Betting on Space with Chad Anderson of Space Capital

Chad Anderson 00:00

The future of geospatial intelligence is not like I log into a platform and I look at pretty satellite picture: it is an insurance company, someone in an insurance company just come to their office and they log into their intranet, and they're going to do their normal job. But there's going to be geospatial data that's piped into that through API's that makes them much more efficient and much more effective. And those companies are going to make a ton of money, and no one's going to hear about them. That's why we call it the invisible backbone that powers the world's largest industries just because it's there, but it doesn't always get the recognition that it deserves.

Announcer 00:38

Welcome to Tough Tech Today with Meyen and Miller. This is the premier show featuring trailblazers, who are building technologies today to solve tomorrow's toughest challenges.

Forrest Meyen 00:51

Welcome to Tough Tech Today with Meyen and Miller. Right now we are kicking off our second theme of the year. In this theme of the season, we will be talking about space as a tough technology and what it's going to take to capitalize on this brave new future. Today, kicking off this segment, we have Chad Anderson. Chad is a founding and managing partner of Space Capital, where he has managed and pioneered investment in the space economy for over a decade. He's also the author of "The Space Economy: Capitalize on the Greatest Business Opportunity of Our Lifetime." Chad is featured as a media expert across many publications, and as well as on news, podcast, radio. He also serves on the board of many startups. He's also on the board of directors of The Explorer Club, so we'll have to dive in a little bit deeper. The Explore Club is a nonprofit that promotes a scientific exploration of land, sea, air and space. Prior to Space Capital, Chad led a successful career at JP Morgan where he managed a $50 billion real estate portfolio through the Great Recession. He also has an MBA with a focus on entrepreneurship and innovation from the University of Oxford. Chad, we're super excited to have you here to kick off our session on space. I'd like to start with just kind of asking you a little bit about yourself and how you got interested in space.

Chad Anderson 02:29

Yeah, thanks, guys. Happy to be here. So my story... you probably picked up a little bit on the intro. I'm a finance and economics undergrad and an MBA. So I'm a business guy. So what is a business guy doing in space? This is a question that has needs less explanation today than it did 10 years ago when I got started. But yeah, I mean, I was managing a large real estate portfolio, commercial real estate portfolio and did that through the Great Recession. And I came out the other side having survived that, and had a nice job waiting for me, you know, sort of cushy corner office with a nice paycheck. But that wasn't really sort of satisfying for me. I was looking to do something that is a bit more meaningful to me personally in my career. And so I decided to go to business school and I went to Oxford to do it, sort of get a change of pace to expand my network more broadly. But also Oxford has a reputation... has The Skoll Centre for Social Entrepreneurship, but the idea is investing for impact, investing for monetary gain, but also for in return on investment, but also for driving impact and change in the world. Which was very attractive for me. So I went to Oxford, and I was reading about SpaceX and what they were doing, and it was a, you know, a hobby of mine: it was very, very interesting to sort of follow along. And that was in 2012, which is the year that SpaceX just launched their first customer a few years prior, they launched to the space station that year, delivered cargo and brought their spacecraft safely back to earth under contract for NASA. And in doing so they became the first private entity—well, the first outside of the three national superpowers that had ever done that before. And so for me, I mean, this was really, really interesting, but it was always a hobby. It was never like something that I thought someone with my background, like that there was a career opportunity for me here. So I was actually... while I was at Oxford, I was studying nascent markets under Professor Mark Ventresca, who teaches at Stanford and Oxford, about how nascent markets develop, you know, and we've seen this happen through many, many industries throughout history where there are some incumbents and some structural barriers that are preventing new entrants from entering the market. The incumbents, you know, are living very happily, getting fat on the privilege that they have the unique access that they have. And then something structural changes and the barriers to entry are removed. And then you see this rush of innovation and entrepreneurship flood in. And that's exactly what we're seeing happen with SpaceX, right? We've been operating in space for decades. But it only became a category for investment and entrepreneurship, on the heels of SpaceX removing those barriers to entry. So recognized that we had seen this pattern before, seeing that it was playing out, kind of reading the tea leaves a little bit. And knowing that all of these new startups that were coming in were going to need finance. And there weren't a whole lot of serious people, you know, that I could find that were helping to manage the growth that I saw coming. So it was a huge opportunity, a big gap in the market that I saw, starting to form. And I was a bit early. So there wasn't a whole lot of there wasn't enough bill flow or investor interest back then to support a venture capital fund. So actually stayed in the UK for a few years, to help them stand up an innovation center that was funded by the government with the goal of growing the space sector in the country. Did that during the day in UK hours, and then at night, I was busy building this fund and building the foundation for this fund. And then in 2015, you know, things have picked up to the point where I could do this full-time, move to New York. 2016, partnered up with Tom Ingersoll, we launched our first venture capital fund and sort of the rest is history.

JMill 06:57

Something that I found interesting is how, when you have the patience, and the willingness to be able to say, you know, like maybe it's not quite right yet to stand up a fund, but finding other ways to contribute to sort of the growth of the sector that you saw was that, some of that growth, was I guess, maybe sort of inevitable or bigger than you, but finding a way to help support it in a different way. How are you finding now, over the past two years or so... we've had terms like "new space" and or "space 2.0"... are you seeing a change in the way that the young companies that are starting to get their legs, a change in what that kind of cohort looks like across the vintages?

Chad Anderson 07:46

I mean, there's a massive transformation in mindset over the last 10 years for sure. When I... you know, in business school, what you do is like you always sort of go around the table, and whenever you have an event or a gathering or whatever, and it's like, Hey, so what are you guys, you know, what are you going to do after the program? And, you know, I told people that I was going to start a fund to invest in space, and people would laugh, like they thought I was... So yeah, and I mean, in those early days, I had to convince myself, actually, right. So like, I was following along with SpaceX, and I thought it was really fascinating. It was interesting, you know, as a hobby. But was there really an opportunity here? Right? Is this really like something structural changing? Is this really a new innovation S-curve that we're on? Or is this sort of like a flash in the pan? Is this just a lot of hype? You know, I spent a lot of time convincing myself, pulling together a lot of data to understand, okay, well, what companies are being founded, who's getting funded, who's investing in them and why? And, funny enough, that database that I pulled together that convinced me that we were on the front end of a nascent market, which I then used that data to go out and convince others to help see what I was seeing, we still to this day, use that database. It's now become our Space Investment Quarterly, which we publish every quarter and which gets picked up by, basically, every media outlet looks to it as the source of record for startup activity and investment trends in the space economy, which now shows by the way, that there's been $270 billion of equity investment into 1700 unique space companies over the last 10 years, right? So data has been our friend, particularly early on, when again, it was very new and people had a hard time getting their heads around the opportunity or seeing the opportunity that we were seeing. Data was our friend. And that's been a key part of our strategy from the beginning. We've you know, you may have seen the GPS playbook, the GEOINT playbook, the SATCOM playbook, these are key areas that our fund focuses on, you know, we dive into these thesis areas, and we get smarter ourselves and do our own internal research. But then we package it up and publish it. Because that market, education is still a key part of our strategy. It also helps founders to understand how we view the world, where they see themselves in our portfolio, and why they would want to work with a fund that is thesis-driven and has some ideas on the market. I can't tell you how many times we get inbounds from founders who were like, well, we can skip the first two conversations, because you guys clearly know what you're talking about, we can get straight into the good stuff. You know, and that's like, immediate rapport building. So it helps us, you know, all across the board, this information and this data, and it's been hugely valuable to us.

Forrest Meyen 10:55

Can you tell me a little bit about your mission, you raise money for the fund, talk a little bit more about your first investment? What kind of was the indicator that that led you to make the investment and how did it go?

Chad Anderson 11:07

Yeah, our first investment was actually in Planet Labs. So we had known them, they came out initially at the seed stage under a codename, Cosmogia, and we knew them then. And it was, you know, it's very interesting, like, what's the first thing that happens after the barriers to entry are removed? SpaceX removes the barriers, suddenly, you know, startups can come in and innovate and experiment and try new things in an area that we new things haven't really been tried in a long time. And one of the first areas was in satellites, you know, people coming in, and instead of having one giant, monolithic satellite, that goes around the Earth every couple of weeks, and takes a picture of an area of interest every couple of weeks. By the way, these are huge, very expensive: they were essentially mainframes flying around in space at the time, because everything had to have flight heritage back then, because it was so expensive to build and launch and operate the satellite systems, right, like hundreds of millions or billion plus dollars. They absolutely had to work when they got there. And we kind of get that now, like, we've come a long way in a short, you know, handful of years. But it wasn't that long ago, when there was triple redundancy built into every single component. And because, you know, you didn't want to fly in the new hardware, because what if it doesn't work? Right? Well, this flew on the last mission, which we know that it works. So the problem is, is that design cycles back then were like 10 to 15 years to design and build the satellite and get it launched. So those design decisions were made 10 to 15 years ago, right? And then that satellite probably had to use flight heritage as well. So you see what I mean? Like, there just wasn't any advancement in, like... technology was advancing on Earth, but it was not translating into orbit. Which is just so so fascinating, this sort of think on now. So the promise of Planet Labs was we launched an iPhone, and it worked; had way more computing power than any of these like, massive satellites, right? I think that's a bit of, well, quite an exaggeration, actually, like, you know, there needs to be more than an iPhone to like to produce valuable data. But it was a sort of foundational change in the way that we viewed risk instead of like concentrating it all into one asset, a distributed network of small satellites that not only distributed the risk, the operational risk, but it also provided unprecedented timeliness in terms of like data. So they were the first company, so we made our first investment in 2015. They had already, like by that time, they had already raised an A and B round, we invested at their C round. But yeah,it's interesting to sort of think on back then, and think how far things have come since then. But no, that was a good early investment for us to cut our teeth on. And obviously, they went public a couple of years ago, and we can see them out on the public markets bringing in record revenue all the time, so.

JMill 14:39

You mentioned... if I recall correctly, Space Capital's focus that you bring is predominantly on seed, and maybe some a Series A stage, both of which are very early stage by startup standards. So walk us through some of that thinking that you bring in terms of with a seed stage company, from my experience, I'm sure yours echoes it, these are often incredible teams. But they're not necessarily be able to show the evidence that the vision that they have is something that can work. It's too early stage for that. And so how do you start to make some of those evaluations when working with these really sort of like diamond-in-the-rough kind of ideas?

Chad Anderson 15:38

That's right. I mean, we get involved very early, we're typically the first institutional money into a company, right outside of maybe friends and family. And even sometimes we are the first money at all into the company. So yeah, we get involved very early. And it's a particular skill set investing at this stage, right, it's a lot more art than science, like the more mature the company is, the more revenue it has, the more customers, the more revenue, the more sort of metrics, right? You can then start to look at the company and assess what it's done, its growth prospects, and you can start to do some valuations and understand the value of the business and that sort of thing. Like, you can apply some some math to it, right, it's a bit more science, early on, they don't have any of that, when we're getting involved, it's typically a founding team. And they might have a prototype or something, right? What we like to see is a founding team that has all the capabilities that you would need on the business side and the technical side. And then they also have a prototype that they are out talking to customers with like something, something that allows them to have real meaningful conversations with customers that are referenceable, right? That we can talk to these customers, and we can say like why are you interested in this thing, and they can clearly articulate why they need this thing and why they're... as soon as they build it, they're gonna buy it, right. That would be ideal. But we actually even get involved sometimes earlier than that, when it's just the team. Just the team and an idea: sometimes if the team is strong enough, it's good enough for us.

Forrest Meyen 17:22

Excellent. So one thing that you know, makes investing in space a little bit different is the time horizons. Can you touch on a little bit about how that plays into your strategy when investing at the early stage?

Chad Anderson 17:36

Yeah. And I mean, I'd like to push back on that a little bit if I can. These are common sort of misconceptions, I think. The space economy is vast, it is all encompassing. And I think if there's one thing that I try to communicate to your audience today is to sort of open your mind a little bit in terms of how you think about the opportunity in the space economy. For us as a fund, it is much more than just rockets and satellite hardware, the space infrastructure, and in our seminal thesis paper, the "GPS Playbook," we really dive into this. And we provide some frameworks for how to think about how space technology can be innovation can enable innovation on a global scale. For example, GPS, the satellites are built by Lockheed Martin, you know, by the government, for the government, paid for by the government. Like this is what most people would think of when they think of space technology. And it's like these satellites that are in orbit; manufacturing, operating launching these satellites. But that signal was... is creating a very valuable signal clearly, but it was off limits, like inaccessible to you or I or most enterprises, basically, anyone outside of the government, military customers that it was designed for, until companies like Trimble and Magellan and Garmin and TomTom in Europe, they built commercial receivers that allowed them to harness this really valuable signal from orbit, and make it easily accessible to the tech community who then built location-based services on top of this. So I mean, GPS is the most successful space technology in existence. It's generated trillions of dollars in economic value and some of the largest venture outcomes' return on investment that we've ever seen. And we use this framework of infrastructure, distribution and applications to help us understand the breadth of the space economy. So the way that we like to think about it is that... well, for one, space technologies are the invisible backbone that powers our global economy today. GPS powers our financial markets, and everyone uses them every day in almost every aspect of their life. The Russian invasion of Ukraine has really put a spotlight on the growing capabilities of commercial space companies in geospatial intelligence. Earth observation satellites that are going around the planet like Planet Labs and others. in the steepest decline of the financial markets last year, in Q2, we saw the National Reconnaissance Office, one of the big five US intelligence agencies make their largest ever purchase of satellite imagery. And so in the steepest market decline, we're seeing record revenues for Earth observation and geospatial companies. Because when the world becomes more dynamic, and uncertain, enterprises and governments want more information, not less. SpaceX's Starlink satellites kept the Ukrainians connected throughout this entire conflict. And the entire defense department is now sort of evolving to be able to take advantage of these new capabilities. And so actually, these areas are really showcasing how the space economy is counter-cyclical and recession proof, which is great from an investor's perspective, but also it's showing the breadth of the opportunities that are available. What we like to say is, in the same way that every company today is a technology company, every company of tomorrow will be a space company. And what we mean by that is that, you know, in the 90s, you could invest in technology, right? Like you could diversify your portfolio by investing in a handful of publicly traded technology stocks. But today, that moniker doesn't make any sense, it's lost all of its meaning because every company integrates, you know, and uses technology in some way. Space technology is following the same path. It is already, like I said, powering the world's largest global industries and is going to continue to do that for decades to come. It just doesn't get the credit it deserves, because most of the time it's operating in the background. Like we don't appreciate how GPS is involved in everything that we do. The same thing is happening with geospatial intelligence and satellite communications. And we're just talking about the satellites industry right now. Right, there are several other industries like launch and what we call emerging industries, and some of these more sort of frontier markets as well, that we're looking at and, and investing in. But this is a really, really, really massive opportunity. So, you know, to directly answer your question about the long time like, yeah, I mean, if you're building a launch vehicle, or if you are looking to address lunar markets, or you're building a space station or something, then yes, your timeline, like your capital requirements are going to be higher, your timelines to revenue are going to be longer. But that takes up a small percentage of the overall space economy today.

JMill 23:05

It sounds like that we're seeing a transition... and I think there's some data to support it that we're moving from the space curious as a predominant focus to maybe now we might call the space informed in that there are more companies, younger companies that are looking at carving out sort of more niche... like niche-ification of the space industry, looking at applications that are going to return that attention back to Earth and to what those of us who would not necessarily consider ourselves space or even space-adjacent in our lines of work, but many enterprises, small, medium, and large businesses on the Earth are going to find themselves soon, where it'd be prudent for them to come space informed, and there's a lot more companies that are going to be there to serve them, to help them make that transition in being able to, I think, see how that there are new capabilities that are coming online, space-based assets that are actually gonna be directly relevant to the average company here on Earth. Is that a roughly accurate assessment?

Chad Anderson 24:19

Yeah, certainly. I mean, the leaders of these businesses and enterprise government agencies should certainly be aware of the new capabilities that are becoming available. No doubt about it. But it's not like it needs to be understood at the operational level, necessarily. There's one thought exercise that I like to do is, if you were to go into Uber headquarters, and you just walked into the cafeteria and started randomly serving people, you could go up... you talk to a whole lot of people that if you ask them if they work for a space company, a lot of them would be like, no, of course not. You know, I like do UI/UX and I don't know anything about satellite. What are you talking about? Right? Like, no, I work for a software company. But there's a lot of people like you would probably run into, like 30-40% of the people that you run into that are focused day in and day out on the GPS signal. Like they're trying to understand how it's bouncing off of buildings and creating an urban canyon that is costing them money. That's... you know, pickups are in the wrong place, drop-offs are in the wrong place, customers are unhappy. They're losing rides, because they're getting canceled when actually they're right there. You know, it's a real issue. And so there's a lot of focus and attention right now on on GPS augmentation, how do we make a signal better? How can we use software and other hardware to augment the signal. But that's happening across the board. And you know the reason why GPS is so valuable and so powerful is because it operates in the background. It's powerful, because it's taken for granted. And the same sort of thing is happening in in geospatial intelligence. I mean, we talked about this in the GEOINT Playbook: we've got all these new satellites, this unprecedented amount of new data, we've now got it on the cloud. It's being structured, and it's very easily accessible through an API, and we're now starting to see how the first applications are being built by new companies who understand the customer's very intimately. They understand the markets and the use cases of these end customers. And they're selling products that are designed for them. And it's not going to be like the future of geospatial intelligence is not like I log into a platform, and I look at pretty satellite pictures, right, or I order a book that's full of really pretty satellite images. It is an insurance company, someone in an insurance company just walks in... they're an underwriter, right, and they walk into their office, and they log into their intranet, that is their insurance company branded intranet. And they're going to do their normal job. But there's going to be geospatial data that's piped into that through API's that makes them much more efficient and much more effective. And those companies are going to make a ton of money, and no one's going to hear about them. So that's why we call it the invisible backbone that powers the world's largest industries, just because it's there and it's more and more there, but doesn't always get the recognition that its deserves.

Forrest Meyen 27:31

So GPS, that was really the first killer app for space. And you're getting a lot of movement and geo-intelligence imagery of the Earth's surface. What's next?

Chad Anderson 27:42

Satellite communications is another key area we've got. This is probably one of the most, outside of GPS, one of the most established, right, we've had satellite communications, been relying on it for TV and remote communications for a long time. But it's been pretty poor. You got challenges with geostationary satellites, they're so far away from Earth, but it gives you good coverage. And so you've got the issue again of these huge monolithic satellites and the expense that's involved with them. With SpaceX Starlink coming online, and Amazon's Kuiper satellites coming online, we've got large constellations of Low Earth orbit satellites. And we're essentially building an internet backbone in space, which offers incredible bandwidth and latency at pretty reasonable prices. And so we're now seeing that rollout. SpaceX has just moved on from sort of their beta program. And so they're still early in the development of their constellation, but we're already connecting to remote places on the planet. And you can start to think all the different ways in which this is going to be used and leveraged, it's going to allow emerging economies to leapfrog infrastructure investments, like they don't have to lay copper cable anymore. It provides some resiliency to the fiber optic cables that are under the water and are now the target of attack. You know, if you look at the countries that have invested in that infrastructure and own that infrastructure and the other countries that are gaining power that don't have that infrastructure, right, you can see how those could be targets in the course of geopolitical tensions. So having a redundant backbone in orbit is really interesting from that perspective, but it enables all kinds of new things. We have a lot of remote business and remote operation here on Earth that's been siloed historically: for example, aquaculture farms. We get a lot of our fish from aquaculture farms, but they're essentially data silos, you know, they don't share information. So very sort of limited tunnel vision, but at the same time, there's not a lot of information for, you know, insurance companies, for example, to underwrite policies for these folks. Right? So a lot of good is gonna come from this. You can also like... a couple years ago, there was in the highlands and islands of Scotland, there was a train that came around a bend, and it just drove straight into a mudslide. And you're like, how in 2021? Can a train just drive straight into a mudslide? And the answer is because there's no connectivity up there. Right? It's as simple as you put a little box that connects the satellite. You shine a laser across the track. If the laser is blocked, you send someone out to look at it right. It's as simple as that. But there's a whole lot of low hanging fruit here on the Satcom side. So that covers Satcom. Happy to get into some of these other areas as well, the emerging markets to launch.

JMill 31:02

I'm curious.... on reviewing Space Capital's list of public investments that they're for, I think, for our listeners, or watchers, that there may be some non-obvious connections I'd like you to elaborate on. For example, company like Rendered.ai, with synthetic data generation, or the company's investments in Quantum Exchange and Spectral doing post-quantum cryptography and quantum key exchanges. Can you elaborate how these different.... they don't look like space companies, certainly... but how is there a connection? Is that part of that emerging sort of frontier, space-adjacent ecosystem that's developing?

Chad Anderson 31:49

Well, so our whole thesis really kind of fits in this three-by-three matrix, right, where you've got the infrastructure, the distribution, and applications as the rows. And then you've got the satellite technology stacks, GPS, geospatial intelligence and satellite communications, right. So you got this three-by-three matrix, which really encompasses like 90% of the value in the space economy today. And that informs how we view the opportunity set for us Rendered sits squarely in the geospatial intelligence distribution box. So this is really interesting. So they're a synthetic data platform, a common application framework. So anyone who wants to use synthetic data, you no longer have to hire all the very, very technical, very expensive folks that it takes to spin up a synthetic data set. They've done essentially all the what we call "undifferentiated, heavy lifting," like all of the unsexy stuff that you have to do every time that's very common to sort of every time you pull up an application, right? They've done all that for you. So you can really just sort of get in and get started. And so, synthetic data is very important because you use data to train AI. AI is software. It is software that you replace code with data, like that's a very simple way to sort of think about it. And you need to train this data, your algorithms using data and you need a whole lot of data to do that generally, right? Well, using satellite imagery, depending on what type of data you want, satellite imagery can be very expensive. There's a real example, where if you wanted to use synthetic aperture radar, right, this is like the radar data that's coming off of some new sensors that we put into orbit. If you use optical imagery, RGB imagery, it's great, but you can't see at night and you can't see through clouds. Radar allows you to do that. So radar is very interesting, especially for the defense community, right? They like radar. Radar imagery is very expensive, for several reasons. But one, there's not a whole lot of supply right now either. So if you want to train up a synthetic aperture radar dataset, an algorithm for your AI to detect things using SAR data, it will be very expensive. In this particular case, it was like $8-10 million. If you use synthetic data, you can do it for thousands of dollars, like huge cost savings. But also synthetic data is really helpful in cases where you, for example, don't have the data. Let's say that the US Department of Defense is very interested in like China has a new fighter jet and they would really like to see if that new fighter jet is on an aircraft carrier in the South China Sea. Right? Well, we've never seen that before. We'd like to know if it happens, but we haven't seen that before. So you can use this synthetic data to train your AI to find those things in the data. There's also like new sensors going up, right? So Maxar's CEO has said that synthetic data is the new gold. And the reason why he says that is because he's looking at this new constellation of satellites, highly capable satellites much anticipated that are going to be launched very soon. And before rendered or synthetic data, you would build, launch the satellites, you'd commission them, and then you'd start to get data down. And then you would use that data to train up your AI. And then eventually, you would have enough that you could turn it on and start selling that data to customers. But you've lost 9 to 12 months of revenue, right? Whereas you can use physics-based synthetic data to train your AI using the data that you think you're going to get so that as soon as the satellite is commissioned, you can immediately start generating. And it's also just as basic as there's just way too much satellite data to comb through and to annotate and to make sense of, so anyway, I'm only covering off some of the use cases, but synthetic data is really, really powerful. And their market is actually AI broadly, like they are working on several different, very, very impactful use cases, using X rays in schools to help keep guns out of schools and keep schools safer. They're working with a company to remove racial bias from AI and healthcare. This is a massive, massive market and a massive opportunity. It just so happens that like the market's gonna need some education, because this is a new technology, but the geospatial folks, you know, the people who are launching the satellites operating these satellites, and are trying to make this data valuable and useful, they already see the opportunity, so they don't need any education. So it's a fantastic beachhead market. And then they've got the whole world at their fingertips, you know, once they get that sorted out.

Forrest Meyen 37:18

Literally the whole world. So, that's awesome. So that's a very, very clear connection. And that makes sense. And then as far as the other company, I don't know if we need to go as deep into that. But I think we kind of get the theme of how as you've reiterated so many companies are either tangential to the space, directly serving the space, or, you know, this company, as an example is really increasing the iteration cycle of developing AI tools for space assets, as well as other assets on Earth. I wanted to talk a little bit about our theme, tough tech. And what you kind of see as the the toughest technology challenges to solve within the space area. And also if there's some that people are trying to solve that maybe you think aren't necessarily worthwhile, like, where are people digging the right mine, and then where people kind of just digging where there's no ore.

Chad Anderson 38:31

That's a fun question. So launch, let's start with launch. We are tracking... in our dataset, we are tracking $28 billion that has gone to 100-plus launch companies. This is not like launch companies that have an idea and have a pitch deck like these are companies, unique companies that have convinced external investors to put money behind their idea. So that's how they hit our radar. It's like that's the point of seriousness where they've convinced someone else that they've got something. We have two, two of those are operational, SpaceX and Rocket Lab. That is it. I mean, if you want tough tech, that is launch. Incredibly, incredibly difficult. And not just from a technology perspective, not just.... it's like getting a launch vehicle to orbit is extremely difficult. SpaceX makes it look easy. It is not. So getting to orbit is one thing, but then mass-producing launch vehicles and like doing it on an operational cadence, on a regular operational cadence, safely and reliably. There's two companies, right. So this is about as tough as it gets. And anyway, even if you get the technology to work, the business is incredibly difficult. The market is limited. It's growing, but you know, the margins aren't great, which is why so many of these launch companies, as soon as they get to orbit, starting with SpaceX, Rocket Lab the same thing, is you quickly get into other things to generate revenue. SpaceX wants to go to Mars and set up colonies on Mars, right? Like that is their long term vision, like that is their....

Forrest Meyen 40:27

Is that a revenue-driving vision?

Chad Anderson 40:31

No. So that's why... I mean, how do you pay for that? Right? How do you pay for that? You pay for that with satellite services, you pay for that with Starlink. Starlink is the moneymaker. SpaceX's revenue probably taps out at like, I don't know, $5-6 billion a year, like they're already covering most of the globe doing most of the commercial launch globally. Starlink is supposed to bring in like 10 times that amount of revenue, right. Like that is the moneymaker that's going to fund their larger ambitions, which have tougher margins and tougher tech and tougher economics as well. Rocket Lab did the same thing. You know, as soon as they got to orbit and were launching reliably, then they quickly moved to satellite services where, you know, they acquired Sinclair. Sinclair has put a lot of satellites into orbit that work. And so they've now turned it in their second stage. They've turned that into a satellite as a service: you know, if you want to launch something, they'll help you do that. So and everyone else that's trying to get to orbit is also like expanding out into other areas, preemptively. So that's one thing. So we're kind of at this rubber-meets-the-road moment with launch. But we're also kind of at the rubber-meets-the-road moment with satellites. So everyone's now sort of like coming to the realization like, oh, launch is really tough, right. We're also coming to that realization with satellites. So SpaceX removes the barriers to entry, we start to see all these new entrants come in, experimenting with new business models, and it's a lot of fun, and it's very exciting. A lot of these folks were, you know, not a lot of experience. Getting out a little bit ahead of their, getting out in front of their skis, or whatever it might be... this rubber-meets-the-road moment for launch, right? Well, we're also kind of at this rubber-meets-the-road moment for satellites. Because on the heels of SpaceX increasing access, we've seen all these new satellites get launched, right? A lot of companies have gone out, raised capital, said, you know, hey, look Planet Labs did it, you know, they launched an iPhone, right? Like, how hard can it be? Right, and there was a lot of money that went to a lot of new companies to build satellites and operate satellites, and really focus on low cost, you know, we can do this at much lower cost than all the incumbents. And so that was the big selling point. But it turns out that customers don't actually... like low cost is nice, but that's not... the need to have is the data, like you need the data. We're at this moment now, where a lot of those satellites that got funded: they spent the next few years, so they raised the capital, they spent the next few years building the satellites. Well, now we're at the moment where they're starting to get launched. Right, and where either these satellites are now going up on rockets that are either blowing up on the pad, or not making it to orbit or ending up at the bottom of the ocean, because of the tough tech in the launch vehicles, right. But even if they successfully, like if they ride on SpaceX, for example, and they actually get to orbit, they're turning them on and their radios not work, or their reaction wheels don't work, right. Like they can't point the thing, where they want, so they can't get the data that they need. And there's all kinds of these issues. And so the failure rates in a lot of these satellites is actually pretty high. And so you know, launch, like, who knows it was so difficult, right? Like SpaceX makes it look easy. It's not. Satellites, you know, some folks have come out and built some really capable satellites for a lot less cost and a lot faster. And so everyone else is saying, you know, like, look, we're gonna do that, too. It's just not that easy, right? The number of people on the planet that can build and launch a launch vehicle company is very limited. And the number of people who can be able to launch satellites that work and bring down valuable data is also very limited. So we're kind of it this... you know to the tough tech question, we're kind of in this moment where we're starting to realize like, I don't know, Gartner's Hype Cycle or whatever. A lot of people got really excited, threw a lot of money at this without doing a lot of diligence. And now we're starting to realize that it is quite difficult. It's really great when it works. And there is a lot of promise out there, but you still need to do the diligence and be focused on teams that can execute. For those that can execute, there's massive opportunity here, but there's fewer of them out there than you think.

JMill 45:17

That's really interesting. And I think with the time we have, I think we may have a question for you from me and from Forrest... one that.. I want to understand more is... there's a quote I have, from an interview did recently with the Federal News Network, and it's about.. so that geopolitical tensions have been a primary driver in growth in the space category for several decades, rising political tensions, particularly China, drive an increase in US government funding to meet the occasion. Lunar plans and lunar timelines for Washington and Beijing are essentially.... they're racing there to establish a foothold and permanently crewed outpost on the lunar surface to get to the ultimate high ground end quote. How should folks, listeners, and viewers.... we're seeing stuff in the news, and I imagine we're going to hear more about this as the years goes by, but from your vantage point as an investor, as someone who really talks about the who's who, within industry? How should we think about and what should we do about this potential geopolitical aspect that's also like a subtext for the commercial endeavors to, in this case, look at the moon as the next footstep in the pursuit of the frontier.

Chad Anderson 46:40

Yeah, so I talked about this quite a bit in my book, "The Space Economy." I talked to folks who are a lot more knowledgeable about this than I am. And one interview that I did was with Peter Marquez, he's head of Space Policy at Amazon. He worked through, I think, four previous administrations, advising the White House on space policy, was heavily involved in writing space policy and was the the brains behind the property resources act in space, really a powerhouse, right, that's been around and done a lot of really meaningful things on the regulatory front. He says that you look back at every major decision that was made in the US space program, and it was all geopolitical driven. Like all of it, like he says, that the US space program is very easy to understand once you unlock the secret code, and the secret code is political will, realpolitik, like that is it. And it's really interesting. I mean, we have a lot of really interesting examples in the book where, you know, the race to the moon, and when the US won the race and landed humans on the moon. And then Russia admitted defeat, we had a proliferation problem, like we didn't want all those rocket engineers and things like going off to Afghanistan and other places. And so we essentially created a white collar welfare program to sort of keep them all employed. And this sort of.... this explains the sudden involvement in the Mir Space Station and the International Space Station, and like this collaboration that continues on to this day. So it's a really interesting undercurrent for every major decision that has been made in space to date. And it continues to be with where we are currently. Like I said, you know, with that quote, it's this race for the ultimate high ground, that US and China are both racing to the moon, both want to set up a permanently crewed outpost, you know, set up infrastructure there to house people with a rotating crew, similar to what we do with the space station today, but on the surface of the moon, and there is limited real estate, like prime real estate on the South Pole. And the reason for that is because there are scarce resources on the moon, sunlight, the South Pole, like you can get access to 24 hour, well all day long sunlight. And also there's water ice that we know about, right? So the idea is to get there and set up camp there because there's resources that you can use: sunlight for power, you can harvest the water ice, you can split it into hydrogen and oxygen and use it for life support and fuel. So everyone wants to get there and set up camp, you know, land, use that lander as the first infrastructure on the moon to sort of deploy some solar panels and provide power to the payloads and the rovers that are there, to provide some connectivity, you know, a link back to earth so you can communicate with your robots and what's going on there, and then mobility and you start to work out from there, right. But there is, you know, thinking about the moon as an eighth continent, potentially full of resources and strategic vantage point, right? You can see why there's a lot of interest there. And so both the US and China are racing to get there as quickly as they can. And they're both going for the same place. So this is very interesting from a funding perspective, because Artemis is the key driver here, right? Like the lunar market, the lunar industry is still very nascent. And like most nascent industries, it's primarily government driven. Most of the money that's going here... like there are some commercial companies, and there are some commercial customers, there is some of that happening. But the reason why we're seeing so much development on the moon at the moment is because of NASA's Artemis program, and because they've committed billions of dollars to achieve this aim, right? Well, you see, like, NASA going to Congress to try and get funding is always a slog, it's always very difficult. And particularly in this US political climate, where they're making cuts across the board, and people don't want to fund Earth science and some other things, right. Like, it's really difficult for NASA to make the case for more funding to fund this type of activity. Meanwhile, the Space Force, relatively new, it's been around for a few years, their budget has now surpassed NASA for the first time this year. And in fact, NASA is going and has to argue for every penny that they get, you know, the Space Force goes out to NASA and says we'd like to request this amount of money, and Congress said, you know what, have an extra $2 billion: they gave him more than they asked for. And that's only going to increase going forward. And so that kind of, I think, speaks to... if you want to get funding for these types of activities, if you play the defense angle, and if you play the geopolitical angle, you know, that's an easier route to funding it has been historically and will continue to be.

Forrest Meyen 52:17

Yeah, for full disclosure, Space Capital's investment in my company Lunar Outpost... we're definitely capitalizing on this rush to the moon. And, and really, you know, helping enable the Artemis program, as well, as you know, do a lot of interesting commercial things on the side, as well.

Chad Anderson 52:40

That's right. And has supporters and investors.

Forrest Meyen 52:44

Thank you very appreciate it. Before we close, I did want to touch on something in your bio. That was pretty interesting to me, like you mentioned that you're not just an explorer. You're on the board of The Explorers Club, and I was reading some of the things that you did. And one of the things that kind of struck me as super interesting is your Mezcal Trail Ferment adventure. Can you can you tell us what this was? And kind of what motivated you to carry this giant oaken container full of a wonderful fermented drink through the rainforests?

Chad Anderson 53:27

Well, so I am, I should say that I'm no longer on the board of The Explorers Club, but I have been. Actually when I moved.... to start back at the beginning of this conversation, when I first moved to New York... I'm not from New York, so it was new to me. And one of the only people I knew when I moved here was Richard Garriott, who's a second generation astronaut as a private astronaut, made a movie about it, first person to make a movie about it. Anyway, very interesting character, great guy, and a good friend of mine, who had a welcome to New York event at his house and invited a lot of really interesting people. And I got plugged into The Explorers Club basically, straightaway. Very, very interesting, nonprofit organization that's over hundred years old that is focused on supporting exploration, land, sea, air and space. And yeah, Richard Garriott is now the president of the club. We actually had... our book launch event was at The Explorers Club a couple of weeks ago, and Richard interviewed me and we had a great conversation there, but it's a fantastic venue here in New York. If you're ever here, you know, you should definitely check it out. But, yeah, so there's, you know, some of the most storied explorers expeditions in history... all the Apollo missions to the moon have carried and Explorers Club flag. There's a great story that Apollo 13 had an Explorers Club flag, and they wrote a note back and said, you know, sorry, we couldn't take this down to the surface and it's still in its plastic bag. But anyway, their members have done a lot of really, really amazing things. And so this is kind of the side projects that I do. So, me and a team of folks, a guy named Justin Fornal that I normally partner with, we swam around the island of Islay, Scotland, where the world's greatest whiskey comes from. Tiny little island. 100-mile coastline. Has eight distilleries there. We swam around that 100-mile coastline. And we collected whiskey from all the different distilleries and then made a blend, sold it off for charity. And we made a documentary about it called The Great Islay Swim. And then the mezcal was like the next adventure together where we took that sort of blueprint and applied it again, this time in Oaxaca, Mexico. And so we went out and we harvested our own agave, we chopped it, cut it, roasted it, smashed it using horse wheels and mashers, and we put it into a barrel. And there's only three things that go into mezcal, there's the agave, there is water. And then there's yeast, and the yeast is airborne. And so you can only make mezcal in Oaxaca. And it's a super interesting, diverse state in Mexico. And so what we did was we took the barrel of agave while it was fermenting all around the different places in Oaxaca, and it absorbed the yeast from all those places. And so it's got the spirit of the entire state of Oaxaca, and the flavor for the entire state of Oaxaca. And then we made a movie, a documentary slash cinematic feature, which we just did our premiere at The Explorers Club. And it actually just won two awards, Best Documentary Feature and Best Indie Feature at the Vegas Movie Awards. So yeah, fun side projects.

Forrest Meyen 57:05

Yeah, that's, just quite a fun adventure. And it's exciting that you're bringing in different elements, rather than just a hike or conquering a peek.

JMill 57:16

We are coming near the end. Chad, if there are anything that you'd like to plug or points to reinforce? This is your time.

Chad Anderson 57:27

Yeah, I mean, this has been great, thanks. Good conversation, I would just say that, you know, again, market education and helping, you know... we do this day in and day out, there is a lot of hype and a lot of noise happening. But if you cut through all that, and you see what's actually happening, what's actually being done, the opportunity is massive. The teams that can execute. We are still on the front end of a very, very interesting growth curve here. And we make a lot of information available. Like I said, all of those research reports are available on our website at spacecapital.com. And we've consolidated all those things into book form. So "The Space Economy" is available at your favorite bookseller and hopefully this can be a useful primer for anyone who's looking at investing, starting a company, or working for a company.

JMill 58:32

Awesome. Thank you so much, Chad. Boy, this was a great primer on the space industry, and Chad's vantage point is really providing a fascinating perspective into the efforts to explore one of humanity's great frontiers. It's a great setup for our next guest, who is an entrepreneur, and she's building an early stage space startup that is aiming to peer back at Earth in a new way, looking inside storms, hurricanes, and other weather systems in a way that's previously impossible by leveraging a new form of sensing technology that's being lofted into geosynchronous orbit. Our episode premieres next month with her so be sure to like, subscribe, and join our new mailing list so you can get the episode as soon as it releases. Until next time, stay tough.