02 Mar 2016

The New Space Race

Touting everything from asteroid mining to shoebox-sized satellites, a new generation of space entrepreneurs is taking the search for the next big thing to the farthest reaches of the galaxy
Re: Ariane Cornell (MBA 2014); Dave Thompson (MBA 1981); Bruce Ferguson (MBA 1979); Scott Webster (MBA 1981); Lewis Braxton (PMD 66); Gregg Burgess (GMP 5); Gautier Brunet (MBA 2015); Sunil Nagaraj (MBA 2009); Peter Platzer (MBA 2002); Joe Landon (MBA 2007); Laetitia Garriott de Cayeux (MBA 2004); Akshay Patel (MBA 2010)
by Robert S. Benchley


Ariane Cornell
Head, Astronaut Strategy and Sales, Blue Origin

Cornell calls the West Texas launch and landing a “learning experience,” noting that Blue Origin is slated to reach into orbital space before the end of the decade. (courtesy Ariane Cornell)

Ariane Cornell (MBA 2014) watched galactic history being made from a deck in West Texas.

Cornell works for Blue Origin, where she is head of astronaut strategy and sales and supports engine sales for the space exploration company. Along with a few dozen fellow employees, all dressed in royal blue company polo shirts—including founder and Amazon CEO Jeff Bezos—Cornell saw Blue Origin’s rocket fly more than 62 miles up in the sky on November 23, deliver a vehicle into suborbital space, and return to Earth intact on a landing pad a few miles away.

The experience was visceral: A sonic boom when the rocket entered the atmosphere, a massive dust plume that went up when it landed, and a wild cheer when the scene settled to reveal a safe landing. “It was one of the most memorable and electric moments I have ever experienced,” Cornell says.

But sending a rocket into space and landing it back on Earth wasn’t just an important internal milestone for Blue Origin or a memorable life experience for Cornell. Historically, rockets like these deliver their payload—this one delivered the company’s New Shepard module that someday could give human passengers a taste of space travel—and are destroyed on the way up or crash back to Earth in pieces. With rockets costing tens of millions of dollars, reuse can reduce one of space entry’s largest costs. When SpaceX launched and successfully landed its Falcon 9 rocket at Cape Canaveral just a few weeks later—delivering 11 satellites into low-Earth orbit for a commercial client—CEO Elon Musk noted that it costs $60 million to make the rocket but only $200,000 to fuel. In other words: two small landings for space startups, one giant leap for space exploration.

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Blue Origin’s historic November launch. Arianne Cornell is visible at ~1:08, midscreen with binoculars in hand.

This promise of cost savings and efficiency has long been the hallmark of private space companies. And that field is growing: There are now nearly 1,000 space companies worldwide according to industry analyst NewSpace Global, and they are touting revolutionary (and mostly unproven) new concepts in rockets, space tourism, and even space services, ranging from orbital refueling to asteroid mining to space debris cleanup.

This entrepreneurial energy is following a decidedly terrestrial opportunity. The nonprofit advocacy group Space Foundation estimated that the global size of the industry reached $330 billion in 2014, with an annual growth rate of 9 percent. Commercial space activities made up 76 percent of that total.

The final frontier, it turns out, might just be the last great market.

The Orbital Effect

David Thompson
President and CEO, Orbital ATK

When Thompson launched Orbital in 1982, it became the first corporate space contractor in nearly 30 years. (courtesy Orbital ATK)

David Thompson (MBA 1981) was working at NASA in the late 1970s when the agency’s funding began to bottom out. In 1966, NASA spending made up 4.41 percent of the total federal budget. By 1975, it was less than 1 percent. “The original programs were finished, the shuttle hadn’t begun yet, and we weren’t sending astronauts into space,” he says.

Thompson began thinking about a new kind of organization—a private-sector firm that would attract young engineers to work on exciting projects like designing rockets for satellite delivery. Besides, he held the “naive view that starting a space company might be fun and profitable.” Founded with two HBS classmates, Bruce Ferguson (MBA 1979, JD 1981) and Scott Webster (MBA 1981), with capital supplied by maxed-out credit cards, Orbital Sciences Corporation launched in April 1982, the first corporate entrant at the prime contractor level in nearly three decades. (Today, the company—now Orbital ATK—is a $4.5 billion enterprise.)

For NASA, the funding nadir led to introspection. “NASA began taking a hard look at its purpose and what it was giving back to the public,” says Lewis Braxton III (PMD 66, 1993), who recently retired as deputy director of NASA’s Ames Research Center and is now pursuing a position with a space startup. Over the subsequent decades, the agency transformed. “We had once been the leader in technology,” he says. “Somehow, over the years, we had become the nation’s technology broker to outside companies.” The 2011 shuttering of the shuttle program—and its $600 million per launch costs—left them without a high-profile pursuit. “We began thinking about manned Mars missions as a way for NASA to show that we still have it.”

Lewis Braxton III
Former Deputy Director, NASA Ames Research Center

“We began thinking about Mars as a way for NASA to show that we still have it.” (courtesy Lewis Braxton III)

The agency is currently developing the necessary capabilities to send astronauts to an asteroid by 2025—sort of a trial run—and to Mars in the 2030s. Meanwhile, unmanned probes have been and will continue to examine the planet, and send back information that will be useful in helping NASA understand how astronauts—and possible future colonists—will be able to survive the intense radiation that bombards its surface.

By choosing to look farther out into space, NASA opened up a competitive market closer to Earth. Two years ago, the agency awarded a nearly $7 billion contract to SpaceX—launched in 2002 by PayPal and Tesla Motors cofounder Musk—and Boeing to transport US astronauts to the International Space Station (ISS) starting in 2017. That it was split between the two companies—$4.2 billion to legacy transporter Boeing, $2.7 billion to upstart SpaceX—was a sign of changing attitudes. It also showed the benefits of market competition: Since the space shuttle program shut down, the United States has relied on Russia for flights to the ISS, which cost $71 million per astronaut, set to rise to $82 million under a new contract. That cost could drop to $58 million aboard Boeing or SpaceX spacecraft. (NASA announced in January that Sierra Nevada Corporation—where Gregg Burgess [GMP 5, 2008] is VP of technology—will join Orbital ATK and SpaceX on its roster of companies contracted to resupply the ISS.)

Mars is NASA’s new mission, with plans to send astronauts to the planet in the 2030s.

“The drive to reduce cost is generating the most change,” says aspiring space entrepreneur Justin Oliveira (HBS 2017). Oliveira came to HBS after a stint as human spaceflight program examiner with the White House Office of Management and Budget, where he oversaw NASA projects to see how well they were adhering to presidential policy, as well as being stewards of the taxpayers’ money. “After years of aerospace being cost-plus contracting and paying huge amounts for rockets, you have a guy like Musk walk in saying, ‘I’ll offer you something 98 percent as reliable for one-third the cost.’ It shakes things up. The reason SpaceX can do what it does is that it’s not using 50-year-old methods.”

“Space companies are starting to look like tech companies, and that’s huge.”
——Sunil Nagaraj (MBA 2009)
“Space companies are starting to look like tech companies, and that’s huge.”
——Sunil Nagaraj (MBA 2009)

While SpaceX is a relatively august entrant into the market, it wasn’t until three years ago that it shook up the industry by offering very aggressive, heavily discounted pricing for rocket launches. “When SpaceX began, everybody laughed and wondered how this billionaire guy could come up with a company that was even remotely relevant,” says Gautier Brunet (MBA 2015), a former rocket engineer who works for Seabury Group, a consulting and investing firm. “In three years, that has changed, and people now realize he is a credible threat. There has been a strong push to reorganize the sector and trim the incredible fat that was everywhere. There is no magic to it—you have to find ways to lower your costs, or you won’t be successful.”

Better. Smaller. Cheaper.

“Moore’s Law has finally come to aerospace,” says Sunil Nagaraj (MBA 2009), VP at Bessemer Venture Partners (BVP), one of the most active firms investing in the space industry. “It means that parts are cheaper and more expendable. If the cost of building and launching a satellite is one-thousandth of what it used to be, it’s not that a big of a deal to lose one. Satellites are now ‘versioned’ just as software and apps are. That gives companies much more agility, much more ability to experiment. Space companies are starting to look like tech companies, and that’s huge.”

To date, BVP has invested $50 million in space-related startups, including Skybox Imaging, a satellite-imagery company acquired by Google for $500 million in 2014, and Spire, a data-gathering company headed by Peter Platzer (MBA 2002) that has raised $80 million in total. Nowhere in space has the better-smaller-cheaper trend had more impact than in satellites. Approximately half of all satellites launched today are CubeSats—shoebox-sized satellites that can be made for $50,000-$200,000 and launched for $30,000-$500,000 on board a scheduled flight that has extra cargo space. For that price, companies can launch multiple CubeSats and direct them to specific orbital locations where, as a group, they will provide total global coverage 24/7, rather than viewing some of Earth some of the time. Spire wants to put up 100 of them to provide worldwide weather and shipping data; Platzer says that fewer than 20 satellites currently monitor weather.

Platzer agrees with Nagaraj: Satellite loss is expected. “Don’t update—replace. It’s cheaper,” he says, referring to the two-year average lifespan of CubeSats.

Joseph Landon
VP and CFO, Planetary Resources

“Everything we consider precious on earth is available in limitless quantities in space.” (courtesy Joseph Landon)

Which is fine for small satellites, but what about the bigger, more expensive satellites that control military telecommunications or beam the Super Bowl worldwide? Joseph Landon (MBA 2007), VP and CFO of Planetary Resources in Redmond, Washington, one of the space startups pursuing asteroid mining, estimates there are about 400 active satellites that need fuel to stay in their “assigned Earth-orbiting parking spots.” Getting fuel from earth into space is extremely costly: All costs considered, fuel in space costs more than pure gold on earth, says Landon. “Each satellite operator pays up to $50 million per ton for that fuel. That’s $180,000 per gallon.” And each of these 400 satellites has to make about $50 million a year to just cover the manufacturing, launch, and operating costs. “That’s a $20 billion market for a company that can provide a low-cost fuel alternative that keeps the satellites operating and making money for their operators.”

Planetary Resources’ plan is to mine asteroid water, which can be broken down, processed into rocket fuel, and used to refuel these satellites—all without ever returning to Earth. The technology exists, Landon says; companies are just waiting for the first galactic oil well to be dug, so to speak.

Asteroids could be a prime commodity source, he says. “Everything we consider precious on earth is available in limitless quantities in space.” More than 700 asteroids are estimated to be worth $100 trillion, according to Asterank, which tracks and evaluates 1 million of the largest asteroids. Another 100 million smaller asteroids remain untracked.

Refueling satellites is extremely costly: All costs considered, fuel in space costs more than pure gold on earth.
Refueling satellites is extremely costly: All costs considered, fuel in space costs more than pure gold on earth.

Tiny CubeSats—shown here leaving the International Space Station—are being used to measure everything from weather to traffic. (NASA)

All of these futuristic space-mining plans, though, still struggle against the oldest barrier: getting into space. Most of the cost of carrying people, satellites, supplies, or debris cleanup devices into space involves escaping the clutches of Earth’s gravity well. Every trip requires lifting off with fuel for the whole ride.

Until Planetary Resources or another asteroid miner can provide in-space fill-ups, rocket companies are left with the heaviest cost-reduction burden. Rocket Lab, a company set to offer small satellite launches (up to 150kg) at a bargain-basement price of $5 million each, relies on 3-D printing and other cost-reducing technologies that make its carbon composite rocket scalable. (Nagaraj of BVP—a Rocket Lab investor—calls it “the Model T of space.”) The company already has signed a contract with Moon Express, a lunar mining startup, for two flights in 2017.


Other space companies, however, are experimenting with approaches that eliminate conventional rocket fuel altogether. Colorado startup Escape Dynamics has invested three years of R&D towards the development of fully reusable, electromagnetically powered, single-stage-to-orbit vehicles that use an external energy source—microwaves beamed from strategically placed locations on earth.

“Chemical rockets have been putting man into space for the past 50 years, but they are inherently limited by the energy contained in their fuel,” says cofounder Laetitia Garriott de Cayeux (MBA 2004). In fact, if Earth were 50 percent larger, with a correspondingly stronger gravitational pull, no form of chemical propulsion would contain enough energy to launch a spacecraft into orbit.

Microwave beams are more efficient, with rockets able to ascend without being weighed down with heavy fuel. Garriott de Cayeux projects that launch costs would be reduced from the current $25,000 to $50,000 per kilogram for small payloads to about $150 per kilogram—an astonishing cost reduction if it can be achieved.

Profits, Both Near and Far

Laetitia Garriott de Cayeux
Cofounder, Escape Dynamics

“Chemical rockets ... are inherently limited by the energy contained in their fuel.” (courtesy Laetitia Garriott de Cayeux)

BVP’s Sunil Nagaraj has sat in on more than 100 presentations from space companies in the past 12 months, noting that the breadth of businesses demonstrates the vitality of the new space industry. “Ideas range from new types of rockets to satellite constellations to ground station networks of satellite dishes, to new thrusters on satellites to asteroid mining,” he says.

Joe Landon sees it, too. In addition to his work at Planetary Resources, Landon is chair of the Space Angels Network, the only early-seed-stage investment firm focused on space, with members heavily invested in more than 30 companies, grouped in segments that include “habitats and real estate” and “microgravity research.”

“The pace is really fast in this industry, and there have been some very good investment outcomes because it’s so young,” says Landon. “The pace of company growth is picking up, too. Investors are excited about getting in early.” SpaceX took about 10 years to be worth $1 billion, he says. Planet Labs, a company that wants to create an Earth-imaging satellite network with open data access, is on pace to be worth $1 billion in five years.

One key differentiator he sees for space startups: the ability to generate income while they wait—possibly for many years—for the technology and capital to catch up to their ambitions. Planetary Resources’ Arkyd line of spacecraft, a sort of flying telescope accompanied by remote sensing technology, is designed to search for mineable asteroids. While their first few spacecraft will be used to test these capabilities, they will also observe Earth and collect data—ranging from oil and gas exploration to crop growth—to be sold to industry, academia, and the government, generating millions of dollars in revenue instead of burning through investors’ cash.

Successful space mining operations could prove lucrative: There are several hundred asteroids estimated to contain more than $100 trillion in metals. (NASA)

“We think of this type of R&D work as non-dilutive funding that helps push our technology closer to our long-term goals,” says Landon. “Elon Musk’s ultimate mission for SpaceX is to colonize Mars, but he has very smartly focused first on launching spacecraft into orbit—a natural stepping-stone to the long-term goal of the company. The early revenue we are earning now is a similar stepping-stone.”

“What keeps it all together is finding innovative new ways to bring costs down and make the business commercially attractive,” says Seabury’s Gautier Brunet. “Planet Labs takes pictures that let you see real-time traffic jams, and you can do environmental monitoring. But you also can see how many cars are parked at all the Walmarts in the world, so hedge funds can [then] long or short the stock without waiting for the quarterly reports. It’s another way to monetize those images.”

Balance sheets can take some of the romance out of space, but the wonder of the work persists. There are three photos of space on the walls of Nagaraj’s office that serve as a constant reminder of this—Hubble Ultra Deep Field, the deepest picture of space ever taken; Earthrise, the first image of Earth taken from Apollo 8 in its orbit around the moon in 1968; and Pale Blue Dot, a photo of Earth taken from outside the orbit of Pluto by Voyager 1 in 1990. “Space may be our deeply-rooted passion, but we all have to temper that so we don’t make bad business decisions,” says Nagaraj. In other words, you need a business plan, not a Star Wars obsession. “Fifty years ago, space was dominated by exploration and achieving firsts,” he says. “Now we’re taking proven business models and applying them to a new approach to space.”

Akshay Patel (MBA 2010), who left an investment banking position at Morgan Stanley last year to become VP of strategy and business development at Planetary Resources, describes it as a reverse-engineering process.

“Many space industries are still years away from becoming a reality, but you have to think about the challenges now and how to meet them,” he says. “Once you start ferrying people outside Earth’s orbit, you will need places to dock and places to stay, and you will need to get water from asteroids. Space entrepreneurs need to work backwards, asking themselves the right questions. How can I get there? How can I make a sustainable business now so I’ll be in a place to be ready when it all happens? When you do, you start to see the different pieces of the puzzle come together. That’s exciting.”


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