Motley Fool Hidden Gems Investing - A Sea Change in Space Exploration

Episode Date: June 3, 2023

Low Earth orbit now has some real estate problems.  Deidre Woollard caught up with Ashlee Vance, author of “When the Heavens Went on Sale: The Misfits and Geniuses Racing to Put Space Within Reach.” They discuss:  - The new business opportunity in clearing space junk - How a self-taught engineer created a commercially successful rocket company - The massive trade-offs that space companies make by going public Companies discussed: RKLB, SPCE Host: Deidre Woollard  Guest: Ashlee Vance Producer: Ricky Mulvey  Engineer: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

The Royal Canadian Legion is celebrating its 100th anniversary. And now, our change has a $2 coin to mark this milestone. Honour the Legion's mission to carry forward stories of service and sacrifice to new generations. And their dedication to supporting veterans and their families from coast to coast to coast. Celebrate this enduring legacy. Find the 100th anniversary of the Royal Canadian Legion $2 coin today. We've gone from about 2,500 satellites in low-Earth orbit in 2020, so that's like 60 years of doing stuff in space to get to that point, and by the end of this year we'll be

at around 10,000, so it's growing exponentially, it'll get to 100,000 in the next decade quite easily I think, and we've never dealt with anything like this. i'm mary long and that's ashley vance a writer at bloomberg and author of the new book when the heavens went on sale the misfits and geniuses racing to put space within reach deirdre willard caught up with vance to discuss how much failure it takes to get above the earth's atmosphere what life is like in outlaw space towns and how to separate the real players from the hype in the space industry. Quick note, this conversation was recorded before Virgin Orbit announced that it was shutting down. Well, the book's title kind of refers that there's

what I would call a sea change in the world of getting to space. You don't need to have a government anymore to have a rocket. You just need a lot of money. So what are some of the pros and cons of the current state of space exploration? Well, a lot on both sides. Yeah, you know, I mean, my book really is about this, this moment in time when basically for like 60 or 70 years, we had a handful of governments that did most of the things in space. And then we moved to this, this billionaire phase where really SpaceX and Elon Musk are kind of the only success stories, you know, writ large. And then now this era of venture capital. And so the major pros are that things are moving much more quickly than they ever have before. The price of rockets and getting to space is coming down. Same thing for satellites. They're cheaper and able to do a lot more. And as a result, we're sending up exponentially more satellites and building this giant computing infrastructure in low Earth orbit. You know, the downside is that this is frenetic. It's a total change in the power structures of how space has operated.

There's going to be some winners and losers in all this. And we're not sure how the losers somewhere like maybe Russia might react. and and you know this technology that we're putting in space is very powerful there's a lot of good that comes with it but also um you know a number of challenges as well and also potentially a lot of risk for investors in in some of this as well right we didn't even get to the business models yet of which there's there's many many many questions um as to sort of who's real and also what this looks like in the long term. Your subtitle for the book, it's Misfits and Geniuses Racing to Put Space Within Reach.

I am such a sucker for misfits. There's a ton of them in this book. There's a whole house full of them in the Rainbow Mansion. It's kind of this Silicon Valley communal utopia. What role did Rainbow Mansion play in the founding of Planet Labs? A huge role. And also in the founding of this book, this was kind of the first story that I really, um, and group of people that I got, I got interested in. So, you know, they're, they're

NASA aims is, is Silicon Valley's NASA center. And, and it had had some bright spots in the past, but then fallen on sort of a pretty slow times. And then all of a sudden in the early part of the two thousands, it had this, this kind of iconoclastic director who came in Pete Warden. and he hired a bunch of 20-somethings to try and think of space differently. And so there was this group of friends that formed. They were all these young space nerds, and a number of them lived in this place called the Rainbow Mansion, which was a commune, like you mentioned.

I mean, it was a mansion, but it was full of people. And they would work at NASA by day and then come back to the Rainbow Mansion and discuss their big ideas about what they wanted to do with space. And it was during some of these late-night discussions over a scotch or a shared meal that they came up with this idea to really rethink how satellites are made. And I'm sure we can get into it, but to build this enormous constellation of imaging satellites that would photograph the Earth in ways we'd never thought were possible before. well you just mentioned pete warden and you had a quote towards the end of the book

you said like if it was a fictional book that he would sort of be the kind of supervillain mastermind behind all of it uh why is that well pete warden has he's one of the older characters in the book and so he's got this long long history he's an astrophysicist by training which seems straightforward enough but he he worked in the he became a general in the air force. He worked on the, the star Wars missile defense shield. He worked on a lot of black ops operations. Um, one of his main goals in life was to help push along something called responsive space, which is, is, is what the defense department has desired for decades. And that's the ability to send, if a war breaks out somewhere like say Afghanistan, you, you want to send up a rocket

the very next day that puts a satellite or a few of them right over afghanistan to watch everything that's happening all the time and and so in that sense people called him sort of darth vader you know he'd done the star wars thing he was trying to militarize space um the people he'd hired to nasa these youngsters were quite opposite they were idealists they were i call them space hippies they definitely did not want to see space get militarized but but pete um to his credit he's just not one of these people who wanted wanted yes, yes, people around him. You know, he wanted new ideas. And, and so he kind of built this environment where these kids could go charge after cheap rockets and cheap satellites for their idealistic missions. You know, by the time

you get to the end of the book, I just argued that that maybe Pete knew what he was doing all along sort of ended up getting the technology he wanted just by pushing this group of kids to chase after what they thought they wanted. It seems like the space race, it attracts a certain type of personality. I love the story of Peter Beck, he's this New Zealand guy, he's this kind of mad genius out of nowhere, decides to build rockets, no connections, no training, no experience for a long time, no money. He kind of pulls it off, Rocket Lab is now a major player. What part of that whole story did you find most improbable kind of about his journey? It's hard to know where to start.

For people who don't know, there's SpaceX, which has launched hundreds of rockets, and then there's Rocket Lab, which is Peter's company. It's launched about 40. After that, the number drops off pretty quick as far as commercial rocket players go. And so, So Rocket Lab is the real deal. Like you mentioned, New Zealand has no aerospace history at all. They were not a space-faring nation. They barely have a military. No experience to rely on.

Peter Beck didn't go to college. He worked as an apprentice at a dishwasher maker. So certainly not some MIT PhD or anything like that. He just happened to be this very driven engineer. um this driven sort of hands-on kind of guy he would make his own propellants um in a shed outside of his house his own rocket engines in a shed outside of his house and so history would tell you this should not work he should not be able to form a rocket startup um but he he really does kind of stand alone as the as the one person who's done this as as a as a one person outfit for

a while, and then obviously got some venture capital money and built this into a massive multi-billion dollar company. But I think of all the stories in the book, it's just the most unlikely. It has to be one of the most unlikely in the last 50 or 60 years. Yeah, that was one of my favorite parts. And I liked it in the Rocket Lab section. He does this thing. He tosses this thing, the humanity star, into space. It's kind of this disco ball. It becomes the brightest object in space until it eventually falls out of orbit and burns up. But it's a good example of the idea that just because we can put something into orbit, maybe we shouldn't. And you also talk in the book a little bit about Leo Labs, which is kind of

starting to track space debris. As someone who like looks up at the sky at night, how concerned should we be about this growing issue of space junk and so much being put up into the lower orbit? Well, this is part of the reason I wrote the book, a large part. You know, the book, I would say, is optimistic overall. But I wanted people to know we've gone from about 2,500 satellites in low Earth orbit in 2020. So that's like 60 years of doing stuff in space to get to that point. And by the end of this year, we'll be at around 10,000. So it's growing exponentially. It'll get to 100,000 in the next decade quite easily, I think. And we've never dealt with anything like this i mean that that 2500 number you know barely grew year by year it was quite

static and and so this company leo labs not only do they track they they have this antenna system they're a startup they've built unique antennas to see stuff in space they don't just track the objects they're already trying to they already coordinate um the movement of these things so uh spacex's satellites will talk to planet labs satellites and and and maneuver out of each other's way. And Leo Labs helps coordinate all of this. So it's in everybody's best interest to make sure this works. Some kind of cascading debris field would undermine every bit of new business and also things like GPS technology and stuff like that. But people should know, you know, the night sky, as you've seen it since you were growing up, is changing and will change

more dramatically. We'll see satellites moving all the time. And this is, I wanted people to start having this discussion like we are right now and be aware of what's coming because I don't think most people have been paying attention. I wonder sometimes if the next iteration of space businesses starts to become businesses that clean up the things that other businesses have put up there. There already are startups trying to do that now. There's some satellite companies, they want to put up satellites and then their satellites also have this kind of junk clearing sort of ability. And then there's some that are just pure. We want to go up there and try to try to manage all of this. I mean, my book is not about tourism. It's not about

colonies on Mars. It is about lower earth orbit, the space right above our heads. It's really presented as this new real estate. And, you know, we sort of know what happens when humans discover some new new place right it's like we rush in and and there's there's already companies trying to claim their territory and and set up shop and and you just you don't want to rush in um so quickly that it kind of ruins it forever which is a real concern here yeah well speaking of real estate one of the things about uh this book and and launching rockets in general you kind of need a lot of room Right. So it seems like if you went everywhere, you went to the wilds of Alaska, New Zealand, obviously the Mojave Desert, which is sort of like the place where all the space stuff is really happening. Give us a little taste of what life is like in these sort of like outlaw space towns.

Yeah, I was a French Guiana, Svalbard, India, you name it. The big launch sites tend to be near the equator. uh the the earth spins faster at the equator so it gives it the rockets a bit of boost so they can carry more stuff um obviously tends to be by the water so if they blow up people and objects don't get hurt um but as a result you also end up in places that are tend to be frankly quite poor and remote and and and exotic and so it's just unlike what i i'm not a space geek by nature It was totally unlike whatever impressions I had in my head, which was like you're going to the most, you know, sci-fi, high-tech, clean sort of facility imaginable. Usually I would go in, you know, like in India, there's kind of goats and monkeys and all sorts of animals just cruising around the Rocket Lodge site.

The buildings look like and are from sort of like the 1970s. um part of it's a reflection that this space boom that happened in the 50s and 60s things got stuck it just didn't change much after that and then part of it is just a reflection of where these things end up you just you don't put like a rocket launch site in the middle of los angeles for obvious reasons yeah definitely not well the story of astra in the book uh to my mind it kind of illustrates how much failure is involved in getting things into space because you've got Chris Kemp, he's this kind of charismatic, brilliant, maybe a little bit of a wild man. He's pushing this team really hard, and these rockets just keep failing over and over again.

And you called going public for both Kemp and for Astra kind of this Faustian bargain. So I want to know, why was that true? Is it still true? And with everything that's going on with Astra now and what just happened with Virgin Orbit, what do you think is next for Astra? Yeah, it's this incredible time. Even SpaceX is still private, which is a reflection of the traditions in this industry. We have not seen public space companies until the SPAC craze of what, like 2021, I think was kind of the peak SPACness. And, you know, there was all this cheap money. So the Faustian bargain was, look, we need money.

We could get hundreds of millions of dollars. SPACs were amazing because the regulations are a little flimsier around them. So you could promise all kinds of incredible things about how often you're going to launch and all this stuff without getting into too much trouble. And so it was this huge opportunity for these companies. I argue in the book, and I think this is very true, is that most investors barely understand the commercial space economy. And like the average retail investor definitely does not really understand still kind of how hard this is and the mechanics of it. So a company like Astra is public. So now they have to start doing what used to be private, hidden launches right out in the open.

And there is no more binary product launch than flying an explosive into the air. And it either gets to space or it blows up. This is not like some software product that you put out there and get months to see if it gets some kind of adoption. And so you see these companies' stock prices just oscillating up and down based on these launches. And, you know, I think Virgin Orbit recently filed for bankruptcy, although there's rumors that they're kind of making a comeback. But I think where we saw this huge initial wave, particularly there were a lot of, you know, rockets kind of come in, in small, medium and large. And we got inundated with small rocket companies that really were not that different from each other. So I think we're going to see kind of a clean out of a lot of those because we probably only need a couple.

And then I really think, so I think we're going to see like a bit of a pullback. But then I think, as I argue in the book, this is not like a failed experiment. Commercial space is going to happen. And so I think we just see a second wave of new players who really try to learn lessons from what came before. And the industry has matured where a rocket company that started today would not have to make all of its own engines. There's engine companies. There's different suppliers now. And so it's already sort of a new regime if you want to second crack at this.

Well, I have to ask you about your adventures with Max Polyakov, because, you know, he's the man who rescued and really rebirthed Firefly Aerospace. But in a book full of, as we've seen, really colorful characters, he might just be the most colorful and maybe controversial. So is he the Ukrainian Elon Musk or something else entirely? I guess he's close to that or he's on the verge of it. You know, so Max, he grew up as the Soviet empire was kind of collapsing. His parents had worked on the Soviet space program. He was an OBGYN coming out of university and then turned into this software multimillionaire. And yeah, to your point, he bought Firefly.

It was a small rocket maker in Texas that went bankrupt. Max came in. And he is like Elon Musk and Jeff Bezos in the sense that he put $250 million into Firefly, which it's very hard to find another, you know, individual that's put anything close to that into a rocket company. The story of Max is, it's like part comedy, part tragedy. I think right as Firefly starts to become successful, the U.S. government begins to raise all of these questions, which I thought were quite flimsy, really.

I mean, the U.S. government's basic contention is that he's Ukrainian and Ukraine is close to Russia and that he might one day become a Russian asset and funnel American aerospace technology to Russia. If this is true, he is the most extraordinary undercover agent I've ever seen because he's been funding the ukrainian war effort since since the war began and um and seems to hate russia with a passion but yeah so this you know i i had this bizarre opportunity to live through all of this with max with him him trying to build this company with the u.s basically throwing him out of the company and out of the country and going to ukraine with him and and the whole thing and then he sort

of just like picked up his marbles and now he's in scotland right he is he's in scotland he's you You know, he had all these business software and online business ventures that he's refocused on. He owns a satellite company in South Africa. I mean, he still has space in his blood. And I don't think we've seen the last of Max Plyakov in space. We were already talking about some of these rocket companies that are struggling. I'll be curious to see if Max swoops in and takes a second crack at this. What you just said there is true about when space gets in your blood, because that's sort of what comes through in the book.

And it's come through with the billionaires. Your book isn't about the space tourism race, but I kind of got to ask you, because you have such insight on all of them. In this billionaire space race with Bezos, Musk, Richard Branson still is kind of in there. If this were a horse race, you could only bet on one of them. Who would you put your money on? Put everything I possibly could obtain on Elon. I mean, you know, SpaceX is running laps around not only their rivals, but entire nations. Branson's companies, you know, are barely existing.

And Blue Origin has had some wins with space tourism, but has been trying to send satellites into orbit pretty much as long as SpaceX has and has never sent one. And SpaceX is sending them up by the thousands per year and launching rockets almost every day. And so, yeah, no, that would be you could feasibly bet on depends, you know, on your time horizon. If you could you could get into Blue Origin now and maybe maybe have some surprise wins. Well, one of one of my colleagues wanted me to ask this. So in 2018, you did an interview with us at The Fool, and you said that SpaceX was Musk's baby, that Tesla was kind of foisted on him. Now he's got Twitter, and he's sort of actively said that that has definitely been foisted on him, too. He felt like he had to buy it.

So he's got those companies. He's got certainly some other companies as well. He's kind of all over the place. How do you see him splitting his focus? And how important do you think, looking back between 2018 and now, how important do you think SpaceX is to him? Has that shifted over time? I think it's still his baby in his heart. I've been shocked to see how all-consuming Twitter has been.

I guess he saw it as in this emergency state where it was burning through cash and he had to be very hands-on to deal with that and deal with all the debt and these payments. It's a little sad to me in some ways. I just don't think it's the best use of his time. I think SpaceX has accomplished so much and is still just starting this new chapter with Starship, an even bigger rocket that actually can get to Mars and take a lot of stuff and people there, which has really been his life's goal. So, you know, I think he's torn at the moment, if I'm honest. I think SpaceX also operates quite well without his day-to-day involvement.

He seems to be extremely concerned about AI technology as well. And so I just wonder if we're entering, this is something I never saw coming. I really thought this guy who had his finger in so many pies would try to pare things down over time to just concentrate on SpaceX. And we're obviously going in the opposite direction right now. So I don't know for sure how this plays out. yeah well overall in the book one of the sort of takeaways for me is about how much failure is involved uh you know we talked about astra uh certainly firefly has gone up and down with all of these launches and and so much money being spent and so many failures do you think that

over time we get better and better at this and there are fewer failures because right now it hasn't quite seemed like that like things will get a little better and then there'll be a rash of failures and then it seems like everybody goes back and iterates what do you kind of see uh how how how is the failure rate going to go still very difficult it's that it's that first getting the first rocket is very hard and then getting some kind of repeatability is very hard um but if you step back for a second we do have just massive uh leaps forward for it used to be all the space programs were really government run to some degree and and the best really launched maybe once a month over the course of a year i mean that was that was success spacex currently is

on a pace for about once every two days and probably could get to almost once a day if it wanted to um it's sending it sent 38 people up over the last two and a half years from from nothing Rocket Lab launches, can launch about once every week and is trying to get to once every three or so days and has three rocket pads at its disposal now. So, yes, you know, some of these other companies are at an earlier stage. But when we look at SpaceX and Rocket Lab as the two kind of premier commercial space players, it's a totally new regime than what happened before. so it's still very hard but definitely does not even to make a go at this before you did have to be a nation state you did have to have thousands of people billions of dollars and so now you know much much smaller teams and much less capital required to to give us a shot and and we're

going to see just this year i mean there's about i think 10 on the order between 5 and 10 rocket startups that are launching for the first time. So this is from nothing 15 years ago to quite a number of players. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy stocks based solely on what you hear. I'm Mary Long. Thanks for listening. We'll see you tomorrow. We'll see you then.