for fleet 

management using LEO satellites

ORBCOMM(1993)f

Feb. 2004Jan. 2006

SES Global, S.A.; Ridgewood Satellite LLC; OHB Technology A.G.; Northwood Capital Partners, others PCG Capital Partners; MH Equity Investors; Northwood Ventures; OHB Technology AG; Ridgewood Capital; Torch Hill Capital

26.0110.0

Telecommunication satellites 

Space Adventures(1998)

Feb. 2006 Prodea Systems N/A Space tourism (including to the ISS) 
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Chapter 4 § Venture Capital Activity in the Low-Earth Orbit Sector

COMPANY NAME 

(YEAR FOUNDED)

INVESTMENT 

DATE(S) INVESTORS 

AMOUNT 

INVESTED 

(U.S.$M)

SUBSECTOR AROUND 

TIME OF INVESTMENT

Xcor Aerospaceg(1999)

Aug. 2008May 2014

Desert Sky HoldingsSpace Expedition Corporation; Space Angels Network, Esther Dyson

N/A14.2

Reusable launch vehicle and propulsion systems

SpaceXh(2002)

Aug. 2008Aug. 2009 Nov. 2010Dec. 2012 Jan. 2015

Founders Fund Draper Fisher Jurvetson; DFJ Growth; Scott Banister Draper Fisher Jurvetson; Founders Fund; Musket Research Associates; Other undisclosed investorsDraper Fisher Jurvetson; Rothenberg VenturesGoogle; Fidelity Investment 

20.030.450.230.01,000.0

Rocket designer, manufacturer, and launcher.

Skybox Imaging(2009)

July 2009July 2010 April 2012

Khosla VenturesBessemer Venture Partners; Draper Associates; Khosla Ventures Asset Management Ventures; Bessemer Venture Partners; Canaan Partners; Khosla Ventures; Norwest Venture Partners; CrunchFund. 

3.018.070.0

Microsat developer for earth imaging

Spire (formerly Nanosatisfi)(2012)

Feb. 2013July 2014

Beamonte Investments; E-Merge; Lemnos Labs; Shasta Ventures; Fresco CapitalRRE Ventures; Mitsui & Co Global Investment; Moose Capital; Qihoo; E-Merge; Promus Ventures

1.225.0

Nanosat developer (remote sensing) for data solutions 

Planet Labs(formerly Cosmogia) (2010)

June 2013Dec. 2013Jan. 2015

Capricorn Management; Data Collective; Draper Fisher Jurvetson; First Round Capital; Founders Fund; Innovation Endeavors; O’Reilly AlphaTech VenturesYuri Milner; AME Cloud Ventures; Capricorn Management; Data Collective; Draper Fisher Jurvetson; Felicis Ventures; First Round Capital; Founders Fund; Industry Ventures; Innovation Endeavors; Lux Capital Management; O’Reilly AlphaTech Ventures; Ray RothrockData Collective; AME Cloud Ventures; Capricorn Management; Draper Fisher Jurvetson; Felicis Ventures; First Round Capital; Founders Fund; Industry Ventures; Innovation Endeavors; Lux Capital Management; O’Reilly Alphatech Ventures; Ray Rothrock; Yuri Milner

13.152.070.0

Nanosat developer for earth imaging 

NanoRacks (2009)

June 2013 E-Merge; Other undisclosed investors 2.6 ISS research platforms and payload 

coordination 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

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COMPANY NAME 

(YEAR FOUNDED)

INVESTMENT 

DATE(S) INVESTORS 

AMOUNT 

INVESTED 

(U.S.$M)

SUBSECTOR AROUND 

TIME OF INVESTMENT

Planetary Resources (formerly Arkyd Astronautics)(2010)i

Aug. 2012July 2013

I2BF Global VenturesI2BF; Dylan Taylor; Space Angels Network

N/A (“Less than tens of millions of dollars”)j1.5

Asteroid mining 

Rocket Lab(2007)k

Oct. 2013 Khosla Ventures N/A Miniature satellite launch system 

Acme Advanced Materials (2014)

Feb. 2014 Cottonwood Technology Fund; Pangaea Ventures N/A Materials manufacturer in 

microgravity 

Accion Systems (2014)

Jan. 2015 Founders Fund; Founder Collective; Galvanize Ventures; 

GettyLab; RRE Ventures; SDF Ventures; Slow Ventures; TechU Angels; Other individual investors

2.0 Propulsion for small satellites 

a Data obtained from press releases, news articles, company websites, industry reports, CrunchBase, Preqin, and Thomson ONE. b Orbital Sciences Corporation also raised $50 million from LPs to finance the TOS vehicle in 1984/85.c While only the September 1997 has explicitly been made public, media releases in September 1997 noted that, “SpaceVest originally invested $2.5 million in the 6-year-old company 

[Constellation Communications] last year and the year before. Now the fund supplied another $2.5 million.” While the language is slightly ambiguous, we interpreted this as a single investment of $2.5 million occurring in two tranches in 1995/96. See Bob Starzynski. “SpaceVest Adds $2.5M to Constellation Coffers.” Bizjournals.com (September 22, 1997).

d This investment was atypical in the sense the Syncom and other investors acquired the entirety of Motorola-backed Iridium, which declared bankruptcy in 1999. The investors also 

added another $130 million in commitments to recapitalize Iridium. In September 2009, investment bank Greenhill & Company (GHL) acquired Iridium for $560 million. For more information, see Frank McCoy. “The Art of Turning $25 Million Into $560 Million.” Theroot.com (January 25, 2010).

e CartaSite secured seed financing of $1.2 million in 2004, though no investors were disclosed. We presume the financing came from individuals. There is conflicting data as to 

whether CartaSite also received a $3.2 million investment in April 2006. 

f ORBCOMM also received investments from Silver Canyon Group and Centripetal Capital Partners, though it is unclear as to whether these investments were separate from or part 

of the deals listed in Appendix A. 

g Xcor Aerospace reported additional funding rounds of an undisclosed amount in June 2007 and $5 million in February 2012. We note, however, that the June 2007 investment 

appears to be solely from an angel network (Boston Harbor Angels). See, Xcor Aerospace. “Boston Harbor Angels Invests in XCOR Aerospace: Investment Fuels Expansion into New Markets.” (June 7, 2007). The February 2012 investment was reportedly from angel investors and former venture capitalists, not traditional VC firms. See, Xcor Aerospace. “XCOR Aerospace Closes $5 Million Round of Investment Capital.” (February 27, 2012). While we cannot be sure if other institutional investors were involved, the majority of funding seemed to be from individual investors/angel networks. We therefore do not include these as VC funding. We also note that Xcor’s Series B round was not from a traditional VC group, but Space Expedition Corporation appears to have taken a minority stake and two of its officers joined Xcor’s board. Xcor later acquired all operational subsidiaries of SXC in June 2014, while the parent SXC company remained a “passive investment holding company.” See, Jeff Foust. “XCOR Acquires One of its Investors’ Subsidiaries (Updated).” NewSpace Journal (July 1, 2014).

h While reports had circulated that SpaceX raised an additional $200 million in August 2014, SpaceX representatives have refuted these claims. See Alan Ohnsman. “Musk’s SpaceX 

Denies Blog Report of Capital Raising Plan.” Bloomberg Businessweek (August 19, 2014). 

i Planetary Resources’ financing history is not entirely transparent. We find it unclear as to whether the firm had two separate financing transactions in July 2013, as the company 

reportedly raised $1.5 million in a crowdfunding effort, as well as $1.5 million in “seed” funding during the same month from the investors noted in Appendix A. 

j “Russia-linked Company Invests in Asteroid Mining.” Moscow Times (August 17, 2012).

k We note that Rocket Lab is a U.S. corporation, but is based in New Zealand. For details, see Doug Messier. “A Closer Look at Rocket Labs’ Technical Development.” Parabolicarc.

com (August 1, 2014).
113

CHAPTER 5

Directing vs. Facilitating 

the Economic Development of 

Low Earth Orbit 

Mariana Mazzucato1

Douglas K. R. Robinson1, 2, 3

THIS CHAPTER FOCUSES on the challenges and opportunities associated with the shift away from NASA-centric development in low Earth orbit (LEO) toward an ecosystem with a mix of private, not-for-profit, and public actors. We focus on the question 

of whether NASA can and should direct the commercialization of LEO or whether its 

role should primarily be that of a facilitator. NASA has historically been the central 

definer of national space activities as a mission-oriented public agency with a clear 

ambition to direct innovation, not just to facilitate it. NASA’s role in LEO, however, 

is in the process of changing. We describe how public-private partnerships have created both tensions and opportunities for NASA. We consider how these tensions and 

opportunities may play out between now and the projected end of the International 

Space Station (ISS) and in terms of how such relationships can be built to support 

NASA in its mission to explore and develop the rest of the solar system beyond LEO. 

1 Science Policy Research Unit (SPRU), University of Sussex Brighton BN1 9QE.

2 Université Paris-Est, Laboratoire Interdisciplinaire Sciences, Innovations, Société (LISIS), ESIEE, 

F 77454 Marne-La-Vallée, France.

3 TEQNODE Limited, 282 rue Saint Jacques, 75005 Paris, France.

Disclaimer: The views and opinions of the authors do not necessarily state or reflect those of the U.S. 

Government or NASA.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

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Section 1. Directing Change Through Mission-Oriented 

Innovation Policy

Innovation policy is often justified through the need to correct different types of 

market failures. Market failures are defined as situations in which positive or negative 

externalities require corrections to help the private sector invest more (e.g., in public 

good areas such as R&D) or less (e.g., in activities that create pollution). Indeed, public goods such as basic science, which have high spillovers, are a typical example of 

an area with strong positive externalities. However, such market failure corrections, 

while important, do not describe the depth and breadth of the visible hand of the state 

in countries that have achieved smart innovation-led growth. In places like Silicon 

Valley, government policy has actively shaped and created markets, not only “fixed” 

them (Mazzucato 2013; 2015; 2016). Sectors including biotechnology, nanotechnology, and indeed the information technology (IT) revolution have been dynamic outcomes of active public policies—by agencies like NASA in civilian space activities, 

DARPA in the Department of Defense, and the National Institutes of Health in the 

Department of Health and Human Services—which have created and shaped markets, not only fixed them. 

Such agencies have been driven by mission-oriented policies aimed at clearly 

defined, unambiguous technical goals (Foray et al. 2012). Such policies have often 

been active and “vertical,”4

 explicitly choosing concrete technologies, sectors, and 

even firms to support. Rather than assuming that the market will direct change, with 

“horizontal”5

 policies aimed only at the underlying competitive framework, active 

mission-oriented policies have been determining not only the rate of innovation but 

also its direction (Stirling 2009). Indeed, mission-oriented policies differ from purely 

sector-oriented policies as they present concrete problems for many different sectors to 

work toward. Going to the moon required innovation in robotics, spacecraft, textiles, 

material science, information technology, and many other areas. 

As mission-oriented goals have tended to focus on grand technological objectives, 

often related to security issues, the justification for such missions in the United States 

has changed over time. While military motives dominated in the 1950s and 1960s, 

the aim since the 1970s has been to improve economic and competitive positions, 

4 Vertical approaches to innovation policy focus on direct investments (in both basic and applied 

areas) on specific technologies and sectors (e.g., biotechnology, nanotechnology, clean-technology), and financing specific firms through public venture capital or public loans. Vertical policies 

determine not only the occurrence of innovation but also guide direction—determining the 

boundaries within which private sector innovation and experimentation can happen.

5 Horizontal approaches to innovation policy focus on (a) creating the framework conditions for 

innovation through the background (necessary) conditions (e.g., education, science-industry 

links, fundamental research and infrastructures) and (b) supporting innovation in the private 

sector through indirect measures such as tax incentives. The horizontal approach tends to rely on 

the market to decide the direction of change. 
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Chapter 5 § Directing vs. Facilitating the Economic Development of Low Earth Orbit 

and innovation policy has indeed extended to many fields, including health and 

energy. This has coincided with the explicitly stated objective for innovation policy 

to aim at allowing public funding to have clear commercial outcomes. The priority 

for commercialization has affected the goals of government research funding, causing 

agencies like DARPA, NIH, and NASA to justify success of research by proving or 

providing a convincing argument for future economic value of their science and technology bases (Weiss 2014).

NASA’s initial mission-oriented programs for innovation were driven by security 

and maintaining technical leadership over other nations, with the Apollo program 

born to compete with the Soviet program in the “race for space.” In achieving these 

missions, NASA’s public funding was linked to different actors in the U.S. innovation 

system, including universities and private sector actors (through procurement), with 

NASA retaining the central (and vertical) directing role. The post-1970s emphasis on 

commercialization has been shifting this ecosystem, not only with the effect of space 

on the economy often seen as just as important as the effect of space on security, but 

also in terms of NASA’s position in the innovation system. In recent years, more 

horizontal, less vertical, measures are being used to facilitate commercialization, with 

NASA still playing a crucial role, but allowing the private sector to take on a more 

directional role. 

The shift toward making commercialization more prominent in NASA’s missions 

is particularly visible with the congressional legislation that directed NASA to competitively select a not-for-profit organization to enhance use (public and private) of 

the International Space Station (ISS). This is also evident in the 2013 National Space 

Transportation Policy, which has called for a greater use of private space transportation to low Earth orbit (LEO).6

 In addition to the recent activities supporting the 

development of additional private capabilities to access LEO, and the active support 

of nongovernmental users of the U.S. National Lab aboard the International Space 

Station, LEO is becoming increasingly populated by a variety of American firms, 

public research organizations, and other actors.

NASA’s inclusion of commercialization objectives in its LEO activities, as well as 

its technological goals, has created different types of challenges, both associated with 

a type of programmatic broadening. 

Firstly, it is more difficult to evaluate commercialization than technological goals, 

as the former’s success is dependent on activities additional to those of NASA and its 

partners, most notably the market and its framing conditions. These multiple dependencies for successful commercialization make it difficult to predict the timeframes 

6 See FY 2014 Annual Performance Report and FY 2016 Annual Performance Plan for more 

details. Also, see the H.R.4412 – National Aeronautics and Space Administration Authorization Act of 2014 for details of the NASA mission: https://www.congress.gov/bill/113th-congress/

house-bill/4412; National Space Transportation Policy 2013 can be found on the White House 

website: https://www.whitehouse.gov/sites/default/files/microsites/ostp/national_space_transportation_

policy_11212013.pdf.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

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for successful commercialization. This open-endedness differs greatly from the centralized planning of large technological development projects such as Apollo. 

Secondly, the move towards commercialization as an objective has, through 

NASA’s policies, greatly increased the number of stakeholders in LEO, which has 

changed the number and make-up of the constellation of actors that interact in the 

emerging LEO economic system. This is visible already and may broaden further in 

the years to come. 

This chapter focuses on how NASA’s aim of developing a sustainable LEO ecosystem, is affected by these two types of broadening. We argue that the fate of LEO, and 

also the ability of NASA to fund future exploration missions, is dependent on (1) the 

success of the Earth-to-LEO innovation system, (2) the associated innovation policy 

mix, and (3) how this is linked to NASA’s key objectives as a national mission-oriented 

public agency.

The chapter introduces key concepts that allow us to describe the innovation system in space in which NASA has played a key position. These concepts are (a) a 

“systems of innovation” perspective on innovation policy; (b) the notion of “mission-oriented” policies as shaping and creating markets (not just fixing them, as in the 

traditional market failure perspective); and (c) the distinction between vertical policies that set the direction of change versus more horizontal policies that assume the 

market will determine the direction with the state only facilitating it. We conclude by 

considering the effect of current and emerging relationships on the ability of NASA 

to play a mission-oriented role in LEO in the future. 

Section 2. Systems of Innovation: Creating and 

Shaping Markets

2.1 Mission-Oriented Policies: From “Fixing” to Creating Markets

Market failure theory justifies public intervention in the economy only if it is geared 

toward fixing situations in which markets fail to efficiently allocate resources (Arrow 

1951). The market failure approach suggests that governments intervene to “fix” markets by investing in areas with public goods characteristics (such as basic research or 

drugs with little market potential) and by devising market mechanisms to internalize 

external costs (such as pollution) or external benefits (such as herd immunity).

Market failure has often been seen as a necessary but not sufficient condition 

for governmental intervention (Wolf 1988). This has resulted from a view that the 

gains of intervention are often outweighed by the associated costs due to governmental failures—such as capture by private interests (e.g. nepotism, cronyism, corruption, rent-seeking), misallocation of resources (e.g., “picking losers”), or undue 

competition with private initiatives (“crowding out”) (Tullock et al. 2002), (Krueger 

1974), (Falck et al. 2011), (Friedman 1979). Thus, there is a trade-off between two 
117

Chapter 5 § Directing vs. Facilitating the Economic Development of Low Earth Orbit 

inefficient outcomes; one is generated by free markets (market failure) and the other 

by governmental intervention (government failure). The solutions advocated by 

Neo-Keynesians focus on correcting failures such as imperfect information (Stiglitz 

and Weiss 1981). Solutions advocated by public choice scholars (Buchanan 2003) 

focus on leaving resource allocation to markets (which may be able to correct their 

failures on their own).

While market failure theory provides interesting insights, it is at best useful for 

describing a steady state scenario in which public policy aims to put patches on existing trajectories provided by markets (Mazzucato 2016). It is less useful when policy 

is needed to dynamically create and shape new markets. This means it is problematic 

for addressing innovation and societal challenges because it cannot explain the kinds 

of transformative, catalytic, mission-oriented public investments that in the past have 

created new technologies and sectors which did not exist before (the Internet, spaceflight, nanotech, biotech, clean-tech), and whose disruptive nature many incumbent 

private sector actors ignored or feared. 

To understand the advent of such technological revolutions, innovation scholars have thus emphasized the role of policies that have actively created markets, not 

just fixed them, through mission-oriented objectives (Mowery 2012; Mazzucato and 

Penna 2015). NASA has often been characterized as the prototypical mission-oriented 

agency, based on the Apollo Program’s mission of landing a man safely on the Moon 

and returning him safely to the Earth. It was such mission-oriented investments that 

coordinated public and private initiatives, built new networks, and drove the entire 

techno-economic process, which resulted in the creation of new markets. Indeed, 

all the technologies that make modern cell phones “smart” were financed by such 

mission-oriented governmental programs (Internet, GPS, touchscreen, and voice activated SIRI technology) (Mazzucato 2013). 

The mission-oriented literature contains many useful empirical studies, such as 

analysis of different technology policy initiatives in the United States (Chiang 1991; 

Mowery et al. 2010), in France (Foray 2003), in the United Kingdom (Mowery et al. 

2010), and in Germany (Cantner and Pyka 2001); and studies of mission-oriented 

agencies and policy programs, including military R&D programs (Mowery 2010), 

the National Institutes of Health (Sampat 2012), grand missions of agricultural innovation in the United States (Wright 2012), and energy (Anadón 2012), among others. While mission-oriented programs are intrinsically dynamic, with feedback loops 

between missions and achievements, the tools used to evaluate such public policies 

have remained static, coming from the market failure theory toolbox (despite the fact 

that many studies draw on the dynamic innovation systems perspective from evolutionary economics). 

The mission-oriented framework (Ergas 1987; Freeman 1996; Mowery 2010) 

helps understand why it is that public sector funds have been necessary not just for 

classical public good areas like basic research but investments along the entire innovation chain. Figure 5.1 illustrates the variety of public organizations (in bold) that 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

118

have been active along the innovation chain. This includes basic research by agencies 

such as the National Science Foundation (NSF); applied research by NASA, DARPA 

in the Department of Defense, ARPA-E in the Department of Energy, and even 

early-stage seed financing for companies, through agencies and programs like the 

Small Business Innovation Research (SBIR) program. Both ARPA-E and DARPA 

have managed to attract high-level experts (from universities, and the private sector), through the use of 4–5 year secondments, with the objective of stimulating 

innovation in sustainable/renewable energy technologies (Bonvillian et al. 2011). The 

DOE has used the Agreements for Commercializing Technology (ACT) to promote 

and grow the commercialization of its R&D to create new products for the market 

(Epstein 2012; Jaffe and Lerner 2012). 

Investments by such organizations have often been guided by procurement; this 

stimulates both the supply side and the demand side, with the demand side being 

key to creating a market for new technologies (Mazzucato 2015). The creation of 

new markets is often an outcome of mission-oriented programs. Public agencies have 

taken up this role due to the hesitation of a risk-averse private sector, particularly 

concerning breakthrough technology fields and new markets.

Increasingly such mission-oriented investments have been found to be key for 

allowing innovation to take off in a way that generates long-term growth, and understanding the history of mission-oriented policies has been crucial for thinking about 

new policies needed to address “grand societal challenges” (Foray et al. 2012). In 

historical mission-oriented R&D projects of the past, such as the Manhattan and 

Apollo programs, all funding has been provided by public U.S. Federal agencies, 

but for current societal challenges and LEO commercialization specifically publicly funded R&D, although vital, will be only one of a number of sources of R&D 

Innovation: New 

Firm or Program

Invention: 

Functional Prototype

Business

Validation

Viable

Business

Basic

Research

Concept/

Inception

Early Stage

Technology

Development

 Product

Development 

Production/

Marketing

Source frequently funds this technological stage

Source occasionally funds this technological stage

NASA, NSF, NIH, DARPA

Corporate research

VC, SBIR, NIH, 

NASA, ARPA-E

Corporate venture 

funds, equity, 

commercial debt

Angel investors, 

corporations, 

technology labs,

SBIR, NASA

Patent

FIGURE 5.1: Public and Private Investments Along Entire Innovation Chain (Source: Authors’ addition of public 

agencies to underlying figure by Auerswald and Branscomb 2003.)
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Chapter 5 § Directing vs. Facilitating the Economic Development of Low Earth Orbit 

investment. In recent years, there have been calls for a return to such mission-oriented policies, extended to areas that can address grand societal challenges ranging 

from the aging demographic problem being faced by Western nations to the global 

challenges concerning climate change (Foray et al. 2012). However, grand societal 

challenges concern the socioeconomic system as a whole, which often implies largescale transformations with multiple actors and elements (Kuhlmann and Rip 2014; 

Geels 2004). This is in stark contrast to the missions of the past, which were mainly 

technical and more vertical in their solutions (Foray et al. 2012). 

Understanding the role of new actors required to confront missions that are socioeconomic and not just technical, requires a “system of innovation” viewpoint. 

2.2 From Market Failures to System Failures 

Systems of innovation (whether sectoral, regional, or national) embody dynamic 

links between various innovation actors and institutions (firms, financial institutions, 

research/education, public sector funds, and intermediary institutions), as well as 

links within organizations and institutions (Freeman 1995). The “systems of innovation” approach (Freeman 1995) to understanding innovation policy, provides key 

insights into not only the limits of market failure theory in terms of justifying the 

depth of investments that have been necessary for the emergence of radical technological change, but also the breadth of the different actors involved. Innovation policy 

has historically taken the shape of measures that (1) support basic research, (2) aim 

to develop and diffuse general-purpose technologies, (3) develop certain economic 

sectors that are crucial for innovation, and (4) promote infrastructural development 

(Freeman and Soete 1997). 

By highlighting the strong uncertainty underlying technological innovation, as 

well as the very strong feedback effects that exist between innovation, growth, and 

market structure, the systems of innovation view emphasizes the “systems” component of technological progress and growth.7

 Systems of innovation have been defined 

as “the network of institutions in the public and private sectors whose activities and 

interactions initiate, import, modify and diffuse new technologies” (Freeman 1995), 

or “the elements and relationships which interact in the production, diffusion and use 

of new, and economically useful, knowledge” (Lundvall 1992, p. 2).

The emphasis here is not on the stock of R&D, but on the circulation of knowledge and its diffusion throughout the economy. Institutional change is not assessed 

7 The emphasis on heterogeneity and multiple equilibria requires this branch of theory to rely less 

on assumptions of representative agents (the average company) and unique equilibria, which 

remain central to mainstream (neoclassical) economics. Rather than using incremental calculus 

from Newtonian physics, mathematics from biology (such as distance from mean replicator 

dynamics) are used, which can explicitly take into account heterogeneity and the possibility of 

path dependency and multiple equilibria. See Mazzucato (2000). 
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through criteria based on static allocative efficiency, but rather on how it promotes 

technological and structural change. Individual firms are seen as part of a broader 

network of firms with whom they cooperate and compete. The system of innovation 

can be interfirm, regional, national, or global. From this perspective it is the network—not the firm— that is the unit of analysis. The network consists of customers, 

subcontractors, infrastructure, suppliers, competencies, or functions and the links or 

relationships between them. The competencies that generate innovation are part of a 

collective activity occurring through a network of actors and their links or relationships (Freeman 1995).

The causation in the steps between basic science, large-scale R&D, applications, 

and finally to diffusing innovations is not linear. Instead, innovation networks are 

full of feedback loops between markets and technology, applications, and science. In 

the linear model, the R&D system is seen as the main source of innovation, reinforcing economists’ use of R&D statistics to understand growth. In this more nonlinear 

view, the roles of education, training, design, quality control, and effective demand 

are just as important. 

Furthermore, the serendipity and uncertainty that characterizes the innovation 

process is useful in terms of understanding the rise and fall of various economic powers in history. For example, it explains the rise of Germany as a major economic power 

in the 19th century as a result of state-fostered technological education and training 

systems. It also explains the rise of the United States as a major economic power in 

the 20th century as a result of the rise of mass production and in-house R&D. The 

United States and Germany became economic powers for different reasons, but they 

both paid attention to developing systems of innovation rather than focusing narrowly on raising or lowering R&D expenditures.

2.3 Setting the Direction of Change vs. (Just) Facilitating It

Investments in innovation involve choices regarding which innovations or sectors 

to invest in and to what extent. This choice between options and what amount of 

resources to invest means that innovation has both a rate and direction (Stirling 2009; 

Smith et al. 2005; Robinson and Propp 2008), where the rate is dependent on the 

intensity of resources invested and the direction is guided by choices made based on 

shared visions, goals, and policies. Articulating and enacting such direction is a key 

part of mission-oriented institutions (Mowery et al. 2010; Foray et al. 2012; Sampat 

2012; Edquist et al. 2012). In the United States, many mission-oriented public agencies have missions to catalyze innovation (increase the rate) in line with their missions 

(direction). Examples include DARPA in the Department of Defense, NIH in the 

Department of Health and Human Services, ARPA-E in the Department of Energy, 

and NASA, all of which have had profound impacts on economic growth and, in 
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Chapter 5 § Directing vs. Facilitating the Economic Development of Low Earth Orbit 

many cases, the creation of new markets.8

 Directionality brings the focus away from 

the narrow discussion of whether or not to “pick winners” to a broader discussion of 

how the picking should occur (Mazzucato 2015; 2016). Setting the direction is not 

about choosing a narrow set of sectors, but choosing the problems and the missions 

for a broad group of sectors to react to. Furthermore, in order for public agencies 

(such as DARPA or NASA) to be able to direct such missions it is essential for them 

to attract the kind of scientific and technological expertise which will allow them to 

do so. Evidence suggests that it is precisely in mission-oriented organizations that 

high-level experts (natural and social scientists) will find it an honor to work in the 

public sector, even if the monetary compensation is lower. When instead the mission 

of a public agency is simply to fix market failures, it becomes much harder to make 

it attractive to work in such agencies, creating a self-fulfilling prophecy whereby the 

ability to direct changes becomes more difficult, and bureaucrats are expected to have 

knowledge they don’t have—so they get accused of being unable to pick winners. 

Systems of innovation require different types of policies. Vertical policies have 

been more directional and active, focusing on directing change. Horizontal policies have been more focused on the background conditions necessary for innovation, 

allowing the direction to be set by the private sector. 

While both horizontal and vertical policies are required, it can be said that horizontal policies are more about facilitating innovation in the private sector, while 

vertical policies embody a more active role for the public sector in directing change 

not only facilitating it, often through missions which require actively creating and 

shaping markets—not only fixing them (Mazzucato 2015).

Section 3. Three Questions for NASA’s Future Innovation 

Policy Mix 

This collection of essays was initiated due to an interest in stimulating a sustainable LEO-ecosystem built on public-private partnerships (PPPs) with fully public 

and fully private activities as part of the mix. NASA’s portfolio of PPPs has shown a 

transition from a vertical innovation policy to a more distributed innovation policy, 

where goals are set by multiple actors with different criteria of success and directions 

of development. When considering this new constellation of actors and relationships, 

what can be said about the state of the LEO innovation system and NASA’s role 

within it?

We approach this through a number of challenges that we have seen emerging 

in the discussion around LEO commercialization. These challenges can be grouped 

into three broad questions about the factors and actors shaping the destiny of the 

LEO ecosystem:

8 For some very visible examples: NASA and the Apollo program, NIH and the war on cancer, 

DARPA and Information Technology. 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

122

1. Directionality: Is the increasing emphasis on commercialization affecting 

NASA’s mission-oriented innovation policy in LEO? In particular, who is 

directing change?

2. Risks and Rewards: How are current public–private partnerships affecting the 

balance of risk and reward in the conduct of spaceflight in LEO?

3. Organizational Capacity: Is the transition to PPPs reducing innovation capacity within NASA itself? Is there a danger that the internal capacity to address 

innovation challenges will be reduced for future missions?

3.1 Directionality 

The central position of NASA in the space “system of innovation” has meant that, for 

more than 50 years, NASA has directly financed technological innovation to achieve 

its missions, setting the directions of change and overseeing the private sector companies that have been contracted to deliver the technologies. Today, the missions of 

technological innovation in LEO are being broadened to include commercialization 

objectives. NASA is attempting to create new markets that fuel a sustainable EarthLEO economy, or, as Sam Scimemi, director of the ISS Program at NASA HQ, put 

it, to “sustained economic activity in LEO enabled by human spaceflight, driven by 

private investments, creating value through commercial supply and demand” where 

the “destiny of LEO beyond ISS is in the hands of private industry outside the government box.”9

While commercialization did occur before as a spillover of NASA missions, commercialization is now more central to NASA’s mission in LEO in general. An example 

can be seen in the Commercial Space Act of 1998:

The Congress declares that a priority goal of constructing the International Space 

Station is the economic development of Earth orbital space. The Congress further 

declares that free and competitive markets create the most efficient conditions for 

promoting economic development, and should therefore govern the economic development of Earth orbital space. The Congress further declares that the use of free 

market principles in operating, servicing, allocating the use of, and adding capabilities to the Space Station, and the resulting fullest possible engagement of commercial providers and participation of commercial users, will reduce Space Station 

operational costs for all partners and the Federal Government’s share of the United 

States’ burden to fund operations.10

9 Presentation given by Sam Scimemi at NASA Headquarters Washington, DC, December 10, 

2014; http://www.nasa.gov/sites/default/files/files/NASA_Sam_Scimemi.pdf.

10 The Commercial Space Act of 1998 (Public Law 105-303). http://www.nasa.gov/offices/ogc/

commercial/CommercialSpaceActof1998.html.
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Chapter 5 § Directing vs. Facilitating the Economic Development of Low Earth Orbit 

The process of LEO commercialization began as part of NASA’s human spaceflight activities and its in-orbit operations in the early 1980s, during the early stages 

of the Shuttle program, but was part of a NASA-centered space ecosystem based on 

direct NASA oversight of the private sector. In recent years, the innovation system 

has shifted to include more actors, and devolution of the management of a large share 

of research and innovation activities on the ISS to private actors and intermediaries. 

This shift regarding mission-oriented policy related to human spaceflight and 

in-orbit operations means that NASA has to handle two forms of broadening, mentioned in our Introduction: a broadening of mission goals to include goals that are 

more economic in focus and less technological, and a broadening of the number and 

types of actors in the innovation system. Consequently, unambiguous objectives with 

a clearly defined endgame are more difficult to define in the emerging LEO ecosystem, which involves multiple actors with different motivations as well as a decentralization of power in terms of shaping and directing the ecosystem. 

The degree of decentralization is different for various parts of the ecosystem. What 

is clear is that the private sector is becoming a prominent force in the directionality of 

the LEO ecosystem. A new set of actors that has emerged over the past six years is brokers. Brokers in LEO are intermediaries between suppliers and users of LEO facilities 

for the purpose of research and innovation. Brokers navigate the complex LEO ecosystem in order to connect potential users of the ISS with the Government. There are 

two types of brokers for the ISS: the Center for the Advancement of Science in Space 

(CASIS), which is a not-for-profit organization set up to promote scientific research 

on the US National Lab by soliciting potential users; and NanoRacks, a Texas-based 

company, founded in 2009. CASIS connects existing and emerging firms with value 

chains in areas such as the pharmaceutical industry and advanced materials with 

the facilities of the ISS National Lab. NanoRacks connects commercial users with 

novel uses of existing (or slightly modified) capabilities, as illustrated by the small 

satellite deployer, which has created a new market with only minor developments in 

technical capability.

Another form of decentralization was the use of Space Act Agreements in executing the Commercial Orbital Transportation Services Program (COTS) and the 

Commercial Crew Development Program (CCDev), which meant more control of 

design and development shifted to the contracted firm (e.g., the key milestones and 

the associated price were defined by the private contractor, which meant they delivered on time or did not get paid). 

Although it is too early to say what the ultimate outcome will be, NASA is 

undeniably delegating some of its power in directing the development of LEO to 

the private sector.
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

124

3.2 Risks and Rewards 

Commercial activities on the International Space Station U. S. National Laboratory 

are subsidized by U.S. taxpayers and brokered via CASIS. The argument put forward 

is that providing the ISS facility for free to the private sector would stimulate the creation of knowledge, trigger innovation, and contribute to national economic growth. 

From this perspective, one could argue that there are two overlapping and entangling 

systems. The first is one could be labeled the “LEO ecosystem,” with activities focused 

on both exploration and exploitation of LEO. The second can be labeled the “U.S. 

National Innovation System,” which is comprised of many sectors and value chains 

and carried by a more diverse constellation of actors and activities. 

The policy challenge is how to connect the two systems to generate benefits for 

the U.S. taxpayer, as well as maintain a sustainable U.S. presence in LEO. In the 

current arrangement for LEO, one sees largely a horizontal policy of government-subsidized commercialization that could benefit the U.S. National Innovation System 

via the private sector actors who make use of the no-cost access to the ISS and create 

wealth broadly. 

Creating a sustainable LEO ecosystem implies one of two scenarios. Scenario 1 

involves closing the financial loop between public investment of resources (NASA) 

and private sector gain (subsidized users of the ISS) in a manner that reinvested gains 

from this process back into space infrastructure. 

Scenario 2 involves closing the financial loop between public investment of 

resources (NASA) to private sector gain (subsidized users of the ISS), with the private 

sector investing in orbital facilities to which the public sector would have access.11

Could joint ventures between the public and private sector be the way forward? 

Indeed, a number of our interviewees suggested that something between licensing 

and a COTS-type initiative to create a next-generation ISS-type facility could be an 

interesting approach after its success in orbital transportation.

The emphasis on the ISS’s relevance to existing markets puts pressure on the access 

and support of potential breakthrough technologies that could create new markets. 

The case of Made In Space shows that alternative approaches to space activities are 

possible; in this case, with fabrication in orbit opening new possibilities for developing lightweight and fragile structures in space, which would be too delicate for 

launch. At same time is hard to see how Made In Space would have emerged as a viable company without the direct support of NASA Ames and later the SBIR program. 

This raises the question of what should be the optimum mix of approaches to create 

a sustainable LEO ecosystem.

Another issue is intellectual property. There is an ongoing discussion with the space 

policy community about the waiving of intellectual property rights and licensing fees 

to enhance commercialization. Should there be limited direct financial returns to 

11 Other scenarios may be possible, mixing these two extremes.
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Chapter 5 § Directing vs. Facilitating the Economic Development of Low Earth Orbit 

NASA or CASIS for drug development that involves the ISS National Lab? If not a 

direct return to NASA or CASIS, what other deals might be possible to improve the 

returns to taxpayers? 

3.3 Organizational Capacity 

With the devolution of LEO commercialization responsibilities to the private sector, 

a key question for NASA as the Agency responsible for U.S. civilian space activities 

is whether or not NASA need maintain the ability or capacity to intervene and shape 

LEO activities if necessary. In the context of another mission-oriented agency, the 

Department of Defense, Mowery (2012) observed that, in addition to R&D expenditure supporting weapons development, the DOD often funds R&D in peacetime 

with the aim of making future weapons possible, and to provide knowledge to help 

it decide what kinds of weapons to try to develop and ultimately to procure and use. 

It is important to consider whether and how transitioning spaceflight activities in LEO could potentially reduce the internal capacity of NASA for its future 

exploration missions. How would it affect NASA’s ability to accumulate the kind of 

knowledge and expertise (and attract the talent needed) that were essential for the 

Apollo and Shuttle periods of U.S. space activities? Relying on the private sector for 

space transportation offers potential advantages in terms of improved cost and time 

to delivery, although it also means that the related knowledge and experience being 

accrued lies in the private domain. What does this mean for NASA’s organizational 

capacity to absorb new knowledge and embark on further technology developments? 

And although it is clear that LEO commercialization can only happen once private 

sector companies are activity engaged in and investing in demand-side applications, 

such as those provided for by the microgravity environment, to what extent should 

NASA maintain and active and perhaps even leading role in the development of these 

applications? For private sector companies, this is referred to in terms of “absorptive 

capacity;” that is, the degree to which engaging in the actual process of R&D opens 

up your capacity to foresee, understand, and absorb new technological opportunities, 

even when these are unrelated to your own R&D (Cohen and Levinthal 1989). In 

sum, NASA should be careful to continue to nurture its own “absorptive capacity” if 

it wants to remain a mission-oriented innovation-based Agency. 

Section 4. Conclusion

The narrative often visible in discussions of market creation and innovation describes 

the private sector as a major driver of innovation with the public sector only important in how it levels the playing field and creates the conditions for innovation to 

happen in the private sector. At best it is seen as a “market fixer” and at worst, an 

impediment to innovation. In this chapter we have argued that historically NASA has 

played an active role in innovation and market creation through its mission-oriented 
ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT

126

(vertical) policies, which have actively created new markets related to space, not just 

fixed them. Indeed this tallies with other studies, where public agencies have taken 

up this role due to the hesitation of a risk-averse private sector, particularly concerning breakthrough technology fields and new markets in the Internet, biotech, and 

nanotech sectors (Mazzucato 2013). Indeed, the ability to create new markets is a 

fundamental aspect of mission-oriented programs. 

There has been a considerable shift from a fully NASA-directed U.S. presence in 

LEO, to a wider and more diverse ecosystem in LEO of public and private actors, 

interacting through a number of different forms of relationship, though the majority 

of activities are still heavily supported both financially and technically by NASA.

By placing a stronger emphasis on a “commercial approach” to LEO, NASA has 

delegated a large share of its ability to direct the LEO ecosystem and its link to the U.S. 

national innovation system to brokers and private actors. This represents a shifting 

of emphasis from mission-oriented vertical policies to distributed horizontal policies. 

Successful innovation in different sectors has always required both vertical and 

horizontal policies, and hence this chapter provides a strong recommendation for 

NASA to continue in its path of doing both, rather than seeing horizontal, less 

“active,” policies as the only way for commercialization to happen. We have outlined three challenges that should be considered (1) the issue of directionality, (2) the 

risk-reward balance for a sustainable link between LEO and the national innovation 

system and (3) NASA’s organizational capacity to intervene and shape innovation in 

such a coupled LEO ecosystem and national innovation system.

Concerning the viability of a sustainable LEO ecosystem, our interviews revealed a 

concern about the availability of orbital facilities beyond 2024—there is a fair amount 

of uncertainty about whether there will be continued access to space on a comparable platform for further product development. Does a sustainable link between the 

LEO ecosystem and the national innovation system entail a need for next-generation 

orbital facilities and, if so, who should take the lead? Could it be something similar to 

the procurement-and-use approach demonstrated by the COTS program? Would the 

use of such a facility be brokered through agents such as those present today? How 

would this connect with NASA-supported breakthrough innovators such as Made In 

Space? These points raise issues in line with the challenges outlined regarding the mix 

between vertical and horizontal approaches and the risk-reward balance.

We have argued that the ability to create new markets is a fundamental aspect of 

mission-oriented programs. With the current transition towards a less mission-oriented (vertical) approach towards a more distributed (horizontal) approach, and the 

potential for ISS retirement in 2024, should an active directing role be foregrounded 

once again, as was clearly seen in the Apollo years? 

To answer these questions going forward, NASA will face a number of challenges 

related to setting the directionality of change, building the organizations needed to 

do so, enabling a more dynamic evaluation of public investments, and achieving a 

mutualistic risk-reward relationship with the private sector. 
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Acronyms

ACT Agreements for Commercializing 

Technology

AMNPO Advanced Manufacturing National 

Program Office

ARPA-E Advanced Research Projects AgencyEnergy

CAGR Compound annual growth rate

CAN Cooperative Agreement Notice

CAPM Capital asset pricing model

CASIS Center for the Advancement of Science 

in Space

CCDev Commercial Crew Development

COTS Commercial Orbital Transportation 

Services

DARPA Defense Advanced Research Projects 

Agency

DOD Department of Defense

DOE Department of Energy

EAR Export Administration Regulations

EDF Electrically defect free

FCC Federal Communications Commission

FDA Food and Drug Administration

FY Fiscal year

GP General partner

GSO Geosynchronous orbit

HEO High Earth orbit

ICT Information and communication 

technology

IP Intellectual property

IPO Initial public offering

ISS International Space Station

IT Information technology

ITAR International Traffic in Arms Regulations

LBO Leveraged buyout

LEO Low Earth orbit

LP Limited partners

mAbs Monoclonal antibodies

MEO Medium Earth orbit

MII Manufacturing Innovation Institutes

NASA National Aeronautics and Space 

Administration

NCRA National Cooperative Research Act

NCRPA National Cooperative Research and 

Production Act

NOAA National Oceanic and Atmospheric 

Administration

NGSO Non-geosynchronous orbit

NIH National Institutes of Health

NIST National Institute of Standards and 

Technology

NL National Laboratory

NNMI National Network for Manufacturing 

Innovation

NSF National Science Foundation

NVCA National Venture Capital Association

OMB

PPPs

Office of Management and Budget

Public-private partnerships

PSI Protein Structure Initiative

R&D Research and development

ROR

SBIR

Rate of return

Small Business Innovation Research

SiC Silicon carbide

SpaceCom Space Commerce Conference and 

Exposition

STA Strategic Trade Authorization

STEM Science, Technology, Engineering, and 

Mathematics

TOS Transfer Orbit Stage

TRLs Technology Readiness Levels

VC Venture Capital


National Aeronautics and Space Administration

NASA Headquarters

300 E Street SW

Washington, DC 20546

www.nasa.gov

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