ASCEND’s speaker Tess Hatch sits down with Motley Fool Explorer Lead Advisor Simon Erickson to discuss space commerce and investment

Originally reported in The Motley Fool

Tess HatchOur Exploration this month is looking at smaller companies that are aiming to tackle industry giants. While changes to massive markets don’t happen overnight, there are sometimes advantages that newcomers can offer to end customers that cannot be matched by their larger and more established peers.

As one example, consumers can hail a ride from a ride-sharing fleet in significantly less time and for less money than they could from a taxi (which are supply constrained through medallions). As another, television viewers have higher customer satisfaction when given the option to subscribe individually to the channels they like the most, rather than overpaying for traditional bundled cable packages.

One market that offers significant potential to smaller companies is the space economy. Traditionally occupied solely by government-funded missions, outer space is now attracting commercial interests. The falling costs of satellite launches are unlocking new opportunities in internet, imagery, and broadcasting — and the recent IPO of Sir Richard Branson’s Virgin Galactic (NYSE: SPCE) even offers a way to invest in space tourism!

But outer space also introduces several challenges, such as a dangerous operating environment and coordination that is required between multiple stakeholders. While it might be tempting to join the space race at rocket speed, companies will actually need to put in a lot of upfront thought if they want to build a sustainable business.

To better understand the space economy’s opportunities and risks, I recently spoke with Bessemer Venture Partners’ investor Tess Hatch. Formerly a mission manager at SpaceX, Tess is now investing in frontier technologies and will be speaking about space commerce and investment next year at ASCEND 2020.

In our conversation, Tess describes the current state of the space economy, how “cubesats” are unlocking new opportunities, the role played by billionaire entrepreneurs, and the biggest hurdles to innovation. We also have some fun with a “lightning round,” where Tess offers her candid opinion on space travel, satellite internet, and even her favorite space-themed movie.

A transcript of our conversation is included below.

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Simon Erickson: Hi, everyone. Motley Fool Explorer Lead Advisor Simon Erickson here. And today, we’re going to be talking about one of my favorite subjects, the space economy. And I’m also stoked to introduce Tess Hatch. Tess is one of the investors at Bessemer Venture Partners out in San Francisco. She is very, very much involved with the space economy and investing in companies that are enabling that today. Tess, thanks very much for joining me here from San Francisco this morning.

Tess Hatch: Thanks for having me, Simon.

Erickson: Now Tess, in addition to getting a master’s from Stanford in aerospace engineering, I see that you’re also on the board of several space-based companies. Spire Global is launching CubeSat constellations. You’re on the board of Impossible Aerospace, which is making electric drones.

My first question … this is such an interesting space, maybe pun intended with that … to get involved with, but what is the current state of the space economy? And in everything that you’re doing, what are a couple higher level things that you really hope to accomplish?

Hatch: Before making predictions into the future, I think it’s important to understand historically what has happened in the industry and the current state of the market. Specifically in the space industry, I believe there were two catalysts, or momentum drivers, that have gotten the industry to where it is today. The first is the invention of the CubeSat. The CubeSat is a satellite that is only 10 by 10 by 12 centimeters, or the size of a small tissue box. These small and relatively inexpensive satellites have significant capacity and capabilities due to their use of commercial off-the-shelf sensors and Moore’s Law which has exponentially decreased the size and increased the power of components and electronics.

This was important because before the CubeSat, the only way to get an asset into space was to spend many millions of dollars and years or decades of time to conceive and build a school bus-sized satellite in geostationary orbit (GEO), which is 36,000 kilometers over a point of the equator.

With this new CubeSat, you can throw whatever you imagine on this form factor and launch it into a low-earth-orbit (LEO) orbit, which is only 500 to 1,200 kilometers above the earth, whizzing around, orbiting every 90 minutes. This is much cheaper and quicker and has really democratized access to space so that more people can get assets into orbit. In other words, it has significantly lowed the bar of entry.

Now that’s great that we have the CubeSat, however, there wasn’t really a way to get that CubeSat into space. I used to be a mission manager at SpaceX and I would see the secondary and tertiary payloads be bumped from mission to mission, because I was focused on the primary; that school bus-sized satellite to GEO and not the tiny CubeSat to LEO. So the second momentum driver catalyst in the space industry was the invention of the low Earth orbit launch vehicle, or the tiny rocket whose primary mission is to take these tiny CubeSats into space.

Companies like Rocket Lab, which we have invested in at Bessemer, have launched 9 rockets deploying 40 satellites into space. We will be launching at a monthly launch cadence by the end of this year and expect to launch at a weekly cadence by the end of 2021. Rocket Lab has further lowered the bar (and the cost) of putting an asset into space.

That’s the current ecosystem right now.

To get to your question of what’s next? I think communication constellations are the next big thing within commercial space. SpaceX with its Starlink project, and companies like Amazon and OneWeb, that are trying to launch triple or quadruple digit number of satellites into constellation for ubiquitous internet connectivity. I think that is really exciting.

I do have to [mention] Spire, one of my portfolio companies, which I think has done an amazing job with launching unique sensors into space. Spire has AIS sensors for maritime tracking, ADSB sensors for plane tracking, and GPS radio occultation sensors for weather monitoring and prediction. And we have the largest general-purpose CubeSat constellation with over 80 lemurs, which we named our satellites, in low-earth-orbit. We recently achieved an exciting milestone of over 50,000 radio occultation profiles a day, more than any other space-based asset. To a significant extent the only limitation on how CubeSats can be used and benefit life here on Earth is our imagination.

Erickson: That’s great Tess. And Spire Global, one of the companies that you’re actively involved in, has got CubeSats now that are sensing maritime operations, weather patterns, and things like that; something that really has traditionally been for larger satellites, those school bus-sized satellites with much larger capacity. Are we starting to see commercial opportunities arise for CubeSats? Is the business world looking at CubeSats instead of the traditional satellite operators?

Hatch: Oh, absolutely. I think the entire industry has shifted to this new form factor. We will still have the school bus-sized satellites in GEO (geostationary orbit), but I think the number of CubeSats and the number of people operating their space business in LEO (lowearth-orbit) will surpass GEO in the very term future.

Erickson: That’s fantastic. Moving to my next question, you mentioned SpaceX where you were previously a mission manager. Your ultimate boss at SpaceX, Elon Musk, is somebody that has really been in the headlines a lot, and someone that we’re pretty fond of as individual investors too. But this is kind of a different time for space, right? I mean, now that you’ve got billionaire entrepreneurs, not just Elon Musk, but Jeff Bezos, Richard Branson, they’re all obsessed with space. They are very interested in what’s going on out there, but they approach risk-taking very differently than a government-funded mission would. Can you tell me a little bit about how this is changing how the space economy looks?

Hatch: I think it’s wonderful that Elon, Jeff, and Richard are focusing on space. I also think all of the new space movies and space TV shows have piqued the public’s interest in space, and specifically people traveling to space. In 2017 NASA had over 18,000 astronaut application, a record high. The prior record was 8,000 in 1978. I think this is due to folks like the visionaries you mentioned and pop culture educating and encouraging public excitement about space and space exploration.

At SpaceX, I was working in government mission management. So we were working with the Air Force and NASA on launching their payloads. I think that these private-public partnerships are a great thing. Historically, the government has been the primary source and reason that we have explored space. And now, we have these amazing private companies that have the ability to do so themselves. But I still think it’s important to work with the government and have these collaborations.

For example, about a decade ago, NASA released a contract to partner with a private company that could resupply the international space station (ISS) with cargo. That was awarded to SpaceX and Orbital. Now, 7 years later, it has turned into an extremely successful partnership for SpaceX in which SpaceX has launched 19 commercial resupply missions of the dragon capsule to ISS. It’s been a massive success for both SpaceX and NASA.

Because that has been such a success, NASA again released a contract to partner with a private company that could take people to and from the ISS. Right now, we depend on the Russians to take our astronauts to and from space. SpaceX and Boeing were awarded that contract, and in the future their vehicles will take people to and from the ISS.

It’s wonderful that these private companies are paving the way to making humanity multiplanetary by exploring Mars, but they also will need to work with the government and NASA to get there.

Erickson: Right. So we’re seeing NASA, like you mentioned, has got the CubeSat launch initiative, something that they’re actually kind of encouraging entrepreneurs or smaller businesses to come up with use cases in outer space. But it sounds like, Tess, we still need to kind of have some government funding and some larger organizations, even just for the basic research. Things like, how do you keep people alive in outer space? How do you want to fund a lot of the more basic things that aren’t as dollars and cents oriented? Is that a fair statement?

Hatch: Absolutely.

Erickson: Okay, well moving on to the people piece of it too, I think this is kind of interesting, because we know that any time you put a human being into outer space, the costs skyrocket. The operational costs of putting any person out there doing anything, it goes up dramatically when you have people doing those roles. I wanted to get your take, Tess, on where do you see people playing the most important roles in the space economy? Are they monitoring things that are going on in outer space? Are they doing analytics? Are they building things? What’s the role for people in the future of the space economy?

Hatch: An interesting fact that I learned yesterday, from Peter Beck, our CEO and founder of Rocket Lab, is that the limiting factor of people living and colonizing on Mars is actually reproduction, primarily because pregnancy doesn’t go according to plan when you don’t have gravity. That is apparently the limiting factor of humanity living on their own, sustainably on another planet.

Ultimately, I think we need to be a multi-planet species in order to survive, but I don’t think that we can or should give up and move on from Earth. I think that the technology needed to get to and sustain life on another planet will ultimately benefit life back on Earth. For example, MRI and CT scanning technologies were developed as part of the Apollo mission, to take pictures of the lunar surface. That optic technology is now used in our hospitals saving lives every day. There are a numerous other examples where space exploration has been fruitful elsewhere. I am confident that our efforts to explore Mars 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 toward that mission.

Erickson: And what’s one of the biggest hurdles right now that we still need to get over? I know that one of the companies you’re involved with is Iris Automation, which is kind of helping navigate drones, electric drones, so they’re not colliding with each other. I’m sure that’s a big factor in outer space. But what’s something else that’s a problem or a hurdle right now, before the space economy can really get up and running? And how is that being addressed?

Hatch: Great point. Iris is a Detect-and-Avoid System for unmanned aerial vehicles. It acts analogous to a pilot’s eyes for a drone that doesn’t have a pilot to avoid other objects in the airspace, allowing drones to fly safely and ubiquitously in our airspaces, specifically beyond visual line of sight, which is a restriction from the FAA.

A similar sort of thing will be required in space when there are hundreds or thousands of satellites wizzing around in LEO, and we’re going to need a foundation, a strong foundation, for tracking these things so we don’t have space collisions.

We’re also going to need strong regulation on spectrum, so that they don’t interfere with one another. You know when you’re tuning your radio, and you go between stations and it’s just mush. One doesn’t win, the other doesn’t win. And that, unfortunately, could happen in space when satellites transmit over the same radio frequency spectrum.

The biggest barrier in space, historically, has been access to launch vehicles. But now with companies like SpaceX and Rocket Lab really opening the bottleneck, these satellites can get to space much easier, quicker, and at a far less cost. The next hurdle will most likely be sharing space, sharing the space in space. No pun intended J

Erickson: Tess, can you talk a little bit about what is heavily regulated in space right now? I know you said spectrum is a big thing. Is there anything else that’s really heavily regulated still?

Hatch: Navigating the FCC to obtain spectrum is, hands down, the largest barrier in the space industry. ITAR is another regulatory barrier, specifically for American space companies, to protect us from overseas threats. The FAA as well when you have to get launch approval. Lastly, there’s a size restriction on how tiny your satellite can be which, I believe, is in the process of being changed. The space industry does not lack regulation…

Erickson: Yeah, no doubt about that. Tess, just to have some fun with this, I’m going to kind of go through the lightning round. I’m going to throw out three real quick ideas, and I just want to get your quick take on them, as somebody who is kind of in the forefront of seeing some really cool stuff out there. Are you ready for the lightning round here, Tess?

Hatch: Let’s go!

Erickson: The first one is, this is something that you mentioned earlier, that a lot of companies are discussing or working on. What are your thoughts about satellite internet?

Hatch: I believe that you will need hundreds, if not thousands of satellites in low Earth orbit for this to work, and every single one of them will need to work. So it’s incredibly hard and a high barrier, but if you build a competitive moat, you will be able to bring parts of the world, where fiber optic cables isn’t a realistic option, online. So I really do hope that the Starlink, OneWeb, and the Amazon constellations are successful.

Erickson: Okay, great. We mentioned Richard Branson earlier in our conversation as well. Oh, I should also mention, this is something that you have previously mentioned that you could imagine that society all does, and something that you would actually like to do yourself in the near future. What are your thoughts about space travel?

Hatch: I imagine a world where one travels to space with the frequency that we currently travel in an aircraft. I’ve been applying to NASA’s astronaut programs since I’ve been single digits. Sally Ride, the first American female astronaut went to my childhood school, and that’s the reason I’m passionate about this industry. I just wanted to be her ever since. They keep rejecting me, but I will continue to apply. My backup plan is to go as a space tourist. So I will absolutely be among the first person on the list, hopefully, whether it’s Richard Branson’s White Night or Jeff Bezos Blue Origin, or the handful of other companies that are looking into space tourism.

Erickson: Okay. We’re definitely rooting for you on the astronaut school, Tess. The last of the lightning round, the third one is, what is your favorite space-themed movie?

Hatch: Wow.

Erickson: You can take this in a bunch of different ways. You’ve got, of course, Armageddon. You’ve got Independence Day, Interstellar, coming out more recently. What is, in your professional opinion, the best space movie out there?

Hatch: I think I’ve got to go with Tom Hanks in Apollo 13.

Erickson: Excellent. That is definitely a classic. Good choice. My last question for you, Tess, is we’re talking a lot about space here, but really, the broader bucket is frontier technology, right? You get to see a kind of an exciting glimpse into what the future could possibly look like, and you’re investing and supporting the companies that are helping us to get there.

Space economy is one of those exciting frontier technologies, but you see a lot more than just that. Our audience is individual investors that’s very interested in all of these frontier technologies. What’s something that bigger picture, or maybe two or three things that you see going on out there right now that are really interesting that you’d like to share with our audience?

Hatch: You mentioned Iris Automation and Impossible Aerospace earlier, and clearly, I’ve been spending a ton of time investing in space but I also spend a ton of time investing in drones. I believe that drones will eventually make most of our deliveries, including late night take-out. I think it’ll start with emergency medical supplies. Let’s say someone is having a heart attack or an allergic reaction. It takes on average an ambulance 14 minutes to get to us. What if a drone can be deployed and deliver that AED device, or an EpiPen to save that person’s life within minutes? I think uses for drones are only limited by one’s imagination and the applications are endless in the future. That’s what’s exciting me about the drone industry.

On the other hand, I’m actually pretty bearish on Autonomous Vehicles (AVs). I don’t know when and if perfect Level 5 Autonomy will ever exist. Therefore, my investment in the AV industry is in a company called Phantom Auto, a teleoperations company.

Phantom provides a safety layer for when the AV, or the algorithm or brains driving the vehicle, doesn’t know what to do. For example, let’s say, there’s a construction sign with double yellow lines, and the person is telling the car to go around. No, the car’s got a hard code to never cross double yellow line. So the car will ping Phantom Auto, and Phantom Auto with a remote driver, anywhere else in the country or world, and a latent intolerant communications platform, will be able to remote into the car, drive it around the construction zone using the sensors that are already on the car, and help the car in sticky situations. I’m most excited about these crucial safety layers in the AV industry.

Ultimately, drones and AV are the two other big frontier tech industries in addition to space in which I’m most excited.

Erickson: Drones and autonomous vehicles, duly noted. Those are two that I think we should definitely be keeping our eyes on as well. Again, Tess Hatch is an investor out at Bessemer Venture Partners out in San Francisco. This has really been a lot of fun, Tess. Thank you very much for sharing your perspective and joining us this morning.

Hatch: Thank you so much, Simon.


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