125. Space Tech Investing, Part 2 (David Cowan)

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Today we cover Part 2 of Space Tech Investing with David Cowan of Bessemer Venture Partners. In this segment we address:

  • Why is SpaceX moving the industry forward in the wrong direction?
  • I recently read a Fortune article titled ‘VCs Invested More in Space Startups Last Year Than in the Previous 15 Years Combined.’ An excerpt from the article states “50 venture capital firms invested in space companies in 2015, signaling that venture capital has warmed to a space industry it has long considered both too risky and too slow to yield returns.” David, Why do you think now is the right time to be investing in space?
  • The amount of data that can be collected and analyzed now via satellites is an order-of-magnitude greater than it was only a short time ago. How do you think about the data opportunity and what role does data play in driving space tech forward?
  • When you look forward to the next 10-20 years, what are your thoughts/predictions on how space tech will evolve and impact society?

Guest Links:

Key Takeaways:


1- Space sub-segments

David talked about the sub-sectors within the space category and which areas VCs have invested in.
-Aerospace Contractors: Companies that are supply NASA and complete one-off, custom components and systems
-Defense Contractors: Similar to aerospace but serve government’s national security
-Commercial satellites and constellations: This is the most active area for startups. Hundreds of startups have been founded in the segment over the past three years. And many of the entrepreneurs are not experienced aerospace people; more often they are software developers. And a key focus area here is on data… making this sub-sector more data science than material science-centric.
-Mining: There is a new sector emerging around mining operations… with plans to mine the moon and/or asteroids
-Commercial tourism and exploration: These companies are focused on taking travelers to space and, potentially, other planets.
-Satellites Subsystems: This includes equipment such as antennas, solar panels, propulsion, etc.
-Ecosystem of support services for space operators: This includes companies w/ ground stations, satellite tracking, collision, launch


2- The Death of Space 1.0

Recall David’s comments that we’ve been operating on space technology that was developed for the Apollo program. This tech was designed to be really long-lasting, militarized, redundant satellite equipment. And by the 1990’s satellites were costing Billions of dollars, taking 10 years to build, and could weigh many tons. Meanwhile, terrestrial-based telecommunications costs were dropping precipitously, causing the entire commercial satellite industry to collapse. So, all the major Space 1.0 companies started filing for bankruptcy including Teledisic, Iridium, Globalstar, Terestar. And NASA continued to be defunded by Congress over the years leading up to 2008 when they defunded even further and canceled the successor shuttle program.

Then, to further exacerbate the problem, the available space for satellites in geosynchronous orbit became exhausted. There was no longer room to launch satellites w/ new tech and capability. So, ultimately space had all the ingredients of a market primed for disruption, which is just what happened in key takeaway #3:


3- Birth of Space 2.0

With the proliferation of mobile devices, components in the devices increased in capability and dropped in price. And it just so happens that cell phone components are the same as what you’d find in in a satellite. There’s power mgmt, battery, antenna, radio, accelerometer, and camera. So, founders with fresh eyes asked, “Can we make a satellite out of these cell phone components? And can we put it in low earth orbit, where there’s plenty of available space?”

It was at this time that a physical spec called the CubeSat was created. And Skybox imaging put up their first satellite in December 2013. Many different teams of entrepreneurs could now leverage a standard for developing space tech.

Coincidentally, advances in 3d metal printing had allowed companies like SpaceX to develop much better rockets and to do it much faster. So, while a completely new approach to satellites had emerged w/ the CubeSat, a completely new way to address launch had emerged w/ the SpaceX rocket program. And David believes it was the convergence of CubeSat innovation and launch technology that has caused this renaissance in space today.


Tip of the Week:    Vertical Integration and the Space Stack

*Please excuse any errors in the below transcript

Nick: You were talking about how #SpaceX may not be moving the industry forward in the, in the best direction. What, why do you think it’s not moving the industry sort of in the, in the direction that, that you’d like? Is it because of the nature of large installations and massive rockets as opposed to more nimble and smaller installations?

David: That’s it. That’s exactly right. I mean, think about #Elon’s background. He really had to, he had to forge frontiers with nobody else’s help. So he had to build his own rocket. And, of course, his mission is to go to Mars. And the way he looks at it is that he has to do this all himself. He has to figure out how to do everything. And if you look at his plan for getting to Mars, it’s really, all the technology is contained within #SpaceX. Personally, I actually don’t think that that’s the most likely or most cost effective or the safest way to get to Mars. I think the way we’re going to get there more successfully is through the development of an ecosystem in space. Much like we saw an ecosystem develop in the internet, where startups do different things. You’ve got startups who, who make great propulsion, and startups who deal with the radios and startups who are great at launch, and startups who are great at dealing, at dealing with the human factors, the, the, may be space suits and the, and the, and food and other things in space. And it’s this ecosystem that’s going to allow us to colonize the low Earth orbit and then the moon and then asteroids and then Mars and then the moons of Jupiter and Saturn. I mean, it’s, it’s this, it’s this ecosystem that’s going to allow us to get there, not a monolithic mission by a single government or company. And, and in a way, what #Elon’s doing is, is really working against that ecosystem.

Nick: It’s an interesting paradox because it’s, it seems like it was the, the degree of vertical integration that allowed them so much success on the rocket side. But seems like they’re trying to, to extend that to all applications and all challenges involved with the mission to Mars, which may be too much vertical —integration.

David: Yeah. Look, I’m, it’s a, it’s a, it’s a hard thing to, to bet against #Elon doing anything that he sets his mind to. And certainly, you know, what he’s done is, is extraordinary and very, very important. And I very much hope that he’s able to do exactly what he, what he’s planned to do. But I, I see what kind of the rest of world is doing and I think it makes a lot more sense. Let’s, let’s figure out how to start putting equipment on the moon that’s going to mine water from the moon. And then use that water to build fueling stations in space. And then we can get rockets into space and refuel them for the trip to Mars. And we can, you know improve the robotics that we have for doing mining on asteroids before we send them to Mars. I mean, there’s a lot of things that we can do. And meanwhile, by the way, not by the way, most importantly, we need to solve the human factors for human survival in space. #Elon, in his presentation, he pooh-poohed that as being something that was not a big deal. But that is very inconsistent with everything that I’ve heard from anyone involved with any advanced space programs. We have not figured out how to sustain the health of astronauts in space for long periods of time. And if, in fact, #Elon is successful in sending a colony to Mars anytime in the next 15 years, it’s unfortunately likely that those people would be dead within 3. So,

Nick: Yikes

David: You know, I, I, I think the, the most realistic part of his plan is the part where he says that he, he wants to die on Mars. That part is quite achievable.

Nick: So #David, I, I recently read this #Fortune article titled ‘VCs invested more in space startups last year than in the previous 15 years combined’. An excerpt from this article states that, “50 venture capital firms invested in space companies in 2015, signaling that venture capital has warmed to a space industry it has long considered both too risky and too slow to yield returns”. #David, why do you think now is the right time to be investing in space?

David: Well because of these major technology changes, we have the opportunity to harvest 50 years of Moore’s law. This is all happening at once. And, and it’s, and it’s happening in Silicon Valley, where the innovations that are enabling this are not  hardware or materials innovations but they are innovations around software and data science and machine learning. These, these are all things that we’re good at that we can, that we can build. And so, you know, I think that, that in combination with the, somewhat enabled by the improvements that #Elon Musk has brought in launch, and that we’re seeing from others in launch as well, now is a great time to be focused on space.

Nick: Yeah, you just mentioned data science and the amount of data that, that can be collected and analyzed now via, via satellites is just in order of magnitude greater than, than it ever has been. How do you think about the data opportunity and what roles does data play in driving space tech forward?

David: Right. So I talked about the, the shift from monolithic space missions to constellations. And you could think of most of these constellations as being floating sensors. Sensors that are not unlike the sensors we put in cars that help us learn how to drive, or the sensors that we put on shipping containers to track them. The, the whole area of sensors and collecting that data and learning from it, this is not specifically a space technology. This is something that, that we’ve been unlocking over the last decade, you know, on earth. Taking advantage of big data, NoSQL technologies. Taking advantage of the types, the levels of computing we can do today. Taking advantage of tensor processing units that allow us to run neural networks at unprecedented speeds. As we make gains in data science and machine learning, that creates a lot more compelling reasons why we want to put sensors in space as well. Now we can actually do something with all of that data. The most, you know, the, I would say the most important sensors that we’re putting in space today are weather sensors so that we can track the weather and hopefully do something about the, the changing climate in terms of responding to, to it here on earth, understanding what’s happening, so we, we understand how we might be able to mitigate the long term damage. The previous weather sensors were, were really put on orbit on these large monolithic satellites that, that I talked about. And so if we can disrupt that approach with a CubeSat approach, we’ll get a lot more data much faster and much cheaper. Another common sensor is just tracking logistics here on, on earth, where things are. That’s economically important. And then finally there are sensors that use either optical images or multi spectral or even hyper spectral imaging or thermal or other types of sensors for assessing the health of agricultural crops. Which is increasingly important as we develop technologies to feed the growing human population.

Nick: Awesome. So, #David, as you look forward to the next 10 to 20 years, what are your thoughts and/or predictions on how space tech will evolve and impact society?

David: Yeah, well, what’s most exciting is that I can’t predict it. As I, as I said before, there, there’s a, there’s an ecosystem emerging. There’s a foundation of companies who are enabling launch and communications and data analytics. And the real value is going to come from all of the applications that people build on top of this foundation. All the interesting things that people decide to do in space. And the places where we decide to go. And I’ve heard some just unbelievable great pitches from entrepreneurs who, who have the vision of going to Mimi asteroids and bringing the minerals back to Earth, or building pharmaceutical labs in space. Or companies like, like #Robert Bigelow, who’s the first real estate entrepreneur in space. He builds habitats and he’s putting them, attaching them to the ISS but he’s also going to put them on the moon and on Mars. There are so many interesting businesses to build. And right now we’re really just laying the foundation. We’ll, we’ll see what the ecosystem brings us. But I do believe that over the next few decades, we are going to see the, the, the domain of humanity spread to, to nearby space and then the moon, asteroids, Mars, and the moons of Saturn and Jupiter.

Nick: #David, if we could address any topic related to startups or venture, what topic do you think should be addressed and who would you like to hear speak about it?

David: Well, we touched on this earlier but I would love to hear #Elon Musk talk about how he expects to solve the, the human biological hazards of space. I think what he’s doing is so important. And I worry that he’s not spending enough attention on that. I, I would hope that he and other startups do. And I would like to know what he thinks about that. I would also, something else that really concerns me about the continued success of the internet as well as our just prosperity, our national security, our safety, our rights, is that the Trump administration is undertaking policies that really threaten to jeopardize our privacy and our security. Not only is the administration itself showing signs that, that look like it’s headed towards much more US population surveillance and tolerance of government surveillance of the US population, but I also worry that Trump’s dismantling regulatory entities will eliminate the rules that are compelling businesses and government agencies today and utilities today to put in safeguards around cyber space. And, you know, making cyber space safe is something that is a public problem. Cyber security is like pollution or drunk driving or vaccinations. If you’re reckless about it, you endanger the people around you. If your, if your computers are infected, those can be used to attack others. And so we really need the government to set rules here. We need the government agencies like FDC, SEC, FCC, you know, CMS and others to identify, promote and enforce the best practices and technologies that we need to make cyber space safe. I don’t know who it is at Trump administration who would talk to this. That’s part of the problem. I don’t think anybody there is worrying about this. And I think we need to.

Nick: Yeah, I noticed your, your blog article on this on the 4th. So I encourage listeners to go check that out. And, #David, you know, we had #Ethan Kurzweil on the program and he cited you as one of the, the most inspirational voices to him. From your standpoint, you know, what startup investors have inspired and influenced you most and why?

David: Well, that would be my mentor here at #Bessemer, #Felda Hardymon. #Felda’s been at #Bessemer for a long time. He’s still here today and a successful active venture investor. And, and along the way, by the way, he’s been a professor at #Harvard, where he taught the venture capital curriculum there to a whole generation of VCs today. It was #Felda who first pulled me aside in 1992 and said, you know these deals that you’re doing, they’re, they’re, these deals that you’re bringing in to show us, they’re really awful, you have to stop, you need to step back and think about what you want to invest in. And so he said, go off and go on a journey and go find smart people and come back with some roadmaps of, of where you want to invest. And I, I went off and I did that. And that was terrific. And I went and I talked to #Eric Schmidt, and he was at #Sun at the time. And #Al Lill at #Gartner, and #Rick Sherlund at #Goldman, and, and various people. And I came back with a plan and that was, that was really successful. So he told me to make a roadmap. #Felda told me that, you know, the best way to be successful in VC is to, is to have a, a strong equal partnership of these, of investors. Not to have one, not to be a managing partner, but to recruit great investors. And that together we can make better decisions and, and frankly more money that way. And finally, #Felda told me not to be such an asshole. And I think that was also really, really helpful advice. And so he’s, he’s, he’s been the most influential in my career.

Nick: Awesome. And then, finally, what’s the best way for listeners to connect with you?

David: Oh I would recommend that you sign onto Smule and sing a song with me. Let’s do a duet together. And if you don’t want to do that then you can email me at david@bvp.com.

Nick: Your calling out the, the A cappella group, huh?

David: That’s right. We, we can all make music.

Nick: Awesome! Well, thanks again for sharing your time and, and going a little long on this today with us, #David. This was, this is hugely helpful for me. And I’m sure the listeners are, are really going to enjoy it. So, so thanks for doing it. And can’t wait for the next time.

David: Oh, it was fun. Thanks for having me, #Nick.