Space economy is 'much, much broader' than just rockets, satellites: VC

The race into the space economy is on as more publicly traded companies are entering the tech-driven landscape, an industry previously exclusive to government agencies or private developers. Space Capital Managing Partner and Founder Chad Anderson sits down with Yahoo Finance Live to discuss the expansive portfolio of companies with exposure to space technology and what the venture capitalist investor is looking for.

"We're getting in as pretty much the first institutional check into a company, so about five to seven years away from the public markets, but what we're looking for at that stage is really founders who understand the technology that they're working with... the infrastructure... the satellite hardware... the market in which they're operating in," The Space Economy author explains. "There are some nuances here that make this a unique category to be investing in and to be building innovative solutions in."

Anderson also touches upon the forecasted growth of the space sector in coming years and how space company investments can benefit other industries.

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Video Transcript

- Well, renewed ambitions in space have led to a surge in private capital pouring into the industry. From SpaceX to Blue Origin and beyond, commercial companies are racing to capitalize on those opportunities. Now, Morgan Stanley estimating that the global space race is going to reach $1 trillion in annual revenue by 2040. So where should you be putting your money in this growing market?

Brad and I sat down with Chad Anderson, the founder and managing partner at Space Capital and author of "The Space Economy" to break it all down for us. Let's listen to what he had to say.

CHAD ANDERSON: I think when most people think about space, they think about the Apollo moon landings, the International Space Station, these grand human achievements, but they don't think about the entrepreneurs that are transforming every major industry here on earth. But that's the opportunity that we're really focused on as VC investors in this space.

And space technologies are the invisible backbone of the world's largest industries today. GPS, Geospatial Intelligence Satellite Communications are powering every major industry that we rely on. It is becoming increasingly important and critical. There's a bill in the House right now to deem it critical national infrastructure.

Space technologies are essential to our economic stability and our national security. And so the idea is to think about this as much, much broader than just rockets and satellite hardware. The opportunity here is much, much greater than that.

BRAD SMITH: So when you think about the industries that are going to be most immediately impacted by space and further investment, I mean, naturally, we think about some of the things that you were talking about with telecoms and our connectivity. But even beyond that, agriculture is something that you talk about as well. What are all the different ways that investors, but the everyday citizen can expect their life to change as a result of furthering investment in space too?

CHAD ANDERSON: I mean, the opportunity here is massive. But just to give you a few ideas of opportunities for investors that are outside of the traditional SpaceX and the other big players is we've got-- Satellogic is a publicly listed company. They have Earth imaging satellites that are producing some very high resolution data on a very regular basis.

That's now-- they've just announced a partnership at the conference in Paris with one of our portfolio companies, SkyWatch, that is bringing that data together with other data sets from Earth observation satellites, structuring it and making it really easily accessible through an API, which is now feeding into enterprise workflows.

So it is feeding directly into insurance company underwriters. For example, disaster relief. This type of imagery is being used for precision farming, like you mentioned. But this is a really valuable data set. You can think about it as similar to GPS. And we've written the GPS playbook, and that informs everything that we do.

You've got these satellites that are producing this really valuable data. It's now being harnessed. It's now on the cloud and being structured and organized and distributing out into all of these unique applications. You can think of the Ubers, and Lyfts, and the Instacarts, and everything else that we rely on when it comes to GPS.

The same thing is happening in geospatial intelligence today. Not to mention satellite communications and all of the interesting applications that are being built on top of this new capability that SpaceX's Starlink and Amazon's Kuiper, their internet satellite communications satellites are enabling.

- Chad, tell us a little bit more specifically about that playbook. When you're out there, when you're looking at companies, when you're looking at potential investment opportunities, what are maybe the one, two, the top three things that you're looking for to identify that attractive investment?

CHAD ANDERSON: So we're investing at the earliest stage. We're getting in as pretty much the first institutional check into a company. So about five to seven years away from the public markets.

But what we're looking for at that stage is really founders who understand the technology that they're working with. They understand the infrastructure, the satellite hardware, the market in which they're operating in. So they bring some of that experience to the table. Because there are some nuances here that make this a unique category to be investing in and to be building innovative solutions in. So having that background and that understanding is really, really important.

Also, their ability to navigate a rapidly changing landscape. I mean, all of the growth that we've seen in the space economy has happened over the last-- a little over a decade. I mean, it wasn't that long ago that we saw the market was completely government-led. There was the government and the government's handful of defense contractors, and that was it.

Until SpaceX, not only did they bring a superior technical solution to the market, but they also had to fight for the privilege. And they had to compete for contracts and sue the customers to win those contracts and break that deadlock that the defense contractors and the antibodies of innovation were out to get them. And they were able to get past all of that.

And so we started to think about like the amount of innovation that's happened since then. We are tracking $280 billion of investment capital into 1,800 unique space companies over the last 10 years. And that's up from essentially zero prior to SpaceX.

And we are now, here sitting today, looking at possibly next month, Starship having their first orbital launch. And that vehicle promises to have as much of an impact as their previous vehicle did that's given us and delivered all of this innovation over the last 10 years.

BRAD SMITH: When we think about some of that space investment and that innovation, it's come with or at least orbited around a few specific names. It's been Jeff Bezos, it's been Elon Musk, it's been Sir Richard Branson. Are there any new figures that are set to really break into that squad of, if you will, and as it's been called in at least one book out there, "Space Barons"?

CHAD ANDERSON: I mean, there is a lot of attention put on these billionaires that were the front-runners here and helped supply that initial capital that was needed to break in. And these companies get lumped together; SpaceX, Blue Origin, Virgin Galactic, but they're all very different.

Virgin Galactic has a suborbital space plane. It is an experience to go up and experience weightlessness for a couple of minutes. Blue Origin has big ambitions-- Bezos's company has big ambitions to do lots of things; space stations, heavy launch. But at the moment, they're only doing suborbital space tourism as well, where they launch up and you get a couple of minutes of weightlessness.

SpaceX is on a whole other level. They are the apex player in the space economy without a doubt. They are-- I mean, they're so far ahead that it doesn't really matter who's second. And they are going-- they're taking us to orbit. They're launching satellites. They're launching humans for NASA. They are our best chance at getting to the moon and landing humans on the moon, and setting up an outpost there. So our immediate terrestrial, earthly needs are being met by SpaceX and our future ambitions as well.

BRAD SMITH: And that was Chad Anderson, Space Capital founder and author of "The Space Economy."