Money and the moonshot

Euromoney is standing on the Nasa Causeway at Cape Canaveral in Florida, the most storied place in American space history. From here, we have a clear view, not just of the launch pads on the Atlantic shore, but of the radically changed dynamics of space travel that they represent.

If you’re a space geek – and let us assure you, Euromoney is a space geek – launchpad 39A, off to our left, is the one that matters. All the Apollo missions flew from here. Armstrong and Aldrin went to the Moon from here in 1969. But it’s no longer a Nasa pad: SpaceX signed a 20-year lease over it after winning a bidding contest in 2013.

The other most celebrated launchpads are 36, over to the right, where the Mariner and Pioneer missions were among 145 launches; and 41, where Voyager 1 and 2 departed. This is where our species began to explore our solar system, and beyond. But Nasa doesn’t run these anymore either. Pad 36 is leased by Jeff Bezos’s Blue Origin, 41 by the United Launch Alliance, a joint venture between Lockheed Martin and Boeing. 

Today, the private sector is everywhere – and so is private capital. There is no better place than here to begin to understand a revolution in the relationship between money and moonshots. 

From a funding standpoint, the process that took Americans to orbit and then the Moon was all about the state. It had to be: for all its visionary ideals, the space race with the Soviet Union was an extension of the Cold War, pure and simple, and so the state, and ultimately the American taxpayer, footed Nasa’s bill. 

The private sector was essential, no question. North American Aviation built the command modules, IBM the computer complex. Everything from the Apollo Guidance Computer (Draper) to the lunar rovers (General Motors) to the miserable freeze-dried food the astronauts moaned about (Whirlpool) was made by private-sector enterprise; of the 400,000 people responsible for putting Armstrong and Aldrin on the Moon in 1969, the majority of them were out there in the corporate workforce, not in government agencies. 

But they were there as contractors, not as investors, given specific mandates and commissions, and paid for that work from a national budget.

That got the job done in the 1960s. But the problem with a politically driven space programme is that it is, by definition, vulnerable to political risk. 

The principal risk is that it can’t last for ever and eventually it stops, which it did, by and large, after Apollo 17. The peak of Apollo and broader Nasa spending, ever, adjusted for inflation, came in 1965 because that was when the political urgency was at its greatest. 

“The challenge with government-led programmes is eventually they end, and if they don’t transition, they’ll stop,” says Seamus Tuohy, principal director for space systems at Draper, a non-profit with its roots in academia at MIT. “Apollo stopped in ‘72. There was a decision made by the government to initiate the Apollo programme and at some point it said: We’re done.” 

Outside Tuohy’s Boston office is a functional model of the Apollo Guidance Computer, in its time a truly visionary piece of apparatus, created by Draper, MIT and Raytheon for Nasa in a rare public-private partnership between state, academia, corporation and non-profit. 

It was, as one of its chief software developers Don Eyles tells us, “the first time that men trusted their lives to a digital computer.” 

When he programmed it, software as we understand it today didn’t exist, and neither, really, did computing: the memory on the AGC had to be woven, literally, by a team of women at Raytheon using a loom. 

But today it is a reminder of just how long it has been since anyone went to the Moon, almost half a century, and it looks absolutely as old as it is, all grey and boxy and covered in rugged buttons, the sort of thing you wouldn’t trust today if it was a vending machine, never mind to pilot you to the surface of another celestial body. This is state funding writ large: great achievement, job done, project halted.

The other issue with state funding is that it changes as governments come and go. “Each White House administration wants to put its own stamp on the space programme and be very different from the one that came before,” says Mary Lynne Dittmar, chief executive of the Coalition for Deep Space Exploration and the former head of flight operations for the International Space Station Programme for Boeing. “Sometimes it feels like just because it’s different from the day before.”

Case in point: in 2010, Barack Obama said, when cancelling the Constellation programme to go to the Moon: “I have to say pretty bluntly here, we’ve been there before.” 

No sooner was he out than president Donald Trump and vice-president Mike Pence launched their own programme, now called Artemis, to go back to the Moon by 2024, exactly what Obama had just abandoned.

Fortunately, state funding is no longer the only game in town. One of the most striking evolutions in the development of space over the last 50 years has been the mechanisms for funding it. And that is a very healthy thing that creates a host of exciting possibilities – and the subject of our new podcast series, Money and the Moonshot.

Beyond that whole spirited business of setting foot on another world, there are lots of practical business cases around space that have attracted not only private companies but private capital too. 

Bank of America Merrill Lynch head of thematic investing Haim Israel calls the 2020s “the decade of space democratization”, and believes that the space market opportunity, from nanosatellites to space tourism, could reach nearly $1 trillion by 2030. 

That opportunity is underpinned not by public markets, but venture capital. Steve Jurvetson, founder of Future Ventures and previously a founder of Draper Fisher Jurvetson, says: “The space industry has largely been one of private investment to date, so most of the exciting companies you can think of are not publicly traded companies, which is an interesting starting point.” 

Jurvetson is a board member of SpaceX and the satellite imaging company Planet Labs (as well as Tesla), and works from an office in Los Altos, California, surrounded by a truly stunning collection of Apollo-era memorabilia.

“There is no end, it seems, of venture capital firms tripping over themselves to invest in the category: more than 350 of them,” he adds. This is a hockey-stick moment: Jurvetson says that in 2018, 114 venture funds made their first space investment, and that 70% of all venture investment in the space industry to date occurred in the three years to December 2019. 

That money has been attracted, in part, by a swashbuckling new field of players.  Over the last 10 years or so, boisterous new entrants have arrived, in particular Elon Musk’s SpaceX and Jeff Bezos’s Blue Origin. They came out of nowhere and changed everything. 

With flamboyant ambition, they have successfully competed with the once-monopolistic United Launch Alliance of Lockheed and Boeing, which once had a stranglehold on Nasa launches, and have created a credible and cheaper alternative. 

Though Bezos’s company is far quieter than Musk’s, the two are bonded by a shared vision that creating reusable rockets would dramatically reduce the costs involved in payload delivery, and therefore make a host of other things affordable and achievable.

You might think that these guys are in competition with Nasa and the state. Not so: where Nasa was once paymaster and boss to the private sector, now it wants to be a partner with it. If SpaceX and the like can handle the mundane business of getting stuff aloft, Nasa can focus on what it’s good at: visionary exploration and adventure. 

“We’re not going to purchase, own and operate the hardware, we’re going to buy the service,” Nasa commissioner Jim Bridenstine said in November 2018. “When we go to the Moon, we want to be one customer of many customers in a robust marketplace between the Earth and the Moon. And we want multiple providers that are competing on cost and innovation so we at Nasa can do more than we’ve ever been able to do before.”

Speaking to Euromoney at Nasa’s headquarters in Washington DC, chief economist Alexander MacDonald expands on this. “It’s about which parts of spaceflight are the most repeated and repeatable,” he says. “Things that are hard to think of as becoming commercial services are sending unique scientific probes as close to the Sun as possible. That’s because we don’t do that very often. We are sending new scientific instruments there every time, because you want to answer new questions.

“But launching commercial cargo to the space station is the same problem every time. That is amenable to the private sector, turning that into a regular process.” 

Where are public markets here? Stalwarts such as Lockheed Martin and Boeing have been listed for decades, but they see space as one business line among many, and are not pure-plays.  

It’s true that Virgin Galactic is listed – albeit through a back-door listing to the New York Stock Exchange – and that Fidelity has a stake in SpaceX, which means some of its mutual funds have exposure to the company.

But generally speaking, the short-term vagaries of public stock exchanges and the long-term ambitions of space-faring entrepreneurs don’t mix very well.

Musk addressed this in an email to SpaceX staff in June 2013, in which he said he was “increasingly concerned about SpaceX going public before the Mars transport system is in place” and that “if being a public company diminishes that likelihood, then we should not do so until Mars is secure. 

“I am hesitant to foist being public on SpaceX,” he said, “especially given the long-term nature of our mission.”

Is he right? Are visionary companies better away from public markets? “Let’s just say if you’re a CEO of a public company and a private company at the same time” – as Musk is, with Tesla and SpaceX – “you’re probably enjoying one more than the other,” says Jurvetson, who is on both those boards. “If money is coming plenty easily and you have all the money you need, you might stay private indefinitely.”

Someone with one of the most unique perspectives possible in this field is Bill Anders, who was an astronaut on Apollo 8, the first craft to go to (but not land on) the Moon, and a private industry chief executive at General Dynamics. 

Even he has doubts about the ability of regular public market shareholders to understand what they are buying in the space arena. “I wouldn’t invest in space, I don’t know enough about it,” says the man who orbited the Moon 10 times in 1968 and was among the first three members of the human race to see the entirety of the Earth, a ball, hanging there colourful in the nothing. “I don’t know how an investor can know.

“How do you buy in? Who do you invest in? It’s really hard to see where to put the money. I don’t think Wall Street is going to be the great sieve of this.”

If you think about it, SpaceX presents a particular challenge as an investment case, because the scale of Musk’s ambition is pretty much unfathomable in terms of quantifiable economics. 

He wants, in the short term, to disrupt the launch market. But he also wants, as his endgame, not only to reach but to populate Mars in order to increase the long-term viability of our species.

The mechanics of payload delivery are easily assessed, but how does one analyze the business model of building colonies on Mars in order to further the sustainability of the human race in the event of a mass-extinction event on Earth? There’s no spreadsheet that fits into.

“There is no investment case for Mars,” says Dittmar. “There just isn’t.” So investors have learned to make their peace with that and, in some sense, to ignore it.

“When we first invested in SpaceX, we did not attribute any specific value to the future Mars programme,” says Jurvetson. “We would not have invested if that was the only business opportunity. Probably most SpaceX investors would not have said: ‘We’re going to invest, and we’ll hunker down for 20 years with no revenue and then 20 years later starts the business case.’”

So Jurvetson went in for the opportunity here and now in low Earth orbit, firstly in launching rockets, and then in broadband satellites. Musk has driven the cost of launch down 100 times over, Jurvetson says. “What might we start to do that no one had thought to do” because of that? That business opportunity alone is one of the main reasons we decided at Future Ventures to invest in SpaceX recently.”

While the company’s near-term value was not built entirely on Musk’s Martian ambitions, he ascribed no penalty to such bold ambitions either. Fine. But that’s a paring that a venture capitalist is probably better equipped to make than a stock market investor.

For the moment, Elon’s probably better off giving Nasdaq a miss.

If we accept, then, that private capital is the most natural fit for space, that raises a host of other questions. Where is liquidity? How do investors get an exit? What sort of timeframe should they have, and is that materially different to other industries?

At Future Ventures, they tell investors they are putting their money into things that “if they succeed they will change the world, but are highly risky and take a long time.” They have a 15-year time horizon. 

“This is risk capital: the majority of things we invest in fail.” The firm leads with this blunt premise in its pitch deck: they’re investing in crazy things that, by definition, won’t have anything to show for it for years because they’re not liquid and nobody else has realized they’re good stories yet. 

This is how investors in space companies must think. “All investors are taking a gamble,” says Dittmar. “What parses one from another is the window. How long am I willing to wait for a return on an investment? The traditional window used to be three to five years; for a start-up, even seven. 

“In space, if you are not willing to ride it out for at least a decade, don’t put your money on the table, would be my advice.”

The future of space funding is a combination of state budget, with its heft and vision but also its political risk, and the properly patient tolerance of private capital. Together, they can do wonderful things.