Space Cowboys and The Final Frontier

03.12.21

Early in 2003, Ty Holland, a seasoned West Texas rancher, got roped into giving a mysterious buyer a harrowing tour of the backcountry. He suspected that the thirty-nine-year-old billionaire was looking for a vanity purchase: somewhere remote where he could build a vacation home and pretend to be a cowboy. “I knew exactly nothing about him or Amazon or Internet or any of that stuff,” said Holland, who had yet to own a computer. All he knew about Jeff Bezos was that he was a “different breed of cat,” and one he couldn’t relate to.

It turned out this was not a vanity purchase. In fact, it would serve as the nesting grounds for realizing Jeff Bezos’s stated life purpose: to colonize space. What else could compel him to buy up a chunk of West Texas nearly half the size of Rhode Island? “When you are building rockets and launching rockets, it’s nice to have a bit of a buffer,” explained Bezos.

Space fever hit him early. As high-school valedictorian, he cheerfully told his peers that one day humanity would abandon earth, move to outer space, and only return for brief nature walks. Let’s colonize the moon, he said. It’ll be fun, he said.

“The reason he’s making so much money,” confirmed a high-school girlfriend, “is to get to outer space.” It’s true that Amazon makes for a great piggy bank. In 2018, Bezos admitted that he was liquidating about $1 billion a year of Amazon stock to fund his company Blue Origin, one of the most promising space startups that is primed to fly its first passengers in early April.

Bezos isn’t the only one desperate to jump planets. Since the early 2000s, a handful of billionaires, including Elon Musk, Richard Branson, Andrew Beal, and Larry Page devoted much of their personal wealth to investments in commercial space. Venture capital flocked to the sector, investing $135.2 billion since 2004. The US Chamber of Commerce estimates that the global space market will increase from approximately $385 billion in 2020 to at least $1.5 trillion by 2040. But how far has the industry advanced beyond a playground for billionaires and venture capitalists? Will the average American citizen ever have a compelling reason to care about Mars?

From Government Funding to Private Actors

For fifty years, the space industry was dominated by government actors working to advance their national agendas. The first U.S. space industry was born of the military in response to Russia’s launch of Sputnik, which caused national embarrassment and hysteria. The Chicago Daily News reported that any day now the Soviets would be able to “deliver a death-dealing warhead onto a pre-determined target almost anywhere on the earth’s surface.” Lyndon Johnson, then the Senate majority leader, agreed. “Soon they will be dropping bombs on us from space like kids dropping rocks onto cars from overhead passes,” he warned.

Unilateral focus, combined with blowing 0.7% of the national GDP on NASA, resulted in a twenty-year long space renaissance from the 1950s to the 1970s. The Apollo Missions not only delivered men to the moon, but they also helped develop a number of innovations — CAT scans, computer microchips, miniature cameras, cordless tools, etc. — that never would have seen the light of day without massive infusions of government investment.

And then, the popular story goes, everything fell apart. Says Apollo astronaut Buzz Aldrin: “After the Apollo lunar missions, America lost its love of space — there was no concentrated follow-up, and we didn’t have any clear objectives.” Russia’s demise left a vacuum in the competitive arena and U.S. government initiatives succumbed to inefficiency, apathy, and a complete aversion to innovation or risk. Some dispute this account: Bezos still believes that “NASA is a national treasure, and it’s total bull that anyone should be frustrated by NASA. The only reason I’m interested in space is because they inspired me when I was five years old,” he added. “How many government agencies can you think of that inspire five-year olds?”

But no one denies that by 2000, government interest in space had waned. NASA’s share of GDP slowly fell to 0.1% and the agency lost its capacity to shuttle humans to space in 2011. But then something remarkable happened: the billionaires stepped in.

The Rise of Commercial Space

Elon Musk may be the only person more desperate to colonize space than Bezos. One reason commercial space holds such promise today is due to the dramatic reduction in launch costs, a startling reality we can all thank Musk for. In 2002, he used the majority of his fortune from PayPal to start SpaceX, a startup that doggedly pursued the development of reusable rockets. As of 2019, SpaceX had reduced launch costs from upwards of $50,000 per kilogram to $2,000 — $2,500 per kilogram.

“We think of reusable rockets as an elevator to low Earth orbit (LEO),” said Morgan Stanley Equity Analyst Adam Jones. “Just as further innovation in elevator construction was required before today’s skyscrapers could dot the skyline, so too will opportunities in space mature because of access and falling launch costs.”

Much of the early opportunity will revolve around affordable data discovery, artificial intelligence, and predictive analytics, which have long-term implications for a number of industries from finance to insurance to logistics and agriculture. Other longer-term ventures include asteroid mining, space manufacturing, and harvesting solar energy.

Sinéad O’Sullivan, an entrepreneurship fellow at Harvard Business School, explains some of the data-mining challenges. “Every few hours one Library of Congress worth of data is created on orbit by satellite operators … we’re going to have to start thinking about trying to find new ways of getting basically a ton of data from space to the ground very cheaply. Having a private sector in the kind of near-Earth space market that can figure out really clever and cheap ways of doing this is going to be incredibly important.”

Morgan Stanley estimates that satellite broadband alone will account for 50% of the projected growth of the global space economy by 2040. “The demand for data is growing at an exponential rate, while the cost of access to space (and, by extension, data) is falling by orders of magnitude,” said Jones.

How to Finance Space?

Many recognize that venture capital may be one of the most ill-conceived methods for financing space development. “Space presents a classic finance time-matching challenge,” said Bruce Cahan, a lawyer and former banker who now teaches finance at Stanford University. “We want and need to build essentially infrastructure assets today that pay for themselves and their technologies over lifecycles of many decades.”

In January, the U.S. Space Force and Air Force sponsored a panicked report on the necessary steps (there are many!) needed by the U.S. government to remain competitive in the global space economy. It urged the United States to position itself as a key financial innovator for space development. “No one would fund long-lived terrestrial infrastructure (e.g. bridges, highways, hospitals, roads, or air and sea ports) primarily or exclusively through illiquid short-term venture capital, or issuing thinly-traded penny stock traded on over-the-counter exchanges,” the report argues. “Space infrastructure requires larger amounts of capital committed for decades, in forms like bonds that long horizon investors can trade.”

Other ideas circulating include the creation of an international space investment fund, the use of tax credits, space bonds, and even a space commodities exchange to expand financing options for entrepreneurs. And then there’s simply federal subsidies, a favorite cash source for past critical infrastructure industries such as railroads and energy. Part of the reason SpaceX survived three launch failures is that it leveraged NASA’s cargo awards — which amounted to nearly $2 billion — to attract continued outside investment.

Who Owns the Asteroids?

“I’ll believe in people settling Mars at about the same time I see people settling the Gobi Desert,” — science-fiction author Bruce Sterling

Some fear that the mass commercialization of space will inevitably lead to exploitation and imperialistic urges. Robert Zubrin, author of the early cult classic The Case for Mars, admits that settling a new frontier often encourages bad ethical behavior. “If somebody says, ‘But won’t there be exploitation there?’ Well sure, that’s what people do to each other all the time.” Still, Zubrin provides one comfort: at least there aren’t any native Martians to exploit.

Elon Musk — who hopes to launch 100,000 colonists to Mars every 26 months, culminating in 1 million people on Mars by 2050 — hasn’t helped calm fears with his dubious allusions to indentured servitude. This won’t be an opportunity just for rich millionaires, Musk reassures us. Poor people can take out loans or work off their earthly debts to earn their spots. The problem with this assumption — a colonization model borrowed from early imperial regimes settling the Americas — is that the Americas were filled with verdant countryside and desirable resources. Mars is a lethal vacuum covered in radiation and corrosive dust. If anything, early colonizers should be demanding bribes and special privileges for the tremendous sacrifice of moving there.

A more immediate issue is property rights. An increasing number of private companies hope to mine asteroids for precious metals, manufacturing sites, and water. But who “owns” outer space? According to the 1967 Outer Space Treaty, the only widely accepted body of law for space, nations can’t just start claiming random planets. Outer space was considered a collective commons to be shared for the good of all countries. Until 2015, that is, when the United States reversed course by passing the Commercial Space Launch Competitiveness Act and said, “Just kidding. Whoever gets there first.” You still can’t claim planets or living things, but you can definitely claim their resources.

China Fills the Competitive Void

The rush of private investment and commercial innovation has only been matched by the naked ambition of China’s grand strategy, a thirty-year plan for economic and geopolitical dominance. The One Belt and One Road Initiative (OBOR) aims to make China the predominant space power by 2040.

In the ten years since its inception, the OBOR has garnered impressive results. In 2018, China conducted more space-orientated operations than any other country. In 2019, it was the first to send an unmanned rover to the dark side of the moon. And in June 2020, China launched the BeiDou system, an alternative to GPS that hopes to one day collect data from the entire world. “The U.S. is clearly uncomfortable with the idea that China could overtake it in all manner of ways,” said Dean Cheng, a senior research fellow at the Heritage Foundation, a prominent U.S. think tank. “It matters to the U.S. psyche that it stays ahead in space.”

One immediate change called for by many experts is to declare (and finance) space as critical infrastructure. “Space is now a warfighting domain,” said Jack Blackhurst, executive director of the Air Force Research Lab. “We rely on space assets in times of war and there is a need to assure adequate cybersecurity and resiliency.” By declaring commercial space as critical infrastructure, the government could devote more long-term investments to space and provide some insulation from administration turnover.

Visiting the Final Frontier

The extension of the military through the creation of the United States Space Force (USSF) in 2019 offers some clue as to how countries will navigate the coming space grab. The 2020 National Space Policy introduced regulatory reforms to further promote the commercial space industry and pledged to protect those interests through a “deliberate response” if necessary.

But before outer space becomes a war zone, it’s more likely to become a tourist trap, the current focus of Blue Origin and Virgin Galactic. Tourism, offers Jeff Bezos, is the best way to rope in more space fanatics. “Everybody who goes to space says they come back a little changed and they realize how beautiful this planet is and how small and fragile it is,” says Bezos.

He has also softened his stance on abandoning earth forever. Instead, we can export all of earth’s bad things to space — pollution, manufacturing, overcrowding, etc. — and “Earth can be zoned residential.”

But not all of outer space will be a trash receptacle. “There are going to be very nice places to live off earth as well,” claims Bezos. “People will make that choice.”

About Colbeck: Colbeck is a strategic lender that partners with companies during periods of transition, providing creative capital solutions to meet their evolving needs. You can reach the team at inquiries@colbeck.com.