Questions Raised After Bankruptcy of CDL Graduate PTScientists

June 2018 CDL Insights chat with Chris Hadfield, Firouz M. Naderi, Anousheh Ansari and Dante Lauretta. Credit: Creative Destruction Lab.

This past summer SpaceQ wrote about the successful graduates of the first cohort for the Creative Destruction Lab’s (CDL) new Space Stream. While some companies were more satisfied with the process than others, all the companies interviewed believed that they were better off for the CDL process, and that the process had helped make them business-ready.

That is why it was a great surprise that PTScientists, now known as Planetary Transportation System, one of the successful graduates of the program, announced on July 8, 2019 that they had declared bankruptcy in the Berlin Charlottenburg district court, barely a month after graduation.

Companies fail all the time. The CDL program is gruelling and competitive, and it’s a process that eliminates far more companies than it lets through.

The PTScientist bankruptcy raises some questions about CDL. How could a company on the verge of bankruptcy get through CDL? How did PTScientists survive when other potentially-viable companies were eliminated?

The promise of a private moon launch

PTScientists and their technology seem like a straightforward winner. Originally called Part-Time Scientists, they were the first German company to enter the Google Lunar X-Prize (GLXP) in 2009. Headed by founder and CEO Robert Böhme and COO Sven Wehlan, they presented their project at the German Federal Ministry for Education and Research, and then later at the Chaos Communication Congress. They changed their name to PTScientists GmbH in 2015, opening an office in Berlin-Mahlsdorf.

Their technological goal? Nothing less than private moon landings and moon exploration. The purpose of the GLXP was to develop companies that would be able to land robotic spacecraft on the moon, move around, and transmit images. They presented their mission in 2009, and in the following years they racked up some successes; including winning a total of $750,000 in Milestone Prizes and getting sponsorship from Audi in early 2015.

Though they left the Google X-Prize competition, the company’s technology still gained a lot of attention. Its “ALINA” (Autonomous Landing and Navigation) Module, and their ALQ (Audi Lunar Quattro) rovers were eye-catching demonstrations of PTScientists’ possibility. Many potential clients were interested in the company’s promise to carry payloads and perform scientific activities on the Moon’s surface for clients. The company secured agreements to deliver payloads from several national governments, and announced in March 2017 that they were planning to perform the world’s first private moon landing. They also began work with ESA contractor Ariane Group to study the possibility of mining lunar regolith for resources.

Not long after that, the German company came to Toronto — as one of the ventures competing to complete the CDL’s inaugural space stream.

Technological and business viability questions

CDL is different than most programs: most of its streams are competitive and only a quarter to a third of the ventures will reach the final round. Even with that structure, every cohort has far more applicants than spots, so applicants go through close examination to see if they’ll be appropriate for the program. The exact nature of that examination is not public knowledge, but some off-the-record sources that have been close to the CDL have revealed a few key elements.

First, and foremost, they have to be evaluated for technical feasibility. This is vital. CDL programs routinely turn teams of scientists, technicians and dreamers into functional businesses, so business plan issues aren’t a dealbreaker. However, they absolutely have to get the technology right. If a venture’s plan just isn’t technically feasible, there’s little that can be done.

The catch is that neither the venture managers nor the mentors may be equipped to provide this evaluation. So CDL often relies on outside scientific experts, including from the National Research Council (NRC) in their first cohort.

For many programs, this is fine, as there will be NRC-affiliated experts able to evaluate a venture’s technology. With the space stream — including with PTScientists — this can be a problem. NRC technological assessors may not have the knowledge to evaluate many kinds of space technology, as it’s often a very specific kind of technology that only a handful of people in the world can understand.

NRC assessors may not have the skill set to evaluate novel propulsion systems, for example. When so many space stream companies were launch-focused, this can be a real concern. Space launches are brutally punishing on equipment, as is space itself. The technology must be reliable.

CDL, including lead mentor Col. Chris Hadfield seemed confident in PTScientists. According to a source close to CDL, there was an open question as to whether PTScientists could do what they said they’d do. In fact, there were many questions about what exactly PTScientists did. Both mentors and venture managers seemed unclear about the company’s technology, and the tech assessors seemed unclear as well.

The source, however, noted that assessment of the organization was a much bigger problem. Yes, the CDL program was created to take organizations that weren’t market-ready, and to make them market-ready. But it still relied on the basic good faith of the ventures’ founders and their team members. According to a source, CDL very specifically does not do detailed due diligence on ventures, believing that it is the job of investors and lenders to provide the due diligence.

On one level, the stance does make sense. CDL isn’t an investment program and does not take equity, though mentors are encouraged to invest the ventures.

One could even ask when they would do this evaluation; a venture at the beginning of CDL is very different than the one that’s made it all the way through, and they still have to go through the grueling evaluation process. In the real world, though, a truly questionable enterprise could theoretically damage CDL’s reputation; especially one that could be on the boundaries of the law.

Of course, it’s not clear that PTScientists was anything of the sort. Certainly they’d gotten the stamp of approval from big sponsors and partners like Audi. But as time went on, irregularities started appearing in their materials.

Funding was an issue. Their situation seemed to keep changing according to our sources. Even if this wasn’t deliberate deception, why did things appear to be so chaotic?

The company didn’t seem to be in any danger of collapse, as they apparently had a deep-pocketed ally in Germany. But according to our sources, nobody at CDL seemed to know who it was, or why they were backing PTScientists in the first place.

For that matter, why were they in Canada at all? Our sources cited German investors who said that getting technology investment and business mentorship in Germany wasn’t tremendously difficult. Why come to Canada, especially when PTScientists was a full-fledged company instead of a team of scientists with technology and a dream?

PTScientists new CFO

In the lead-up to the third session — possibly in response to the troubled fundraising situation — PTScientists was asked to bring a CFO (Chief Finance Officer) or VP of Finance aboard. They accomplished this goal, bringing aboard a German banker and economist named André Radloff who had been doing business development for them since June of 2018.

At first glance, he seemed like an excellent addition, working nine years at the German development bank ProCredit Bank, which specializes — according to its website — in developing-world microfinance.

But Mr. Radloff prompted a number of questions as well. The first was simple, but strange: why didn’t he come to Toronto? Our sources confirm that, unlike almost every other CFO of a CDL venture, Mr. Radloff never joined his team at the CDL Sessions. With fundraising such an integral part of the CDL process, this seemed out of character for a venture.

While it wasn’t technically against the rules, it seemed to show that PTScientists and Mr. Radloff had a less than complete commitment to the CDL process.

Upon closer examination, however, some at CDL started asking questions about Mr. Radloff’s background as well. Radloff’s experience at ProCredit Bank is extensive, but limited almost completely to jurisdictions — like Bosnia, Sierra Leone, Congo and Ecuador — where banking regulations may not be complete. These are jurisdictions where serious concerns could be raised about the possibility of bribery, money laundering, or other business improprieties.

Again, there is no evidence whatsoever that Mr. Radloff was connected to any improprieties. But due to this background, and due to the other odd inconsistencies at PTScientists, voices at the CDL said that the situation warranted enhanced due diligence — if only to ensure that everything was completely above board. It would help to protect the reputation of the Creative Destruction Lab, of the Rotman School, and of the University of Toronto itself.

In our research we noted that though Radloff’s LinkedIn profile has him listed as CFO from June 2018 along with his business development duties. That was before CDL was aware of his role, and after asking PTScientist in February of 2019 to hire a VP Finance or a CFO. If Radloff had been the CFO since 2018, why not inform CDL? We also checked the PTScientist website at various times throughout 2019 and it seems strange that he was never listed as one of the executives even though the website had biographies for the CEO, CTO, COO, a Deputy CTO, a Chief Strategy Officer and a Chief Commercial Office.

By this point it seemed there were inconsistencies that should have raised red flags and cause for CDL to require that the company’s executive leadership get them resolved. But PTScientists wasn’t an immature venture. They were well-established. It raised the simple question: how did they even get this far?

The “North American CEO” and the shocking fourth round pass

That question of “how are they even getting through” came to a head during the fourth CDL session. CDL staff were more than slightly shocked to hear from the PTScientists’ that none of the important c-suite execs, the CEO, COO, CFO were attending the session, focusing instead on “closing financing.” CDL’s rules on this were clear: if the venture did not attend, the venture did not advance. And PTScientists was apprised of this. So, instead, they decided to send their “North American CEO”, whom nobody in the day-to-day running of CDL apparently knew anything about.

The individual did arrive during the fourth session. Our sources didn’t provide us the individual’s identity, but said that he was a former astronaut who had worked at NASA. We later confirmed that this person was Rolf Erdmann, who was the Chief Strategy Officer and was listed as the “CEO for PTS LLC in Houston”.

A source told us that while he was competent and intelligent, it was also equally clear that he hadn’t been properly briefed on the CDL and its process. While CDL staff did what they could, the individual was ultimately unable to properly brief the mentors on PTScientists’ activities and progress — and, in fact, didn’t seem aware that was the job he was there to do. He seemed to think that he was there to drum up investment.

Yet PTScientists stayed in. Despite an increased focus on winnowing down the number of ventures, and despite possibly other viable companies getting eliminated in the fourth round, they stayed. Sources seemed unclear as to why, and apparently all people across the entire CDL space stream were shocked at the decision to retain PTScientists. Some speculated that it could be due to a fondness for the company’s goals and technology by Col. Chris Hadfield, and the fact that PTScientists’ representative was a fellow astronaut. It was also speculated that their having a friendly moderator during their session helped. But it remains unclear.

Insolvency and mysterious acquisition

No matter what the reason was for PTScientists getting through the CDL process … they did. On June 13th 2019, the CDL announced that they were part of the first successful graduating cohort of the CDL Space Stream. Where many other teams failed, PTScientists succeeded, and was blessed with the CDL’s stamp of approval.

And yet, despite getting through the process, and despite their ongoing relationships with Ariane Group and the European Space Agency, they announced their bankruptcy a little over three weeks later.

They filed for “preliminary insolvency” with the district court in Charlottenburg, Berlin on July 5th, 2019, blaming “unplanned delays in the acquisition of further investor and promotion funds”. They didn’t announce exactly how much funding they had been seeking — despite having been open about their funding requirements during the CDL process — and didn’t share any other financial information about what triggered the filing.

It becomes even stranger, though, when they announced on Sept. 2 that they were acquired … but not by whom. In the announcement it said that after being acquired it would allow them to retain their 60-person staff and continue their projects. Yet there was no information provided about who the buyer was, nor what the purchase price was. Space industry experts were clear that this was not the norm for acquisition announcements. Far from it: this was completely unheard of.

A little over two weeks later on Sept. 17, the buyer was finally revealed: the Berlin-based Zeitfracht Group. This only raises further questions; the Zeitfracht group isn’t a space company, nor even a company with an aerospace development focus. It is (according to its website) part of the “national and international logistics industry”. It does operate several airlines, including WDL Aviation and Luftfahrtgesellschaft Walter (LGW). But like PTScientists, both were recent acquisitions as well — WDL in 2017 and LGW in 2019. Before that, the company appeared to specialize in truck-based shipping and media logistics.

This would seem like an odd fit for a company building private moon landers. It may be an ambitious move forward for Zeitfracht and a welcome reprieve for PTScientists — since renamed Planetary Transportation Systems — but will it actually work?

And why weren’t PTScientists acquired by a company already active in the space sector? This was a high profile CDL graduate. How was Zeitfracht able to snap them up in the first place?

Answers remain unclear

It’s hard to say what happened. Several confidential sources says that this may speak to issues with CDL. As CDL grows as a program and becomes more and more prominent, and as Toronto shifts towards its new role as a technology hub, it seems that CDL is coming under no small amount of strain. Our sources said that there are morale issues and ongoing tensions within CDL. Certainly, several Venture Managers have moved on from the Space Stream, and rumours suggest that even the highest-profile mentors are sometimes unsure if they’ll stay on.

Regardless, PTScientists’ mysterious rise, fall, and acquisition, suggests there is a valid concern about whether CDL should be doing more involved due diligence. There are also questions as to why it maintains so much secrecy about its processes, and how well its current elimination structure is working for CDL and its ventures. There is good reason to believe that the CDL’s success may require its leadership to think about exactly where they want to take the organization.

After all, there are any number of promising and comparatively non-controversial ventures that didn’t make the cut, while PTScientists did.

Note: Marc Boucher contributed portions of this story.

About Craig Bamford

Craig Bamford
Craig is a graduate of Carleton's Norman Paterson School of International Affairs, focused on conflict studies. Naturally, this means he writes on the Internet about gaming, tech, and speculative fiction. He lives in Toronto.