Closing Bell - Manifest Space: Space’s $500 Billion Opportunity with Fortuna Investments Founder Justus Parmar 3/28/24

Episode Date: March 28, 2024

Fortuna Investments, which rose to fame with early bets on lithium, is now setting its sights on another frontier market. Founder & partner Justus Parmar joins Morgan Brennan to discuss the opportunities in the space space, why now is the time to invest, and his bullish case for Jeff Bezo’s Blue Origin.

Justice Parmar started Fortuna Investments in 2015, making early bets on lithium that paid off big. Now, his VC firm is setting sights on a different frontier market. So we did extremely well in the battery technology space, and we've now turned our attention to the new space economy. We think this new space economy is nothing like we've ever seen before. We think it's a $500 billion industry going to a trillion dollars, and it's an amazing time to be alive. Fortuna recently became an investor in SpaceX and has already backed a startup called Starfighter Space,

which is a launch provider touting a fleet of F-104 supersonic aircraft. Fortuna's goal? Invest in roughly a dozen early-stage space companies. What we've seen is in 2024, the valuations of most earlier stage space companies are at all time lows or pretty close to all time lows. So you have the valuations actually at a very low depressed price, yet you're now seeing the technology

being the furthest it's ever been. So that's an amazing setup for folks like us and New Capital to really get involved in an industry like this. On this episode, Parmar breaks down where he sees the opportunities in the space space, why now is the time, and his bullishness on the space company founded by another billionaire that isn't Elon Musk. I'm Morgan Brennan, and this is Manifest Space. Justice Parmar, Fortuna Investment CEO. It's so great to have you on the podcast.

Thanks for joining me. Morgan, it's a pleasure. Thank you for having me. All right. I want to start at the beginning. Let's talk a little bit about Fortuna, when you started the firm, and your investment thesis for the firm. Sure. when you started the firm and your investment thesis for the firm sure so we my background before that was a professional money manager for over a decade so I understand finance understand the capital markets I started

Fortuna investments my own firm in 2015 almost 10 years ago we kind of made a name for ourselves back in let's say 2016 2017 um that's when elon and tesla were first i guess starting to take off um tesla was actually ironically the biggest shorted stock on the planet he was only selling 40 000 cars a year they had a lot of challenges nobody you know nobody thought it was going to be a successful company necessarily what we at fortuna investments did was we believed in the ev transition. We believed in Elon Musk. We believed in Apple computers and all the different companies that needed lithium ion batteries. And so we started to back and found and co-found lithium and battery companies.

Ironically, we backed a couple that went to over a billion dollars. One still trades on the NASDAQ. And then there was another company that we sold a couple years ago for $460 million to Lithium Americas. And sorry, let me finish off that, close the loop. So we did extremely well in the battery technology space. And we've now turned our attention to the new space economy. We think this new space economy is nothing like we've ever seen before. We think it's a $500 billion industry going to a trillion dollars.

And it's an amazing time to be alive. So I guess what triggered this shift to the new space industry? Lithium, I think, kind of makes sense, right? Big bet, certainly less than 10 years ago was a big bet, but one that had a near-term realization. Space, maybe not so much. I mean, lithium wasn't as, it's easy to look back in your rearview mirror and be like, oh, that was an obvious bet. But at the time, I mean, there's all sorts of question marks about how this was going to unfold. But I agree with you. In terms of the space industry, it's like, heck, we sit there, we look around.

It's like you've got so many amazing things happening in this industry. And the beautiful thing is the further you dive down, the further you look, you know, peel the layers of the onion back. There's this unbelievable stuff happening right now and it's everywhere from the top down. And so you've got obviously, you know, SpaceX gets a lot of headlines, rightfully so. You know, we're shareholders of SpaceX. It's $180 billion a year or $180 billion market cap. You know, they're doing $9 billion in revenue or they did $9 billion last year in revenue. Profitable company. Just, you know, Morgan, just to give you context, and I'm sure you know this, but Walgreens,

the grocery store doesn't even do $9 billion a year worth of revenue. And they're selling cucumbers and diapers. And so to develop a space company, a commercial space company at that magnitude and scale, that's unbelievable. And obviously, as you know, the clip that a company like SpaceX is growing, the future is unlimited for a company like that. It's a generational company. We're extremely bullish. Blue Origin this year as well, too. I think with Jeff Bezos moving down here to Miami, being close to the space company, I think in a certain way he's thinking playtime's over and he's really going to spend his energy and focus into Blue Origin.

I think they're going to have a transformative year. They've got a great CEO in there now. They're going to roll out New Glenn. I think it's going to be a big year for folks like that. But, you know, so look, in any industry, you have to have the top end of the market really start to make waves and headway. And, you know, we saw that in the internet, you know, revolution or boom, where you saw Microsoft and Google and some of these front runners at the time really taking market share. And I think we're starting to see that in the space industry.

So again, Morgan, to your point, it's not going to happen overnight, nor do we necessarily want it to happen overnight. But the big thing is these things in a structural way are really starting to happen, and it's going to trickle down all the way from the top all the way to the very bottom. So what does that mean in terms of where you're investing and how you're investing? So for us, we like to try and find the companies before they, let's say, hit it big. So what we're doing is we've made our first, you know, initial significant financial commitment to a company called Starfighters Aerospace, for example. They're also at the John F. Kennedy Space Center up at Cape Canaveral, NASA.

You know, they've got a fleet of nine F-104 fighter jets. They've got seven figures of revenue. You know, I think they've got a great management team. So we're going to essentially start there. We're looking at different opportunities. It's a really exciting time in the space industry, even with things that we've seen just recently with, you know, intuitive machines and lunar,

just getting the last mile delivery down into the lunar economy. So, I mean, there's so many different unique things that are happening. And for us, I would also mention, we've been looking at the space business for three, four years now quite intensely. It's just we never thought it was necessarily the right time to jump in. You know, a handful of years, Citigroup asked us to sponsor a SPAC, a space SPAC. We were kind of interested. We didn't pull the trigger at the time, probably kind of got

lucky in a certain way. But what we've seen is in 2024, the valuations of most earlier stage space companies are at all-time lows or pretty close to all- time lows. So you have the valuations actually at a very low depressed price, yet you're now seeing the technology being the furthest it's ever been. So that's an amazing setup for folks like us and new capital to really get involved in an industry like this. When I hear you talk about SPACs, I mean, that was a moment in terms of when all these space SPACs came to market, sort of bringing this new space economy to light to public market investors. But to your point, we've seen many of those names sell off.

We've seen some of them go away or at risk of delisting. I mean, can we say the SPAC phase of 2021, call it? Was it good for investing in space or was it bad for investing in space i mean it's tough right i mean like net net probably to the investing public it was certainly not good because you know a lot of these companies went out at four or five billion dollars with zero revenue you know in a certain environment you know one would argue that's an overvalued company um but in the whole trajectory of the space game or the space economy,

I don't necessarily think it was a bad thing because so much money went into the system. And just like any burgeoning brand new industry, you're going to have to have a lot of things not work out to make some things work out. And so in a certain capacity, I think it might've been a necessary evil in a certain way. It sucks, obviously. But I think in terms of the grand picture of things, having a lot of capital go in, some things kind of worked out, a lot of things

didn't work out. I think we're ready to take that next phase over the next couple of years now. And we're starting to see that. Are some of these publicly traded companies good investments? I realize you're probably more focused on the private market and maybe some of these smaller names or emerging names. But in terms of what is trading publicly, are there good investments out there? Well, and that's just it. And so I've got a lot of friends who think I'm out of my mind saying, what, you're investing in space? That's risky. Is it even investable?

Some people think Star Trek. I get a whole mixed bag of things. And so I actually think it's riskier not to be investing in space right now. So, I mean, and again, you don't have to be a very astute investor like myself or my firm, Fortuna Investments. And again, I think a lot of the listening audience, Morgan, is CNBC is the biggest financial platform in the world. And so in terms of the public market, I think there's a handful of pretty, I guess, smart or good ways to play the industry, right? I mean, you've got a company like, let's say, GE, used to be a global conglomerate, great company, plays a dividend. And recently, they've signaled to the market, they're going to get out of all industries except for aerospace and now what has what has the stock done over the last you know six months or so it was 105 110 bucks in october

it's almost 200 bucks now paying a dividend the stock charts literally from the bottom left to the top right very well run company um so you know there's companies like that that are kind of you know that are existing companies that are not going to go anywhere that just gave you some upside and gave you some torque um i'd say you know maybe a basket approach you know kathy wood's got a great etf arc x for example um and not only do they have the space companies but she's put a little bit of google and facebook and some of the tech companies in there with the argument that those companies are also using the space economy. And that's, you know, it's a good, nice hedged kind of basket. We, you know,

I'm not saying put every dollar you have to these things, but in terms of exposure, you can uniquely pay place some of these things from a public market in a way like that. And then you've got that kind of next year of extremely speculative type of companies that like Lunar, L-U-N-R, for example. I think it's about $150 million market cap. So it's a very, very small market cap.

I believe they've got almost $50 million in cash. They've obviously done some tremendous work in the last month or so. So it's hard not to cheer for folks like that where it's a really small company. They've got a couple of things to work. Are they able to figure out their business model? It's a 10 or 100x from there potentially. And so from the public markets, Morgan, there's a handful of really, I think, unique ways to play this thing. Got it.

So talking about the private market piece of this then and some of these companies that maybe are a little more speculative, you have a goal of investing in 12 early stage space startups over the next few years right um first one star fighters i guess walk me through why launch made the most sense in terms of an initial investment so i i don't necessarily know if it does make the most sense but we ended up up there and i'll give you the kind of background of the thesis so i think generally speaking it's probably not a good idea to be competing with Elon Musk in any industry per se. And I think his track record is demonstrated as such. He ends up taking a huge amount of market share and honestly sucking the air of the industry, but he's very good at what he does. And so

the thing that was compelling about the Starfighters aerospace opportunity when it was presented to us is it's not a fly by night operation. It's not, you know, two kids with backwards hats with like a grandiose idea that may or may not happen. You know, you go there, you tour the facility, they're at the John F. Kennedy Space Center. They're literally right in between SpaceX and Blue Origin, you know, tremendous real real estate but they've got an operating business they've got seven figures of revenue they've got nine f-104 f-104 fighter jets and to give you contrast or perspective i don't even know if my home country of canada necessarily has 10 fighter jets in their entire fleet um so they've you know so they've got meat they've got some substance um you know

they're seeking our you know 5050 million investment for a launch license. And so I guess the theory or the rationale is you've got a reusable stage one being the fighter jet, you've got a great location. You aren't competing with Elon because Elon is very, you know, the Elons, the Jeffs, they're very fixated on the heavy payload, the really, really big, heavy payload. And so with technology, technology has actually condensed itself so much where a lot of these satellites that are going up are the size of a pizza box or, you know, an iPhone for that matter, you know, these CubeSats and NanoSats. And so if Starfighters is able to execute, they could have a great cadence and launch market for the smaller side of the market that has kind of been not necessarily tapped into.

Got it. What are some of the areas that other areas that you're looking at in terms of the space economy and where things are headed? I mean, honestly, Morgan, there's so much. I don't want to say it's overwhelming, but there's so many cool, I mean, in the best way possible, there's so many cool things. And I don't mean just cool, like, wow, that's cool. But things that could be viable, right?

And so I'm not doing this as necessarily a hobby or like a passion project. We, you know, we're business people, we're business folks. I think everybody listening to the show is business folks as well too at CNBC. And so I think the idea about the commercialization of space is we really have to nail the revenue and then the profitability. Because if we're not getting to those points, this, as you pointed out earlier, this industry is never going to get to where it needs to go. So what do you look for then?

Especially when you're talking about some of these early stage companies, what are some of the metrics you look for to decide whether something can be a compelling investment or not? I mean, quite honestly, I mean, just because the industry is so early, what we really look for is revenue. If you have revenue and you're selling something in the space economy or doing something with revenue, you've perked our interest. Because then it's not a fallacy or a science experiment in a certain way. You've actually commercialized something. Now, you haven't commercialized it to SpaceX's level, but you're out there, you're selling something. Somebody out there is paying you for your good or service. And so that's extremely interesting to us. And we won't differentiate whether it's on the lunar side, or as you said, the launch or satellites or anywhere

in between. If you've got revenue, we're very happy to take a really good look at your company and potentially provide you with $20 to $50 million worth of capital to help grow your, your private business. So when we talk about space and we were talking about long lead times in some, some cases. So I guess when you make an investment, how, how much time are you thinking about what it's going to take to realize those returns? So, I mean, for us, I mean, we're kind of in the, let's say, three to five year camp, you know, ish, give or take. I think for us, anything longer than, you know, five years is challenging. It's not that it's not doable. But you've you have to have a lot of things hold firm for such a long period of time. And so I think anything less than three,

you're basically gambling in a certain way. You may as well go to the casino. Three to five is a sweet spot because for whatever it's worth, we've got a view of the world. We've got different things that I think three to five is very reasonable. Heck, we've been investments for,

certain investments for over 10 years because that three to five year window hits, the company is performing, we're shareholders, we're financial backers, and we continue to support that company. But to answer your question, we really kind of hone in on that kind of five year mark where we'd like to see some significant, you know, tangible financial progress. Tailwinds for this industry, headwinds for this industry. Tailwinds for this industry. So the tailwinds for this industry is we've come through, you know, a 20-year market crash for small cap and small cap equities and anything really growth-related.

Obviously, space is a great growth-related industry. So we've seen some nasty, nasty compression in the marketplace. Capital has dried up, as I'm sure you well know. And so it's not going to be easy over the next year or so. I think, unfortunately, some companies will go bust. But the good news is everything is cyclical and seasonal, right? And so we've come out of this environment where interest rates went through the roof. We saw the worst crash since 2008. And so now we're actually starting that we're on the mend. Right. That was wintertime. I think winter is slowly starting to thaw out now.

We're coming to spring in a certain way. Spring's a great time because it's just a lot of opportunities there. Things start to bloom or the prospect of them kind of blooming. And then inevitably, Morgan, we're going to hit summer. Summer is going to happen in the next couple of years. It's going to be good. It's going to be fantastic. Celebrate, get out in the sun. But then inevitably, as the cycles go, you're going to hit fall and you better harvest because we'll end up in that winter again. And so I just want to give the viewers and the listeners that perspective of we end up

almost foolishly getting so fixated on maybe the day-to-day stuff. What's the stock price performing at? What's happening in the space industry? How did this launch go? How did this thing happen? How did that? And so sometimes we actually lose the forest for the trees. And so I'm saying if you take one huge step back, we're at a really, really good point now in the space industry.

That's exciting to hear. I feel like we talk about seasons with cryptocurrencies like crypto winter, you know, and it's like now, okay, we're going to talk about space spring and summer. I like it. Well, and even crypto. We're not in crypto. I mean, we were in crypto a long time ago.

But like even crypto, like, you know, that went through a nasty crash. Everybody thought it was going to zero. It was like 20,000. Everyone's like crying and it was like over. And now it's like $65,000, $70,000. It's hitting all-time highs. So even in an industry like that, you see that cyclical kind of approach. And the key, Morgan, is just to, you know, one step or one foot in front of the other head down to stick with your thesis and kind of disregard some of those day-to-day kind

of clutter stuff. Because if you're fixated on something over the longterm, it'll, it'll really come true. Yeah. I do want to ask about the SpaceX investment because you became, you recently became a investor and I wonder why you thought that was compelling now and what drove so we were offered our first round in 2015 or 16 we didn't know enough about it we very foolishly declined and we then we weren't in the space business I didn't know the first thing about space at the time but continue to follow the company's progress.

More and more exciting things were happening. The valuation was climbing and climbing over the years. And then it actually, in a certain way, it became hard for me to maybe justify putting money in a lot higher valuation than we kind of declined. I don't know if that's ego or hubris or I don't know, stupidity, whatever you call it. We didn't actually do it. And so then the company, we took a look at the company in a pragmatic, just unfiltered lens.

You've got a company that, as I was mentioning earlier, just in this last calendar year, they did $9 billion in revenue, profitable company, almost equally split between the Starlink business and the launch side even at a hundred and eighty billion dollar valuation where it sits today I would argue that's a very cheap valuation given the industry that they're in and so it's as I mentioned to you before when we're chatting last Morgan it, you only find companies like this, you know,

literally once in a decade, decade, maybe once in a generation. Um, you go back to the biggest companies in America, most of which are Earl technology companies, you know, you've got Amazon, you've got Google, Microsoft, Meta. So those companies were able to do something very, very unique. They did something that nobody else was able to do. They put a moat around their business, and they became cash cows. And they are the equivalent of the Ford and the GMs and the great iconic American companies of the earlier

days. So fast forward to SpaceX, I actually think SpaceX is, you know, maybe Nvidia is in that category now, but SpaceX is unequivocally in that category of these new trillion dollar companies that are going to be right here in America in market. Starlink, how compelling is that to the valuation are you even thinking about something like starship i think you have to look at starship i mean i don't think sorry in the 180 billion dollar valuation i wouldn't give there's no there's not a dollar attributed dollar value to starship um it's it's just gonna be such a game changer man it's just it's unbelievable what what they're doing over there i've had the great pleasure of being at the it's just going to be such a game changer man it's just it's unbelievable

what they're doing over there I've had the great pleasure of being at the Hawthorne facility a number of times in California I know them well Morgan it's harder to become an employee at SpaceX than it is to get into Harvard for example

it's unbelievable what these guys are doing over there just the energy and not just the energy um and uh not just the energy but the progress they're able to make and so this starship i mean they're going to drop the cost of of you know a kilogram of payload you know we think anywhere from 300 bucks to 500 bucks you know it's around the three thousand dollar mark now so we think that 90 reduction obviously just the sheer magnitude of stuff that they're going to be able to start taking up there. I mean, this is going to be Elon's Mars rocket. Future's bright, Morgan.

Future's really, really bright. So if I bring this full circle here with this last question for you, as somebody who does understand the SpaceX portfolio as well as you do and recently invested, what does that mean in terms of how does that affect your color, if at all, the way you're thinking about how you're going to invest in other startups as well, knowing that the space economy is continuing to evolve, continuing to grow and will potentially change as SpaceX evolves and grows? Absolutely. And I think it's a good school of thought to, I mean, Elon's essentially the railroad tracks, right? And so the idea is not to build a new railroad. The idea is to find things that will plug into his railroad in a certain way. I think that'll be a very valuable thesis for earlier stage companies.

I think in any industry, you need that top kind of trickle down approach. Again, our business is not backing $180 billion companies. I mean, that said, if Jeff Bezos would take my money, I'd gladly give it to him, but he's closed for investment. But in terms of the earlier stuff,

as I said, there's going to be a real trickle down effect. And I think there's going to be a lot of winners. It's not going to happen overnight in a way that you and I probably want it to happen. But I think in the next three to five years, we're going to see some really, really outstanding stuff. And that's why we're so excited. All right. Justice Parmar of Fortuna Investments. Thanks for joining me. Great to speak with you. Pleasure. Thanks, Morgan.

That does it for this episode of Manifest Space. Make sure you never miss a launch by following us wherever you get your podcasts and by watching our coverage on Closing Bell Overtime. I'm Morgan Brennan.