Dan Morrell: When Laetitia Garriott de Cayeux (MBA 2004) started at HBS in 2002, the private space industry was really just starting to ramp up. Elon Musk had just founded SpaceX and Jeff Bezos’s Blue Origin was still three years away from launching its first test vehicle. Today, Morgan Stanley estimates that the global space economy is worth $350 billion—and projects that it will grow to $1 trillion by 2040.

Garriott de Cayeux says that the change from an era where government led the development via NASA to an era where industry leads has sped up the pace of growth and primed the space sector for investment. Co-founder of space technology company Escape Dynamics and a longtime investor in the industry, Garriott de Cayeux spoke to associate editor Julia Hanna during spring reunions about what everyone needs to know before getting involved in the business of outer space.

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The following is an edited transcript of a Skydeck Live podcast recording.

Julia Hanna: So do you think just more broadly that there’s a tipping point in terms of infrastructure and policy when investing in space is going to take off even more? What do you think needs to happen, if anything, before that occurs?

Laetitia Garriott de Cayeux: That's a really interesting question because on one hand there is an enormous amount of capital formation in the sector and that’s very exciting. On the other hand, and I think it's important for everybody to really hear both sides of this: There are only a handful of companies that really make it to large levels. SpaceX is today a $33 billion company, but it wouldn’t take long to cite all the companies that are above $1 billion. There are not that many. And so, it will still take more steps for this to become an industry that’s investable in the kind of way we’re used to investing in other sectors. So, I would say that today, if you want to be investing in the space sector, you need to have to have a cherry-picking approach.

I think another thing that’s helpful for people who wish to invest in this space is to also be flexible as to the stage at which they will invest. My second largest position in a space company, most of this year was in a company called VIASAT which is a publicly listed company. That was my second largest position after SpaceX. My second largest is not another early stage company. I think that what needs to happen in the industry for this to change is that we have the constellations up there. We'll start seeing hosted payload potentially with all kinds of services. Whether it will be the large companies that are putting those satellites up there that will benefit directly or other third parties that could rise from that is one thing we could look at. The cost of access to space though is really the key thing.

Hanna: And you were involved in founding a space company, Escape Dynamics, where you served as a Chief Operating Officer. It’s a company that really advanced the technology of beamed energy propulsion and that technology has since actually transitioned over onto NASA’s roadmap. Can you talk a little bit about the significance of that technology and why it actually, in this case, at least made sense for the government to take more of a role?

Garriott de Cayeux: Beamed energy propulsion is significant because it is the only way to do single stage to orbit. With beamed energy propulsion, you could have space planes that go to space, come back down, and get to Hong Kong in an hour, an hour and a half. Think aircraft-like operation on earth via space. Perhaps even more importantly, the model would allow to bring the costs down to hundreds of dollars per kilogram. And while it has come down from $25,000 to $5,000 per kilogram, we are not yet at the hundreds of dollars that beamed energy could bring.

The reason we eventually let the government take back the lead on this rather than pursue it as a commercial effort is that... Ultimately, the cost of the overall system was still going to be in the billions of dollars. And we thought, “Okay, who’s in the best position to actually continue mitigating those risks and advancing the technology?” The government is in the best place. They have all the testing. And while it will take much longer done by government, we’re still riding down that cost curve with chemical rockets as a country and as humanity.

Hanna: Right. So obviously there’s risk in space just as there is in any investing area, but how are the risks different in space? How would you quantify that or how would you describe it?

Garriott de Cayeux: There are a number of lenses we could take on the risk front. On the technology side: Elon and SpaceX make sending a rocket to space look easy, but it’s really tough. One thing to know is that with your mass budget, you could easily be off on the secondary structures of your vehicle, not because you forgot to account for anything, but because you're not accounting for it properly. It could literally double the dry mass of your vehicle. And it could mean that you’re not going to make it to orbit. Those are mistakes that can be done with very strong engineers.

On the people side: It’s easy for engineers to fall prey to the “not made here” syndrome or “not invented here” syndrome- the [wrong] idea that... we need to do or invent everything ourselves, or what’s invented elsewhere is not as good. You also want the person writing the IP to not be all about their invention but really look at all the third-party science in a very matter-of-fact kind of way.

The ideal background is people that are both scientists, engineers and have a business training. But oftentimes you'll have people who have just a business background or just the science or just the engineering background and getting them to talk and really value each other’s perspective and working as a team to make it work is critical.

Hanna: And of course when we invest, we want to make money, but when we’re investing in space, I think you and others might have the view that there’s more at stake perhaps when we think about our planet and resources here and whether it’s sustainable to stay on earth. So what are some of the things that motivate you aside from the financial returns when it comes to investing in space?

Garriott de Cayeux: Humanity is at stake. Without trying to make it bigger than it is, we can start right there with all the extinction events that may happen. I think there is one every 200 million years or so, and the last one was 65 million years ago. And of course, it does not mean that we are safe for the next 140 million years or so. It just means it could happen anytime.

The ones we know of, that killed off the dinosaurs, was due to an asteroid impacting the earth. In the case of an asteroid impact, if it’s a small asteroid, first we have to know where it’s going to hit and then we have to find a way to deflect it. But if it’s a big one, we likely won’t be able to do much other than leaving earth. And while I’m not predicting we, or our kids or grandkids will, it may happen and so we’d better be ready for it. Unless we have colonies elsewhere than on earth, there is a time that humanity could disappear. That’s the doom scenario. There is a talk by Jeff Bezos on that... For those of you who haven’t seen it, I would encourage you to look for it. I really like how he put that the key problem we have on earth is one of energy and that however you slice it, we’re going to run out of energy.

Today you could cover the entire Nevada desert with solar cells and you could take care of all the energy needs of the entire planet. But if you fast-forward a couple of generations, you actually would need to cover the entire earth with solar cells, which is not practical and won’t happen. You could say, “Well, more energy efficiency is the answer.” But every energy efficiency solution that has existed has always led to an increase in the use of energy. It becomes cheaper, so we use it more. The fact that the usage of energy will keep increasing is not one we can actually solve. And so his point is that if we start looking out in the solar system, there’s plentiful abundance of energy out there, and we need to turn ourselves to space for that reason, and again, start thinking about colonies that are not just on earth. I think that's a powerful argument and I agree with it.

HBS alumnus: From a financial perspective, when you’re making some of these early stage investments, what’s the time horizon that you're looking at?

Garriott de Cayeux: Just like any venture investment, 10 years. But for SpaceX, it was longer. When I first invested, Elon actually said to me, “Are you fine with your money being completely locked up?” I think he said 15 years. And I said, “Sure.” If you’re interested in seeing what companies are out there, there is a platform called Space Angels Network. They have a lot of the very early-stage companies. It’s interesting to go and see. I would still, again, caution you to go there with friends, experts, place small bets to start, do it by passion. It’s still early.

HBS alumnus: Hi, my name is Josh Spry, I’m class of 2014. There are a lot of personalities in this area. You mentioned Jeff Bezos. You mentioned Elon Musk. Do you think these big personalities are good for ultimately getting to where we need to be or do you think it’s bad?

Garriott de Cayeux: I think you need people that are devoted to the mission and are going stay the course. Progress in the industry has been much faster than it was when it was government-led, but you need strong personalities. Elon Musk and Jeff Bezos are some of the best entrepreneurs we have in the world right now. So the industry is lucky. These entrepreneurs are bringing tons of capital efficiency to the system. The amount of money that’s been saved to taxpayers because of people like Elon Musk being involved is actually staggering. And so I think it’s a good thing.

HBS alumnus: Very exciting. I wanted to follow up on the market side of things. It’s a very niche market you would say. And do you think things like space tourism actually will be the way to actually bring even more capital and really grow those markets or something else?

Garriott de Cayeux: I don’t think that’s where the market is. If you ask me where the market is, it’s going to be in the satellite constellation and the $30 billion annual revenues that it will add to SpaceX revenues, hopefully. And I think ultimately in a more people-centric approach eventually, but that’s a much longer term. Mars colonies or O'Neill colonies are colonies that would be closer to earth is more where I see the next step, more than tourism itself.

Skydeck is produced by the External Relations department at Harvard Business School and edited by Craig McDonald. It is available at iTunes or wherever you get your favorite podcasts. For more information or to find archived episodes, visit alumni.hbs.edu/skydeck.

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