Podcast

The Space Beat

The Space Capital Podcast |

May 5, 2020

In this episode of The Space Capital Podcast, we talk to Michael Sheetz, Space Reporter at CNBC, about the business case for space.

Michael Sheetz started at CNBC covering breaking news and then joined the markets team, writing about Wall Street and stocks. During that time, CNBC gave him room to report on the space industry and realized there was a huge audience for it. Investors of all kinds, from the mom and pop retail investors to the largest investors on Wall Street, we're all interested in exploring opportunities in the space market. At the same time, Space Capital began releasing reports which quantified the amount of investment coming into the industry. Hundreds of new companies were entering the market and challenging incumbents, which made for a constant stream of news flow. In this episode, we talk to Michael Sheetz, Space Reporter at CNBC, about the business case for space.‍

Podcast

The Space Beat

|

May 5, 2020

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In this episode of The Space Capital Podcast, we talk to Michael Sheetz, Space Reporter at CNBC, about the business case for space.

Michael Sheetz started at CNBC covering breaking news and then joined the markets team, writing about Wall Street and stocks. During that time, CNBC gave him room to report on the space industry and realized there was a huge audience for it. Investors of all kinds, from the mom and pop retail investors to the largest investors on Wall Street, we're all interested in exploring opportunities in the space market. At the same time, Space Capital began releasing reports which quantified the amount of investment coming into the industry. Hundreds of new companies were entering the market and challenging incumbents, which made for a constant stream of news flow. In this episode, we talk to Michael Sheetz, Space Reporter at CNBC, about the business case for space.‍

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The Space Beat

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18

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The Space Beat

That story and tracking of Virgin Galactic's stock price but also the investor interest in the stock itself, I think it's one of the most fascinating stories for helping private space companies understand the demand that they could see on the public markets.

Welcome to The Space Capital Podcast. I'm your host, Chad Anderson, managing partner at Space Capital - an early stage venture capital firm investing in the space economy, specifically focused on unlocking the value in space technology stacks, GPS, geospatial intelligence, and communications. You can find us on social media at Space Capital. Space-based technologies are the building blocks of innovation. And in this podcast, we explore what's happening at the cutting-edge of this new entrepreneurial space age and speak to the founders and innovators at the forefront. Okay, this is The Space Capital Podcast, and today we're talking to Michael Sheetz, CNBC's space reporter. Michael, thanks for joining us.

Michael:

Thanks for having me on, Chad. It's great to join you.

Chad:

Okay. So, space reporter, formerly known as markets and space reporter.

Michael:

[laughs] Yeah.

Chad:

Recently gone exclusive. So, in March you dropped the markets and went full-time space. What is going on in the world that CNBC, one of the biggest media outlets in the world, has a full-time space reporter?

Michael:  

I think that a little bit of background is important. Because I joined CNBC covering breaking news, and I did not, you know, I was never like the biggest space geek. This was never some life-long passion of mine. It was something I picked up as bit of an interest. And that aspect of my reporting grew very slowly over the last, probably, three years to this day. And I eventually joined the markets team, because everybody needs a day job. And so, I wrote about Wall Street and stocks for quite awhile, but all the while CNBC was more than willing to give me room, as well as- Occasionally they even let me travel out to launches and see some of the sights and facilities of the space industry. And I was reported on it more and more, we realized that there was a huge audience for it. And at the same time as I was reporting on it, you guys were releasing reports about how much- quantifying the amount of investment coming into the industry. So there was this really, kind of, natural combination of the audience being there for CNBC, Where all these investors - of all kinds, whether it's down to just retail mom-and-pop's all the way up to the biggest investors on Wall Street - were all poking around and looking at this idea of, "What are space companies? Why would I want to invest in a space company? Why would people start a space company?" And at the same time there being this huge influx of capital already, and hundreds of new companies coming into the industry and challenging a lot of incumbents. So, you have just constant news flow because of that. So, there was more than enough news to provide a beat, and you have lots of interest in reading, not just about the companies and about space in general, but what's the business and investment case for space? And I think that's why, CNBC especially, you know, get I- I thank them for giving me the room to run in the first place. But then seeing the audience was there and mature enough to sustain a beat full-time was when they came to me and said, "Hey, we're gonna move you full-time."

Chad:

Yeah, that's great. And I mean, that's one of the reasons why I'm so excited to talk to you today. Is- I think it's gonna be a really interesting conversation focused on the business and- and the market potential here. Because there are a lot of space reporters out there. Some of them cover tech, others cover, you know, science and exploration. And many, if not most of them, try to cover everything, which is insanely ambitious. But you focus on the business. That's why I think this is gonna be such a fun conversation. But given all this and, you know, who your employer is. Thinking about your role, like, where do you draw the boundaries on what you cover and then what you don't?

Michael:

Yeah. I'll say that that boundary definitely gets blurred often, and I try to keep a couple of like quantifiable boundaries, in terms of the threshold for stories that I write. But at the end of the day, the boundary is just like, "What do I think? And does my editor, more importantly think, that someone would read this, and that someone in CNBC's audience would care about this?" So, when you look at the realm of consumer and business news, you know, how space implicate- has implications for those folks is the ultimate barometer for whether or not I write a story. And I will say that, more meaningfully, it is difficult because there's so much with economies with really, really fast earnings to raise. Or even just, you know, milestone updates. They got a new round of fundraising. And I'd say that they, my threshold for writing about them is typically in like the hundred-million dollar range. Either in terms of total capital raised if you're a venture backed or private company, or in total annual gravitative if you're a public company. So, you'll see me write about Intelsat, for example, and their recent admission with Northrop Grumman in reservicing a satellite, right, because those guys fit in that paradigm. And then you'll also see me write about guys like ISCI, and they're satellite star imagery, because those guys have raised a substantial chunk of capital and are really pushing the innovative boundaries of their specific sub-industry. So, I'd say that's probably the best understanding of how I try to think about, you know, whether or not this is a story that CNBC will publish.

Chad:

I think that focus is also kind of what- what makes it so interesting and why you're able to dive so deep. And what makes your writing, you know, part of what makes your writing so interesting. I want to start kind of, you know, given where we are right now, I want to start with the economy at large. And you've written, over the past week or so, you've written a couple of pieces on Covid-19 and its impact on the space industry. And I kind of want to explore with you the health of the sector, and, kind of, taking a step back and thinking about context generally. Like, one of the key metrics that we look for when we're evaluating companies, you know, in venture it used to eyeballs and users, right? That was the thing. And if you had enough of those, you could raise venture and you could actually go public with enough users. Uh. We saw that with social media earlier in the decade and that sort of thing. Over the last few years it was topline growth and a focus on that, and before the pandemic there was actually a shift towards, you know, profitability and we saw a few failed IPOs. And the idea there was, yeah, there's a lot of topline growth but they're not profitable. You know, I think we work in that sort of thing. So, our, like generally speaking, how do you view this? I mean, we've said for the last few years that we think space companies have stronger fundamentals, and that, actually, in a downturn, we would rather have a portfolio of space companies because of a number of factors. You know, they're more to B2B and B2G despite the perception of riskiness. So, you know, how do you think about that?

Michael:  

I think the current situation is so unprecedented that it makes it really, really difficult, and think that's- that's why I've, like, I've been writing so much about it is because there is so much to unpack, in terms of where you came into this situation. And I think that is the ultimate dividing line. Because I think you're right. The maturity of the industry, especially of the more recently funded efforts in the last five to ten years. it got to a point where many of these companies, if they don't have major capital influxes for a year and a half, they can survive. They can make it. They have- Even if they're, you know, not self-sufficient in revenue terms, they might have enough capital on hand. But the really fascinating aspect of it is how it's so case-by-case. You have companies that are in the same sub-sectors where maybe it's a really risky, capital intensive area, but just because they recently raised capital and they've been a little more conservative in their efforts, they're more well-situated to just freeze as much of their operations as possible and come out on the other side of this. And I think it's really fascinating, because if this crisis had hit two years ago, I don't know if we would be having this conversation. Because a lot of those companies that you talk about that were C-to-D rounds were more in the A-to-C rounds. So, you had to much growth in the last two to three years, in terms of maturity, that I find the- especially in venture capital and privately backed side of the industry, there are enough companies that had a sustainability. Where now they're winning government awards. Now, you know, they're being taken seriously with contracts from DARPA and from NASA's, you know, launch program services. So when you look at where the industry is coming into this crisis, I think you're right in saying there is quite a bit of resilience because of they're B2B and B2G. But I think fundamentally, in just terms of who has the wherewithal to make it to the other side of this crisis, it's really amazing to see that so many companies actually did have a pretty strong position. And while one of the reports I mentioned recently, forecast that of the top venture capital backed companies, half of those are gonna fail. The venture world, in general, doesn't necessarily see a ton of companies succeed overall. So it's really, I think, important to understand, like, half failing is pretty good given the scenario and given the relative, broader scheme of venture capital investing at large. So, I think the resiliency of the industry is perhaps being underestimated, but I think it's going to be very interesting in about five or six months to hear from companies that, if- if they needed it, they didn't get a lifeline from either the government agencies or from a previous portfolio investor.

Chad:  

I like that. I mean, there is, there's some strong fundamentals here. But there is so much momentum going into this, and it comes from all angles. I mean, like you said, I mean, we're tracking this data, and the last decade was a renaissance in space. Increased access through SpaceX, all these new companies, but really, it's all sort of kicked off in the last five years. Most of the capital and most of the companies have come online in the last five years. And in addition to that, and all those billions of dollars of capital, and all those new entrepreneurs building innovative, you've also got a receptive government that is now interested in working with companies to move fast and move sustainably, i.e. lower prices, sustainable prices. And they're ambitious in doing big things and wanting to truly partner with private companies, and we're seeing that across the board. And so, you're right. It's like this, kind of, perfect storm of all these different things coming together, and so there's, yeah, so much momentum going into this. There's definitely going to be a number of them coming out the other side.

Michael:  

I want to- want to chime in on one point there. That your recent report, which expanded beyond just space infrastructure, I think was really helpful for understanding why the folks on the application side of this business, so the people who take the data and, you know, turn it into a consumer product, like Uber or just eCommerce, or food delivery. Those folks, in connecting a line across the industry to people building satellites, and space craft, and launch vehicles, is very, very important. Because we haven't really seen why the venture capital backed folks, given their- where their market is, where that ultimately goes. Why? Beyond just how it, you know, selling this data, if they were a satellite manufacturer- excuse me, satellite operator, for example. Beyond just selling this data, where does that data go? I mean, thinking about why that report was helpful, I thought it was interesting to compare it to someone completely outside of the venture stream. Amazon. One of the greatest and most powerful companies in the world now. They have been doing this same jump upstream already. Project Kuiper could succeed on a fundamental basis if it has no customers other than just Amazon itself, right? And the whole point of that is they're application, AWS. Just like your report pointed out, these recent space-based applications would just thrive in a market where their satellites, that is providing the data to AWS, more broadly connects that infrastructure. So, I think that is a fantastic example of why it's important to understand that. These guys aren't just out in a void. They're not just jumping off and saying, "Eh. I hope someone buys this data." They can look downstream to, "Hmm. This food delivery service would use our data to more effectively connect consumers." That's where I think the ultimate understanding of whether or not a company's basis as a satellite operator is going to be sustainable.

Chad:  

That's super important. So, I love that, and I want to dig in a little bit more. On the Earth observation side of the house, satellites gathering unprecedented amount of new data about our planet. You look at forecasts. Generally, about eighty percent of traffic on the Internet is going to be visual images, you know, in the very near future. You've got huge cloud wars going on with Amazon, Microsoft, Google. All of them looking to add on products, and all of them looking to get more people, more data onto their cloud for storage and compute. All of them are making plays in space. All of them want to take that Earth observation data and put it on their cloud. So we're seeing that play out. And it's really interesting because, I mean, they're gonna service, they have the capability to distribute and service customers at all kinds of huge industry verticals. So that's the geospatial intelligence market that we're looking, and that we're just seeing develop now. But like you said, I mean, the GPS has given us a playbook for how that's gonna play out. It's playing out like very, very similarly. Early infrastructure investments in satellites by the government for government and military purposes. You get some companies come in and- and harness that signal and make it available to the tech community. Trimble, Magellan, and Garmin took that space-based signal. They understood the engineering, and how it worked, and how the signal worked. They packaged it, made it really easily accessible. The tech community plugs in, doesn't need to know much about it, and is able to create location-based services. You know, talk about big trends over the last ten years. Location-based services are brand new. It's ten-years-old. They came with the iPhone 3G. Steve Jobs announced this in 2008. So, everything that you know about location-based services, that's all ten-years-old and all space-based technology. And now the same thing's happening in these other market verticals, and it's super interesting. So yeah, I mean, you can start to see why the public markets are starting to pay attention. And why these big publicly traded companies are starting to pay attention.

Michael:  

Right. And it's a pretty natural shift. And it's one that, and tying this all back into the crisis that we're in right now, it's one that is so important to understand for why folks look at this situation where so many companies have really- have to freeze their operations, or severely reduce their operations, and go, the necessity of the product that they're providing means that they're going to exist on the other side of this. And if they don't exist, someone else is gonna step up, because it's been shown already to have so much promise and so much impact. So, I think that's so important to understand in the grand scheme. Is when that infrastructure gets put into place, it starts to deliver results that have so many ripple effects beyond what you first understood this would use for. That, I think it's amazing. I mean, looking at the ways that people are using geospatial imagery, even in this crisis itself, the way hospitals and governments are using data to, you know, redirect resources and try to figure out where the greatest needs are. You know, get emergency responders in the right places. And it's really, really amazing. And it goes to show that, like, yeah, launching small spacecraft the size of mailboxes, all started with that idea of, "Hey, this could be used for something really, really powerful." And letting people just run with those tools is just having amazing effects.

Chad:

Yeah. I mean, we've seen it in our portfolio is that a number of the companies that are- that are focused in that area, and providing that imagery and analysis, is they're seeing an increase in demand in the downturn, as companies look to, you know, monitor their supply chains and their facilities and things, and do all the things that you were just talking about. So yeah, very resilient to the current environment. And you've also- you've written about government providing a lifeline to companies also. So that B2G element in space, and particularly infrastructure, is worth mentioning as well. Particularly, when private capital is somewhat retrenching. We'll see when the numbers come out on, you know, Q1 activity. But it seems like that's the case and the government's stepping up. I mean, you actually have written a lot about this for the last few weeks. So, thinking about government budgets in general, but also NASA's budget and its upcoming budget for like FY 2022, and- and how that plays into things.

Michael:

I mean, unpacking that is - it's a difficult game, because I do believe that NASA might have a little bit of a setback, in terms of its budget coming into FY 2022. And I think it really depends on the necessity of the various programs, as Congress views it. And that is something where I'm, personally, always trying to educate myself about. Because understanding how the DC world works in a contrast to how the New York City and Silicon Valley worlds work is really, really important. And I think the budget that we're looking towards is one that has continually, at the topline, been growing. And underneath that, you've been seeing all of these smaller contracts in the government's eyes. So, NASA awarding contracts in the range of like ten to fifty million dollars. Right? But you and I know that while that ten to fifty-million dollar contract, you know, doesn't seem like a lot in NASA's overall budget, what it means for a company that wins it is huge. And huge in terms of what they can then turn around and use that money of either developing new concepts or going in and delivering on mission. I really find it amazing to look at the NASA tipping point contracts, the commercial lunar payload services contracts, all these smaller ones. The technology demonstration missions that are being flown on Virgin Galactic and Blue Origin. Those kinds of contracts, they don't seem like a lot to a company that's big, like Virgin Galactic or Blue Origin, but it's really important for driving underlying development. And I think it opens up so many different worlds and brings in so many different companies and all these smaller businesses, that it can then thrive off of those contracts. So I think, while top line growth in NASA's budget might suffer in the near-term, I think that the government, across the board of both civil and military agencies, has seen, "Hey, these commercial partners are really, really helping us do amazing things for so much less than what we are used to paying for them." And I don't know a single person in the government that doesn't like doing way more for way less. So, I think there is so much of a greater understanding across agencies of how they can partner with these companies than there was before. That even if Congress says, "You know what? We're in a really severe crisis. There's a strong economic downturn. We can't outline huge budgets that we did, or especially year-over-year increases as we did in the past." I think that the bottom, underlying foundation of contracts that then get outlines are gonna continue to flow in a way that keeps the people who build the spacecraft funded. And that's important because if that spacecraft gets funded, then that person can go and say, "Hey, I need a launch vehicle." And pay for a launch vehicle. And then that launch vehicle's funded. So, having these downstream effects is really important, and I think there's gonna continue to be that kind of demand that we've seen in the last- That's something that's really cropping up, especially in the last year or two.

Chad:

You mean the government opening up and- and issuing more of these types of contracts?

Michael:  

These smaller, little- Yes. Smaller in the realm of the overall NASA and military budgets contracts. But contracts that are huge in terms of private industry impact.

Chad:

And the biggest blockage there this whole time has been cultural. Nobody can do this. I mean, only a handful of people can do this. Of course, it's rocket science, right? So, it's actually taken a lot of cultural change, and a lot of people pushing for this for a number of years. I mean, SpaceX started to prove this in 2009, and it really took a ton of effort on their end to crack through and like break into this. And then people have been pushing for the last ten years, and we're starting to see that come to fruition. And I think that's also a really important point from a public perspective. In that, how with all these new companies, what's NASA's role in all of this, right? And it's clear. They're gonna- What it's gonna do, is it's free up- You know, if they can do the same thing that they're doing now, but for a third of the price, that frees up their budget to do all kinds of more interesting things. Push the boundaries, go farther, do interesting science and exploration. And with that, it's really fun to have you on the show today, because right in the middle of all kinds of fun announcements, yesterday, part of the Artemis returning humans to the Moon by 2024. Some of those earlier, smaller contracts and the commercial lunar payload services have already been given out. Those are gonna be the smaller companies with the lunar landers and rovers that are gonna do the precursor missions. Spec things out, check out the landing sites. See what they wanna do, where they wanna set things up. Now this, or yesterday, was for the humans. So, you did a- You had a lot of great coverage on this. Can you walk us through what happened yesterday and what this means?

Michael:  

Sure. Well, yesterday, we had almost a billion dollars worth of study contracts, which I find particularly interesting that NASA was willing to ante up this much money for essentially looking at, you know, serious- taking a serious look at these three proposals. And that means, really, getting the ball rolling. And these companies integrating with NASA and joining the other- joining forces. So, to back up, the human lander systems contracts that were rewarded were to Blue Origins-led team, a Dynetics-led team, and then SpaceX. And I list them in that order, because they also were, based on the proposals that the companies submitted, were given different contract awards. So, when you look at how much they each won, Blue Origin was awarded 579 million dollars, Dynetics and…

Chad:  

And- And when you say, Blue Origin, you mean Blue Origin, Northrop Grumman, Lockheed Martin, the defense machine.

Michael:

The defensive space machine for much of the last forty years. That NASA Blue Origin pick comes with so many massive contractors behind it. I found it interesting then, Dynetics noted in its press release who was backing its proposal. And you look at the Dynetics team, and you have twenty-five subcontractors, all who have huge heritage in this industry and in building spacecrafts. So, you look at United Launch Alliance, you look at Sierra Nevada Corporation. The Dynetics team, also, I think was really fascinating because they were the highest rated underneath NASA's- in NASA's view. They got acceptability ratings of very good on both accounts of both management as well as overall proposals. Which was better in NASA's view than Blue Origin and SpaceX's proposals. Now that's not to say who's gonna be awarded more money ten months from now. Because I think what's really important is this is such a [setup?? (mic went out) 00:23:57] for the big show in February, right? Come next February is when we're really gonna find out who's gonna be getting billions of dollars from NASA to be able- taking astronauts and landing them on the Moon. I mean, we're going in the crunch time right now, and I think understanding what these contracts do, in terms of for each team, is really interesting. Because each of them has such a different approach, right? Blue Origins, a three-stage lander approach fits a number of rockets but has a lot of moving parts. Dynetics has this two-stage approach that NASA actually thought was really sustainable and could be used for quite a long time. And then you have the farthest, and probably the most ambitious proposal, which is to build a Moon-specific starship to be transporting humans from NASA's Orion capsule in orbit down to the surface of the Moon and back. Basically, it's just like a- a space shuttle service on the Moon. And that is just, fundamentally, just mind blowing that they- that NASA looked at that proposal, went through the list of things SpaceX said they were gonna do before doing that, and said, "Alright. Yeah. Here's a 135 million dollars. We're gonna let you run with starship." Which they've had one prototype do one test flight. So, it demonstrates a lot of trust, from NASA's point of view, that SpaceX can deliver on the timelines that it's proposing. So, I- Yeah, the overall spectrum, I think, was how different each of these proposals are. And yet, NASA going to each of them, giving them lots of taxpayer money, and saying, "We believe that you can find a solution with your different approach, and we want to fund and see where you guys get in ten months."

Chad:

So, SpaceX got the least amount. And it's actually, it's really interesting, like you said, that they are in it at all, given especially that they've blown up fuel tanks twice over the last couple of months very publicly and people are watching this. And so- But Bridenstine's really happy with their ability to test and iterate. That they do it really, really well, and he's happy- he's happy to see this. And man, this approach, from any government agency, from NASA, is a really, really welcomed thing. It like shows how much they're really serious about partnering with these innovative private companies. SpaceX is- they've gotten a lower amount before, and they've come out publicly and said, "Well, I guess we should have bid more."

Michael:

Yeah. Gwynne's talked about that quite a lot with the commercial career program. Her- After seeing the Boeing bid, she realized, "Wow. Like, I really- really should have bid a lot more on this." But it, to me, strikes me that this situation is one in which they knew that they were gonna bid way- much less. Because in the source selection document, NASA talks about how SpaceX proposed substantial of their own funds to contribute to the development, not just starship at large, but the starship lunar lander concept that they're working through. So it's funny to see how they- Yeah. That they bid less, but it's also because they're like, "Yeah. We're gonna also use this for all these other things as well. And so, this is how much we think we need to make this lunar lander idea get going."

Chad:

And also, since it's the most out there it's, you know, balancing the amount of capital that they need to put in themselves, versus getting external funding. I mean, it makes a ton of sense.

Michael:

Yeah. Yeah, the risk factor here is-

Chad:

Yeah. With Commercial Crews, specifically. They got- It was them and Boeing, and Boeing got paid twice as much for essentially the same thing, right? So [laughs] Boeing was in this running. They put in a bid. They didn't get one. What do you make of this? The new entrance displacing incumbents like this? I mean, in light of this and where we're at with Commercial Crew, we've got a press conference with NASA right after this, talking about Demo-2, SpaceX is going to launch this month. Boeing is now a year behind. They got paid twice as much, and now a year behind. Like, what do you make of all of this?

Michael:

I'll note that the contracts over a time have gotten a little closer between SpaceX and Boeing, granted the overruns because those programs have run behind and there's a lot of reasons for that. So, we don't have to get into that. I think, to answer your question on, you know, Boeing being out. I think it's really telling to see that two bids in a row for this program, for HLS, but also for the cargo lunar services program, which SpaceX's bid was so good and so strong on that and NASA awarded them funds already. And Sierra Nevada Corporation and Northrop Grumman, who are two incumbents, who are considered more on the traditional side of the industry and have much larger arms than just the space world, those guys are still in the running. So I think it's really- If there's anything that I'm gonna take away from Boeing being out of both proposals, is I really sincerely hope that they're taking a serious look at, "Okay, what do we need to be competitive right now?" Because based on NASA's view of their proposals, their proposals weren't competitive, and they weren't on a price basis or a quality basis. And so that's- I think that, you know, Boeing's never going to be like out of this whole space game entirely. I don't see a world in which Boeing's not involved in this. They have so much heritage, they have so many people who really do care about the space world and want to be launching astronauts for NASA. I think the game has changed a lot in the last five to ten years. And I sincerely hope that the result of these two failed proposals is going- looking at, "Let's hire this talent that we need to be competitive." I don't know if it's in a talent, just talent acquisition alone, but I do know that there's, in terms of the industry at large, the people who write your bids is everything. It's- it's about the folks who put together what is a realistic approach that's cost-effective to achieving whatever NASA's goals are set out in the proposal itself. And I think it's really clear that by going with these other folks, who include other incumbents, if you will, NASA is telling Boeing, "Hey, we need to see more from you if we're going to be awarding you funds for these kind of programs."

Chad:

Yeah. Cultural change is hard. But as we've mentioned about, you know, speaking about these government agencies and things, we've seen it with our own eyes, so it's not impossible.

Michael:

I'll say here that the things that Lockheed Martin and Northrup Grumman, through their acquisition of Orbital ATK, has been doing to stay competitive, it is so telling that these guys are all in the race on both of these last two major NASA awards. Northrup Grumman, Lockheed Martin, they're all still in this game. So, it's not to say that like, "Oh, these large contractors can't compete anymore with these younger guys." They- they can. They can get lean, and they can really be focusing on- I think a great example of this is Lockheed Martin going for that recent DARPA Blackjack program. It's a small contract in terms of- Its tiny compared to what Lockheed Martin usually bids and tries to win on. But it shows like, hey, they're hungry and they're hunting for, "How do- What are the ways that we can continue to be competitive with this younger and newer part of the industry?" So, I- I think there should be a lot of kudos to those folks for recognizing, "Hey, this industry is changing, and we need to change with it, and be bidding accordingly."

Chad:

Slight counterpoint to that is the argument's been made that with the Commercial Crew programs in the beginning, the reason why SpaceX was even able to get a foot in the door in the first place, was because it was so small that none of them wanted to bid for it. And to your earlier point that like, actually, it should be noted that it's really difficult to get onto NASA's radar and actually get contracts with them. So, getting your foot in the door and getting contracts at all, is a really good place to start. And so, that's actually how they got in and how they were able, you know, they were able to build from there. And so, you could actually view this as a competitive, sort of, in the same way that corporates setup venture capital arms to go out and gobble up competitors and remove competition and build walls. You could also view this in a similar vein, couldn't you?

Michael:

Yeah. No, I think you're right there. And I think that's why, that's especially why, I wanted to highlight, when we started talking about HLS, Dynetics team. Dynetics is not a company that a lot of people were familiar with, and from a lot of folks I talk to in the industry, Dynetics was seen as the outside bid. When I was hearing that it was gonna be like two or three winners announced for HLS, almost everyone I talked to said, "Well, you know, probably not Dynetics. It's probably gonna be Boeing, Blue Origin, and SpaceX." Right? It's something I heard a couple different times. And to see their bid taken so seriously shows, I think, that maybe it's not as hard to get that bid in and taken seriously by NASA as it was ten years ago. I think that cultural shift that you're talking about has also happened, and it is happening, in the agency itself. Whether it's happened completely but still very large programs that are running with massive delays. So, I think it's very telling, to your point, that, you know, companies like SpaceX were an outside shot ten years ago. Companies like Dynetics, now, are taken- being taken very seriously when they approach something with really, really different- I mean, if you look at their proposal, it's so different compared to what SpaceX and Blue Origin, and more of a traditional approach system is. So, it's- it's really fascinating.

Chad:

Next up today is the NASA press conference for SpaceX's Demo-2 mission. You have said that human space flight is the most exciting part of the space business. I'm curious, you know, from a business and a markets perspective, how do you view human space flight? Cause that's not necessarily where you make the most money.

Michael:

No. And you don't make the most money on either advertising for being an astronaut, or being an astronaut yourself, or launching astronauts. Like there's no, like, huge margin in any part of that part of things. I think it's really, really telling that, "Wait. I've got this note up in front of me this morning." Morgan Stanley, this morning, issued a note about human landing systems. And the second bullet point in the report says, quote, "Mark May 27th on your calendars." I think that sums up so much of why human space flight matters to the industry at large. Is that it's not about the dollars behind human space flight. Yes, you can probably make a lot of money flying tourists if you could do it pretty regularly and efficiently. Space tourism is a really interesting market. It's a little more niche, but it's interesting. It's never gonna be the trillion- the thing that makes the space economy into a trillion-dollar economy, right? What it does, however, is it's a catalyst for the rest of the industry. You look at the amount of interest that people at large have when human lives are being put into space, and astronauts are doing these amazing, inspiring, you know, space walks and producing imagery of the Earth that helps us understand, you know, how we really should be changing the world. I think that is just the underlying point of why human space flight matters. It's not about, "Oh, I'm gonna make a ton of money by doing this." It's gonna bring so much more attention and so much focus to, "Oh, hey, a private company launched astronauts to space. I want to get invested in the private space business. Where do I start doing that?" That's where it starts driving people. Because people get excited- and I think you're seeing this at Virgin Galactic, their stock price in the last six months. Is people get so excited about these ideas of human space flight that then it drives all these aftereffects into the rest of the market. Of people looking for, "Oh, hey, the space economy." It brings just so much of a greater awareness to the industry at large than you can ever try to buy. You can't buy the amount of interest that comes with human space flight.

Chad:

Cause it's one of those abstract ideas, you know, that you need to get your head around.

Michael:

Yeah. And I think it is difficult to wrap one's head around on why human space flight matters. I mean, technically if you look at whether it's us or the Russians, NASA astronauts have been able to get to the International Space Agency for twenty years. So, it's not like fundamental is changing about astronauts being in space. That's not changing. It's about how we're doing it. And that is what gets people so excited. And I think then that has ripple effects into the investment community.

Chad:

It's like its more participation. And it's as if the Apollo era and, uh, space flight then was really just for the select few, and it was something that we could all watch, but we couldn't participate in. And it was like that for decades. And SpaceX really lowered the barriers to entry in 2009. It allowed for entrepreneurs now to come in for the first time. We saw new companies entering into the space market for the first time, which was- It's really cool, because not only can you now see yourself, "Hey, you know, there's an opportunity. I could start a company." But also, you can go and work for a company. And suddenly you're, like, you're out at a dinner or, you know, cocktails or something and you're running into people who are working at a space company. And it suddenly is becoming more and more accessible, and something that we've really tried to do is lowering the barrier for investors to then get involved and invest in these companies. And lowering the minimums and helping to explain the risks and opportunities, and how people get their arms around us. Now you've got entrepreneurs, and employees, and investors, and like there's more and more people participating in this. Then the next stage is getting into the public markets where you really start to get access to this, right? And so, we've just sort of scratched the surface there, with Virgin Galactic being, I'd say, the first, you know, real pure play space company of- of this new era, entrepreneurial-ish founded private company. Help us get our heads around what's going on with that. I mean, it came out, there was some analyst coverage, a couple of banks. Morgan Stanley being one of them, they put a price target on it. They blew right past that price target. I checked it this morning, it's around 17 dollars. Still above the price target but, you know, it went from, I don't know, 7 dollars to 36 dollars in a couple of weeks. You know, the economy is going in the wrong direction, the stock market is- the bottom was falling out for a couple weeks. And Virgin, it's like continuing to rise. What's going on with that?

Michael:

I- [laughs] I'm so glad you brought this up, because that story and tracking Virgin Galactic's stock price, but also the investor interest in the stock itself, I think it's one of the most fascinating stories for helping private space companies understand the demand that they could see on the public markets. So- When you look at, especially, because you mentioned this earlier, we have a lot of tech IPOs that struggled in the last couple of years that went public. Companies that were kind of overdue, honestly, to go public. And so, it creates an environment where people are a little weary of going public, even if, you know, say, your Spire Global, right? And you're building weather forecasts and satellites, and you're doing all these really amazing data analysis, right? Say those guys are- or Planet Labs are looking at it seriously, and companies like Uber and Lyft struggling, it doesn't make you feel really good about going public. So, I think that, first of all, is why the Virgin Galactic story is so interesting. Because it's got- slowly built this momentum, because for the first, I don't know, two and a half months, the stock traded with very small amounts of movement. So in the stock market, we talk about volumes. And if I go back through and look at trading volumes and Virgin Galactic stock in October and November, after its IPO, when you'd think people were- were super amped about it and wanted to talk about it, and stuff like that. There was hardly anything compared to what we then saw in late-December and through mid-February. Now, huge caveat, so much of this was speculative trading of where this stock could be. You know? People got- and that leads to more speculative trading, and it's kind of a snowball that creates and avalanche. That's a huge part of it. However, regardless, take the speculative trading side of this out of it and look at the amount of people coming into the stock, the underlying trading volume, and you're seeing trading volume that's on par with huge other- companies that are many, many, many times the size of Virgin Galactic. Tens of millions of shares of Virgin Galactic trading hands every day. That's people changing hands of the stock. That's people looking at Virgin Galactic and saying, "Yeah, that's a space company I want to get." And that I think its the most interesting part of all of that crazy swings in activity that we saw over the last, you know, five months. Because it showed all these private space companies, "Hey, wait a second. There is a lot of public interest in a space company that does purely space things." To be fair, I also want to be clear that there are a number of other space plays out there in the public markets already that, I think, are also getting the benefit of new attention. But some of them have a lot of baggage coming with them. They've got tons of debt already, or they had, you know, all these other issues. So, I'm not saying that Virgin Galactic's the only pure play space company out there, that's not at all what it is. But it is a company that comes with this really fresh approach, that has this really distinct market, and at the end of the day, flying people to space is really, really exciting. I think it's also, like, just one little final last note. I think it's really interesting that, you know, that you noted that the stock prices is about 17 dollars right now. That's still, what, seventy percent above what it IPO'd at? That is really interesting, because we're in the midst of a crisis. As far as I know, Virgin Galactic has been really, really proactive in helping out with all these operations and, really, providing a lot of life saving care, in terms of building medical equipment and doing all of these- research alongside of NASA. And that's amazing. But one thing that means is that they're not doing as much space flight work. Yet the stock price is still at 17 bucks. So, I think it's amazing, cause it could have easily gone to almost nothing if people were like, "Agh. A crisis. Sell the first thing that comes to mind. Oh, I don't need that Virgin Galactic." People didn't do that. Yes, it sold off with the rest of the market. But then it's decently stable. I mean-

Chad:

I mean, it's like they're self-proclaimed. They're in like the luxury experience travel business and every other company comparable in that sector is going exactly the other direction.

Michael:  

Everyone- I mean-

Chad:  

Right.

Michael:

Hotels.            

Chad:

Right.

Michael:      

Everyone providing luxury experiences. Just travel at large is getting destroyed right now.

Chad:

So, okay. So, one of the arguments, one of the reasons why this is happening, is because that the stock is unbounded and there's really nothing to compare it against. I mean, you mentioned a number of other companies and there are. There's some kind of- there's some satellite plays and some other things out there, but there's not really anything to compare Virgin Galactic to. And that's-

Michael:

And we know Blue Origin's not gonna go public in the next five years, probably.

Chad:

Right. Right. And neither is SpaceX, right? They've stated that they're not going to go public until they are regularly taking people to Mars. But they are- there is talk about spinning out Starlink, and I think you broke or covered this story, you were definitely on top of this story. And it looks like that's maybe gonna happen, maybe not tomorrow but in the near future. Like, what do you think is gonna happen when Starlink hits the market? Or one of these, I don't know, one of these other companies that your mentioned, the small satellite companies or something. Maybe one of the small launch vehicles.

Michael:

Obviously, I'll give a huge grain of salt coming into this that, as a stocks reporter and a markets reporter, like, I only have a few years of experience in that. So, I'm- I'm not someone who's gonna be saying like, "Oh yeah, Starlink IPOs, you want to buy that because it's gonna through the roof." I think, overall, the amount of interest in SpaceX on the private market is a telling sign of what would happen if Starlink were to be on the public markets. And so, I wrote a story back in 2017 which got readership for months. I- I couldn't believe how many people were interested in this story. And I talked to some folks who were private market analysts, who said that there is no stock on the secondary private markets more in demand than SpaceX. There's nothing, nothing that you can garner- Because everyone wants a piece of it. Whether it's a family office or a hedge fund. You take that interest that just a few months ago, and this was part of a story I read - I mean, I wrote - that I just kind of did a little refresh to see, "Hey, is that mar- private market interest still there?" And the demand is just as high as ever for that company's stock. People want to have a piece of that. And so, I think that's really telling, because it shows that at its most inaccessible, and when you can try to get just like secondary shares if you're an accredited investor, it's really telling for how much demand you exceed if it came to the public markets. And I think Gwynne and Elon, in their recent remarks on Starlink going public, are very understanding of that. They're very cautious about saying, "Oh, yeah." Like, giving any sort of timeline, any sort of, "Hey, here's what we're gonna do. We're gonna spin it off. We're gonna dig you a part of it." You know, whatever. There's not a lot of detail there. Because I think they understand how much that has implications for their company at large.

Chad:

And they're focused on making it work, right? Although, they're almost there. I mean, they've got another launch on Thursday that will take them to 480 satellites. And, uh, what'd they say? Private beta in three months? And public beta a few months after that. So, it's happening fast. It sure happens fast when you launch sixty satellites at a time.

Michael:

Yeah. Oh my gosh. That- The blistering pace of their launches, and just the shear amount per launch, is unbelievable. And I think it's remarkable because, I mean, look at how many they've launched since- in the past year. And you look at what you said they were gonna be launching, it's only about half as many as they said a year ago that they would have in orbit. They said they were gonna be doing launches, they hoped to, at least, be doing launches every other week. And yet, even at a launch cadence of once a month, it's staggering how many are already in orbit, and how quickly this service is coming in. So, the- the fact that this is all coming about this quickly, I think, is pretty just remarkable. Obviously, there's so many details left to be understood about Starlink as a service. I mean, you're talking about a telecommunications network, essentially, that needs to be setup or at least partnered with. So, I'm really fascinated to learn as many details as I can about this private beta. If anyone out there listening to this podcast that gets access to the private beta, please come talk to me. I would love to know all of your experiences. Because people want to know about how this is gonna work, and how it is working if it is already.

Chad:

How do they get you, Michael? The Sheetz Tweets

Michael:

The Sheetz Tweets[thesheetztweets], sure. My email address is on there. And if you just go to my Twitter, you can direct message me.

Chad:

Wrapping this up. This has been a great conversation. You've covered a lot of big stories over the last few years. And, um, just kind of curious, you know, what's your most memorable, and what are you most looking forward to? I've heard some predictions you've given, but I that was all sort of pre-pandemic. Like, in this new world, what do you think?

Michael:

[laughs] Yeah. That definitely was pre-pandemic. Probably the story that I most enjoyed, and was most excited about breaking, was the news of NASA's leader in space flight, Bill Gerstenmaier, going to SpaceX. That story, and its implications for the industry at large, was so simple. It's just simple, like, personnel change, right? But the industry at large understood what that meant. That someone with his kind of experience at NASA, and his years building stuff like the space shuttle, would go to SpaceX and sign on as a consultant and work- begin working within their human space flight programs. That was amazing. And I was very excited to break that story, because that- just the ramifications it has for the industry at large. I think the story that I'm most excited about is the first paying customer that flies to space. And I caveat that as privately paying customer. So, NASA astronauts flying to space is super, super exciting, but it's so clear that has had to happen with billions of dollars of investment. Companies flying people to space, whether it's, you know, a couple folks taking a mission on crew Dragon for a few days in orbit, or Virgin Galactic or Blue Origin flying people to space. Or even if, I mean, heck, I'd love to see Boeing fly space tourists on Starliner. That would be awesome. That'd be amazing if they do that. Anyone who does that, I think that is a huge turning point as a cata- Like we talked about the reason why human space flight is a catalyst. That is gonna be such an exciting moment. Because it's not just people who have been training as astronauts their whole lives, at least in terms of NASA astronauts. It seems like their whole lives. To be in that position, as people who sat- who were, you know, fortunate to have the money on hand to be able to afford these opportunities. But it- That person affording that opportunity, if they pay 10 million dollars for a seat, you know, 30 million dollars for a seat, that makes space more accessible. Because if that person pays 30 million dollars today, someone ten years from now could pay 10 thousand dollars, and someone five years after that can pay a thousand dollars. And now you have people going to space in a way that's much more comparable to the way air travel has gotten. So I think, especially in light of the pandemic and the fact that there's so much that is ground to a halt, the first person who is a person of a lot of wealth, privately paying person who is not a career astronaut that goes to space, that's gonna be a really exciting moment. And I think people- I think helping people understand why, you know, space isn't just gonna be this place for rich people to go have fun, and this luxury experience is so, so key.

Chad:

Can't wait to read that story. And you all should too. So, follow him on The Sheetz Tweets[thesheetztweets]. One more question for you before we go. On the show, we like to say that there's never been a better time to get involved in space investing. What do you think about that?

Michael:

I think that when you talk about buying stocks cheap in a crisis, I think that people really need to be looking at why the space industry, and with space ventures specifically, will have the resiliency to be on the other side of this. And if you- if you're excited about investing in space, I really don't think there is a better time. Because you're gonna have some opportunities in the year ahead to really be a lifeline even to companies. And that's a huge prospect, because of what we- the growth we saw already in the last ten years.

Chad:

Awesome. Michael, it was great to have you on. Thanks for coming on the show.

Michael:

Thanks so much for having me, Chad. This was awesome. Thank you.

Thanks for tuning into The Space Capital Podcast. If you enjoyed this episode, please leave us a review and subscribe to make sure you never miss an episode. And if you're interested in learning more about space startups, I invite you to visit our website, Space Capital dot com[spacecaptial.com]. Where you can learn more about how you can get involved in this world changing, innovation economy.

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