This story is featured in the 3Q issue of the PitchBook Private Market PlayBook.
One morning in the spring of 1961, the eyes of a nation turned toward balmy Cape Canaveral, FL, where a 37-year-old from New Hampshire sat atop two tons of metal and plastic and highly explosive fuel, waiting impatiently to become the first American to visit outer space.
Liftoff was scheduled for 7 am. But delays kept piling up. By 9 am, the 82-foot craft called Freedom 7 was still on the launchpad. A new reading showed the pressure in a fuel tank was too high, putting the entire mission in doubt. For the man who'd been ensconced within the ship for the past four hours—which included encountering (and solving) the unanticipated conundrum of how an astronaut would empty his bladder while strapped atop a rocket—it was the final straw.
"Why don't you fix your little problem," Alan Shepard radioed to mission control, "and light this candle?"
Shepard's admonition quickly became an iconic example of America's astronautic derring-do—the definition of "the right stuff," as the writer Tom Wolfe would later so memorably put it. The successful launch helped spark a national obsession with space travel. The next year, President John F. Kennedy pledged the US would aim to put a man on the moon by the end of the decade. It succeeded, of course, in 1969, when Neil Armstrong became the first human to set foot on Earth's only natural satellite.
This year marks the 50th anniversary of achieving that dream, the culmination of a decade's worth of groundbreaking science, Cold War machinations and extraordinary taxpayer spending. But it's also the 47th anniversary of the last time man walked on the moon. After a half-dozen successful moon missions, the US decided it had had enough. Public funding largely dried up. And no other nation assumed the mantle. Amazing accomplishments in space have continued, but never again has the idea of exploring the cosmos captured the public imagination like it did in the 1960s, when the US and the Soviet Union were engaged in an all-encompassing battle for nothing less than the hearts and minds of the human race.
Never again, that is, until now. And this time, it's private capital rather than taxpayer dollars paying the way.
As the decade comes to a close, a new, very different space race is underway. It's being led by three of the most famous business tycoons in the world, a trio of powerful billionaires who've decided to channel their fortunes toward helping humanity leave its home, in one way or another. Elon Musk, Jeff Bezos and Richard Branson all have different dreams—ranging from colonies on Mars to suborbital space tourism—and all three are turning to different corners of the private market to finance their efforts.
And they're not alone. A constellation of other companies are using private funding to pursue astronomical aims, including several focused on building and launching satellites and others with even more breathtaking goals, like harvesting water from the moon and converting it to rocket fuel. Venture capitalists and corporations alike are making more investments in the space sector than ever before, putting their cash behind groundbreaking technologies and entrepreneurs unafraid to quite literally shoot for the moon.
So many mysteries remain in this bold new era. Can SpaceX put a man on Mars? Can Blue Origin colonize the solar system? Can Virgin Galactic make affordable space tourism a reality? Private investors around the world sure seem to think so, placing their bets that a new future in space is on the horizon.
Perhaps someone just needs to light the candle. Rocket men Our new space age began in earnest two decades ago at a coffee shop in Seattle. And it might have never happened without Jake Gyllenhaal. One day in 1999, Amazon founder Jeff Bezos and his friend Neal Stephenson, a science-fiction author, attended a screening of "October Sky," which stars Gyllenhaal as Homer Hickam, a future NASA engineer who got his start firing off amateur rockets in the West Virginia backcountry in the 1950s. Over a cup of joe after the film, as the story goes, Bezos mentioned to Stephenson that he'd always wanted to start his own space company.
"And I said, ‘Well, why don't you start it today?'" Stephenson recalls in "The Space Barons," a 2018 book by veteran space and defense reporter Christian Davenport that chronicles Bezos, Musk and Branson's dueling space dreams. "Things got started immediately after that."
Blue Origin officially launched in 2000, with hopes of developing vertical takeoff and vertical landing rockets and other technologies that could guide humanity into the heavens. The company's name reflects it goal of creating colonies in space. For future generations, Earth could be little more than the blue planet from which an interstellar exodus began. The project remained in total stealth until 2003 and was shrouded in secrecy for quite some time thereafter—reflective, perhaps, of its founder's generally reticent ways.
That's not the only way Bezos and Blue Origin differ from the bombastic Musk and SpaceX.
In 2002, SpaceX began with a bang. Musk's role in co-founding PayPal meant the 30-year-old South African was already a very wealthy man. For his next act, according to "The Space Barons," he decided to launch a greenhouse packed with seeds and nutrient gel toward Mars, thinking the mission to turn the red planet green might cost $30 million. After he was informed it would in fact cost at least $100 million more—and after multiple visits to Russia in a failed attempt to acquire a refurbished ballistic missile to propel his efforts—Musk decided to pivot. Surely, he could build a more affordable rocket on his own.
SpaceX's early years involved plenty of drama, including a lawsuit accusing NASA of illegal bidding processes and a cross-country trip to conduct an impromptu display of the company's Falcon 1 rocket on the streets of Washington, DC. But before long, it had established itself as an up-and-coming player in the long-dormant field of rocket design. And Musk had made his enormous ambitions very clear.
A third entrant into the new billionaire-fueled space race emerged in 2004 in the form of Richard Branson, the swashbuckling British knight who had already spent the better part of three decades exploring the seas and the skies when he wasn't occupied with his Virgin business empire. Called Virgin Galactic, Branson's company has more modest goals than Blue Origin and SpaceX; it's focused on sending tourists on suborbital trips into space, about 60 miles up.
Virgin Galactic's spaceflights involve two planes: a craft called SpaceShipTwo that does most of the actual flying, and a mothership called White Knight Two that carries SpaceShipTwo high enough off the ground for the smaller vehicle to fire its motors. It's analogous to the X-15 and Dyna-Soar spaceplanes developed by the US Air Force while NASA was focusing on rocket-based space travel.
While Bezos and Musk have built their rocket companies from scratch, Branson acquired the business that became Virgin Galactic after it had already sent a ship into space. With initial backing from Paul Allen, an engineer named Burt Rutan developed the company's technology in an attempt to win the X Prize, a $10 million award promised by entrepreneur Peter Diamandis in 1996 to the first private citizen to fly a manned ship across the Karman line (the widely accepted border of space) twice in the span of two weeks. Rutan succeeded in 2004, and around the same time, Branson acquired the company's intellectual property from Allen and formed Virgin Galactic to continue Rutan's work.
To some, Rutan's triumph signaled space exploration's transition from a publicly funded effort to one paid for with private capital. In 2004, he and his colleagues launched more successful missions beyond the boundaries of space than all the governments of the world combined. To the moon and beyond In the years since their respective creations, Blue Origin, SpaceX and Virgin Galactic have all taken impressive steps toward accomplishing their stated aims. The three have also turned to varying funding sources to pay for their expensive projects.
Like Virgin Galactic, Blue Origin was initially focused on suborbital space travel with its New Shepard craft—which is, of course, named for Alan Shepard. In 2015, the company revealed plans to build and launch its own orbital rocket, called the New Glenn (after John Glenn, the first American to orbit the Earth). Both have returned promising results, prompting the company to consider what's next.
Earlier this year, Bezos gave perhaps the clearest outline yet of Blue Origin's ultimate goals. In the short term, it wants to build a lunar lander that could help send astronauts back to the moon by 2024. In the long term, Blue Origin wants to develop enormous free-floating space colonies elsewhere in the solar system—an idea borrowed from futurist thinker Gerard O'Neill that Bezos has publicly championed for nearly 40 years.
To pay for all that groundbreaking R&D, Blue Origin has turned to one of the most inexhaustible sources of capital in the world: its owner's bank account. In 2017, Bezos said he was selling about $1 billion worth of Amazon stock each year to finance Blue Origin. The business has also received grant funding from the US Air Force, including $500 million last October to help fund the New Glenn rocket.
Instead of dipping into the deep pockets of its founder, SpaceX has largely relied on venture capital to fund its Falcon rockets and Dragon spacecraft, which have accomplished a number of industry firsts over the past decade, including the first reuse of an orbital rocket. That's an integral part of the company's aims, as Musk and SpaceX believe designing rockets for multiple uses will greatly reduce the overall costs of space travel. SpaceX is engaged with Blue Origin in a race to the moon, with Musk having recently stated his company's Starship could be ready for a lunar trip by 2021. Ultimately, Musk wants to send ships and colonists to Mars—which, of course, was the reason he started a space company in the first place.
To date, SpaceX has raised more than $3 billion in VC funding from an extended list of investors that includes major names like Founders Fund, Draper Fisher Jurvetson, Alphabet and Fidelity. Already this year, SpaceX has hauled in more than $1.3 billion, with its latest announced round totaling $314.15 million (the first five digits of pi, for what it's worth). That takes the company's valuation to $33.4 billion, making it one of the three most valuable VC-backed companies in the US as of this writing, according to PitchBook data.
That figure has skyrocketed in recent years, a reflection of SpaceX's rapid progress. The Los Angeles-area company was valued at $27 million with its Series A round way back in 2002, and it didn't reach a $1 billion valuation until 2010. These days, though, every new private investment seems to come with a new headline-grabbing valuation, from $10 billion in 2015 to $20 billion in 2017 to more than $30 billion this year.
Virgin Galactic got by for several years after its creation with no outside funding. In the past decade, though, it's turned to two Middle Eastern governments for cash. In 2010, it sold a 32% stake to Aabar Investments, an affiliate of the United Arab Emirates' government, for $280 million, resulting in a $900 million valuation. And in 2017, Virgin Galactic inked a $1 billion investment with Saudi Arabia's Public Investment Fund, with the potential for nearly $500 million in additional capital down the road. A year later, though, Branson publicly called off the deal after Saudi Arabia's involvement in the killing of journalist Jamal Khashoggi.
Earlier this year, the company found a different source of cash. In July, it revealed surprising plans for a reverse merger that would see the business go public by combining with a special-purpose acquisition company called Social Capital Hedosophia, handing over a 49% stake at a valuation of $1.5 billion. As its name suggests, the SPAC was created in part by data-driven VC investor Social Capital. Chamath Palihapitiya, the firm's founder, agreed to invest $100 million in Virgin Galactic as part of the deal.
The announcement of Virgin Galactic's plans to move from the private to the public market came a few weeks after the company reached a long-awaited milestone by flying a passenger into space for the first time. The company thinks commercial spaceflights will begin within the year, and it claims to have already collected $80 million in deposits from more than 600 future customers.
Its heady stuff—ideas of cosmic travel and colonies among the stars are enough to capture any investor's imagination. And there are plenty of other companies in the sector sucking up capital beyond SpaceX, Blue Origin and Virgin Galactic. Investment takes flight Billionaires such as Allen and Branson were early to the party. It's only been in recent years that the larger landscape of private investors has turned its attention in earnest toward space.
As recently as 2011, the world's VC investors made just nine investments in the space tech vertical that totaled a mere $2.6 million, according to PitchBook data. Deal count in the sector has increased every year since, and the value of those deals has been trending even more strongly up and to the right. By 2015, the value of all VC deals involving space tech had topped $1.5 billion, and in 2017, it reached a new high point, with 74 investments worth a combined $1.8 billion.
For corporate acquirers, the pattern has been similar, but much less pronounced. From 2005 to 2011, there were an average of seven M&A deals in the global space tech vertical each year, per PitchBook data. In the next seven full years, from 2012 to 2018, the average count increased to 11. Last year brought 10 mergers worth a combined $9.3 billion, the highest figure in any single year this century and more than the previous four years combined.
Only two firms have conducted more than 10 investments in the space tech industry since the start of 2002. The first is the aptly named Space Angels, a group of investors focused entirely on early-stage deals in the sector. The second is Hemisphere Ventures, a more generalist early-stage investor that targets software, robotics and other high-tech industries in addition to space. Combined, the two have made 40 investments in the vertical over the past 18 years.
The idea of space travel has long captivated a certain type of visionary thinker—Musk and Bezos are probably the two most prominent examples. But they're not the only ones. Peter Thiel's Founders Fund and Vinod Khosla's Khosla Ventures are also among the seven most active VC investors in the global space tech vertical, striking a series of deals with companies seeking to be the next big thing among the stars. Both Thiel and Khosla are prominent Silicon Valley iconoclasts who have long been willing to bet on themselves and their own beliefs, no matter how far out of the mainstream those beliefs may lie. Throughout the history of aviation and aerospace, scientists and tinkerers with similar traits have been behind some of the industry's biggest breakthroughs. From Sputnik with love Alan Shepard's 1961 ascent marked the beginning of America's love affair with extraterrestrial travel, but it came nearly four years after the true beginning of the Cold War space race. That occurred in 1957, when the Soviet Union launched a satellite called Sputnik into orbit, sparking an (ultimately unfounded) panic across America about the prospect of nuclear weapons raining down from above. Before humans went into space, satellites led the way.
So it was 60 years ago, and so it is again today.
Manned missions to Mars are still a dream, but private investors are already pumping millions of dollars into space tech companies operating a bit closer to home. Technological breakthroughs have made it easier and cheaper than ever to send high-powered satellites into orbit for a range of uses, everything from communications to global imaging to creating a worldwide internet network. It's an emerging sector full of high-tech (and well-funded) competitors.
One of the most intriguing is OneWeb, a British business planning to launch and maintain a network of hundreds of small satellites that would provide access to broadband internet services around the entire globe. It's already been a big 2019 for the business: In February, it launched its first batch of satellites, and in March it raised $1.25 billion from SoftBank, Qualcomm and other major backers, bringing OneWeb's total private funding to $3.4 billion.
Another British satellite specialist was active in March, as Inmarsat agreed to sell itself to a private equity consortium that includes Apax Partners and Warburg Pincus for about $3.4 billion. The takeover doesn't appear to be a sure thing, however: In July, UK regulators launched an investigation of the deal on national security grounds. If completed, the pact would begin Inmarsat's second dalliance with PE, as it was previously an Apax portfolio company from 2003 to 2005.
Planet is a VC-backed company founded in 2010 that operates a network of high-powered imaging satellites designed to do nothing less than monitor the Earth's entire surface, tracking visible changes related to natural resource depletion, natural disasters and more. It's raised cash from First Round Capital, Founders Fund, Data Collective and other VCs, reaching an estimated $2.2 billion valuation in 2017.
The list continues. In early August, a Virginia-based startup called HawkEye 360 banked $70 million in Series B funding from Razor's Edge Ventures, Airbus and other backers to finance its network of radio-frequency data satellites, which could help clients better monitor maritime traffic. Seattle-area upstart Kymeta has raised nearly $200 million from investors like Lux Capital and Bill Gates over the past seven years for its proprietary satellites, which are designed to rapidly send and receive data from vehicles. Descartes Labs raised VC at a $160 million valuation in 2017 to support its satellites and platform, which use imaging data to generate predictive models for its clients.
And then there are the businesses working on the technology required to launch all those satellites into orbit.
In California, Rocket Lab is developing new kinds of propulsion technology designed to make small satellite launches cheaper and more affordable, with 39 successful missions already under its belt. Late last year, the company raised $140 million in VC funding at a $1.4 billion valuation from Khosla Ventures, Bessemer Venture Partners and more. Another company focused on launching small satellites, Spaceflight Industries, raised $150 million in VC last year at a $750 million valuation.
Corporate acquirers are getting in on the booming subsector as well. In 2018, aerospace and defense giant Northrop Grumman finalized a $9.2 billion purchase of Orbital ATK, a maker of rockets and related propulsion products for satellites and other uses.
Global satellite networks are already a reality. Manned missions into space for companies like Virgin Galactic could be right around the corner. For some of the more ambitious dreams in the space tech sector, though, transforming ideas into reality might be much farther away. Mining the skies What's the best way for humanity to capitalize on all the solar system has to offer? Musk's dream of a Martian civilization and Bezos's plans for an orbiting space colony represent one path: Move the people into space, where the resources are. In the past decade, a pair of headline-grabbing startups launched with plans to do the exact opposite: Bring the resources down to Earth, where the people are.
In a vacuum, the concept of asteroid mining makes sense. There are nearly 800,000 known asteroids in our solar system, according to NASA, some of them packed with precious metals and other materials that, if they could somehow be brought to Earth, would be worth almost unimaginable sums. Certain targets could yield trillions of dollars in profits, according to a website called Asterank, which maintains a database tracking asteroids' size, proximity to Earth and potential worth. Nickel, iron, cobalt, aluminum and platinum are just a few of the elements believed to exist in vast quantities in some of the most accessible space rocks.
That outrageous potential prompted the creation of Planetary Resources and Deep Space Industries, two startups that have raised millions in VC funding to finance the hope of turning some of that hypothetical wealth into cold, hard cash. Recent years, though, have indicated success might be further away than those backers first thought.
Planetary Resources got off to a stellar start after emerging from stealth in 2012, with a group of founding investors that included Google co-founder Larry Page and former CEO Eric Schmidt. Richard Branson joined the investor group a year later. Yet after a few rounds of funding, the struggles began. The company confirmed that a planned investment round fell through, and it reportedly conducted a series of layoffs as a response. Then, last October, Planetary Resources agreed to sell itself to ConsenSys, a blockchain company that's primary focus would seem to be very far away from the asteroid belt. DSI also got its start in 2012, and it was also the subject of a recent acquisition, as Europe-based Bradford Space Group bought the business at the start of 2019.
As the asteroid market cools, prospective space miners have set their sights on a different target: the moon. In 2018, NASA confirmed the existence of surface ice at the north and south lunar poles, a discovery that could have major implications for future space travel. The theory is that a company (or country) could establish mining operations on the moon that would separate the ice into its component parts of hydrogen and oxygen, which could then be used as inexpensive fuel for missions back to Earth or elsewhere in the solar system—liquid hydrogen and liquid oxygen can both be used to create highly powerful rocket fuel.
One privately backed company focused on lunar mining is Moon Express, which over the past decade has been working on ways to affordably travel to the moon and harvest valuable resources. It raised $12.5 million in financing last October, nearly two years after reaching a $70 million valuation. The blue marble In the spring of 1982, Jeff Bezos graduated as the valedictorian of his senior class at Miami Palmetto High School in Pinecrest, FL. As "The Space Barons" tells it, his graduation speech was the first time he publicly predicted a future of space colonization that would be driven by the fact of Earth's finite resources: Eventually, the planet would run out of all the stuff that has powered humanity's rise to a globe-dominating position. He envisioned a species-wide shift toward the stars, leaving our original home to thrive as a verdant vacation destination.
"The whole idea is to preserve the Earth," Bezos told the Miami Herald at the time.
The past 40 years have made that prospect both much more compelling and much more unrealistic. The planet is warming and the climate is changing, yet instead of cutting back on our carbon-burning ways, humans are pumping more greenhouse gases into the atmosphere than ever, accelerating a cycle that presents a truly existential threat. Even if we were to begin migrating to Blue Origin-built space colonies by the end of the year, Earth's climate would continue to grow more and more inhospitable over the coming years, decades and centuries.
To put it in terms that hit closer to home for Bezos, it might not be long until all of Pinecrest is under water.
The literal fate of the human race isn't every space entrepreneur's primary concern. Richard Branson, for instance, seems more concerned with simply showing deep-pocketed tourists a good time. Which is fair enough. But for many companies and private investors, the opportunity to help build (and profit from) the future of the species seems to be one of space's primary attractions. It might not be long before the race to explore the rest of our solar system takes on a whole new sense of urgency for billions of people around the globe.
For most of human history, ideas like mining the moon, sending humans to Mars and building vast man-made space colonies were the provenance of storytellers, mystics and science-fiction writers. For a brief period in the middle of the past century, the governments of the US and the Soviet Union channeled vast amounts of money and research into making such dreams come true. And now, the time of the private investor has arrived, as billionaires like Musk, Bezos and Branson have devoted their considerable brainpower and spending power to solving some of the biggest problems our species has ever faced.
No matter the difficulties, though, America's optimism about space exploration remains intact—an unerring confidence in our own capability to conquer any problem that was perfectly expressed by a young Bezos back in 1982, at a commencement ceremony about 225 miles down the Florida coast from the Cape Canaveral launchpad where Shepard once gave the immortal instruction to "light this candle."
"Space, the final frontier," Bezos announced to his peers. "Meet me there!"
Featured image designed by Alessandro Gottardo