Closing Bell - Manifest Space: Starship’s Third Test with Space Capital Managing Partner Chad Anderson 3/14/24

Episode Date: March 14, 2024

In another milestone for SpaceX, Elon Musk’s space venture blasted off this morning and traveled to space. The most powerful rocket ever reached orbital velocity and carried out a number of ambitious tests. Space Capital Managing Partner and early SpaceX investor Chad Anderson joins Morgan Brennan to discuss the mission and future moves for the company.

Another milestone for Elon Musk's SpaceX, as Starship blasted off this morning from Starbase in South Texas and traveled to space. Starship, the most powerful rocket ever built, reached orbital velocity and carried out a number of ambitious tests in flight, demonstrating new techniques that will be crucial to future Moon and Mars missions. But just before its planned splashdown, the spacecraft was lost, breaking up over the Indian Ocean on reentry. NASA's administrator called it a, quote, successful test flight. And early SpaceX investor Chad Anderson, the founder and managing partner of Space Capital, says Starship isn't even factoring

into how investors are assessing SpaceX, which at a $180 billion valuation is one of the world's most valuable private companies. Investors are discounting the market for Starship really back to zero. But as this vehicle comes online, I think that that could actually result in a doubling of the valuation of the company. If you look at what Starship is expected to do, they will bring the cost down by another order of magnitude and accelerate innovation in all these areas. It's going to completely change the space economy as we know it today. It's going to accelerate growth in existing markets. It's going to enable entirely new ones. Anderson notes that this playbook has played out before.

It was SpaceX's Falcon 9 which opened access to orbit and created the market conditions for entrepreneurs to build out a space economy. Private investment in private space companies went from almost nothing 15 years ago to $300 billion today across roughly 2,000 startups. On this episode, SpaceX's most ambitious flight yet, and what it means as the company moves one step closer to Musk's vision for a multi-planetary future. I'm Morgan Brennan, and this is Manifest Space. Joining me now, Chad Anderson, the founder and managing partner of Space Capital. It's always great to speak with you, Chad. Thanks for taking the time. Always good to be here. Thanks, Morgan. All right. So we just had another milestone achieved for SpaceX. Third orbital test flight of Starship went to space, didn't actually splash down as intended, but a number of milestones

achieved. I guess let's just start with why this moment matters so much. I mean, this just happened, right? We're talking just shortly after this test flight. So I mean, first of all, wow, what a ride. There is nothing more exciting than watching a test flight of an experimental vehicle, and especially one that is this ambitious. I mean, they are doing all kinds of things that have never been done before. And how lucky are we that SpaceX takes us along for the ride?

I mean, we had incredible HD views of almost the entire test flight throughout. And that is courtesy of Starlink. So, you know, I mean, for me, this was a huge success, happy to walk through all those achievements and the things that they did achieve. Most importantly, I think that this flight got them far enough and demonstrated enough that they're likely going to move into operational flights in their next flight. So we'll have to see. got them far enough and demonstrated enough that they're likely going to move into operational flights in their next flight. So we'll have to see. Interesting. Okay. So let's talk about some of these milestones that were achieved and why this test flight was considered so ambitious

in that critical development towards missions to the moon and Mars. So hugely successful test flight. Starship achieved nearly all of the goals that it set out for itself, which some of them were added in addition to what they did in their second test flight and were extremely ambitious. All 33 of their Raptor engines on the super heavy booster fired. It delivered a controlled ascent. So it got up into space. There was a hot stage separation, which I can't express how cool and amazing this is, especially on a vehicle of this size and one that's designed to be reusable. The ability for the second stage and the Starship to actually fire its engines to push away from the booster is huge. And they did that very successfully.

The super heavy booster had a successful boost back burn and looked pretty good going down to the ocean. And they were going to demonstrate a soft landing. That didn't happen. They lost the booster. but that is for reuse. That is not for like, that is icing on the cake. That's not for operational flights and delivering payloads to orbit. They tested the PEZ dispenser, the payload doors that are going to deploy Starlink satellites. I don't know. We'll see if that happens in the next launch. They did a propellant transfer in orbit. We're still waiting for the data from that. So we'll

have to see how successful that was. But we've never done this before. Humanity has never done this before. So there's a lot of really interesting math going on here and physics going on here that we are testing for the first time. And that is a key element of the ability to refuel in orbit is what's going to enable SpaceX to take NASA to the moon because it takes a lot of fuel to get, you know, to do what they did today. orbital velocity which was huge which allowed them to then test the starship re-entering at those speeds and test the heat shield and the heat tiles and that was wild to see i mean with the onboard cameras we got to see the plasma building up all around the vehicle and so it successfully did all of those things um They're not going to reuse the booster and they're not going to be able to reuse the Starship, but that was never part of the goals for this test flight anyway. Reuse, they can now go on from this. And like I said, I think they're

going to be moving into operational flights and then they can they can perfect the reuse um in the next test flights going forward so so this this shift into operational flights what does that actually mean now um this is one of the huge advantages that spacex has over any other launch vehicle developer and one of the reasons i think that we've seen them achieve such ambitious test programs and like do so much so quickly. They have a lot of faith in their vehicle, right? So if you go back to when they were reusing and landing their rockets and relaunching again, they had a lot of faith in their vehicle, more so than maybe their customers would who were external parties. So they could fly Starlink satellites on those vehicles when they had the confidence in those vehicles to be able to do that. And then in doing so, they would they would demonstrate that capability to customers who could then get more comfortable in flying on flight proven rockets, right? And we've seen how

well that's played out for the company. And, you know, most of the launches, like the lion's share of launches that they do today are all on vehicles that have flown previously. So that is now the norm. And I expect to see them apply that also here where once they get comfortable, like this vehicle performed very well today. And if they get the data back that the payload doors opened and operated as they expected, then it can, you know, they can have confidence that they can successfully deploy their Starlink satellites on the next launch. So, and then again, in doing so, they can demonstrate that to customers and other, you know, NASA and other third parties that they have the capability to do that. So that's a huge advantage for this company.

Interesting. So that's your expectation is that they get the data back, they go through it, they make the adjustments that are necessary. And maybe the next time we see Starship on the launch pad at Starbase, it's going to be filled with Starlink satellites and doing, doing a basically, I don't know if maiden flights, I guess maiden flight to orbit. Yeah, that is my hope. And I think there's good reason to think that that we could see that happen. You know, on this flight, the data was the payload. That's, you know, they said that on the live stream. And Starlink is actually they had two starlink receivers on the vehicle which is allowing them to get incredible data back and learn much faster and iterate much faster and

that's why we're seeing again this is such an incredible um uh incredibly ambitious and and fast test program the first integrated test flight of Starship and Super Heavy was in April of last year. So in less than 12 months, they've had three test flights and gone from, we're going to launch the largest vehicle ever built by humans. I have no idea what it's going to, you know, I don't know what it's going to do to the landing pad or to the launch pad. We don't exactly know how it's going to perform. We've gone from that to an incredibly successful test flight in less than 12 months. The rate of progress here is really astounding. Got it. I want to go back to something you said, because there's nuance here,

right? And that is the fact that this test vehicle reached orbital velocity. It does not mean that it reached orbit. It reached space. It didn't technically reach orbit, which was never the intended purpose of this mission or this flight, I should note. But it does mean that if it had been looking to achieve an orbit and actually stay there, it would have been able to, at least from that standpoint, deploy a payload if it had had one on board that wasn't technically data. Yeah, again, they wanted to test the vehicle doing different things here. So they got to 220 kilometers. That's a bit low. We call that very low Earth orbit. You want to be a bit higher when you're deploying satellites and when they're

deploying Starlink satellites. But it's not much farther from where they were to get to that altitude. So they went to 220 kilometers, but orbital velocity is really important because in that they were trying to test the heat shield. Because again, there's only so much that you can test in the lab. A lot of this actually has to happen practically, you know, by doing it and so they have tested the heat shields and the starship's ability to go from you know they've they've launched the early test vehicles and they've gone from some suborbital speeds and tested those heat shields and the ability to re-enter the starship and we've seen those those videos of of the starship coming in and landing itself.

So they've done that from suborbital speeds. Now the trick is to demonstrate that at much higher speeds, right? And orbital velocity is much faster. And so they're using Earth's atmosphere to slow the vehicle. And that drag puts a lot of stress and heat on the bottom of the vehicle. That's why you saw all of those really incredible images of the plasma generating around Starship. And so testing that was a really important step towards fully rapid reuse of the vehicle. And so I think they're gonna get a lot of really great data from this and be able to apply that to their next iteration.

Got it. If we just take a step back, Starship, I mean, it's been years in the making, billions of dollars, most of that I think privately funded, but also some government funds through NASA and the like, because it is part of the Artemis program. I guess how the fact that we're seeing it move at the rate it is towards an operational cadence, how quick or how slow is that versus some of the other most powerful rockets that we've seen fly over the years? Yeah, I mean, such a great question. Again, the pace of advancement here is really unprecedented.

And this vehicle, there's a lot of faith in SpaceX and the team there and their ability to execute. And so they already have billions of dollars in contracts from nasa um for their artemis program and their lunar missions and with the ultimate goal to um uh to go and take cargo and humans to mars right so um you compare that to um to other vehicles. So SLS is, this is a, NASA is taking a dual sort of approach here, which they have done in the past, where they are working with their standard, you know, roster of defense contractors to build a capability that they need. NASA, the US wants this capability to be able to deliver humans and cargo and to develop an outpost on the lunar surface. So they're developing SLS, Space Launch System, in the traditional way. At the same time, they're working with new companies like SpaceX and Blue Origin and others to see if we can't also develop a more

low cost, more sustainable way. So they've done this at the commercial orbital transportation services in the very beginning, which was, you know, taking cargo to the space station. And then they've done that with the commercial crew program, which we've now seen, you know, SpaceX delivering NASA astronauts and private astronauts to the space station um but that this vehicle um sls is extremely expensive not just to build but also to um also to launch each time i mean it costs multiple billions of dollars to launch sls every time which is not very sustainable from especially when you think about the limited budget of NASA and the fact that they're actually being cut back in their 2024 budget. They have less money than they had the year before. So money is tight. You know, you can't be spending two billion dollars on a launch. Starship is is going to be orders of magnitude cheaper,

orders of magnitude, it's coming online, orders of magnitude faster. And you just have to like, you know, you don't have to go back too far and also look how this has played out before, not just on the lunar program, but on the commercial crew program, right? Where NASA put out contracts to Boeing and SpaceX

and Boeing was the safe bet. And SpaceX was the fly bet and spacex was the um was the flyer you know like let's let's see if spacex can can can do this you know at a price point that's more sustainable we might as well um see if that'll work out as well and clearly um you know spacex is doing that on a routine basis now they've been doing that for the last several years meanwhile boeing is still trying to get, to prove that they can take astronauts to orbit in their Starliner vehicle.

So on all fronts, you know, SpaceX continues to outperform in terms of timelines and cost. Which maybe speaks to why it's one of the most valuable privately held companies in the world. And investors tend to be so bullish when the opportunities to buy in come up. I know you're a longtime investor in SpaceX. When we talk about Starship specifically, what are we talking about in terms of market opportunity, even in addition

to those billions of dollars worth of government contracts that are already in place? Yeah, well, this is a really fun thought exercise. So SpaceX is, you know, one of the most private, sorry, the most highest valuation of any private company, you know, and most of that is driven by Starlink. So their launch business is a competitive advantage for them, but really a lot of the revenue expectations are coming from Starlink and their ability to provide communication services for consumers, enterprises and government customers. That's one main program of the company. The other main program is Starship. Starship is unlocking and enabling all kinds of new markets. So it's really fun to try and think about and size up what this could mean. So I think a lot today, I think a lot of investors are discounting the market for Starship really back to zero. But as this vehicle comes online, I think that that could actually result in a doubling of the valuation of the company.

And the reason I say that, the reason I say that is because if you think about all of the things that this vehicle will enable, all of the entrepreneurial activity that we're seeing today in space is thanks to SpaceX. They removed the barriers to entry, they brought the costs down, and over the last 15 years or so, since they first did that, since they launched their first customer, we've gone from basically zero to $300 billion

of private investment into private companies, private space companies, and that's across 2,000 companies. If you look at what Starship is expected to do, they will bring the cost down by another order of magnitude and accelerate innovation in all these areas. It's going to completely change the space economy as we know it today it's going to accelerate growth in existing markets it's going to enable entirely new ones so they're going to they already dominate launch

they're going to do that in a much bigger way all of the the records that we're seeing in terms of number of launches every single year that's going up and up driven by SpaceX, all of those are gonna look minuscule if this fully, when this fully and rapidly reusable vehicle comes online. We're going to see, this thing could be a spaceship. It's big enough that it makes you question

whether or not we actually need permanent outposts in orbit or whether or not Starship could give you that functionality and the ability to go up and come down and solve the upmass and downmass problem. That's important for high-end tourism. You can see how hotel chains could, you know, hotel hospitality companies could leverage Starship for unique experiences. You can see how manufacturing companies that want to leverage the space station, how using Starship would actually simplify the, you know, the process and actually allow you to work with one provider who cuts out the middlemen and they provide your um your launch and also you know your infrastructure and you can um

you can get out the vehicle with whatever whatever manufacturing equipment that you need um this vehicle is going to take nasa to the moon and it's going to enable you know the initial infrastructure on the moon um and it's going to have access to the outpost that NASA is building there. How do you value these things? It's really difficult to do. We take a stab at this and try to size this up, but what I can tell you is that there is money to be made here. They have billions of dollars in contracts with NASA already for for these new markets and we're just getting started just like we saw in launch you know currently these nascent areas are driven by the government the government is the catalyst here the artemis program committing billions of dollars to these initiatives is

what's underpinning these new markets, but they will become commercial over time, just as we've seen with launch in the recent past, and just as we've seen in countless other industries as well. You and I have had this conversation before, and I've spoken to entrepreneurs, some of them, by the way, former SpaceX employees and executives who know and understand the magnitude or the potential. Maybe nobody truly understands it until it actually happens, but understand the potential around Starship and are actually building startups right now in anticipation of this capability coming online right now. So it's interesting to hear you talk about the fact that maybe investors don't fully appreciate what this

is going to mean. And I wonder what you think it's going to take for that to be factor into the valuation if at what, $180 billion right now, it's not part of that SpaceX valuation. Yeah, I think we're just going to have to see it come online. I mean, as at Space Capital, we are early stage investors in space companies. So we're looking for entrepreneurs who are thinking about, you know, they're seeing this new capability come online and are building businesses that leverage, you know, this fantastic new infrastructure. And so we spend a lot of time thinking about, you know, what are these opportunities and who's building in these spaces? And we talk to a lot of people and we're doing a lot of that research now, given that, you know, this vehicle is coming online imminently. And so what's so interesting is that actually there's a

lot of smart people thinking about this. And there's a couple of people building, you know, we've invested in impulse space, Tom Mueller's propulsion company. You know, he was the CTO at SpaceX from the earliest days and built, you know, led all the development of all their engine programs, including the Raptor engines that we saw launch today. You know, he's got,

he's built a business predicated on the success of Starship. He's saying that Starship is going to take a lot of mass to low Earth orbit, and it's going to be like a big bus. You know, it's going to take a lot up and it's kind and it's going to be like a big bus. You know, it's going to take a lot and it's kind of going to drop it off. And what he's doing is building last mile delivery.

So orbital transfer vehicles, basically, then he'll pick you up and take you to exactly whatever orbital altitude you want to go to, whatever orbital inclination around the Earth you want to go to and can take you to other places outside of earth orbit as well so you know that's one example of of a company somebody who understands you know the capability of starship has full faith in the ability for that vehicle to come online and it's building something but it's really interesting because when you talk to a lot of people it's almost like you're you know you know that this is coming. We've actually seen this happen with Falcon 9 15 years ago. SpaceX completely changed the game, opened up orbit and space and the space economy to entrepreneurs and innovation and capital for the first time.

And, you know, we talked about all the growth that we've seen since that time. And Starship, you know, promises to do the same thing. And so we know we've seen this, we've seen this play out before, yet, it's still really difficult to imagine. I think it's really, we are limited in our imagination to be able to predict what's going to come. It's almost like looking at, you know, the event horizon in a black hole, like, you know, it's coming, you know, it's there, you can see it, but you can't see past it. And so I think we're gonna have to see this, this vehicle come online to become operational for, you know, for all of the stars to align for the capital for the, you know, the resources and the entrepreneurs to sort of be, you know, full on building solutions for this new world we're going into. All right. Well, we'll await more of the data and more of the details from this test flight and see

what comes next. In the meantime, it's so great to speak with you and get your thoughts on all of this. Chad Anderson. Thank you. 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.