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Three Reasons Why NASA Should Have A Venture Capital Fund

Author's Note: This blog post has taken a long time to come around. I know. It's somewhat sad, and also of a happy thing that I'm finally getting around to making this post. The simple reason why this has taken so long is that I haven't been making it a priority when I should have. The original purpose of this blog was to center my professional goals around creating a venture capital fund at NASA.

It's still the primary goal of this blog and its subsequent posts to describe in total my conception of how a VC fund would work at NASA.

The central question of this blog post is why NASA should have a venture capital fund. I personally believe there are three core reasons why NASA should have a financial investment section of its agency operations.

Reason #1: Maintaining America's Economic Growth And Technical Superiority

A NASA-backed VC arm would continue to grow America's economy and ensure our country's technological superiority.

Multiple studies show that NASA's Apollo space program has provided a significant return on investment for our economy at the time. For every $1 invested into Apollo, $7 were returned. It is incredibly hard to find investments in our economy today (even with low-interest rates, which make the cost of loans each cheaper to stimulate investment) that can provide that same return.

Of course, there was an extreme amount of risk that was inherent to the literal moonshot NASA was trying to accomplish. But not only did was it a stunning success from a political and social perspective, but economically as well. Wired came out with an article focused on state investment playing a crucial role in the development of technologies we take for granted today. The report states that "More than 300 different projects contributed, not only in aeronautics but in areas such as nutrition, textiles, electronics and medicine, resulting in 1,800 spinoff products, from freeze-dried food to cooling suits, spring tires and digital fly-by-wire flight control systems used in commercial airplanes. The program was also instrumental in kick-starting an industry for the integrated circuit, an unproven technology at the time, and other space projects such as the Space Shuttle and the International Space Station."

Sounds great, right? It gets even better. The 1976 Chase Econometrics report and the 1989 Chapman Research report state the following:

"Assuming that NASA's R&D expenditures produce the same economic payoff as the average R&D expenditure, MRI concluded that the $25 billion (1958) spent on civilian space R&D during the 1959-69 period returned $52 billion through 1970 and will continue to stimulate benefits through 1987, for a total gain of $181 billion...Chase concluded that society's rate of return on NASA R&D expenditures was 43 percent."

A high-level overview of the economic and employment impact the Apollo program had is shown below (courtesy of Wikipedia):

  • $21.6 billion in sales and benefits

  • 352,000 (mostly skilled) jobs created or saved

  • $355 million in federal corporate income taxes

It's crystal clear that investment in space programs is beneficial for long-term growth in America's economy.

(However, it's worth stating that some academics and economic historians dispute the conventionally-accepted wisdom that the space race had a positive impact on our country's economy. They are still working on a study to examine their claims in more detail.)

When it comes to protecting America's technological edge, here is an article from CNBC that should give you perspective:

It would be wise for the US to begin making investments now to maintain our technological superiority

My proposal would be to harness the techniques and investment strategies of the private VC investment strategies to invest in long-term solutions to America's most challenging space problems. The greater the problem, the more room there is for spin-off technologies to be commercialized, which will create new industries and grow old ones. The growth of these industries will create new jobs throughout all 50 states, allowing for people to have a stable source of income and job security for the long term. Which leads into my next point:

Reason #2: Diversifying American Innovation Geographically

A NASA-backed VC fund or VC arm of the space agency can efficiently distribute its investments geographically to support job creation in every state, thus making it challenging to cut NASA's budget in future years.

One of the significant advantages of VC funding is that you can afford to be geography agnostic as opposed to being limited to specific locales due to political demands and realities.

Let's take a look at the following impact NASA has on the economies of each state in the Fiscal Year 2013:

The majority of the money went to California, Texas, Florida, Maryland, and Alabama. This is expected given the history of the aerospace industry in these locations. This history was shaped by the availability of excellent public schools producing competent entry-level engineers, manufacturing talent and capabilities that existed before our nation's interest in aerospace, and the politics of driving government funding to these locations to make constituents happy. Not to mention, the established NASA centers (Ames, Houston, Kennedy, NASA HQ, and Marshall) would make it investment coming to them a foregone conclusion. :)

The conflux of the social, economic, and political factors is what helps NASA to maintain its budget and work on the vital missions that will get our astronauts back to exploring the Moon and beyond. Politicians have a vested interest in keeping aerospace dollars following to their home states, which is expected and should continue. These areas can continue to grow and mature into key talent and innovation communities for fundamental aerospace discoveries and technologies to be made and produced, respectively.

However, there is also the opportunity for the remainder of the U.S. to get involved in a new space age. There are talented locations throughout the U.S. that have the talent and resources to help contribute to America's space needs. (Purdue University is a great school to consider as an example, and also has a robust manufacturing infrastructure as well to support the high-intensive resource and capital input the aerospace needs to grow)

If NASA were to have a VC fund, it could take strategic bets throughout all 50 states to help seed the growth of new deep-tech industries that can lead to an increase in the manufacturing output of our country. These investments in each state create high-paying jobs around the latest efforts to build businesses in the vast industry that is space. More importantly, the return on investment to the VC fund can insulate NASA from political decisions to cut their funding that is appropriated by Congress, as they will have another source of capital to draw from if their main lines of funding are cut.

This creates the opportunity for NASA to dedicate the full weight of its government budget to building the core technologies needed to maintain America's leadership in space, but also farm out the "nice-to-have" or secondary sets of problems needed technical solutions to burgeoning startups throughout the country. Ideally, if this were to happen, then my third point comes into play.

Reason #3: Inspiring The Next Generation of STEM Professionals

Even if our Reasons #1 and #2 come into fruition, the key to sustaining these positive developments in our nation's exploration into the unknown is by inspiring the next generation of scientists, techies, engineers, mathematics, and other supporting roles.

That is, we should be inspiring our children to not only reach for the stars but also land on the moon.

And stay there.

Emma wants to become an astronaut? Right this way, young lady, we need you to help complete this spacewalk to repair the International Space Station!

Does Martin want to be an aerospace engineer? Sure, we could use more help in developing the Space Launch System.

Is George interested in developing robots to explore the surfaces of celestial bodies? I know of some people at a place called JPL who would love to get him involved.

Lauren wants to develop the cutting edge software to form the bedrock of the navigation and guidance controls needed to make to the Moon and back? There are some "hidden figures" that are ready to help you do what they did and more.

The truth is the children are our last, best hope for maintaining America's leadership and knowledge in the aerospace industry. We would be wise to not only teach them the possibilities of learning STEM subjects but also the responsibility they have to themselves and our society to making sure that technology is used for the right reasons.

Conclusion: A NASA-run VC Fund can Help lead Americans to a new era of space innovation.

This is only the beginning of my series on what a NASA-run VC fund would look like. There's a ton of questions to be explored, such as:

  • Is this even a realistic idea? (short answer: yes. long answer: yes, because it's already been done by other government agencies.)

  • What are the political constraints, and how can they be resolved to form a NASA-run VC fund?

  • What would be the criteria for selecting promising startups to invest in?

  • What responsibilities would the fund have to the government and the public at large?

  • How can the public be convinced that such an endeavor is worthy of consideration, and more importantly, will better their lives?

These will all be explained (not necessarily in the listed order) in future articles on my blog.

Thanks for reading and I hope you have a wonderful Sunday!


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