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Government/Industry/Academic Relationships for Technology Development: A Workshop Report
MicroSat Systems was a spin-off from a research and development company called ITN Energy Systems, which had been in business for a number of years. ITN had succeeded at both creating new technologies that were licensed to large companies and at creating companies to market those new technologies. MicroSat Systems is an example of the latter—the third spin-off company that resulted from ITN’s contract with the Air Force TechSat-21 program to build three satellites. The TechSat-21 concept was to employ groups of small satellites to do the job of very large satellites by using distributed aperture processing and formation flying technology. MicroSat Systems was created when ITN unexpectedly won the contract but found itself unable, according to Roth, to execute the contract with its existing organization and capabilities. A spin-off company was created from the core group of employees that had worked on the ITN proposal.
The Air Force used an OTA contract since one of TechSat-21’s requirements was a cost-share commitment. In addition, the Air Force was convinced, Roth said, that the concept of small, low-cost satellites was going to be disruptive to the large satellite business and would have huge commercial potential. Investors were asked to cost-share to the extent of $10 million, which was paired with $26 million of government funds. The OTA agreement itself was good, according to Roth. It was very flexible, allowing the company to negotiate terms and conditions different from those normally allowed under the FAR regulations. It enabled the new company to own all of the intellectual property rights for technology developed using the money that the private investors were providing.
A unique clause in the contract, allowed by OTA’s flexibility, gave MicroSat Systems ownership of the satellites after one year of operation in space. After the government had finished testing the satellites, which had synthetic aperture radars, the company could use them for high-resolution imagery. This was an opportunity for the company to recoup part of its investment through newly owned assets.
The OTA began to look like a wonderful opportunity for the company. After 1 year, MicroSat Systems was able to grow the value of the contract to $42 million when the government decided to fund all the program’s subcontracts under the company (in effect, MicroSat Systems became the prime contractor). Unfortunately, 2 years into the contract, a change in leadership at AFRL led to cancellation of the program. The old administration, which had thought this program was a great idea, moved out. In its place came a new administration that did not own the program. At the time, TechSat-21 was the largest program being funded at AFRL and looked like a great place to obtain funding for other projects the Air Force leadership wanted.
By the second year of the contract, MicroSat Systems had invested $4 million of its own money and TechSat-21 accounted for over 90 percent of the company’s activity. The company immediately went from a highly favorable situation (a large, multiyear government contract) to a really dire situation (90 percent of the business was lost because of one customer’s decision). Roth believed it was a credit to the company that it had survived. Through the SBIR program and some other opportunities, the company was kept alive and recovered, winning three other Air Force contracts to build satellites.
Roth recounted important lessons learned from the experience. One lesson for small business is that government decisions can be very powerful. Large companies, when they are talking about investing in dual-use technology, have the luxury of evaluating programs based on their return on investment, and they may decide to invest only if