The Billionaire Space Race Launches A New Venture Capital Solar System

The successful July launches of Richard Branson’s Virgin Galactic and Jeff Bezos’ Blue Origin space flights for many seemed more like a made-for-TV spectacle than a showcase of scientific advancement. But for the venture capital community it meant something different. The milestones were a sign to many investors and entrepreneurs that the commercialization of space, which has been spearheaded by Elon Musk’s SpaceX, was not only possible but might be more expansive and come sooner than originally thought — and they wanted in. 

These private space companies, all of which formed about 20 years ago, have lofty goals of regular space tourist flights or building factories in orbit. But regardless of these ambitions — or if they even get there —  what they have done thus far to prepare has fundamentally changed what role a private company can have with space. “I just like to remind people that people bust their chops but their idea is quite cool,” Bill Nye, the CEO of The Planetary Society tells Forbes. “[Elon] Musk pointed out years ago if you were to do [rocket launches] routinely enough, launching Falcon 9s, and get the thing reliable enough, then it becomes like a commercial airplane.”

It Starts At The Launch

What established space companies like SpaceX and the L.A.-based Rocket Lab, founded in 2006,  have improved the most are rocket launches — the industry’s kryptonite. By lowering the cost to launch the process can be more frequent and has they’ve lit a spark in entrepreneurs. These companies have inspired others to try to tackle these issues like Long Beach-based Relativity Space, which looks to print 3D rockets, and Seattle-based STOKE Space Technologies which looks to build a fully reusable rocket to build off of Musk’s partially recyclable machines. 

By nearly eliminating the sector’s main barrier to entry, launch companies have built an infrastructure that other entrepreneurs can build on. The same way that advancements in computers and large-scale build outs of fiber optic networks sparked the dotcom boom in the ‘90s, venture capitalists predict the same thing is ready to happen in the space economy. Data from Space Capital shows investors poured nearly $15 billion into the sector in the first half of 2021 alone across 230 deals, $37 billion since 2013. The market has also started to see a handful of exits — mainly through SPACs — which are just adding fuel to the fire. 

“It’s a renaissance period in the space ecosystem,” Andy Lapsa, a cofounder of STOKE says. “Space development, it became this commercial sector. There has never been a case where the commercial sector has the promise that it does today.” Delian Asparouhov, a principal at Founders Fund, echoes that statement. He adds that now that the industry has this foundation other industries can start to take advantage.  “At the end of the day no industry succeeds unless it makes money outside of the industry right?” Asparouhov tells Forbes. “Same thing for space. You can’t just have them sell to other space companies. We are now seeing the beginning of space 2.0. What are the alternative ways to monetize space?”

New Opportunities

Prior to becoming an investor, Asparouhov was a founder himself looking to get in early on the future economy. He says his startup San Francisco-based Varda wouldn’t have even been able to get started if it didn’t think it could stand on the “shoulders of giants” referring to Blue Origin and SpaceX. Varda, which recently closed on a $42 million Series A funding round in July, looks to tap into an area VCs are particularly interested in — space manufacturing. Varda plans to offer “microgravity as a service” for companies to improve manufacturing outcomes by manipulating one of the four forces of nature. This environment can better produce raw materials to be used in semiconductors, fiber optics and pharmaceuticals, Asparouhov says, something the International Space Station has been testing for the benefits of the astronauts on board. 

“The space launch industry and space systems industry has matured to a point where we can now build a layer of abstraction above those commoditized services we will be purchasing many of,” fellow Varda founder and CEO Will Bruey tells Forbes. “The bet of Varda is that manufacturing will be the next steady state revenue driver before space tourism really takes off.” Bruey jokes that while it doesn’t have customers lined up around the block yet, the company is on track to start doing test launches in 2023, a mere three years after its founding in November 2020. It isn’t just deeptech or science-focused VCs that are excited about space manufacturing either — although those players like Lux Capital did invest as well— more generalist VCs including Khosla Ventures and General Catalyst see the vision too. 

Another area VCs are watching closely is satellites, which has seen the second biggest share of VC dollars after rocket companies — $1.9 billion invested in Q2 2021 alone — according to Space Capital data. Advances in building smaller, cheaper satellites that can be inexpensively launched have opened the floodgates to a whole slew of possibilities surrounding the spacecraft whether that’s new ways to utilize them by existing companies or services surrounding them. Asparouhov envisions an entire future economy around satellites alone from refueling stations to repairing robots to satellite taxi services. SpaceX is getting better and faster at making satellites too, and companies like Rocket Lab and San Francisco-based Loft Orbital are offering standardized platforms which could serve as a “satellites-as-a-service” business model. That expansion of satellites leads Asparouhov to predict further innovation down the road. 

“The best analogy is as the personal automobile became more popular justifying investing into freeways made a lot more sense,” Asparouhov says. This was a recurring theme among venture capitalists that this industry is so early it has the potential to be a nesting doll of possibilities with each new advancement jumping off the progress of the last, all tracing back to the foundation laid by billionaires. 

Training Talent

This billionaire space race has done more than just provide the platform for startups to build off of too — it also trained its talent. Many of the companies mentioned in this story have founders that were former engineers at Blue Origin or SpaceX. Some like Lapsa, a former engine director at Blue Origin, say their work at the large space companies helped them find a gap in the needed solution worth capitalizing on, or for Bruey, a former space craft operator at SpaceX, launching Varda allowed him to a way to marry his experience in startups with his passion for space — which he credits more to being “brainwashed” as a kid. 

Alumni of billionaire space companies are looking to take what they have learned and apply the next layer to create business opportunities in the same way alumni from places like PayPal and Facebook went on to create successful companies like software-as-a-service company Asana or defense company Palantir, both now public after raising hundreds of millions of venture capital dollars. “Many want to start their own company,” Josh Wolfe, the cofounder and managing partner at space startup backer Lux Capital, says. “There is going to be a flood of talent that will be observed. The talent that is going to be coming out of SpaceX who can recruit peers and recruit teams, that’s all very real.” 

Investors are careful to point out that there are still many areas of space that are more hype than reality — at least for now — like asteroid mining or Musk’s hope for those colonies on Mars. But sixty years after the original space race, the latest competition is the backbone of a future wave of innovation and the billionaires leading the way are bringing venture capitalists and entrepreneurs along for the run. “This whole ecosystem is evolving step by step, if you were to fall asleep today and wake up in ten to 12 years you’d be in awe of the technological progress and the wealth that has been made,” Wolfe says.