13 minute read
The space economy: Ready for take off
When it comes to the space economy, no one knows more than Chad Anderson, founder and managing partner of Space Capital, who recently wrote the definitive book on the subject. As exciting and explosive as the last decade has been for our industry, Anderson believes that the technological advances and market applications which lie ahead will not only be transformative but will also drive dramatic market growth. We sat down with Anderson who shared his insights on what he believes is the greatest business opportunity the world has ever known.
Crispin Littlehales, Executive Editor, Satellite Evolution Group
Question: What is your definition of the space economy and why do you think it presents such a great business opportunity?
Chad Anderson: Most people are looking at the opportunity in the space economy through a very narrow lens. They think about the Apollo moon landings and the International Space Station (ISS) and these grand human achievements, but they don’t think about the entrepreneurs who are transforming nearly every major industry here on Earth. That’s the opportunity that we are focused upon.
Just think about where we are today. GPS has delivered trillions of dollars in economic value and some of the largest venture returns that we’ve ever seen. GPS, as massive as it is, represents just one of several areas of opportunity. The same thing is playing out in other key satellite technology stacks like geospatial intelligence (GEOINT) and satellite communications (SatCom). Together these orbital assets make up the invisible backbone of the world’s largest industries today. The modern global economy runs on space technology.
Now, think about the applications that are being developed on top of this valuable infrastructure. It’s not just the cool technology that we can build, but how we’re using it to provide us with insights and intelligence that improve our everyday lives. The opportunity becomes very big very fast and that’s where we are today.
In the space economy today, 90 percent of what’s going on is in satellites (the three tech stacks mentioned earlier: GPS, GEOINT, SatCom) and nine percent is in launch, which is an important piece of the puzzle but a difficult business model. Then there are the emerging areas in lunar, in-space transportation, logistics, manufacturing, space stations and the like. All of this is nascent and represents only one percent of the total market, but there are new technologies coming online which makes those market opportunities much more real than they’ve ever been.
We are on the precipice. The growth that we’ve seen over the last decade or so has been powered by SpaceX Falcon 9 rocket and now they have a new vehicle. When Starship comes online, the cost of launch will be lowered by another order of magnitude making space more accessible than it’s ever been before, thereby enabling a lot of these new emerging areas. Lower cost and ease of access does wonders for innovation. That’s what makes this the most interesting time to be investing in the space economy.
Question: All eyes are on Space X’s Starship which appears to be getting close to being fully operational. What does the success of Starship mean to the space economy?
Chad Anderson: It unlocks a whole set of new opportunities and SpaceX is already getting billions of dollars in contracts from NASA and other government agencies for those new capabilities. So, there’s a lot of room for SpaceX’s valuation to grow.
SpaceX and its Falcon 9 vehicle removed the barriers to entry. The company published its pricing and brought transparency to the market. Starship promises to have the same sort of impact. When you’ve got a massive vehicle that is fully and rapidly reusable, means we can put more things into orbit than we ever have before. That’s going to enable things like the Starlink constellation which means we can connect the most remote places on the planet bringing billions of consumers and enterprises online.
In addition, we can put up new satellites with new capabilities that we’ve never been able to launch before. Think about the James Webb Space Telescope. The most difficult part of this incredibly advanced scientific instrument was the fact that it was so large. Its mirror had to be folded up origami style and unfurled 5.5 days after launch. Had NASA used Starship, JWST could have launched as one whole piece.
Starship will be able to launch a lot of innovative infrastructure that will allow us to power our economy. It will also make much of existing infrastructure obsolete. For instance, there are currently space station companies that have raised billions of dollars to build permanent stations in orbit. Those will all need launch vehicles to take people to and from their stations. With Starship you could have a hotelier come out and get the whole thing decked out with amenities and launch the clients for their week or month-long visits.
The same goes for manufacturing. Whereas with a permanent station, you need the equipment already on board or you need missions to go up and install the equipment, with Starship, you have the up mass and the down mass already solved and you can go up and down whenever you wish. It starts to call into question whether you even need a permanent station in orbit.
When we start landing on the Moon, we will need sophisticated rovers. There are small companies and large defense contractors building the equipment we’ll need on the lunar surface. However, when you’ve got Starship’s capabilities, you will be able to launch the kind of heavy equipment that Caterpillar and other heavy equipment manufacturers produce. Starship starts to open a lot of doors and increases participation by making it easier for more new entrants to the market. More competition means more innovation and lowers costs for everyone which translates into more opportunities to do interesting things and make money.
Question: Blue Origin rolled out its New Glenn heavy lift vehicle on the launch pad in February. The company says it will launch later this year. If, indeed, New Glenn’s launch is successful, what impact might that have on the industry?
Chad Anderson: SpaceX dominates the entire market now. There were 200 launches globally and SpaceX launched half of them. It would be great to have some competition from New Glenn which is much larger than Falcon 9 but a bit smaller than Starship. Blue Origin is looking to reuse that vehicle as well, landing the booster in a fashion similar to that of the Falcon 9 rockets.
One interesting thing about Blue Origin and SpaceX is that they were founded in the same year and about the same amount of capital has been invested into both. We know what SpaceX has done but most of Blue Origin’s activities have been done behind closed doors with a single shareholder, Jeff Bezos, who has been able to move at his own pace. They have a suborbital vehicle that has flown to space a few times and they’re building a space station with Sierra Space. They’ve got a lunar lander as well as contracts from NASA to deliver humans to the Moon. Blue Origin has grand plans beyond just rocket launches but I think the only reason we’re taking the company so seriously is because of the person who is backing it. We know he has the passion and the means to pull it off, but it’s been a long time so it would be great to see them cone online and start bringing some of these projects to fruition.
Question: In the past couple of years, we’ve seen many nations, big and small, invest in satellite and space technology. What does this global desire for spacebased assets mean to the growth of the space economy?
Chad Anderson: Space technologies are critical for our national security and our economic stability. World leaders are beginning to wake up to the importance of this infrastructure. A funny little anecdote is that after the election, the Biden administration made it clear that their emphasis was on the problems here on Earth, rather than what was going on in space. Their top priority was climate. The administration held a big meeting to bring together the world’s best and brightest minds on the subject. The experts explained that to understand what’s happening to our climate, we need satellites because 50 percent of all climate variables can only be monitored from space. What’s more, they told the administration that 99 percent of all weather data comes from space. After that, the White House changed its tune and decided that space infrastructure and orbital assets were indeed essential.
It’s not just climate of course. GPS powers the global economy. The timing piece of it is what enables our financial markets. Scott Pace, Director of the Space Policy Institute, likens our dependency on spaced-based technology to Great Britain’s dependence on the oceans in the 17th through 19th centuries. The White House has now placed the protection of these assets in orbit, along with space traffic management, high on the list of priorities. In the UK, King Charles unveiled his Astra Carta, which was focused on space sustainability. It’s clear that governments around the world are paying attention to the protection of our orbital infrastructure.
We’ve seen this play out over the last couple of years. For example, in 2022, during the steepest point of the decline in the financial markets, governments were continuing to invest and spend on space technology. The National Reconnaissance Office made their largest ever satellite imagery purchase in the second quarter of 2022, the most difficult point in a challenging economic market. Clearly the way to thrive and survive is to offer something that is mission critical, to be providing information and insights that are indispensable—and that’s what you get from satellite companies. When the world becomes more dynamic and uncertain, people want more information so they can understand and deal with the situation.
Question: The US DoD and other defense ministries are turning to commercial suppliers to deliver satellite communications and other space-based assets. Indeed, within the last three years, the DoD’s space investments have grown at an annual rate of 20 percent. Do you see this trend accelerating in the future?
Chad Anderson: The DoD recently released the first-ever Commercial Space Integration Strategy which calls for the development of ways to facilitate space solutions built by commercial companies. The Russian invasion of Ukraine put a spotlight on the growing capabilities of commercial space companies. It was Starlink that kept the Ukrainians connected and it was our Earth observation satellites that gave us the truth of what was happening on the ground. These are powerful tools and that’s what is driving record revenues for companies across our portfolio. We are seeing how essential these capabilities are to economic stability and national security. The DoD is also relying on them as well as doing some very interesting things in this space too.
I feel like there is a symbiotic relationship developing. The fact that both stakeholders want to work together and are motivated to do so just means that strong growth is going to continue.
Question: We hear a lot about the increasing importance of space traffic management, but far-reaching solutions have yet to materialize. How do you see this playing out?
Chad Anderson: The first thing is recognizing that we’ve gone from a few hundred satellites in orbit to thousands and we’ll have tens of thousands in the very near future with a potential for hundreds of thousands. The existing solution, Space Fence, which is operated by the US Space Force, was built for that prior world. It currently tracks 25,000 space objects as small as ten centimeters. That is sufficient for where we used to be, but we’ve got more and more activity up there, not to mention debris, and it’s imperative that we keep our orbits safe.
One of the companies that we’ve invested in is LeoLabs which was spun out of Stanford Research Institute in 2016. The company has created a network of six or seven ground-based radars around the world to provide more timely data with regular updates.
This way, we can have a much better handle on how things are moving and where they are moving. LeoLabs can build these systems in a fraction of the time and one percent of the cost of the Space Fence. What’s more, this suite of radars can track objects that are two centimeters. That’s a step change in capability and orders of magnitude less expensive.
The next part of the solution lies in getting the data from LeoLabs and other data providers and making it accessible to others. The US Commerce Department has taken over management of our orbits and space traffic management from the DoD, so the issue is now being treated in a way similar to the way we treat the oceans.
Another company in which we’ve invested, Kayhan, is doing the space traffic coordination piece. Once you have good data on where things are, then you want to be able to coordinate between operators to avoid a potential collision. Now we’re getting better data and a networking solution to coordinate with other players. Those are good solutions, but we are still on the front end of this issue and have a lot of work yet to do. The tools that we need are being funded and the capability is now coming online, so we’re in good shape.
Question: In what ways do you see artificial intelligence (AI) revolutionizing the satellite and space industry?
Chad Anderson: The problem with AI is that you need data and there’s not enough real data to go around. We’ve invested in a company called Rendered.ai. which offers a Platform as a Service (PaaS) for data scientists, computer vision engineers, and developers who need to create and deploy synthetic data generation for AI and machine learning (ML). Gartner says that 90 percent of all AI is going to be trained on synthetic data which is far superior to real data in a lot of ways.
The beachhead market that is ready to go for this platform is the geospatial market which uses data that’s coming from Earth observation and remote sensing satellites.
This market has been dealing with large datasets for a long time and they’ve been applying AI and ML to annotate them and derive useful insights from them. I believe the most interesting things that are happening in computer vision AI are happening in space and that’s driving the AI market forward.
Question: The headline from the Q4 Space IQ is that approximately US$300 billion has been invested into some 2,000 unique space companies over the last decade. Do you see this trend continuing?
Chad Anderson: When Starship comes online, so much potential will be unleashed that it’s going to make all the industry records thus far look miniscule. We are on the front end of a super cycle here with Starship as the great enabler. I think that’s going to impact the number of satellites in orbit, the number of companies that are operating in space, and the number of companies terrestrially that are leveraging this technology. I also think that this will fuel the growth of new company developments and new investors that are interested in this as a category. Indeed, we are already seeing this, and I have no doubt that it is going to continue.
