Acquired - Virgin Galactic

Episode Date: November 23, 2020

Live from the 2020 ASCEND Space Conference, Acquired covers the full story behind the most "out there" technology story of the past few years: Virgin Galactic. How did this space tourism company grow out of the winning X Prize team, and catch the eyes and fancy of billionaires like Paul Allen, Sir Richard Branson, and, most recently, company chairman Chamath Palihapitiya who took it public via the first "modern" technology SPAC transaction in history? Tune in to find out!! Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!Playbook Themes from this episode are available on our website at https://www.acquired.fm/episodes/virgin-galactic Links:Virgin Galactic's "One Small Step" reservation program: https://www.virgingalactic.com/smallstep/The November 2020 launch delay:  https://www.virgingalactic.com/articles/virgin-galactic-adjusts-test-flight-schedule-in-response-to-new-state-government-covid-19-restrictions/

Should we put in a little bit of fake reverb in post so that it sounds like we were actually live like at an auditorium? That'd be awesome. Live from the cavernous Ascend auditorium. Live from Spaceport America. Yeah. Welcome to Season 7, Episode 6 of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I'm the co-founder of Pioneer Square Labs, a startup studio and venture capital firm in Seattle. And I'm David Rosenthal. I'm an angel investor and independent advisor to startups based in San Francisco. And we are your hosts. Today we are coming to you live from Ascend, the event defining the future of space. Over the next hour, we will tell the fascinating story of

Virgin Galactic and the swirling cocktail of the billionaires, Richard Branson, Paul Allen, and Chamath Palihapitiya, and the aerospace pioneers, including Bert Rattan and Peter Diamandis, behind it. We also thought it would be very timely because in the next week, Virgin Galactic expected to make their first flight from Spaceport America in New Mexico, followed by next year in early 2021, Sir Richard Branson himself flying on their first commercial trip. However, the news did break this morning that, and this probably won't surprise longtime followers of the company, they announced that this flight is delayed indefinitely. And we'll put a link in the show notes to read that press release. But for you

regular Acquired listeners, this is our very first episode covering a company that went public via a SPAC, and we will unpack the business behind and hopefully ahead of the company. And a few fast facts. Virgin Galactic, if they are successful in opening up space tourism, it will have a massive impact on the percentage of our species to go to space. As pointed out in their S4, the SPAC version of an IPO prospectus, only 573 humans had ever been to space by August of 2019, and Virgin Galactic already has over 600 customers, or as they call them, potential future astronauts,

who have prepaid deposits on their trip to space. And the sticker price for one person to take that trip, $250,000. That's a cool quarter mil. Pretty steep. There were just yesterday, was it two more new first-time folks in space with the SpaceX launch? Oh, interesting. I know one of them, it was the first trip. I think maybe two of the four astronauts might have been the first trip.

Super cool. Well, I do know now SpaceX, I think, has sent more humans to space than the entire Mercury program. That was a stat that I saw thrown out yesterday. So amazing how the pace is picking up. Well, for those of you watching this live at Ascend, a few words about Acquired, this podcast, and sort of what the show is. So first of all, David and I are not from the aerospace industry. We are venture capitalists and entrepreneurs that invest in consumer and B2B startup technology companies, but we're big fans and observers of space. So today, this episode will reflect an outsider's perspective, albeit, we hope, a fairly well-researched one. And our goal, besides our own self-indulgence in getting to geek out on the

topic that we love, is to try and make space more accessible to those in adjacent fields. And I know I'm not alone when I say this, but I think that the space ecosystem is poised to explode over the next decade or so. And this is one of the most exciting places in technology to be right now, though I'm sure all of you who are watching this live probably feel like it's been this way for a while. And who is this guy who thinks he just discovered something Walton in here. So really excited to tell the story with you today. Okay, listeners, now is a great time to tell you about longtime friend of the show ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation. And they have some new news to share. ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation,

and they have some new news to share. ServiceNow is introducing AI agents. So only the ServiceNow platform puts AI agents to work across every corner of your business. Yep. And as you know, from listening to us all year, ServiceNow is pretty remarkable about embracing the latest AI developments and building them into products for their customers. AI agents are the next phase of this. So what are AI agents? AI agents can think, learn, solve problems, and make decisions autonomously. They work on behalf of your teams, elevating their productivity and potential.

And while you get incredible productivity enhancements, you also get to stay in full control. Yep. With ServiceNow, AI agents proactively solve challenges from IT to HR, customer service, software development, you name it. These agents collaborate, they learn from each other, and they continuously improve, handling the busy work across your business so that your teams can actually focus on what truly matters. Ultimately, ServiceNow and Agentic AI is the way to deploy AI across every corner of your enterprise. They boost productivity for employees, enrich customer experiences, and make work better for everyone. Yep. So learn how you can put AI agents to work for your people by clicking the link in the show notes or going to servicenow.com slash AI dash agents. As always, if you love Acquired and want to hone your craft of company building, you should join the community of Acquired Limited Partners. Among other things, you will get access

to the LP show where we dive deeper into the fundamentals of company building and investing. The last LP episode that we had was with Rahul Vora, and it was insanely valuable and a very Thank you to some awesome sources of information. You can click the link in the show notes or go to acquire.fm slash LP and all new listeners get a seven-day free trial. Thank you to some awesome sources in our research. Julian Guthrie wrote an awesome book, How to Make a Spaceship, that covers the entire history of the XPRIZE. There's a great documentary called Black Sky that covers the entire development of the Spaceship One program.

And we will put all the links that were a part of our research, the talks we watched by Virgin Galactic executives like George Whitesides, lots of other great bits that powered the research here into the show notes when this does come out as a podcast that you can find anywhere where fine podcasts are distributed. Well, David, with that, should we dive into the history and facts? Ooh, indeed. And for folks who listen to Acquired, you'll know that we can't start our episodes without going back at least like 50 years. In this case, we're going to go back over 100 years. It's just like, makes us so pleased here, Ben and me.

We're going to go back to 1919 and the announcement of the Orteg Prize, which was a $25,000 prize announced by I think the Orteg family, I believe, was behind it, for anyone who could fly a plane, an air vehicle, nonstop from New York City to Paris or vice versa. And of course, famously, a few years later, actually more years than I would have thought, eight years later, in 1927, Charles Lindbergh won that prize in the famous Spirit of St. Louis, which I think is now in the Air and Space Museum in Washington, hanging there. Has to be. Has to be. That was the first, I believe, the first major aviation prize to spur innovation. And of course, there would be later prizes after that as well.

And that would lead directly into what we're about to talk about here with the XPRIZE. But this whole idea of using a prize to spur innovation is pretty cool. Totally. I think there's this brilliant... I'm not sure this was the intention behind it, but all these prizes since then have sort of realized you get an amazing amount of leverage on your dollar. This $25,000 prize, I think, had $400,000 poured into the research and development by all the different teams who were competing for it. So not a bad return there if you had to go and raise that $400,000 100 years ago by yourself. I think that would have been a much taller order to get a similar sort of outcome. Yeah, totally. So inspired by this history, we now fast forward about 70 years past the Lindbergh flight to 1995, when a gentleman named Peter Diamandis

puts forward an idea at a space conference, not the Ascend space conference, which we'll see it takes him a while to get traction here. If this were Ascend, it would have been immediate. He puts forward an idea for a similar aeronautical innovation prize, this time for space. And he posits, if we put forward a $10 million prize for somebody, not a government, to build and launch a reusable crewed spacecraft into space. Because at this point in the mid-90s, people are already thinking like what Elon and SpaceX have popularized this idea that like, hey, it kind of doesn't make sense how we do space right now, where it'd be like every time you flew a 747 to a destination, you would scrap the 747 at the end of it and not use it to fly

back or fly anywhere else. Reusability can vastly change the economics of going to space. Even the shuttle program, which was amazing in many ways and had its big problems in many ways, even that had an element of reusability or refurbishability to it, certainly with the reusable shuttle and then the sort of refurbishable boosters. So Peter puts forth the idea for this prize, that anybody who can launch a spacecraft up to what's known as the Kármán line, which is 100 kilometers above the Earth is one definition of space. Kind of in other words, you get to the canonical black sky where the sky is no longer blue, It's black at that point. And actually, I believe happens a little bit below the Kármán line,

but it's lower than orbits. You don't have to make it up to satellite orbit. But any team that can do that with a vehicle twice in two weeks with the same vehicle will win a $10 million prize. So he has this idea for the prize. This is 1995. It ends up taking quite a while to actually secure the funding. He doesn't have the funding when he puts forward this idea. He can't just tweet funding secured unlike space entrepreneurs these days. That only works with electric cars, not with space vehicles. Oh boy. Oh boy. So notably, he approached Sir Richard Branson twice, I believe, right, Ben, and was turned down. Yep. I mean, it wasn't just Branson. This was a massive list. Everybody who you would think

would fund this thing basically looked at it and didn't. I mean, Paul Allen looked at this thing and turned it down, although that was for more strategic reasons that we'll sort of get into later. He even approached Elon Musk in 2001. And let's just say 1995 to 2001. So like, the funding was not secured for quite a long time after sort of having the idea for this and ultimately launching it. And Elon also said, hey, this is really interesting, but I have a certain amount of money. It's finite. I kind of want to do my own thing. I want to be specifically focused on Mars. There's actually it's a little digression, but a great Elon quote that said, yeah, we want to do my own thing i want to be specifically focused on mars there's actually it's a little digression but a great elon quote that said yeah we want to do something that's significant but something on a reasonable budget not 10 million just sort of a

couple million we have 10 to 15 million to spend but we want to start with like a one or two million dollar project which uh you know if you're if you're peter and you hear that from elon this guy that's starting to get some traction as an entrepreneur in this ecosystem, and then you go and watch how they do end up spending money, it must just be like, are you kidding me? Well, as we covered on this SpaceX episode, the idea originally was they were going to spend not that much money, but of course, that changed. So some of the notable early donors that they do get to the prize are Tom Clancy, the author, and also the Lindbergh Family Foundation comes in and donates some money to the cause.

But eventually, there's actually quite a cool story that I think you have been here about how they fund about half of it. But the biggest donor ends up being the Ansari family, which is a super cool story on its own. It's a family of Iranian immigrants who founded a telecom empire in the early 90s, I believe, late 80s, early 90s, and made a lot of money through that. So they end up becoming the sort of title sponsors, and it becomes the Ansari XPRIZE at that point. But that was only for about half of the $10 million, right? It was less. So the way it basically worked is they raised like two or three and then before the unsurries came in what i which i think their initial pledge was 1.75 million the way that they got from that two or three up to like eight ish was that they

approached uh first usa who eventually became bank one, and then finally JPMorgan Chase. Everyone ultimately lands either there or Bank of America. But basically, after raising this few million dollars, that huge chunk, $5 million, was actually filled by a hole-in-one insurance policy. And so in a sense, the $10 million was never actually raised, but rather they found a price at which First USA was willing to bet against anyone ever actually successfully win it. And that price was $50,000 a month insurance premium that Peter and the XPRIZE team had to be sort of paying in overhead in order to keep the prize alive to hopefully get that hole-in-one cash out, which is totally wild. And you think about the motivation

there of First USA, their biggest motivation was that the XPRIZE, while it was underfunded, it was a really sort of like cool, sexy brand. And they saw a market to be the credit card issuer to people who were space enthusiasts. And so they wanted to sort of do this multifaceted deal that included being the provider or underwriter of the policy that would reward the prize winner, but also to be able to issue XPRIZE branded credit cards. And so it also came with some other strings attached. So in addition to the 50K monthly payments for the $5 million insurance policy, first of all, if no one won by a certain date or if the full 10 million wasn't raised the 5 million from first usa would never have to be paid out at all and second that certain date was not very far in the future it was actually just december 17th 2003 which i think this point was

like 99 2000 right away right right around there so it really set up the x prize for quite the photo finish, because anybody who sort of wasn't already working on it had to throw their hat in the ring very quickly. Yeah, that's why this is foreshadowing. We're going to get to Virgins and Branson's involvement in a minute here, but the power of space as a marketing vehicle already. Okay, so one of the teams, really, really think just about the only credible team that ends up entering the XPRIZE competition. There were a few credible. When you go, I spent a bunch of time and actually went and read the whole How to Make a Spaceship book. And there were several credible teams, but the only one that got

like really, really close and the only one sort of left standing by the end of the competition was Rutan. So we should give credit where credit is due to some of the other international teams that did pretty amazing things. Ah, okay, great. Well, this team led by aviation pioneer, which probably everyone listening here live at Ascend will know and know well, Bert Rattan and his company Scaled Composites, enters the competition. Bert is a total legend in the aerospace industry. He had founded Scaled in 1982, and Bert had been a former Air Force test pilot, but was this just legendary independent airplane designer. So he designed the record-breaking Voyager aircraft, which for folks who've been to the Air and Space Museum in Washington, it's hanging there, I think, right in the atrium when you walk in. In 1986,

it was the first plane to fly around the world without stopping or refueling, which is just incredible. So Scaled, interestingly, the company he had founded in 82, it's had a long storied M&A history of its own. It was bought in 85 by a company called Beach Aircraft, which they were collaborating with to design a plane at the time. Then Beach was owned by Raytheon. So Scaled was owned by Raytheon. After a while, I think this was post Voyager, Burt bought it back from Raytheon, then sold it again to a company called Wyman Gordon. They got acquired. Bert bought it back again, this time with some financing from Northrop Grumman, who was already an investor. And then later, as we'll see in the story, Northrop ends up acquiring

Scaled fully itself. And so that's where the company lives today. But this company has been part of it. It's been independent. It's been part of Raytheon. It's been independent again. It's now part of Northrop. Kind of amazing. It just speaks to like the talent of both Bert and the team. Totally. And it's not called scaled composites by accident. Their thing that they're really good at is coming up with these really innovative designs and then using incredibly lightweight materials, you know, composites to basically create aircrafts that people didn't think were possible before that use less fuel that do more things. And frankly, you just push the edge of applying cool principles of aerospace and physics to figure out what sort

of new goals you can accomplish. And so many of the scaled planes are ones where you kind of look at funny at first, and then they go on to achieve something that humans didn't really think was possible until they were able to do it. Yeah. So Ben, you know, tell us about the design that Burt ends up coming up with and entering here, the feather design. It's pretty awesome. Yeah, it's unbelievable. So anyone who's never looked at Spaceship One or now Spaceship Two, you can kind of hear about it and sort of in your head, you're like, okay, I kind of get what that might look like. It is a goofy looking plane. Like it is a crazy looking like two planes, actually. Yes, animal of a system. So let's talk first about spaceship one. And then we can talk about the mothership in a moment. The whole idea that Bert sort of

initially figured out is, okay, well, if we're going to send this really lightweight thing all the way up 100 kilometers above the earth to win this prize, it's going to have to come back down. And normally when winged things come back down, think the X-15 or the space shuttle, it needs an incredible amount of heat shielding because these things go crazy fast through the atmosphere. I mean, famously, they were putting like new tiles back on the space shuttle every single time it landed because these things would heat up and fall off. I mean, they're amazing at doing their job, but it's hard to maintain. It's heavy. And of course, in scale, they're building a lightweight aircraft. So what do they do? Well, they come up with this design called the feather,

which does two really, really interesting things. The first is that it applies an incredible amount of drag while keeping the aircraft very stable. And so what's going to happen is it's going to come back down to Earth slow enough that heat is actually not a huge issue. When I say slow enough, it's still supersonic, or at least starts supersonic and then goes through the... Slow is relative here exactly but it has maximum drag so heat is an effector and it comes down very very stable and steady

it sort of automatically flips into the correct position that they want it in and the final thing that sort of makes this all work is that it can be unfeathered while it's launching we'll talk in a moment about what the launch system looks like. And of course, while it's going like Mach 3 straight up and basically being a rocket that's going up into space, it can be sort of unfeathered. The feather then flips into position, which is this 55 degree angle to come back through the atmosphere with maximum drag, and then unfeathers it again and boom, it's a glider. It comes down, it lands real nice on a runway the way that you would expect sort of a lightweight glider airplane with no fuel in it to land. So remarkable genius system. I mean, basically, this thing is like a transformer.

Totally, totally. So, okay, that's the Spaceship One. Then, of course, they're like, well, wait a minute, you know, we're not going to throw Spaceship One vertical on a launch pad the way that SpaceX or the Apollo missions or any of these are doing it. The way that they're going to throw spaceship one vertical on a launch pad the way that spacex or the apollo missions or any of these are doing it the way that they're going to do it is they're going to create a mothership the the white knight that i think it's a dual fuselage or at least spaceship two's a dual fuselage i think white knight one was uh was also a dual fuselage okay that they put the cargo on the spaceship one on they fly it up to about 50,000 feet. And then the way that they launch Spaceship One is they're flying this thing, they drop Spaceship One, takes, I don't

know, five, 10 seconds, and then boom, ignites, and the rocket goes off, and then it flies straight up. This is the craziest system to imagine. If they had not had precedent for this before with some of the very early prototype, I think the X-15 took off this way. At least some of the early vehicles in that era did. Then it would be hard to imagine how they thought this was the right idea. I mean, this is like a video game thing, like a trick shot or something. It's amazing.

Yeah, it's wild. So they enter the competition competition and pretty quickly they achieve supersonic flight actually in December of 2003. So there must have been an extension on the XPRIZE insurance policy then. There was. There was. So December 2003, they achieved the first, so from zero when they entered in like 2001, 2002 to first supersonic flight with the spaceship one dropped off the White Knight in December 2003. And this actually means this was the first private manned airplane, so not a government project. And I guess that I don't know how the Concorde fits into this that went supersonic, which is maybe because the Concorde was perhaps developed with the

government. I'm not sure. That's a good point. Yeah, I suppose that would be why. I do know in the Black Sky documentary, they point out specifically, this is the first non-government supersonic, non-government funded supersonic plane. Maybe. And of course, it also goes to space.

Also goes to space, right? So then in April of 2004, so a few months later, the U.Ss department of transportation issues burton scaled the world's first license like private license to go to space which is incredible and then in june of 2004 they make the first flight i believe i don't know if they hit the carmen line in that first flight in 2004 they may may have, but it was just one flight. So they didn't win the prize. They get spaceship one back down. They did because they would have had to go above the 100k line to qualify to make that the first flight. Ah, interesting. Okay. So they hit the Carmen line and then over two weeks at the end

of September, beginning of October, 2004, they do it. they make consecutive flights within those two weeks and they win the prize it's incredible perhaps even more incredible is what happens right before and after so from a like physics and human accomplishment perspective yes what we've already talked about is the amazing part now from like a business savvy perspective the way three years, by the way, too. From like nothing to going to space twice in two weeks. 100%. It's wild. So it's worth noting before we talk about what happened the night before the first flight, who was bankrolling and who was sort of funding all the operations to create

Spaceship One and the White Knight. So it was not mostly Scaled itself. Because remember, Sc scaled is kind of an independent company at this point they did have a semi-secret backer of the project who was paul allen the microsoft co-founder and of course a late microsoft co-founder and great space enthusiast during his time but this was unbeknownst to the XPRIZE Foundation and to Peter and to Diamandis. So it was relatively secret that this was happening. Yeah, and it's no surprise among Seattleites. I mean, me and my colleagues at Pioneer Square Labs

know Vulcan and Paul well in the Seattle ecosystem. And he is always funding very eccentric, crazy projects that no one else is funding, particularly in space, particularly in oceans, particularly in these interesting exploration fields. But for whatever reason, it was not disclosed until the successful flights that Paul had poured. I can't remember exactly what the number is, but on the order of 20-ish million into the project to fund the thing and into Scaled and the partnership with BERT, which is sort of an amazing partnership that the two of them formed and built trust with each other. And it was so secret that actually Peter Diamandis and the X Prize folks didn't even know who was behind or at least where the money was coming from to

fund Scaled to go and make this amazing run at the prize. So Paul Allen's involved here. Now, the night before, so it's pretty, obviously, they have to, you know, they have to make the second flight to win the prize. But it's a pretty safe bet that they're going to do it. They've made multiple flights at this point, everything's ready to go. So the night before, who reenters the picture, but the one and only Sir Richard Branson. Yes. Ben, you may have the whole story. He contacts Paul Allen first, is that right? Yeah. So there's two deals that happen. The first one is a press conference that they have that basically announces that Sir Richard has sort of seen the innovation that's happening here. And even though he didn't decide to fund

the XPRIZE originally, and even though he doesn't have a competing team here, he sees the future and he wants to buy the assets and all the intellectual property and partner with Scale to take everything they've built and build a venture out of it after they, you know, complete this flight and win the X prize. And the second thing that happens is overnight, he pays Paul Allen $2 million, or he cuts a deal to pay $2 million to put a gigantic virgin decal on spaceship one. So everyone who's coming in for the flight the next morning, including PRD amount is the whole X prize team,, they come in and the plane now has a Virgin logo on it. And it has prominent placement on the runway. And Richard Branson also has another project that's going on that's got a Virgin logo on

it on another plane that's also out on the runway, front and center in front of all the press. So suddenly they're like, all this media attention is descending upon the XPRIZE, hopefully about to be won. And boom, there's Virgin branding everywhere. like all this media attention is descending upon the x-prize hopefully about to be won and boom there's virgin branding everywhere yeah uh which i think the amount is the x-prize they're pretty gracious about this they're like oh well cool i mean great good for space the the goal is evangelize space and that is happening so after i think this is after the flight branson holds a press

conference with rattan and says that virgin is going to be buying this technology and people like wow okay well why what does virgin do now i mean virgin could be an episode all on its own i think branson actually got to start the magazine industry and then moved into the music industry why? What does Virgin do? Now, I mean, Virgin could be an episode all on its own. I think Branson actually got to start in the magazine industry and then moved into the music industry with Virgin Records and then retail with Virgin Megastore. But at this point in time, probably the biggest and best known part of the Virgin empire are the airlines, the Virgin Atlantic in the UK and then Virgin America, which is now a big part of Alaska here in the US. So what is he going to do with this space technology? He's going to form the world's first space line. What

a brilliant marketing move. Airlines been working well for us. Let's do it on a grander scale. What's bigger than the air, space? And I've seen Sir Richard talk a few times, once in Seattle and once in Indianapolis at a marketing conference that I went to there once. And I do remember, I think he's even said this in both talks that I watched. He has this line, screw it, let's do it. And you could just imagine him

sort of seeing the world change in front of him and saying, screw it, let's do it. We have to be a part of it. Space is the future. And I know the business model to do it. Wow. So they announced that they are forming, quote unquote, Virgin Galactic, a new space line. And the business model is that they're going to take private tourists into space for a very high

ticket price. And the idea is that this is going to be an airline. So Sir Richard puts one of his top lieutenants at Virgin, Will Whitehorn, in charge of this new company. They form a JV with Burt and Scaled called the Spaceship Company. So Virgin Galactic is the airline. The Spaceship Company, this new JV, is going to be like essentially the Boeing or the Airbus, they're going to build and, and also operate these planes, at least in the beginning. Virgin puts up the money, reportedly over $100 million to fund all this. Scale brings the technical know-how. The spaceship company is initially 70% owned by Virgin, 30% owned by Burt and Scale. And Virgin Galactic, the space line, immediately contracts five spaceship twos. So the spaceship one, which we'll get into in a minute, this is really, this is not safe for passenger use. And certainly not enjoyable or smooth.

Yeah. So they're going to build five spaceship twos and two white knight twos to launch them all contracted. And they're going to finance this. The revenue model is they're selling these tickets at initially $200,000 a piece. And the crazy thing is people buy them. So like pretty quickly, they sell a good number of tickets. So Angelina Jolie and Brad Pitt buy tickets. I think they were together at the time. I wonder if they're taking their flights together or separately now. Lady Gaga buys a ticket. Stephen Hawking. I think Branson actually gave Stephen Hawking a ticket. Eventually, some of the last folks to buy tickets were the Winklevoss twins later are on the list on the

flight manifest. And you can understand the demand for this because this is a completely underserved market at this point or unserved. You think about the people that the civilians that have been to space have either found their way to pay to be on a Russian rocket. And I think they have to become honorary or temporary members of the Russian space agency to be able to do this. Or, you know, you look at the folks, I think Charles Simone has gone up twice, and I think has paid north of 50 million, maybe 75 to $100 million to be able to go up. Of course, that's orbital flight that they're going up to. So this is a different thing. But like, you know, civilians are not finding their

way to black sky space in experiencing minutes of weightlessness. There's no real product for that. In fact, the only product to experience weightlessness doesn't really go all the way to space, but it's Peter Diamandis' previous company. And so there's this funny, it's such a small world in the space community, but you can totally imagine why there's an entire tier of wealthy but not crazy wealthy people where you're like oh yeah this is cheap and what a unique and different experience yeah i mean you could spend a lot more than two hundred thousand dollars on a vacation house somewhere or you could go to space pretty cool so they the product that they're selling is this evolves a little bit over

time but current product is a four day experience where you get training at Spaceboard America, which is now in New Mexico, which we'll get to. You get 90 minutes in the air and about a little over five minutes of weightlessness with five to six people in your ship. And then probably most importantly, you get astronaut wings when you land because you will have been to space. Pretty cool. Pretty cool. Okay, so this is all happening in 2004. Now remember, it was like three years to get Spaceship One up, reused, flown, like things are moving here. It's like the classic software engineering aphorism that, you know, the first 90%, you know, all you have left then is the second 90%. Exactly.

Or maybe in this case, the second 90%. Exactly. Or maybe in this case, the second 99%. Yeah. So, you know, we mentioned that spaceship one was really a prototype vehicle built like all of Bert's designs, like the Voyager and all these other great planes. Like this is not ready for a Virgin America, let alone a Virgin Galactic safety measures or comfort here. So three years later, in 2007, we still don't have Spaceship Two ready, or really even close to ready. Very tragically, in July of 2007, there was an accident at Scaled when they were testing some of the engine components. And three Scaled employees were killed in an explosion when they were testing these engine components, which was terrible and unfortunately not the only tragedy that'll happen in Virgin's

history here. Shortly after that is actually the very next month when Northrop acquires all of Scaled. So I don't know if that was part of what was behind the acquisition, but certainly, and then it was a few years later after that, that Burt retired. So you've got some transition happening here where the major technology provider to the spaceship company is now part of Northrop. And importantly about that accident, that wasn't something like, you know, they thought a design would work and it wouldn't, or that it didn't and it crashed or anything like that. This was literally, hey, we're doing an on the ground test with fuel that we perceive to be safe and it just wasn't safe.

And that's most observed by the fact that the folks who are watching were behind a chain link fence. So it wasn't even like we have to go to a facility because something could go wrong. Just people didn't think anything could go wrong there. Yeah, and it did, unfortunately. So nonetheless, the next year in the next summer, July 2008, is when we get the first predictions from Sir Richard about when commercial flights are going to happen. The first of many. So July 2008, Branson predicts the first passenger flight will happen within 18 months, then not quite, almost 18 months go by.

In October of 2009, Virgin puts out a press release saying that actually it'll be within two years from then. So within two years of 2009. Okay, okay, we're moving. And in March of 2010, actually the first spaceship to the first spaceship to is built the first white night to is built at this point. And the first kind of captive flights of the two of them up in the air together do start happening in early 2010. But spaceship two is not yet flying on its own. And despite Virgin and Sir Branson having put in $100 million, the project is starting to run out of money. So in 2009, they go to the Sovereign Wealth Fund of Abu Dhabi, and they invest $280 million

in Virgin Galactic at an $875 million valuation. And part of that deal is that they announced plans that a Middle East region spaceport is going to be built in Abu Dhabi. So that'll be great. And Virgin announces at that time that they have over 300 reservations at $200,000 each. So great. Things are moving along. Definitely signs of demand. Yeah. Yep. One other classic acquired theme that I'll pull out here is this $875 million valuation. I don't know what discounted cash flow you do to arrive at this company being worth that. This is your classic example of company needs X amount of dollars and how much of the company does the funder need to own in order to be willing to do that deal. It is a backed into valuation if I've

ever seen one. You might say a venture capital style valuation, a theme that'll come back up in a minute here. So at the end of 2009, they do a big event at the Mojave spaceport in California where Scaled is based. They unveil officially the spaceship to Branson says at the event that flights are going to begin now in 2011. Okay, 2011 rolls around. Branson says, I hope that 18 months from now, we'll be sitting on a spaceship and going to space. So the trend continues. And then as we mentioned, in April of 2011, Bert does retire from scale. Okay, so clearly, things are not totally on track here. And remember, like, so Bert's now retiring from Scaled.

Virgin is the space line, but like, who's the technical space leadership now? So they bring in, they end up reorging the entire organization. And Branson brings in a new CEO to Virgin Galactic, actually at the end of 2010, George Whitesides. Now, who is George Whitesides? Part of his background is that he was actually one of the very first people to purchase a ticket on a Virgin Galactic as soon as they went on sale because he had recently gotten married and he and his wife wanted to spend their honeymoon in space. So they actually got a lot of publicity around this. So cool. And you know, George is a longtime space entrepreneur. I think this is like,

we're not talking about Brad Pitt wealth here. This is like, George is like, hey, this is like a material amount for me and, you know, hoping to be able to do this soon. So my honeymoon is in decades in the future. Yeah, he really does have passion for and commitment to this company and project. But he also has some serious cred. So he was the chief of staff at NASA immediately before becoming CEO of Virgin. And prior to that, he was the executive director of the National Space Society. So the idea here is in bringing him in, it doesn't happen immediately, but I have to imagine that this was the plan was with Bert stepping back. Hey, Virgin realized like this, we can't just be a space line for this. We need to like actually control production and the

science and the technology in space and be vertically integrated here. So shortly after he joins in 2012, Virgin buys out scale stake in the spaceship company and takes full control, integrates the companies, and George and Virgin are now running everything. George has a great quote about this. He says, we've changed dramatically as a company. When I joined in 2010, we were mostly a marketing organization. Right now we can design, build, test and fly a rocket motor all by ourselves and all in Mojave, which I don't think is done anywhere else on the planet, which is pretty incredible. Right. It just makes sense for them to be vertically integrated here. I mean, it reminds me a lot of taking the Apple approach of needing to control the core technologies upon which your experiences are based and your

products are based. Like it always struck me as a little bit strange that there was Virgin Galactic and there was TSC and the spaceship company and it was a contractual relationship of which they had different shareholders. Like it just kind of makes sense. Yeah. I mean, it works for like Boeing and the airline industry, but we're not anywhere near that level of maturity yet. So there's actually a pretty cool little venue found this little history and connection between Peter and George, right? Yeah. So George Whitesides was actually briefly Peter Diamandis' roommate back in the XPRIZE days when Peter was also running the space tech startup Blastoff from around the year 2000 in the sort of go-go days of the internet,

which is its own whole separate story that we don't need to get into today. But an interesting thing here is like the world of space is so small. Like we always joke about this with Silicon Valley where we're like, my gosh, that's the same person that showed up in that other episode. Like everyone in this story is really only connected by, you know, one, maybe two degrees of separation. And while we're on tangent territory here, I got to do this. One more insane connection is when Peter was in college at MIT, so this is long before the XPRIZE, he started a college organization called Students for the Exploration and Development of Space, or SEDS, which has since become, you know, this international organization. There's chapters all across these college

campuses all over the world, inspiring thousands of future space enthusiasts and entrepreneurs. I suspect there's many people in this audience who were in SEDS in college. The president of the SEDS chapter at Princeton around 1985- This is so great. Jeff Bezos, which is crazy. So great. For all the stuff that people want to say about Elon and Bezos and all these just negative headlines that we saw, I don't think you see them anymore, but for the longest time, you know, billionaire pet project going to space. Jeff in college was the president of his, you know, it's just cool to see the seeds of these passions starting so, so early.

Yeah, totally. Anyway, back to Virgin Galactic. Back to Virgin and George. Totally worthwhile digression there. So the other thing that George does is lands a deal. Now, remember, George comes from the government. He lands a deal with the New Mexico state government to construct and finance a spaceport, a $200 million launch facility in the desert there, appropriately titled Spaceport America,

Christen's Spaceport America. And he gets a fantastic deal for Virgin. So the New Mexico state government constructs and finances the whole spaceport. Virgin is the anchor tenant. And I believe they pay $5 million a year in rent, which is a total wonderful deal for them. The other thing he does is this is the beginning of sort of the excitement around the small satellite industry. So he starts a new operation within Virgin to see if they can use this same tech to launch small satellites into space, not just people. And in July of 2011, Abu Dhabi invests another $110 million into the

company behind this business plan. We'll see what eventually becomes this. But it starts working. In August of 2013, Virgin announces that they now have twice as many customers as before who had reserved flights, up to 640 reservations, about $80 million of prepaid flight reservations. So things are on track. And they actually closed down new tickets at this point, right? Like they haven't sold another ticket since.

Well, I believe it was actually after what happens next that they closed new ticket sales. So unfortunately, and George has also said this often, I think, space is hard. And this is new stuff. So in September of 2014, so now we're now in 2014, Branson goes on David Letterman and he says, we're so close. I think we're going to have the first passenger flight in the beginning of next year in February or March of 2015. And who knows if that may or may not have happened, but very tragically, the second major tragedy in Virgin's history happens on October 31st, Halloween 2014. They're doing a test flight of Spaceship Two. They had

just switched out the fuel system to a new type of fuel. And the Spaceship Two, the same one, the original one they had, the VSS Enterprise, breaks apart in midair during the test flight after it's released from the mothership. And the co-pilot, Michael Osbury, is killed. And the pilot, Peter Sebold, survives but is seriously injured. And this is obviously not the headlines you want when you're trying to, well, it's tragic, period, but not the headlines you want when you're trying to attract customers to come and reserve tickets on your new space line to have the craft blow up in midair. Now, just enormously sad. I mean, both tragedies so sad in their own right, but the fact that they're both so different too, and so many years apart,

it just shows what early days it still is for humans trying to go to space. Yeah. Yeah. this is really real pioneer stuff. So it turns out the the government, the Transportation Safety Board does conduct a full investigation of the crash. And turns out it actually was not a real technology problem or a problem with the fuel. Unfortunately, the feather system that we described early deployed way too early on the way up, not on the way down. And the G-forces from that tore the ship apart. The investigation revealed it was likely, I don't know that they know for sure, likely the result of pilot error, which of course raises questions about like, hey, shouldn't there be safeguards

about all this? So it was back to the drawing board for a lot of things. And of course, they also said, I think, you know, while it was likely pilot error here, it is incumbent upon the designers to consider human factors in designing the technology in the first place, like a person undergoing that much sort of stress and pressure, what should you expect of them? And what should the system sort of do on their behalf, which is a fascinating sort of philosophical concept that we don't have time to all the way dive into on this show. But at a minimum, you shouldn't be able to deploy the feather on the way up. Which is, of course, how Virgin Galactic changed the design for the next ship that they created. Yeah. So after that, George

and the company sort of refocus on getting all this right. They spin off the small sat launch operations into a separate company to remove that distraction. It's called Virgin Orbit, which is actually, it's still an independent company, part of the Virgin Group today. It's not part of Virgin Galactic Holdings. It is crazy cool. Like they're basically strapping a rocket to a modified 47 and launching it the same way that the White knight two launches spaceship two so really excited to watch that but totally different market different totally different

company at this point down too it's not using the white knight it's using a 747 as the launcher so they need a new spaceship now uh so they start work on the next spaceship two this one christened the vss unity actually named by stephen haw, which is super cool. They do a big event and Hawking, when they introduce it, Hawking announces the name. So they unveiled that in December 2016. And then in April 2018, it performs its first powered flight, the first flight for the company since the 2014 crash. So it ends up being four years after the crash, almost four years, three and a half years until the first flight of the Unity. And then in December, 2018, so just about two years ago, we have the big moment when Unity finally reaches in a test flight, 82.7 kilometers above the earth, 51.4 miles, which is below the K below the carmen line but this is what we were

referring to earlier nasa's definition of space is actually the 50 mile mark so they passed the 50 mile mark such a hilarious like standard versus metric system that the international metrics would be like 100 kilometers in america would be like 50 miles yeah totally for something that's uh space is completely arbitrary it's like exact science yeah thins at like gravity pulls the atmosphere toward the earth and it thins in a way that can be described by an algorithm and here we are defining arbitrarily what height space starts totally so this is huge for the company i I mean, it's taken now 14 years, but they finally have a viable, you know, not yet ready for passengers, but like design that will be ready for passengers that reaches space by some definition. NASA awards the pilots, Mark Stuckey

and Frederick Stuckrow, astronaut wings. It's all happening. This is good. And this is actually, you know, this was pre the SpaceX launch this year. So it's the first human spaceflight launched from American soil since the retirement of the shuttle. It was actually Virgin Galactic. It was the SpaceX launch earlier this year and then their second launch yesterday. That's fascinating. Were the first American launches into orbit and up to the space station. But it was actually Virgin that did the first human spaceflight from American soil after the shuttle retirement program.

That's a good tidbit. Of course, on the business side of this too, after the 2014 tragedy, as we mentioned, they stopped selling tickets. So I think there's 603 people who have paid that 200, 250k, some with some discounting, but they basically haven't sold tickets since then. What they have done, because they need to know as a business, is there demand for this thing? And is there continuing demand? Are our marketing efforts working? They do have the ability for you to indicate interest by paying $1,000 in a Tesla model. This actually only launches this year. Oh, okay. This is post-SPAC.

This is a Tesla Model 3 style refundable deposit. And so someone in the chat said, I reserved a ticket. I'm actually curious if that's what we're talking about here or sort of the full, hey, I paid $250K. But what you can basically do is we'll put the link in the show notes. You can go to their website. You can fill out a form. I think you can put your credit card information in and put down $1,000 and say, put me in line and contact me when I can pay. It's the quote unquote one small step program that then once they are selling tickets for real, you will make the one giant leap from the $1,000 to the $250,000. I love that.

That's a pretty giant leap. I didn't realize that was recent. I thought that was sort of before they SPACed and went public. No, it was only in February of this year that they launched that. So of course, we're referring to the SPAC. Okay, so by the end of 2018, like this is big. This is huge for Virgin. And finally, they're on track.

They have demonstrated to put a vehicle into space. This can work. The only problem is they're running out of money again the money from abu dhabi is you know it takes a lot of a lot of capital to do this stuff so that's okay though uh because branson and virgin have a plan they have secured they literally have secured funding a billion dollars from another sovereign wealth fund in the Middle East, this time Saudi Arabia. And this is now in 2017. They announced that they have secured funding from the Saudi Arabian sovereign wealth fund, a billion dollars to fund continued operations and hopefully

soon. And notably that sovereign wealth fund, I mean, they're the largest LP in SoftBank Vision Fund, Fund One. Like they're doing big deals all around the world at this time, many billions of dollars each. And Saudi Arabia under Crown Prince MBS has had to make a big deal over the past few years of they want to diversify their economy from oil. They're getting into tech. There are LPs in lots of venture funds, not just the Vision Fund. Lots of money in the public markets in tech. So this all seems like a great path. So the deal is agreed to in 2017, but it's under regulatory review in the US and the UK and takes a while to close. During that time in 2018, folks will remember the journalist Jamal Khashoggi, who is vehemently, I believe he

was Saudi and was living in the US and was vehemently opposed to the Saudi government. He enters the Saudi consulate in Turkey and never comes out. And it is assumed and very likely that he was murdered by the Saudi government inside the consulate, which of course, A, is just horrible, but also B, for the tech industry specifically causes all sorts of problems because there's so much Saudi money all over the tech industry at this point. And this is a major international event. Yeah. I mean, this is the start of startups being very aggressive and asking venture firms before they invest, hey, tell me who your LPs are. This used to be faceless money to me. Now I don't want this particular money or money that seems like this type of money to be profiting from my startup or having control over my startup. So

very much shook the entire venture landscape of what it means to take capital and how much you should care about who's invested in your investors and who's invested in those investors, etc. Yeah, this was a huge wake up call. We all remember vividly. So fortunately, you know, for Virgin and Branson, the deal wasn't done yet. And, you know, Sir Richard does what he thinks is right and he pulls out of the deal, even though, hey, Virgin is like bleeding cash, needs money. They're not going to do this deal with the Saudis anymore. And that is when he meets yet another colorful character, this time in the Silicon Valley tech world, Chamath Palayapatiya, which for anybody who's a longtime listener of Acquired and certainly anybody in the tech industry at this point well beyond is probably familiar with Chamath.

So Chamath was an early Facebook executive. I think he was like employee. He was within the first 30 employees and he was pretty senior there and he was the guy by all accounts his own and others who really figured out facebook's viral well viral growth strategy uh started the growth team at facebook and then particularly also figured out international growth for facebook so a super super executive. He was also the guy at Facebook behind, remember the Facebook Home, I think it was called, the operating system for phones? Oh, yeah. Yeah. And I think the Facebook One, like they partnered with HTC to make a

Facebook specific phone. That's right. That's right. Well, it was built off of Android. It was kind of like the Fire Phone. Man, other companies building off of Android. Turns out that wasn't a good idea. So anyway, right after that, he left Facebook, but Facebook had already gone public at this point. And he had a very large equity stake, made hundreds of millions, if not billions of dollars from Facebook. And then he did a pretty audacious thing was he said, I'm going to take most of my money and I'm going to roll it into a venture capital firm. So he started a venture capital firm called Social Capital with a few partners from USVP, Mamoun and Ted from USVP come over, they start Social Capital. And I remember when they were breaking in. So this was like, what, 2012, 2013 timeframe, I think. Sounds right. They made a big splash. I think their first fund, gosh, I want to say it was like 600 million or so. They got into some great- Big fund for back then. It's a pocket

change now, but- Now it's a quaint early stage fund. But that was big. And they got in early into some really great companies. They did the Series B in Slack, a bunch of other great companies. They, I think, led the A for Front and really established themselves as, at that point in time, no new venture firms had really broken onto the scene in a big way in this same way that Social Capital did. So Chamath engineers all of this. And then in 2017, a few years later, this has been chronicled much elsewhere, and we'll have to tell the full story ourselves on Acquired someday. Social as a venture firm basically breaks up at Chamath's direction. Remember, he's, I think, by far the largest LP in the fund. He converts it into sort of a Berkshire Hathaway style holding company slash

family office. And I believe some of the LPs did roll into this, but he turns it much more into... He's mostly investing his own money at this point. Mostly investing his own money. And he had made some great calls on the public markets too along the way. He went all in on Amazon. He had a hedge fund within social as well that was also managing a bunch of his money. He went big into Amazon at like a $300 stock price or maybe it was even lower. Seemed high at the time. Yeah, made some great bets on Bitcoin early.

So he has a lot of capital to play with. So he's in the process of converting social into this holding company. And he sees this, gets this idea and sees this thing that's happening in the venture industry, which is now news to nobody, but at the time was really ahead of the curve, which is companies are staying private longer. They're not going public.

Time to liquidity is awful. And when companies do go public, because we had started to see some IPOs at this point in time, it's kind of a raw deal for the companies. You're seeing these big IPO pops, but that leaves so much money on the table, literally billions of dollars in market cap that is just a wealth transfer from these companies to the investment bank's clients that are buying into IPOs. Yeah. And for folks who are new to Acquired and haven't heard

us talk about this on our Limited Partner Show, which is our sort of second show that we go deep with our biggest fans who are actively building companies to talk about these concepts. We did one on SPACs and talked about this. And in talking about comparing against the IPO pop, you know, my favorite example of this is when people are saying, what do you the ipo pop isn't that good well you think about it this way it's like i own something that's worth call it you know 20 bucks and i sell it to someone for 20 bucks and then at the end of the day they run over and they sell it to their friends for 30 bucks and everyone 40 bucks or 50 bucks and you're like wait wait but you just bought it for me for 10 and it's literally it's nothing has happened in the time since then. How come all of you told me, like the whole market, like you all only told me that it was worth 20. And now suddenly you're all saying it's worth 30 and you're willing to, and it's just this ludicrous thing where you're like, I spent a freaking decade holding this thing from $1 to $20. And here you are now doubling the price, you know, or putting some big multiple on the price within a day.

This is stupid. So, yes, that is the approachable corollary. So, and this is the real leap that Chamath makes, which is, you know, Bill Gurley was already starting to rant against this. And, you know, you had the Spotify direct listing, I think happened right around this time. So people are looking for alternative ways chamath thinks he finds a really good vehicle to solve this in a more elegant way which is he dusts off this old concept called a special purpose acquisition company or a spack as abbreviated they've been referred to and he says hey we can use this thing which used to be like a financial engineering play to take old school

private equity type companies public and profit off of some cash flow from them. And we can actually use this, this vehicle to take tech companies public in a alternate route to an IPO. That's going to be way easier, way faster. And most importantly is going to avoid this mispricing aspect where this wealth transfer is happening just to basically investment banking clients. So this is crazy at the time, like Chamath has a great quote on this. He says, you know, this is something where like everybody wants to be second, nobody wants to be first. It's a kind of an apt analogy to being a passenger on Virgin Galactic here. So 2017, Chamath teams up with an investor out of the UK named Ian Osborne, who runs a fund called Hedosofia, which is funny. Ben and I were

texting when we were preparing for this. I thought social capital Hedosofia, which is the name of the SPAC, was like a name that Chamath came up with to name his SPAC. No, it's actually his investment partner uh the head of sophia firm in the uk and ian he and chamath probably knew each other from the facebook days because ian was a partner at dst dst was yuri milner's russian firm yuri milner's yep russian tech investment vehicle they were i think they led the first real like big big valuation growth round in Facebook at a 10 billion dollar valuation I think Maritech led the Maritain Greylock did the B at a 500 million dollar valuation which was crazy at the time but then like this you know multi-billion dollar

valuation DST were the ones that got this so Ian and Chamath launch a 700 million dollar spac in late 2017 under the ticker ipoa and they go out looking for a tech company to merge with and take public yeah and i remember like of course i didn't really remember before the virgin galactic announcement when it was just a spac and they didn't know what they were going to buy because that wasn't well marketed. Like there wasn't, you know, the press wasn't writing about what Chamath's doing the SPAC and we don't know what he's going to buy. What they were writing about came months later when he did know what he was going to buy. And within Silicon Valley, I mean, I remember this. People were talking about it like Chamath's doing this crazy thing. Social capital is turning from a venture firm into a holding company. Like what is going on here?

What is a SPAC? I don't understand this. And SPACs, I mean, they're bad. Like at this point, they are for bad companies. This is like a way to get crappy companies public. And it's like, well, whatever he buys with this thing can't be good. But the counter argument to that is, well, whatever he's buying here is non-traditional, is something that, you know, most traditional retail investors with some specific time horizon and herd mentality wouldn't be taking public the normal way or investing in the normal way. So at the very least, whatever he's gonna buy here, this is likely their only

or one of a limited set of options that they have. Indeed. Well, and all that would be true when Branson and Chamath meet. I don't know the actual story of how they got introduced. I wonder if Hedosophia and Ian had something to do with it, given that they're based in the UK, as is Branson, of course. Anyway, after the Saudi deal falls apart for Virgin Galactic, they get introduced and it's a perfect match. So by mid 2019, they agree to a deal. And on October 28th, 2019, it's finalized. IPOA, social capital,

Hedosophia won. D-SPACs, quote unquote, which means merges with Virgin Galactic, bringing Virgin Galactic to the public markets as now a publicly traded company under the symbol, the ticker symbol for the company changes from IPOA to the very appropriate SPCE or space. Love it. Love it. So here's the deal. Here's what happened. So remember, the SPAC was a $700 million SPAC vehicle was $700 million in a trust. And that just means like, it's it's basically worth $700 million. And the reason it's worth $700 million is because it's literally a cash account of $700 million. Yep, to be used to consummate a transaction, a merger with with Virgin Galactic, which they do. So in the deal, $674 million from the SPAC, from IPOA, goes into

Virgin Galactic. Presumably the Delta there was operating expenses for the SPAC in the search period over the year and a half-ish where they were, or it was close to two years really, where they were looking for the right target before they finalized the merger. Plus Chamath invests another $100 million himself in new capital. So we have $774 million going into the deal. $274 million of that goes to buying out insiders in Virgin Galactic. So I'm not sure exactly who I presume. This is probably longtime employees options and probably also at least some portion of Abu Dhabi's stake. At that point, I believe they owned about a 37% stake in Galactic. And then there's close to $50 million in transaction fees associated with the deal.

So Virgin, at the end of the day, becomes a publicly traded company with 400 million. Also, God, $50 million in transaction fees. It's like, that is going to come down over time. at the end of the day becomes a publicly traded company with 400 god 50 million dollars in transaction fees i know that is going to come down over time totally i have to imagine that part of the reason that was so high was this was the first like technology spec that was happening so they were pioneering a lot of stuff here which of course means lots of legal fees so virgin gets 450 million dollars in new cash to the balance sheet after transaction fees and means lots of legal fees. So Virgin gets $450 million in new cash to the balance sheet after transaction fees

and the $274 million buying out insiders. The deal includes Virgin Galactic and the spaceship company, which remember now is wholly owned subsidiary of Virgin Galactic is vertically integrated,

does not include Virgin Orbit. So that's a separate company. But when the dust settles, Virgin Galactic, SPCE, is now publicly traded at the end of the first day of trading, worth about $2.3 billion on the public markets. The SPAC shareholders own 33% of the company, almost exactly a third. Virgin and the previous shareholders own 52.5%. And Chamath and the social capital Hedda Sophia team own 13.2%. And Chamath is chairman of the board of the company. Wow, an untraditional match, if there ever was one. But it works incredibly. You know, as we sit here today, well, there's

more news this morning. But as of last week, the company was trading at over a $5 billion market cap. It works as a funny thing to say there, David. It's like the speculation party has continued. I would say like the merry-go-round or the musical chairs or whatever you want to call it. Like, yes, that's continued. Of course, we haven't really seen results yet. The cash did go to the balance sheet. So the company gets to keep building toward its goal of launching paying all of his expenses. It seems to be close to going to plan. But like, if you just want to look at it from an equity investment perspective, sure, yeah, the things doubled in market cap since the since the IPO, which seems good for anyone who invested at that point. Yeah, well, it's probably probably just like tracking to market

at this point, at least for tech markets. That's a great point. Yeah, I'd compare it against the NASDAQ. Against the NASDAQ. But it's pretty funny when they do. So as part of the D-SPAC merger process, there's not a typical S-1 prospectus. There is an S-4 merger document, though, which includes much of the same information. Actually, more, because they can talk about forward-looking projections. It's pretty funny. So for the prior 12 months ended June 30 2019. The last quarter in the books at the time of the de-spacking Virgin Galactic had revenue of $4 million and an operating

loss of $173 million. So yeah, much a non traditional IPOo a number that has gone up since then is their operating loss because i think they're burning about 250 million dollars a year now on a run rate basis so the question is like why would public market investors receive this stock with such enthusiasm or at least equal enthusiasm to the nasdaq over the past couple, you know, and really, I think it just comes down to like, what this could be like, this is an option on this future market. Now, Virgin said at the time of the merge, the despacking merger, that it believed it could complete 16 flights in 2020, serving 66 passengers, which would equate to 16 million in revenue and hopefully growing quickly from there. Now, of course, here we are in November 2020 and zero of those flights have happened. Virgin would

argue and is valid to a certain point that coronavirus had a lot to do with that. But there's also the IP and all the physical, actual physical property associated with the company, which is worth a lot. There's the Spaceport America lease. There's the Virgin brand that they have a license to. There's all the IP of the actual planes. Technology, the spaceship company. Yep. I think at the end of the day, the biggest thing though, and why this has traded so well is there's just no other way or very, very few other ways for people who don't have access to venture capital as an asset class to make these kind of, you know, bets. It's a public moonshot bet. And it is literally a public moonshot bet. Like, yeah, it's such a good point, David. What else could you invest in where

there's legitimately a chance of 100x or 1000x return in the public markets. Now, I mean, I could, there probably are some good examples of those, but nothing that is so clear cut, pure play, hey, I can put a little bit of money into this, and I might get 1000 times my money back, or it might go to zero, but it is an asymmetric upside. Yeah, it's funny, David and I were texting last night. And I was like, so market cap of 5.2 billion. I mean, I guess, it's funny. David and I were texting last night and I was like, so market cap of 5.2 billion. I mean, I guess because it's either worth a lot more or a lot less. Yep. Okay, so what's happened since the merger? In February of 2020, like we talked about, they reopened the ticket sales with the One Small Step program. The Elon-inspired $1,000 to reserve your place. They've had 900

people sign up so far, so close to a million dollars in revenue there. Great. And then in July of 2020, the big news, they bring in a new CEO. So George Whiteside's Transitions becomes chief space officer within the company. He's very much still part of the company. But the new CEO, Michael Koglaser, is drumroll acquired theme. Literally, he spent his whole career, except for his internship during business school, close to 30 years at the Walt Disney Company. In parks, right? In parks, mostly in parks. I believe he started in, this would have been the late 80s, early 90s, I think. I believe he started in this would have been the late 80s early 90s i think i believe he started under eisner in the strap planning group and then legendary spent a couple years doing that and then went to business school he interned at bain i think

during business school then came back to disney after that and then spent most of his career in parks under Iger. And, uh, and of course now under new Disney CEO, the other Bob JPEG running the parks business, which, you know, you could imagine that being a really great fit for now running this new experience. I am going to spend $250,000 to go and do four days. It better feel like Disneyland the entire time. Like Disneyland in space, that is like the perfect, that is what you should be promising me for this price tag. I mean, gosh, when you put it that way,

I wasn't planning on doing this, but Disneyland in space, that's pretty compelling. I might have to book a ticket. It's such a good, yeah, it is interesting. I mean, in a lot of ways, it shows the maturation of the company where it originally, you know, with Bert and the scaled team, it's like some, it's originally cowboys, right? with government agencies and much bigger contractors if they need to farm out parts to either, you know, the Boeing or Lockheeds or the subcontractors of the Boeing and Lockheeds of the

worlds. And then on top of that, like, now it's like George can be the chief space officer and sort of have all the space relationships and understand that ecosystem. But now we need sort of like the person who can craft the consumer brand to be the CEO of the company going forward. And so I don't know exactly what the narrative they sold to Wall Street or sort of talked about internally was, but those sort of three eras of the company make a lot of sense to me. Totally, totally.

So that was in July of this year of 2020. Two weeks ago on November 5th, they announced earnings, i.e. losses. They don't like to call losses calls, though. Yeah, loss calls. But they announced on that that the first test flight at Spaceport America will be happening later this month in November 2020. And they're on schedule for the first passenger flight to take place in Q1 of 2021 with Richard Branson on board as the first passenger, after which they will open up real ticket sales again. So all that is good, the stock reacts well. But then here we are, it's Monday morning, November 16, 2020, as we're recording this, and they announced this morning

that that flight from Spaceport America is now delayed indefinitely, supposedly due to new guidelines from the New Mexico Department of Health to disrupt the spread of COVID-19, which makes sense. That very well could happen. I don't know what the New Mexico's new governments are. We're in the middle of a surge. We're in the middle of the worst moment of the pandemic in the United States. So yeah. Totally makes sense. On the other hand, you do have to ask the question. It's not like covid is a new development well this is also the 15th year that there's been a delay like at some point you have to say like can you give us a date and hit it yeah exactly so um when we started recording the stock was down about 10 but yeah

i mean that really is the question now going forward and we'll wrap up history and facts here and transition into analysis like the promise here is immense, and we'll get into the TAM and what this could be if they do execute on Disneyland in space. despite some early missteps has now just had a decade long track record of launching, hitting their targets, did a now putting people, uh, sort of hitting their targets. I would say like, they're very good at revisionist history.

Both SpaceX and Tesla are good at like setting us an incredibly aggressive target, missing it by like 12 to 18 months, but then being like, yeah, it's kind of the plan the whole time. And then, but they

make enough progress fast enough and they ship stuff where you're like okay like it still feels really fast to me yep yep you get that 18 month leeway you know virgin has used this 18th month leeway i i wasn't counting but five six times and still hasn't launched. So we shall see. Now, funny coda, which is totally appropriate to put a bow on history and facts. Last month in October of 2020, do you know who the latest entry to the SPAC game was? Oh, is this Branson's SPAC?

It's Branson himself. It would come in full circle going from being the first SPAC target to now a participant on the SPAC side what will you buy that's interesting I don't know I think they're targeting a consumer or technology company 480 million dollar VG acquisition corp so if any SPAC investors out there want to go speculate on what uh what sir Richard might buy. It is available for you to do so in the public markets now.

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or click the link in the show notes. Our huge thanks to Huntress. Okay, analysis? Let's do it. All right, so narratives? Yeah, I think narratives are the right one for this because boy, are there ever. We've pretty much danced around narratives,

but I think it's worth specifically articulating what the bull and bear cases are around the company. So the bull case is that SPACs actually are an incredible vehicle to finance these long-term capital-intensive projects. And what they were used for before, sure, was bringing crappy companies to market and they deserve the reputation that they had. But the vehicle itself, like not having to do a roadshow and actually consummating a transaction with one

buyer who has done a ton of research on your company, brings a ton of capital all at once to bear, it's actually an awesome way to raise a good amount of money to provide the right amount of liquidity to shareholders and to only need that sort of like one party that believes in your long-term vision and is willing to get you public to allow any future investor to make a moonshot bet. Whereas the traditional IPO process, like it would be really hard to run the traditional bookmaking process on Virgin Galactic, had never made a dollar or a material dollar before. Well, still basically never. It was really hard to estimate when that would start happening, when it would turn a corner, really hard to estimate how much future capital would be

required. And sure, you can make a projection, but like, how much is any retail investor going to believe that? So you sort of risk going public and then the whole business dying based on trading down immediately or based on being able to sort of not subscribe the offering. Whereas in a SPAC, you really just need that one true believer. Well, that one true believer and it's at a negotiated price. I mean, I think that's an important piece of the story here, which is the SPAC vehicle, both the insiders of the SPAC and the SPAC shareholders acquired 50% of the company here. Right. It's a pretty dilutive financing. This was a, even though it ended up first day trading at $2.3 billion market cap,

I think this was basically a more or less appropriate valuation for something like this, which is, hey, this is a very high beta bet, right? But the upside is huge. So like shareholders will be very much appropriately compensated. If this works out, it could go to zero, but like it's, you know, you're buying half the company here. So at that day one market cap, it was trading at about two X, the capital that had gone into the company which i know is not a like ideal academic way to value the company but you can just sort of think about it like okay a billion dollars now of rnd has been put into this am i willing to pay two dollars to every one dollar of rnd that's put into this for an option pretty cheap side here it's it's not

you could make an argument that this is not a crazy valuation. All right. So that's our bull case on the transaction. But let's talk about the future of the company. Yeah. So let's talk about the market here. Because of course, there have only been 600 people to date who have been willing to pay the $250,000. These are pre-orders. Like, these are people who have been lining up to do this. I don't think they knew it would be a decade before, but a decade before they could actually get on this ship. How many people potentially could do that? Well, they ran some analysis. I think they worked with an investment bank to figure out that it's something like 90%

of the people on that 600-person wait list, 90% of those have over a million dollars in net worth, which makes sense if you're going to go spend 25% of your net worth. 70% is less than 20 million. So their sort of sweet spot is people between one and 20 million. In all likelihood, it's a lot more than one. So the way to think about that is- But they might be able to get the price down over time. Like if you have $1 million in net worth, would you pay $25,000 for this? Like, yeah, probably. They won't get the price down that much. And I can talk in a minute why. But the bulk case is basically like, okay, let's just say like 10 million plus is what the majority of people who

are going to do this will have. Well, there are 1.8 million humans on earth that have that much money. So you actually don't need a huge percentage of that market in order to make a really, really nice business here. I ran the numbers. By my math, if 10% of those 1.8 million people buy tickets at some point in time, which you may argue that 10% is way too high. You may argue it's way too low. But if 10% of the 1.8 million people buy tickets at the $250,000 ticket price, that's close to $50 billion in revenue to Virgin. So that's sort of like lifetime revenue for the company, lifetime potential revenue. Another bottoms up way to build that, which is using the company

stated goal, which is to get to 1000 people per year, which if you think about that, that's 200 flights per year, these things are fully reusable, they can get to $160 million a year in gross profit. So the way that I got to that number is they actually have 65% gross margins. Because if you look at the fuel and launch costs and insurance, it's really only, it's like $400,000 to $500,000, but you can generate one and a quarter million per flight. And so those are almost software gross margins. So you really, you know, that $160 million in gross profit can cover a lot of overhead, a lot of R&D, a lot of G&A. And there's a lot of like, if you can actually get that coming in, in revenue that you don't have to pay out and fuel and all that,

you can subsidize a nice, nice amount of overhead. Yep. Yep. And if you can get, you know, this is part of why the original contract was for five spaceship twos. And then obviously the idea is that they're going to build out more spaceports around the world. Like, yeah, you could get to a point if this is a popular product where you're doing many launches a day and thus, you know, hundreds to thousands of launches a year, you could start to make real money with this. Yeah. Okay. So what's the bear case narrative on this company? What isn't the bear case narrative here? No, that's too, that's too harsh. But I mean, I think the big one, right. Is like, it's been 16 years and still there has not been a passenger flight. Yeah. And, and, and the biggest issue is like, you do have,

I mean, these, these are companies going after completely different markets, but you do have i mean these these are companies going after completely different markets but you do have a second launch spaceship company called spacex that has wildly outperformed over basically the same time period and didn't have the head start of being able to just buy the successful spaceship one ip when did spacex 2003? 2002? Yeah, that was like early, early. That was when the go buy a Russian rocket days in 2002. Right. And again, lots of reasons why these things are in no way apples to apples, but SpaceX is going to orbit one to two times a month and Virgin hasn't flown a suborbital flight until last year. So that would basically be the bear case on why investors are falling all over themselves to get money via secondary transactions into the non-public SpaceX versus buying retail shares of Virgin Galactic in the public markets. And that's

reflected in their valuations. We've talked about this $5.2 billion number. SpaceX most recently raised money in the private markets at $50 dollars so you can decide which uh risk profile you would rather take but that's sort of why there's a 10x delta in uh in value yeah totally and i think there is still you know spacex the current business model is totally proven like they're making a lot of money launching doing both government contracts and satellite launches into space there's more speculative but very promising additional business models to come with starlink and then potentially future you know exploration and moon and mars and all that but it's a real business i think there is also a question, an unknown, of just like how deep is demand here for Disneyland in space?

Like how many people are really going to A, just want to do this, and B, be willing to pay a large sum of money to do it? Yeah, I think the bet is that they have to be able to graduate from this market quickly to be able to make orbital flights and do things beyond just space tourism. And I think that's in the company's plans, not only to be able to do more than just space tourism, so sort of open up additional markets, but also de-vertically integrate or horizontally integrate, where you're already seeing them sign NASA contracts that were announced just in the last couple of months to do things like identify the people who want to go to the ISS as tourists and help train them, but not actually fly them on Virgin hardware, you know, in all likelihood going up on other launch providers. But Virgin Galactic has these competencies that they seem to be willing to

unbundle from their sort of full service offering and be able to generate revenue in other ways. And of course, this makes sense. Like you look at companies like Blue Origin that are unbundling their engines and selling their engines to ULA and other rocket builders and not just staying fully vertically integrated. It makes sense in sort of an early Wild West industry that, hey, there's a material revenue opportunity to go chase this thing. And it requires me doing a little bit of unbundling and changing my strategy a bit, at least for the time being. Sure, that seems reasonable to me. Totally. And then there's also another sort of

big opportunity on the horizon, which is if this becomes a safe, regular thing, these launches that Virgin is doing, and there are multiple spaceports around the world. Well, you could take off at one spaceport and land at the other, like two hours later, halfway around the globe. Now, SpaceX has also talked about doing this too as part of their business. But you know, I can totally understand the demand for that. Better set up for it, though. Like if they set up an Abu Dhabi spaceport and have Spaceport America, and you can do that point to point travel sub orbitally, and in this fashion, rather than, you know, strapping yourself to the top of a Falcon nine, like, that makes a lot more

sense to me. Yeah, totally. Okay, so I think that's the I think that's the the bare case. Do we want to do what would happen otherwise quickly? Yeah. And the big the big question here is basically like if you look at the comparable of SpaceX, why is it that SpaceX has done what they've done? Well, Virgin hasn't. Let's pull out execution for a moment. A big component of that, I think, is SpaceX's strategy to go get those government contracts and basically have an enormous amount of capital in the form of revenue from government customers to launch satellites. Like that has just been, you know, billions and I think over $10 billion now in non-dilutive revenue funding that the company has gotten, which of course translates to things like 10x the headcount. You know,

you look at Virgin Galactic, still a startup. It's like 700 people. SpaceX is 7,000. So let's for a moment just say it is by no means an apples to apples comparison because of the way that they chase dollars differently. Space industry folks may correct me here because I'm wading out into somewhat technical territory that I'm unqualified to. But I do wonder if SpaceX's technology strategy too of basically laddering up from the Falcon 1 to the Falcon 5 to the Falcon 9 to the Falcon Heavy to the Starship. Never shipped the Falcon 5.

It was never built. But it was part of the roadmap, right? And then they never, they just went straight to the 9, right? I think they basically just strapped four more Merlins on it and went straight for the 9, yeah. Straight to the 9, yeah? I think they basically just strapped four more Merlins on it and went straight for the nine, yeah. Straight to the nine, yeah.

But anyway, they basically, they've stair-stepped up into where they are now, whereas Virgin from the get-go was like, hey, we're gonna go from this prototype White Knight One to like all the way to a commercially viable, like they haven't actually changed the design in 16 years. It was like a big, heavy lift to start with. Not that all of these things aren't heavy lifts, but I do wonder if a more stair-step strategy would have been more appropriate

here. But I think probably the bigger thing is what you said, Ben, just the capitalization and the amount of funding that SpaceX had was order of magnitude bigger. Yeah. And another, I mean, this is actually, this is a great segue to Playbook. This is our first Playbook item. Another structural way to look at this is Virgin Galactic is chasing a market that doesn't yet exist of space tourism, whereas SpaceX was serving a market that totally existed, which is governments that want to get things into space and are willing to pay a lot for it. So of course there was revenue financing available, whereas Virgin Galactic needed to demonstrate they could do it before people would pay. Of course, notwithstanding the $80 million that they have raised in revenue capital,

but since those are sort of pre-orders, I imagine they can't quite use that for, you know, I don't know. I think you have to be very careful in how you spend that $80 million. Yeah, I do think that I think they have restricted cash there. Yeah. Okay, playbook. Let's do it. Big one in my mind is an industry prize. Like what a fun concept that provides an immense amount of leverage on the initial dollars raised that brings in so many more people to an ecosystem that stimulates way more innovation than you would have if you just took that same amount of capital and plowed it into a single company trying a single thing. And of course, there's way more losers because if you don't win the prize, then you spent your millions, you know, trying to achieve

something. Not only did you fail, but then you also didn't win the prize to get reimbursed for your costs. But you don't see it in that many other industries. It's very interesting how this seems to be unique to aerospace and space. The only other one that comes to mind in our world is the Netflix prize. I think to run this playbook, you have to have something that is like, so sexy that like people are going to want to do it. There's also the DARPA competition with autonomous driving. But like, you're not going to be able to run this playbook if you're building a SaaS company. Right? Right. I can just imagine the launch website of someone trying and and twitter just hating it of course we joke in this market like probably somebody could stand up like a prize for like

some innovative sass company and i bet they would actually get entrance someone should do a prize for making chrome faster that would be uh oh that would be amazing or or gmail faster yeah rahul's already on that. Yep. Yep. Okay, cool. So that's a prize. I think that important second one here is the concept of the best time to invest was yesterday, but the second best time is today, where Branson sort of famously turned down Peter twice for the X Prize. Not that that would have been an investment anyway, but stayed out of this game until literally the night before the first sort of all eyes on the prize successful flight, and then comes in and funds it then, you know, to say that that was still the first inning of consumer space travel would be a vast understatement. And so the idea of when you know you're early to a market having

no shame about sort of passing and then coming back and saying nope still still lots of runway ahead i i think that's a important one and one not to be missed totally the only one i would add unless you have other playbook themes you want to talk about uh nope go for it and i'll think about if i have one more or not cool the only one i would add to those two you said is uh i think actually something from the SPAC and social capital Hedosophia Chamath side of things here, which, you know, I've heard Chamath talk a lot about this on all the other media he's done. I think there really is something to what he said about with a new risky thing, everybody wants to be the second person to do it. Not that many people want to be the first. If you're willing to be the first and if you size your quote unquote bets right and

your risk exposure, that's how you can get extremely outsized returns by doing stuff like that. Like doing this whole SPAC thing, like that was crazy. And a lot of people thought Chamath was nuts for doing this. Well, it turns out, you know, the story is still being written on SPACs. It turns out it was actually a pretty good idea. And it was a good financing product, certainly for Virgin Galactic. And I think it's going to end up being a good financing product for a lot of other companies here. And Chamath has benefited you know hugely from that he now has six i think as of today uh spax that uh he and head of sophia

have launched just on this virgin one alone the founder shares in the spack and sponsor promote you'd have to disentangle his secondary investment that he made as part of it. But he made a lot of money right off the bat in successfully completing this SPAC. And I think at a broader level, you know, he's talked about on other shows how he really tries to have a barbell strategy with his holdings and his portfolio now within the holding company of social capital of one large end of the barbell is like relatively low risk stuff. I don't know exactly what all he would put in there. Traditionally, you'd think like bond funds and whatnot. Today, it's probably like Amazon stock. But then another heavy barbell on the other side of like out there high risk stuff with not a lot in the middle. And this type of thing,

whether it's Virgin Galactic or SPACs or anything in the like, this is that other side of the barbell. And yeah, most of that's not going to work. A lot of it's not going to work, but for the ones that do work, you're going to get truly outsized returns. Yep. And not being afraid to look like a moron. Like there's going to be a long period between when you declare you're going to do this and when it works, if it works and being willing to take the heat. I just think most humans aren't set up for that psychology. Like you kind of want to social check your ideas with your friends.

And if they tell you it's stupid and enough people tell you that, you kind of don't do it. And that does not seem to be how Chamath operates. No, not at all. Well, the last one that I want to bring up before we get into grading here is, frankly, applauding government. And I think it's government finding the right way to be involved to enable private enterprise in a win-win.

And the big one that jumps out to me here is the New Mexico state and county governments that actually funded Spaceport America. Virgin Galactic has this $5 million a year lease on it, which, you know, that's expensive and, you know, it's a material cost for the company. It would have been completely impossible for this company to go and raise $200 million on their own to build this facility. Like in addition to all the other money they needed to raise, like who is going to fund that if that's in your pitch deck? Right. I mean, think about that. At $5 million a rent a year, that's 40 years to just pay back the construction costs.

Right, right. And the state of New Mexico being forward looking to say like, gosh, if we can actually, this could be huge for our local economy if we become the, you know, Silicon Valley of space and we build this thing. And not only the sort of goodwill that comes from that and the who knows how much money we'll make in the future if we're actually the center of this ecosystem. But then on top of that, like the literal dollars that will come from

Tenets 2, 3, 4, 5, the payback period actually isn't bad if you can get several Virgin Galactics in there. And for anyone who's curious, you should go to Virgin Galactics website and look at the pictures of Spaceport America. This thing is awesome. It looks like a spaceship while you're driving up to

it. And they just did a fantastic job working with this great architecture firm and making the whole thing like, I mean, it does feel like the front door to Disneyland of space. So they did an amazing job at that. And I do think it reminds me a lot of our SpaceX episode where we covered NASA's forward thinking approach with the crew resupply and cargo crew initiatives to outsource those missions to the private companies. We just saw Crew 1, and we've talked about it several times, launch last weekend, actually yesterday as we record this. And I think governments take a lot of heat for being stodgy, for being backward-looking. And I think these are two great examples of government enabling not only sort of private sector innovation, but in a way that will benefit

the government and that government's shareholders over time. 100%. Great. Fantastic investments to be applauded on both cases. We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC 2, ISO 27001, GDPR, and HIPAA compliance and monitoring, Vanta takes care of these otherwise incredibly time

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or a large enterprise and your company is ready to automate compliance and streamline security reviews like Vanta's 7,000 customers around the globe, and go back to making your beer taste better, head on over to vanta.com slash acquired and just tell them that Ben and David sent you. And thanks to friend of the show, Christina, Vanta's CEO, all acquired listeners get $1,000 of free credit. Vanta.com slash acquired. All right, let's bring this home with grading. Let's do it. So we thought, listeners, about the standard acquired thing is grade the transaction. Hey, was this a good use of capital to spend it on this transaction? We could get into that on the SPAC. We sort of have litigated it a little bit.

Feels like the wrong way to do this. So what we want to do is paint the A+, the C, and the F scenarios for Virgin Galactic as a business over the next 10 years. So I want to start, and we covered some of this in the Barron Bull case, but I just want to put a little bit more color around what the picture of an A-plus could look like. The business is awesome on a unit economics basis. Obviously, we haven't yet seen a unit happen yet because a customer hasn't flown. I love how this sounds like a seed startup pitch. Like, hey, we don't have any revenue yet, but our unit economics are going to be awesome.

That's so true. I'm so guilty of this. But really, if you think about it, if this works, and they've sort of tested each part of the system individually. They've tested the fact that the thing can fly. It can go above 100K. It can take people.

There's some number of people who are willing to pay a quarter million dollars for this. You can put five, six people in these capsules. So if you really can generate one and a quarter million per flight, and you really can make 65% gross margins, the fact that they have this fully reusable design of both aircrafts, or if you want to compare it to like a rocket, effectively like a first stage and a second stage, both of Virgin Galactics are reusable, which is not a common thing in the industry right now. So they really could fly it. I don't know if it's every day, but you land it, you inspect it. Inspection doesn't take terribly long. You refuel it,

you clean it up and you fly it again. It's an airplane. And so, you know, I think that to me is the A-plus case. It's a strong, you know, gross margin business, super reusable, could be super high volume. If you believe what we were talking earlier about the market, if you really think you'd get 1000 people to do this per year or more of the 1.2 million person market of the 10 millionaire plus club, and of course, there's going to be a handful of the people below that, but you know, the 10 millionaire plus is where it's a drop in the bucket. You know, it feels like you could get to a profitable business there. And I think that, David, you mentioned earlier the fact that the price could come down over time. Unless the fuel price dramatically goes down, it seems unlikely they'll materially lower it. I think that's a very long

term horizon, unless they were willing to start taking lower margins. But at least at the quantities we're talking about here, I think that it needs to be a pretty high margin business in order to be sustainable. Fair enough. Fair enough. But to your point, could still be big. Yep. All right. What's the F? So the F, well, we have a few things in our notes here. I mean, I think the biggest risk for the F here is that for whatever reason, it just continues to be that they can't actually get this thing off the ground, which you hate to say it. I hope is not the case, but it is hard to ignore that it's been 16 years and that still hasn't happened.

So if history is any guide, then how much longer and and not just how much longer but how much more capital let's assume that they can get off the ground and make this happen are there unforeseen things or things that aren't baked into the projections that are gonna require them to raise a lot more money to make this happen you know this last round of financing while obviously being a great outcome for the company was extremely dilutive, you know, 50% dilution. Now, if this takes a few more years, they're burning whatever $200 million a year run rate now. So that probably means I didn't actually look at the cash balance, but let's assume they probably only have two, two and a half years of maybe even less of runway left at this point without revenue.

So it doesn't take many delays. And we've just seen another delay here this morning before they're back needing more capital. Yeah, that's a great point. And at what point does any existing shareholder employee start looking at their equity and going, this is never going to be worth anything because it just keeps getting crammed down. Even if we become a $20 billion company, we've taken on so much capital that my shares divided by the total number of fully diluted is just a very, very, very small percent. And then we have another couple of other things in here. I mean, the other big one is just like, hey, demand might not actually be there.

Like these 600 people that have paid the full ticket price plus the 900 people that have taken the one small step. Maybe that's like half the market here. I think that's like 2500. Now, I think they've gotten a fair number of deposits on the one small step. But you're right, like it could just be that, you know, this is only cool for so long. Well, just to touch quickly on the C, I think it's the sort of horizontally disintegrating thing that we mentioned earlier, where the core business never works out, but they're able to sort of scrape some revenue from providing a lot of different things to a lot of different people licensing technology out, basically not having a focus and not executing their main strategy. They'll just never build

power as a business and sort of have a repeatable engine for free cashflow. So that would be my C case. Yep. They look more like a Samsung than an Apple. Well put. All right, should we land the spaceship? Yeah. All right.

We're gonna deploy the feathers. Defeather, we'll go into glider mode. Yes. We'll land the plane. Well, Ascend attendees, thank you so much for coming to this session. If you are interested in hearing more Acquired, we highly recommend checking out our SpaceX episode that we did earlier this year, just before the Demo 2 mission. You can look up the show anywhere where great podcasts could be heard, any podcast player, or at acquired.fm. Thank you so much to the Ascend organizers, in particular, friend of the show, Rob Meyerson.

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