a16z Podcast - a16z Podcast: Space -- the Near Frontier

Episode Date: March 4, 2018

When most people think of space, they think of outer space: Mars, billionaires with rockets, and the “final frontier”. But space innovation is actually playing out right now -- in an immediate and more accessible way, thanks to techonologies getting smaller, faster, and cheaper -- through micro satellites that do everything from map terrain, to telecommunications that can provide connectivity even in remote areas. This episode of the a16z Podcast -- based on an November 2017 a16z Summit conversation moderated by general partner Martin Casado with Dan Berkenstock, founding CEO of Skybox Imaging; John Gedmark, CEO and co-founder of Astranis; and Steve Smith, former astronaut from NASA -- covers how this trend of small satellites is developing, as well as what existing applications it will change to what new business opportunities it presents. The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

The content here is for informational purposes only, should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi and welcome to the A16Z podcast. This episode of the podcast is all about space, specifically space innovation and how that's playing out right now from launching rockets to small satellites to imaging terrain to telecommunications. Moderated by A16Z general partner Martine Casado, the discussion includes people that have either started companies in space or been in space

themselves, Steve Smith, NASA astronaut, then NASA diplomat, John Gedmark, CEO and co-founder of Astronis, and Dan Birkenstock, co-founder of Skybox imaging. This discussion was recorded as part of our summit event in November 2017. Stephen, so you probably have the longest view of the industry. 30 years ago, he actually wrote a paper on this about, like, the actual challenges in space. So I'd love for you to talk about, like, the challenges that have been overcome to bring us to now and what you see kind of the current challenges are for technology in space. I wrote a paper for the Congressional Science Committee, and it was called the commercialization of space, current barriers and suggestions for removal of those barriers.

I'll break the space commercialization, commercial space industries down into kind of three parts. So there's the rockets, there's the satellites, and then there's doing business. business in space. And that report that I did 30 years ago, the single biggest barrier by far across all the surveys of all the different space corporations, the biggest obstacle to commercialization was the expense to get to space. In the old days, there were three or four rocket vendors in the United States. They made really big rockets. They always launched them from the same place. On those rockets were really big satellites. And the technology progress that they were making every year was very slow. That has now completely changed, especially in the

about the last six, seven years. We have many more vendors now of rockets. And there are rocket vendors now for small rockets, medium rockets, and big rockets. And that's because the market from satellites has developed. And so now we have very several different rockets. They can fly from several different places. It's actually commercial space ports in the United States now. We not only launch rockets from the ground, but there are some vendors that will take a rocket, put it underneath the wing of a big airplane, take the airplane up to altitude and then launch the rocket.

So, for example, Virgin will use a 747. Orbital Sciences ATK uses an L1011. And there's also new thoughts on how to operate the rocket. So as you know, in the old days, you'd use the rocket to get rid of the satellite and you'd never see the rocket again. And now there are a couple of vendors where the rocket comes back to Earth, just an incredibly new way of thinking about this. And the result of all of that is a huge decrease in the cost of launching rockets.

So you're seeing this huge trend that makes spacecraft cheaper to launch now. That second sector of satellites has also changed dramatically. again in the old days, big satellites. Usually they were in geosynchronous orbit, which put them in a place above the Earth and they stayed above that place, 22,000 miles approximately. And you'd have a constellation of four or five satellites, big satellites, expensive satellites that took years to produce. And now we have smaller satellites that can be launched. They can do much more now because the advancement, not only in making electronics cheaper, but in the capabilities of the electronics. And then, of course, there's lots of information around the world to be used. by satellites. There's lots of communication needs. And so that has brought the satellite industry into this new phase. If you were to look at a graph of investment in the commercial spaceflight business, it was a pretty flat curve up until about 2004-5-6 and now is climbing very steeply. There's been a lot of shifts. There's been shifts on the technical side, but on the policy side. So, John, you're someone that was directly responsible to the Obama administration to shift towards

kind of privatization of spaceflight. So I'd love for you to describe a little bit about what you did there and then how we can view the kind of shifting, revolving policy landscape. Yeah, just to set the stage a little bit, you know, at that time, the space shuttle had sort of been flying what felt like forever, right? I mean, there was people alive who had never been alive when the space shuttle wasn't flying. And the fact that this thing was going to retire and we didn't really know what was going to come next was this huge deal. But at the same time, a lot of people just sort of ignored it. I mean, they just sort of didn't want to, they just didn't want to believe it that this thing was going to go away. And in particular, you have members of Congress who would lose tens of thousands of jobs in their district.

So we saw this window of opportunity. It was just inescapable. Something had to be done and a decision had to be made as to what would happen next. And it was really down to two options, right? I mean, there was the old guard who were fighting for a spatial replacement that was essentially a new spatial, another government-run space transportation system, and essentially a government-mandated monopoly. And then there was a smaller but growing group that said that commercial space was the answer and that we had new companies like SpaceX and Blue Origin and Virgin Galactic that could step in. At the time, I mean, the traditional aerospace industry saw SpaceX as a garage outfit, which is 5,000 people, multiple billions of dollars of revenue.

But to them, that's what it looks like compared to Boeing and Lockheed. So it was a huge task to essentially convince the United States. federal government to take the industry seriously, and it really was along two paths. One was regulatory, paving the way by putting in place regulations for this commercial space flight. And then the second one was essentially NASA being a customer and a different kind of customer, not owning and operating the vehicle the way they were used to, but being a customer of services. And the shift that took place over those three or four years in Obama's first term was truly enormous. I mean, it just went from people just didn't know any other way of doing things

in the way the space shuttle had been done to now SpaceX is the primary means that by which we will get astronauts to the space station, right? And just think about the magnitude of that shift. And I think it really sort of showed what kind of changes we can expect in space moving forwards. So Dan, I mean, you're one of the early examples of someone that has created a satellite company in this new era. So I'd love for you to talk about kind of what's exciting and what's different from like a business and technology perspective, which allows this new kind of error of company. I think there's a often used and abused analogy

that we're in this PC revolution in space, that satellites are going to proliferate, satellites are going to solve every problem for humanity in the future. And some of that may come to pass. It's hard to stare into the future with a crystal ball. But we do know today is that there has truly been an inflection point in the technology capabilities in space, and especially in the unit economics.

10, 15 years ago, the common wisdom was that you bought a $250,000 spacecraft flight computer that had been engineered over the course of many months and years to eliminate all risk by a dedicated team and produced in lots of ones and twos. Whereas today, when people go to launch a new satellite, they buy a $250 computer that looks very similar to what's put into a car or a truck or an off-the-shelf notebook. And that dramatic reduction in cost, you know, for the first time, it became tenable to take some amount of risk, whereas for 50 years, governments were the sole customers and admitted zero risk. Suddenly, you could afford to lose a couple of spacecraft, and you could get the price point down to develop something into the realm of which venture capital would think about coming into the equation. And now with, you know, several billion dollars invested across maybe 10 or 20 of these companies, a tremendous set of capabilities have been demonstrated from,

monitoring the earth, its atmosphere, watching ships, taking pictures, sending communications. These technologies work. They're reliable. They can support long-term businesses in space. Today, it's at a point where the technologies are becoming mature, but the businesses are still quite nascent. Yes, it sounds interesting to understand where all the world's oil is on a given basis, but how does a customer actually walk the line from the raw data that comes off of these spacecraft and is something they can use within their enterprise workflow in a way that will demonstrate value that they can turn around and trumpet within the company. The types of products that come from these companies are not yet as simple as a shrink wrap box that you get at

Walmart. And because not everyone has figured out everything that these can be used with, that opens the door to new opportunities. From investor standpoint, there's two very clear markets that you see most companies fit into. One of them is imaging, the other one's communications. But it seems to me, I mean, this is space? There's a lot of things that we can do. So, I mean, are we limited to these two markets, or is there a lot more that you guys know about that are nascent. Yeah. So to be clear, communications is $120 billion a year. I mean, it's like this crazy range of applications. There's in-flight Wi-Fi. There's enterprise data. There's government and military stuff. There's broadcast television. I can sort of keep going on and on.

So I feel like we sort of have our hands full on just that. And then hopefully we'll get to some of these other markets that people have talked about. I mean, people have talked about asteroid mining and commercial human spaceflight. And I think it's fair to say we're all excited about that, but we've got quite a bit of work to do tackling the markets that we have in front of us. So I've kind of always thought of space as like a supply side problem, which is like we don't have the supply in space to do the stuff that we want to do. And so like once you have the supply, like everything opens up. Right. So there's actually sort of a demand side element as well. Our ideas of what we want from space are evolving too, kind of as our imagination gets captured. So I'd

love to hear your thoughts on how the demand side is evolving. I think for a lot of the last 50 years, it was build it and they will come. I think that a couple of major trends have flipped that in the last decade. The first would be on the communication side and just the insatiable demand for bandwidth. You know, that seems like a very solvable problem, you know, in the not too distant future. On the flip side, you know, certainly the growth of finance and hedge funds and people looking for new fundamental data sources has been a large pull on the imaging and more broadly being able to understand, you know, the earth and its environment, as well as the things that move around it on a daily basis. And I think that, you know, the availability of new technologies

like different types of machine learning in the cloud that the first time allow people to, you know, not just sit and look at one image on their screen, but allow them to push, you know, a million images through a cloud platform and be able to get raw data points about where cars or trucks or houses are and aren't on any given basis. I think both of those have helped. to develop a lot more pull on the supply side. But that doesn't mean that they're mature businesses that have been proven. Yeah, just a funny comment on the inflate Wi-Fi. So in the earliest days of Inflate Wi-Fi,

the existing satellite telecoms sort of operators who are notoriously very conservative, very slow, did some studies that they believed that an average of six people per aircraft would be willing to buy this like $20 to $30,000, inflight Wi-Fi, like a couple of guys in business class who are like, oh, I must be able to get my email by the time I, you know, get to my destination. And it's like, what were they thinking? I mean, it's literally everyone on the plane. And GPS almost got killed because of a federal report that indicated like six potential

use cases for GPS. So there is certainly some truth to the, you know, the proliferation of these technologies does breed new markets. I think the timeline to do that is a little bit longer than sometimes people want it to be. But it will be a brave new world over the next decade. Fair enough. So maybe this is just a little bit to the challenge is I think one of the really bad habits of our industry is bad analogy. Like every platform company that comes in is the new iPhone and they're going to make the app store, et cetera.

When it comes to satellites and you even said it, like everybody says, okay, this is the PC era all over again. And like I hear that and I get that except for like you're sending stuff into space. Like, I mean, it seems like it's quite a bit different as far as a capital expenditure and risk and so forth. And so, yes, we understand that satellites are getting smaller, et cetera. But I walked into, you know, John's lab and he's like made this clean room and he's got like this kind of stuff. that's cast, like, radioactive rays to test stuff. I mean, this is a lot of this question. What are, like, still the risk that makes it quite different?

There's a little bit more technical risk, you know, and so the markets that were going after the opportunity of the problems we're solving just have to be worth it, right? The potential gains there must be commensurate with the risk and the difficulty. And for us, I mean, there's no question that's the case. Bringing all these people online would be enormous. And I think it's a hundred billion dollar market. Yeah.

There's a lot of unknowns. You know, you might think of developing new. ships and the like. But, you know, we, we caught a year delay, which cost us almost $10 million because of a diplomatic spat between Ukraine and Russia. Hey, listen, from my perspective, we invest in a satellite company and, like, we close a deal, and then two weeks later, I get an email. It's like, oh, the rocket, we're supposed to go and blew up. So it just seemed to me. We had that. That was true. Like, you did. Like, yeah. Yeah, we had it too. Raise your hand.

I was like, so welcome to space. It turns out. It's hard. The rockets blow up occasionally. in case you guys weren't aware of that. All right. I actually want to touch on one more thing. So, Steve, you worked in the United States, you worked in Europe. Can you talk a little bit about kind of like kind of the international scene around this? Yeah. The floodgates are open.

So there's still only three countries in the world that can launch humans. It's the Chinese, the Russians, and the Americans. But in terms of commercialization of space, there's countries from all over the world trying to get in on this new rise and this new opportunity. And you see that, for example, in the XPRIZE, the Looner X-E prize where there's countries committed to try and win this prize in March to put something on the moon and have it take pictures and go around. And there's five teams left in that competition and four from other countries. Just in the last month, Saudi Arabia invested a billion dollars

in the Virgin. You know, the Chinese plan to produce many more rockets and to develop all the technology, robotics, virtual reality, et cetera, that makes them successful in space. So the space is in the crosshairs. And it is very quickly. Do we view this move towards privatization, kind of shifts the balance, Or is it really this still kind of a game of giants and government investment? No, no, no, absolutely. That is what the United States has that will, even though these other countries are doing a better job of figuring out what to do with their government investment in space and how they're spending those dollars, the United States has Silicon Valley. And because of that, we're going to win if we don't screw it up. All right, the new space race.

Thank you. Thank you.