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Contents
ABSTRACT
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The feasibility of space technologies has been revolutionized by low-cost satellites the size of a “Kleenex box” known as CubeSats. Tess Hatch, partner at Bessemer Venture Partners, explores the drivers of an ongoing renaissance in space-based technologies that go way beyond Space X’s rockets. She also explains why space technologies are less risky than they seem, offering countercyclical, and uniquely competitive opportunities for tech investment.
KEY POINTS FROM TESS HATCH'S POV
Why is Space Tech such an important category moving forward?
- Advancements like inexpensive CubeSats and reductions in launch costs have dramatically lowered cost barriers. The price for building and launching satellites has decreased significantly, lowering entry hurdles for smaller companies. “The number one technical driver was the invention of the CubeSat,” says Hatch. “These tissue box-sized satellites possess nearly the same functionality as larger incumbents, cost significantly less, and can operate in Low-Earth Orbit (LEO), allowing for cheaper launch vehicles to deploy them.”
- Space-based technologies are increasingly powering everyday business applications for Fortune 500 companies, energizing the ecosystem. “The corporations I interact with everyday are very receptive — their strategy playbooks include space,” she says. Among the tech giants, for example, there’s something of a race underway in satellite-based services: Amazon launched its Kuiper subsidiary in 2019 to provide internet broadband, and Apple’s newest iPhone boasts emergency calling. Business applications range across industries, including GPS navigation, satellite radio and TV, credit-card networks, and more.
What are some of the business models or applications that might be attached to this category?
- Hardware needs are burgeoning, i.e. equipment and parts related to the growing ecosystem of operators, launch vehicles, and satellites. The demand is being nurtured by a healthy stream of government and private-sector contracts.
- Overall, applications and business models will be as diverse as the industries impacted by space. Below are just a few of the more concrete possibilities:
- Manufacturing and R&D in zero gravity: “One example is manufacturing,” says Hatch. “When fiber optic cables are pulled in zero-gravity, they are pulled with zero imperfections. These cables can help us communicate even faster. There is also potential for pharmaceutical testing in space, using the properties of zero-gravity within drugs and pharma.”
- Space tourism is a service sector with strong potential. “This industry gets a disproportionate amount of attention for its current share of total value,” she acknowledges. “Nonetheless, I believe this sector will continue to grow in popularity in the future. One of my favorite quotes is from Astronaut Sultan bin Salman Al-Saud, ‘The first day or so we all pointed to our countries. The third or fourth day we were pointing to our continents. By the fifth day, we were aware of only one Earth.' I personally believe that the Overview Effect, this sense of awe and clarity we get from viewing the Earth without borders, is a strong indicator of the potential for continued growth in space tourism.”
I personally believe that the Overview Effect, this sense of awe and clarity we get from viewing the Earth without borders, is a strong indicator of the potential for continued growth in space tourism
Tess Hatch ~quoteblock
What are some of the potential roadblocks?
- Communication is a big momentum-driver overall for the industry, but tech giants are making this category ultra competitive. “Just look at SpaceX’s Starlink and Amazon’s Kuiper,” says Hatch. “Each plans to put hundreds of thousands of micro-satellites into space to provide ubiquitous internet connectivity. I love this as a consumer, but as an investor, I don’t want to compete with the capital of these companies.”
- While decreasing, the relatively high cost barriers will remain until a high-efficiency “space elevator” is established. “We still have a long way to go in establishing a ‘space elevator’, which is shorthand for a system of tools that coordinate to move materials to-and-from space in a cost-effective manner,” she says. “However, there are several projects coming to fruition that should continue to improve space access.”
- Relatedly, many use cases are hampered by a low technical-readiness level. For example, experts have spoken to the possibility of moving dirty industries off the earth, or porting nuclear power-generation to the moon. But these and many potential use cases won’t come to fruition until the technical challenges are reduced sufficiently to make them feasible at scale.
- Regulation doesn’t always keep pace with technological advancement. “Aerospace is notorious for red tape and bureaucracy,” she says. “Regulation from the FAA, FCC and others are crucial for safety, but the often outdated regulation affects the speed at which technology can progress in this field."
VISUAL: ‘THE SPACE STACK’ MARKET MAP
The BVP Space Stack examines the hardware and software categories that could help drive a virtuous cycle of innovation, commercial growth, and adoption of space technologies. See the original source publication here.
IN THE INVESTOR’S OWN WORDS
An investment in deep tech and hardware is an investment in the future of our society and economy. It’s really important to note that, just a handful of months ago, three of the ten most valuable private companies were deep tech: SpaceX, Rivian, — which recently went public so it’s off the list — and DJI, the Chinese drone company.
Compared to SaaS companies, deep tech and space-focused companies have to spend much more on design, testing, and even launching into space. There is a much larger denominator in terms of cost, and a longer feedback cycle, than in SaaS models.
While the cost barriers in space tech are still very high, these kinds of deep tech investments and hardware offer an amazing competitive moat. It is much harder to follow a satellite company, even if it has just a few units in orbit, than to replicate a SaaS business model.
Additionally, there are numerous examples showing that space exploration has been fruitful as an engine that drives beneficial tech innovation applicable in other industries: MRI and CT medical scanning technologies, water-purification systems, laser eye surgery, even implantable heart monitors.
I am confident that our efforts to further explore space will result in tremendous advances that will benefit humankind. But I think it's going to take the government, it's going to take private companies, it's going to take lots of people working together towards that mission.
WHAT ELSE TO WATCH FOR IN THIS CATEGORY
- Watch for signs of the space category’s recession-resistance and attractiveness to defense-minded spending. There is credible evidence the industry is taking on a “counter-cyclical” profile as the economy slows down, says Hatch. The space category has been growing faster with each year recently, by several measures, and shows no signs of slowing down. “I’m going to guess that the 2022 numbers will support the notion of recession-proof investment opportunities in space tech,” she says. “Another big factor in this industry is the value from government contracts. One example here is the largest commercial imagery contract in history, for $4B, which was recently awarded by the US government’s National Reconnaissance Office (NRO).”
- Rigor and technical knowledge is critical when evaluating space investors, technologies, and companies, particularly in hardware. “I think what people often get wrong is doing their diligence on this incredibly complicated technology,” Hatch says. “We hire consultants in topics like metal 3D printing, rockets, and more because you really have to make sure the fundamental technology works. For example, I am being controversial here, but I’d say there are over 300 ‘fantasy’ rockets right now. I say this because they either haven't launched at all, or they aren't doing well with their success rate.”
Acknowledgments
See the original source publication of the Space Stack Market Map from Tess Hatch here.
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