Virgin Galactic

0:00 Should we put in a little bit of fake reverb in post so that it sounds like we were actually live? Like at a at an auditorium. Live from the cavernous Ascend Auditorium. Live from Spaceport America. Welcome to Season 7, Episode 6 of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder of Pioneer Square Labs, a startup studio and venture capital firm in Seattle.

0:40 And I'm David Rosenthal. I'm an angel investor and independent advisor to startups based in San Francisco. And we are your hosts. Today we are coming to you live from Ascend, the event defining the future of space. Over the next hour, we will tell the fascinating story of Virgin Galactic and the swirling cocktail of the billionaires, Richard Branson, Paul Allen, and Shemoth Polyhapatia, and the aerospace pioneers, including Bert Ratan. and Peter Diamondis behind it. We also thought it would be very timely because in the next week, Virgin Galactic expected to make their first flight from Spaceport America in New Mexico. Followed by next year in early twenty twenty one, Sir Richard Branson himself flying on their first commercial trip. However, the news did break this morning that and this probably won't surprise longtime followers of the company, they announced that this uh flight is delayed indefinitely. And we'll put a link in the show notes to read that press release. But for you regular acquired listeners, this This is our very first episode covering a company that went public via a spAC, and we will unpack the business behind and hopefully ahead of the company.

1:51 And a few fast facts. Virgin Galactic, if they are successful in opening up space tourism, it will have a massive impact on the percentage of our species to go to space. as pointed in their S four, the SPAC version of an IPO prospectus. Only five hundred and seventy three humans had ever been to space by August of twenty nineteen, and Virgin Galactic already has over six hundred customers, or as they call them, potential future astronauts who have prepaid deposits on their trip to space. And And the sticker price for one person to take that trip.

2:26 Two hundred fifty thousand dollars. Cool quarter mil. Pretty steep. There were uh just yesterday, what was it two more new first time? Folks in space with the SpaceX launch. Oh, interesting. I know one of them was the first trip. I think maybe two of the four astronauts might have been the first trip. Super cool. Well, I do know now SpaceX, I think has sent more humans to space than the entire Mercury program. That was a stat that I saw. thrown out yesterday. So Amazing how the pace is picking up.

2:55 Well, for those of you watching this live at Ascend, a few words about acquired this podcast and sort of what the show is. So first of all, David and I are not from the aerospace industry. We are venture capitalists and entrepreneurs that invest in consumer and B2B startup technology companies, but we're big fans and observers of space. So today this episode will reflect an outsider's perspective, albeit we hope a fairly well researched one. And our goal, besides our own self indulgence in getting to geek out on the topic that we love, is to try and make space more accessible to those in adjacent fields. And I know I'm not alone when I say this, but I think that the space ecosystem is poised to explode over the next decade or so, and uh and this is one of the most exciting places in technology to be right now, though I'm sure uh all of you who are watching this live probably feel like it's been this way for a while, and who is this guy who the thinks he just discovered something waltzing in here. So really excited to tell this story with you today. All right listeners.

3:57 Now is a great time to talk about a new partner of ours here on Acquired, Lagora. The agentic operating system that is redefining how the world's best legal teams work. Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chat bot out there. Lagora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do. operate with obsessive customer focus.

4:31 They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review where you Drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legor's bed here is interesting, since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time. And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

5:22 And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Lagora numbers essentially speak for themselves. When they have a head to head pilot with their top competitor, they win seventy percent of the time. Legora now has over a hundred thousand lawyers on the platform from twelve hundred legal teams in fifty countries. And crazily, they went from one million to a hundred million in ARR.

5:50 In about. Eighteen months. truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client.

6:05 If your legal team wants to check it out, whether you're a law firm or you're in house at a company, You can learn more at Lagora.com slash acquired And just tell'em that Ben and David sent you. As always, if you love acquired and want to hone your craft of company building, you should join the community of acquired limited partners. Among other things, you will get access to the LP show, where we dive deeper into the fundamentals of company building and investing. The last LP episode that we had was with Rahul Vora.

6:34 And it was insanely valuable and and a very enlightening conversation where he pulled back the curtain on the unorthodox tactics that he used in raising venture capital investment for superhuman. Which is now valued at over a quarter billion dollars. If you are not already an LP. you can click the link in the show notes or go to acquire dot fm slash LP and all new listeners get a seven day free trial. Thank you to some awesome sources in our research.

7:01 Julian Guthrie wrote an awesome book, How to Make a Spaceship, that covers the entire history of the X Prize. There's a great documentary called Black Sky that covers the entire development of the Spaceship One program. And we will put all the links that were a part of our research, the talks we watched by Virgin Galactic executives like George Whiteside's, lots of other great bits that powered the research here. Podcasts are distributed. Well, uh David, with that, should we dive into the history and facts? And uh for folks who listen to Acquired, you'll know that we can't start our episodes uh without going back. At least like fifty. In this case we're gonna go back over a hundred years. It's just like

7:45 Makes us so pleased here, Ben and me. Uh we're gonna go back to nineteen nineteen. And the announcement of the Ortig Prize. Which was a twenty five thousand dollar prize. Announced but I think the Or take family, I believe, was behind it. For anyone who could fly

8:04 A plane, an air vehicle. nonstop from New York City to Paris or vice versa. And of course. Famously a few years later, actually more years than I would have thought eight years later. In nineteen twenty seven, Charles Lindbergh won that prize and

8:20 in the famous Spirit of Saint Louis, which I think is now in the air and space museum in Washington, hanging there. Has to be. Has to be. That was the first, I believe the first major Aviation prize to spur. innovation. And of course there would be later prizes after that as well. And that would lead directly into what we're what we're about to talk about here. with the X prize. But this whole idea of like using a prize to spur innovation is pretty cool. Totally. I I I I think there's this brilliant I'm not sure this was the intention behind it, but all these prizes since then have sort of realized you get an amazing amount of leverage on your dollar. This twenty five thousand dollar prize I think had

8:59 four hundred thousand dollars poured into the research and development by all the different teams who were competing for it. So not a bad return there. If you had to go and raise that four hundred thousand dollars a hundred years ago by yourself, you know, I I think that would have been a much taller order to get a a similar sort of outcome. Yeah, totally. So Inspired by This history. We now fast forward about seventy years past the Lindbergh Flate. to nineteen ninety five, when a gentleman named Peter Diamondis

9:30 puts forward an idea at a space conference. Not the Ascend space conference, which we'll see, it takes him a while to get traction here. If if this were Ascend, it would have been immediate. He puts forward an idea for a similar aeronautical innovation prize, this time for space. And he posits if we put forward a ten million dollar prize for somebody, not a government. to build and launch a reusable

9:56 crude spacecraft into space because at this point in the mid nineties, people are already thinking like what Elon and SpaceX have popularized this idea that like Hey it kinda doesn't make sense how we do space right now, where it'd be like every time you flee a seven forty seven to a destination, you would scrap the seven forty seven at the end of it and not use it to fly back or fly anywhere else. Reusability can vastly change the economics of going to space. Even the shuttle program, which was amazing in many ways and had its big problems in many ways, even that had a an element of reusability or refurbishability to it, certainly with the u reusable shuttle um and then the sort of refurbishable boosters. Yeah. So Peter puts forth the idea for this prize.

10:39 That anybody who can Launch A spacecraft. up to what's known as the Carmen line, which is a hundred kilometers above The earth is uh one definition of of space. Kind of in other words, you get to the canonical black sky where the sky is no longer blue. It's it's black at that point. It actually, I believe, happens a little bit below the Carmen line, but it's lower than orbit. So you don't have to make it up to like satellite orbit. But any team that can do that with a vehicle

11:06 twice in two weeks with the same vehicle. Well when A ten million dollar prize. So He has this idea for the prize. This is nineteen ninety five.

11:14 It ends up taking quite a while to actually secure The funding. He doesn't have the funding when he puts forward this idea. He can't just tweet funding secured unlike space entrepreneurs these days. That only works with electric cars, not with space vehicles. Oh boy. Oh boy. So notably He approached Sir Richard Branson. Uh twice, I believe, right, Ben?

11:37 Uh and was turned down. Yep. I mean it wasn't just Branson. This was a massive list. Everybody who you would think would fund this thing basically looked at it and didn't. I mean, Paul Allen looked at this thing and and turned it down, although that was for more strategic reasons that we'll sort of get into later. He even approached Elon Musk in in two thousand one and let's just say nineteen ninety five to two thousand one. So like The funding was not secured for quite a long time after sort of having the idea for this and and ultimately launching it. And Elon also said, Hey, this is really interesting, but I have a certain amount of money, it's finite, I kinda wanna do my own thing. I wanna be specifically focused on Mars. There's actually it's a little digression, but a great Elon quote that said, Yeah, we wanna do something that's significant. But something on a reasonable budget, not ten million, just sort of a couple million. We have ten to fifteen million to spend, but we want to start with like a one or two million dollar project. Which uh you know, if you're if you're Peter and you hear that from Elon, this guy that's starting to get some traction as an entrepreneur in this ecosystem, and then and then you go and watch how they do end up spending money, it must just be like

12:39 Are you kidding me? Well, as we covered on the SpaceX episode, the idea originally was they were gonna spend Not That much money but of course. That changed. So some of the notable early donors that they do get to the prize are uh Tom Clancy, the author, and also the Lindbergh Family Foundation, uh comes in and and donates some money to the to the cause. But eventually there's actually quite a a cool story that I think you have been here about how they fund about half of it, but the biggest donor ends up being The Ansari family, which is a super cool story on its own. It's a family it's uh a family of Iranian immigrants who founded a telecom empire.

13:17 in the early nineties, I believe, late eighties, early nineties, and made a lot of money through that. Uh so they end up becoming the sort of title sponsors and it becomes the and sorry X Prize at that point. But that was only for about half of the ten million dollars, right? Yeah, it was it was less. So the way it basically worked is they raised like Two or three and then before the Ansaris came in, what I th which I think their initial pledge was w one point seven five million, the way that they got from that two or three up to like

13:46 eight ish was that they approached uh first USA, who eventually became bank one and then finally JP Morgan Chase where all everyone ultimately lands either there or Bank of America. But Basically after raising this few million dollars, that a huge chunk five million was actually filled by a hole in one insurance policy. And so in a sense, the ten million was never actually raised, but rather they found a price at which First USA was willing to bet against anyone ever actually successfully win it. And that price was fifty thousand dollar a month insurance premium that Peter and the uh X Prize team had to be sort of paying in overhead in order to keep the prize alive to hopefully get that hole in one cash out, which is It's totally wild. And and you think about the motivation there of first USA, they're

14:39 biggest motivation was that the X Prize, while it was underfunded, it was a really sort of like cool, sexy brand, and they saw a market to be the credit card issuer to people who were space enthusiasts. And so they wanted to sort of do this multifaceted deal that included being the provider or underwriter of the policy that would reward the prize winner. But but also to be able to issue X Prize branded credit cards. And so it also came with some other strings attached. So in addition to the 50K monthly payments for the$5 million insurance policy. First of all, if no one won by a certain date, or if the full ten million wasn't raised, the five million from first USA would never have to be paid out at all. And second, that certain date was not very far in the future. It was actually just December seventeenth, two thousand three, which I think this point was like ninety nine, two thousand right away right around there. So it really set up the X prize for quite the photo finish because anybody who sort of wasn't already working on it had to throw their hat in the ring very quickly. Yeah, it's funny. This is um foreshadowing we're gonna get to Virgin's and Branson's involvement in a minute here, but the power of space as a marketing vehicle already. Okay so

15:51 one of the teams I really I think just about the only credible team that ends up Entering the X Prize competition. There were a few credible i it when you go, I I spent a bunch of time and actually went and read the whole how to make a spaceship book. And there were several credible teams, but the only one that got like really, really close and the only one sort of left standing by the end of the competition. was Rattan. So we should give credit where credit is due to some of the other international teams that did pretty amazing things. Ah, okay.

16:19 Great. Well, This team led by Aviation pioneer which probably Everyone listening here live at Ascend will know and know well. Bert Rattan and his company Scaled Composites.

16:32 enters the competition. Bert is a total legend in the aerospace industry. He had founded scaled in nineteen eighty two And Bert had been a former Air Force test pilot, but was this just legendary independent airplane designer. So he designed the record breaking Voyager aircraft, which for folks who've been to the Air and Space Museum uh in Washington, uh it's it's hanging there, I think right in the atrium when you walk in. In nineteen eighty six it was the first plane to fly around the world without stopping or refueling. Just incredible. So scaled, interestingly, the company he had founded in eighty two. It's had a long storied M<unk>A history of its own. It was bought in eighty five by a company called Beach Aircraft, which they were collaborating with to design a plane at the time.

17:22 Then Beach was owned by Raytheon, so Scaled was owned by Raytheon. After a while. I think this is post voyager. Bert. Body. Back from

17:31 Raytheon. Then sold it again to a company called Wyman Gordon. They got acquired. Bert bought it back again, this time with some financing from Northrop Grumman, who was already investor. And then later, as we'll see in the story, Northrop ends up acquiring scaled fully itself. And so that's where the company lives today. But Like this company has been part of it. It's been independent. It's been part of Raytheon. It's been independent again. It's now part of Northrop. Kind of amazing. And just speaks to like the talent of both Bert and the team. Totally. And it's it's not called scaled composites by accident. Their thing that they're really good at is coming up with these really innovative designs and then using incredibly lightweight materials, you know, composites to to basically create aircrafts that people didn't think were possible before that use less fuel, that do m more things and frankly just push the edge of applying cool principles of aerospace and physics to figure out what

18:21 sort of new goals you can accomplish. And so many of uh of the scaled planes are ones where you kinda look at funny at first and then they go on to achieve something that humans didn't really think was possible until they were able to do it. Yeah. So Ben, you know it did tell us about The design that Bert ends up coming up with and and entering here the feather design. It's Pretty awesome. Yeah, it's it's unbelievable. So

18:43 Anyone who's never looked at spaceship one or now spaceship two, you can kinda hear about it and and sort of in your head you're like, Okay, I g I kinda get what that might look like. It is a goofy looking plane. Like it is a crazy looking like Yes, animal of a system. So let's talk first about spaceship one, and then we can talk about the the mothership in a moment. The whole idea that Bert sort of initially figured out is Okay, well, if we're gonna send this really lightweight thing all the way up a hundred kilometers above the earth to win this prize. It's gonna have to come back down.

19:19 And normally when winged things come back down, think the X fifteen or the space shuttle, it needs an incredible amount of heat shielding because these things go crazy fast through the atmosphere. I mean, famously they were putting like new tiles back on the space shuttle every single time it landed because these things would heat up and fall off. I mean they're they're amazing at doing their job, but yet it's a it's it's hard to maintain and it's heavy. And of course in scale, they're building a lightweight aircraft. So what do they do? Well, they come up with this design called the feather, which does two really, really interesting things. The first is that Yeah. applies an incredible amount of drag

19:58 while keeping the aircraft very stable. And so what's gonna happen is it's gonna come back down to Earth slow enough that heat is actually not a huge issue. And when I say slow enough, it's still s supersonic, or at least starts supersonic and then goes through the slow is relative here. Exactly. But it has maximum drag, so he doesn't affect her and it comes down very, very stable and steady. It sort of automatically flips into the correct position that they want it in. And the final thing that sort of makes this all work is that it can be unfeathered while it's launching. We'll talk in a moment about what the launch system looks like. And of course, while it's going like Mach three straight up and basically being a rocket that's going up into space, it can be sort of unfeathered. The feathered then flips into position, which is this fifty five degree angle to come back through the atmosphere with maximum drag, and then unfeathers it again and boom

20:50 It's a glider. It comes down, it lands real nice on a runway the way that you would expect sort of a lightweight glider airplane with no fuel in it to land. So remarkable genius system. I mean, basically this thing is like a transformer. Totally. Totally. So Okay, that that's the spaceship one. Then of course they're like, Well, wait a minute, you know, we're not gonna throw spaceship one vertical on a launch pad the way that SpaceX or the Apollo missions or any of these are doing it. Th the way that they're gonna do it is they're gonna create a mothership, the the white knight that

21:22 I think it's a dual fuselage, or at least spaceship two's a dual fuselage. I think White Night One was uh was also a dual fuselage. Okay. What the cargo on, the spaceship one on, they fly it up to about fifty thousand feet. And then the way that they launch spaceship one is they're flying this thing, they drop spaceship one, takes I don't know, five, ten seconds, and then boom, ignites, and the rocket goes off and then it flies straight up. Like this is the craest system to imagine. Like

21:50 If they had not had precedent for this before with you know some of the very early prototype. I think the X fifteen took off this way. At least some of the early vehicles in that era did. Then it would be hard to imagine how they thought this was like the right idea. But I mean this is like a video game thing, like a trick shot or something. It's amazing. Yeah, it's it's wild. So they enter the competition and pretty quickly they achieve supersonic flight actually in December of

22:20 Two thousand three. So there must have been an extension on the X Prize insurance policy then. There was. There was. Uh so December two thousand three, they achieve the first so from zero when they entered in like two thousand one, two thousand two, to first supersonic flight with the spaceship one. dropped off the White Knight in December two thousand three. And this actually means this was the first private manned airplane. So not a government project and uh I guess the I don't know how the Concor fits into this. That went supersonic, uh, which is a great maybe the'cause uh the Concorde was perhaps Developed with the government.

22:54 That's a good point. Yeah, I I I suppose that would be why I do know in the Black Sky documentary they point out specifically this is the the first non government supersonic. Non government funded supersonic plane. It goes to space, but also goes to space, right. So then In April of two thousand four, so a few months later, the US Department of Transportation in

23:17 Issues Bert and scaled. The world's first license, like private license to go to space, which is incredible. And then in June of two thousand four, they make the first flight, I believe I I don't know if they hit the Carmen line. in that first flight in two thousand four, they may have but it was just one flight, so they didn't win the prize. They get spaceship one back down. They did,'cause they would have had to go above the hundred K line to qualify to make that the first flight. Ah, interesting. Okay. So they hit the Garmin line.

23:46 And then Over two weeks at the end of September, beginning of October. Two thousand four. They do it. They make Consecutive flights within those two weeks.

23:56 And they win the prize. It's incredible. Perhaps even more incredible is what happens right before. And after. So from a a like physics and human accomplishment perspective. Yes, well we've already talked about at the amazing part. Now from like a business savvy perspective. By the way, too. From like nothing to Going to space twice in two weeks. Hundred percent. It's it's it's wild.

24:18 So it's worth noting before we talk about what happened the night before the first flight, who was bankrolling and who was sort of funding all the operations to create spaceship one and the white knight. So it was not mostly scaled itself,'cause remember, Scaled is kind of an independent company at this point. They did have

24:39 Uh Semi secret backer. Who was Paul Allen. The Microsoft co founder and of course uh late Microsoft co founder and great space enthusiast during his time. But this was unbeknownst to the X Prize Foundation and to Peter and to to Diamondis. So it was relatively secret that this was happening.

25:02 Yeah, and it's no surprise among Seattleites. I mean, we me and my my my colleagues at uh at Pineer Square Labs know Vulcan and Paul well in the Seattle ecosystem, and he is always funding very eccentric, crazy projects that no one else is funding, particularly in space, particularly in oceans, particularly in these interesting exploration field. But for whatever reason it was not disclosed until the successful flights that Paul had poured I can't remember exactly what the number is, but on the order of twenty ish million into the project to to fund the thing and it discaled. And the partnership with Bert, which is sort of an amazing partnership that the two of them formed and built trust with each other. And It was so secret that actually Peter Diamondis and the X Prize folks didn't even know who was behind Or at least where the money was coming from to to fund scale to go and make this amazing run at the prize.

25:54 So Paul Allen's involved here. Now the night Before Pretty uh obviously they have to um you know, they have to make the second flight to win the prize. But it it's it's a pretty safe bet that they're gonna do it. They've made multiple flights at this point. Everything's ready to go. So the night

26:13 Before who re enters the picture. But the one and only Sir Richard Branson. He Ben, you may you may have the whole story. Does he d he contacts Paul Allen first, is that right? Yeah, so there's two deals that happen. The first one is a a press conference that they have that basically announces that Sir Richard has sort of seen the innovation that's happening here, and even though he didn't decide to fund the X Prize originally, and even though he's he doesn't have a competing team here,

26:45 he sees the future and he wants to buy the assets and all the intellectual property and partner with scale to take everything they've built and and build a venture out of it after they, you know, complete this flight and win the X prize. And the second thing that happens is overnight he pays Paul Allen two million dollars or he cuts a deal to to pay two million dollars to put a gigantic virgin decal on spaceship one. So uh everyone who's coming in for the flight the next morning, including Pierre D Amandis, the whole X Prize team, they come in and the plane now has a virgin logo on it and it has, you know, prominent placement on the runway and Richard Branson also has another project that's going on that's got a virgin logo on it on another plane that's also out on the runway, front and center in front of all the press. So suddenly they're like all this media attention is descending upon the X Prize, hopefully about to be won, and boom, there's virgin branding everywhere. Uh I think the amount is the X prize. They they're pretty gracious about this. They're like, Oh well, cool. I mean Great. Good for space. The the goal is evangelize space and that is happening

27:53 So After I think this is after the flight. Branson holds. Uh

27:59 press conference with Rattan. And says That Virgin is gonna be buying This technology and people like Wow. Okay. Well

28:10 Why? What does Virgin do? Now I mean Virgin could be an episode all on its own. I think Branson actually got a start in the magazine industry and then moved into the music industry with Virgin Records and then retail with Virgin MegaStore, but at this point in time, probably the biggest and best known part of the Virgin Empire. are the airlines, the uh uh Virgin Atlantic in the UK and then Virgin America Which is now big part of Alaska here in the US. So what is he gonna do with this space technology? He's gonna form the world's first Space Line. What a brilliant marketing move. Airline's been working well for us. Like let's do it on a grander scale. What's bigger than, you know, the air. Space.

28:51 And I've seen Sir Richard talk a few times, once in Seattle and once Indianapolis, at a marketing conference that uh I went to there once. And I do remember I think he's even said this in both talks that I I watched. He has this line, screw it, let's do it. And uh you could just imagine him sort of seeing the world change in front of him and saying, Screw it, let's do it. We have to be a part of it. Space is the future and I know the business model to do it. Well So They announced that they are forming quote unquote Virgin Galactic.

29:21 A new spaceline. And The business model is that they're gonna take private tourists Into space for a very high ticket price. And the idea is that this is going to be an airline. So Sir Richard puts one of his top lieutenants at at Virgin, Will Whitehorn, in charge of

29:41 This new company. They form a JV with Burt and Scald called the Spaceship Company. So Virgin Galactic is the airline. The spaceship company, this new JV, is going to be like essentially the you know the Boeing or the Airbus they're gonna build and and also operate these planes, at least in the beginning. Virgin puts up the money uh reportedly over a hundred million dollars to fund all this. Scale brings the technical. The spaceship company is Is

30:09 Initially seventy percent owned by Virgin. Thirty percent owned by Bert and Scale. And Vergent Galactic, the spaceline, immediately contracts five

30:19 Spaceship twos. So the spaceship one, which we'll get into in a minute. This is really this is not safe for uh passenger passenger use. And certainly not enjoyable or smooth. Yeah. So they they're gonna build five spaceship twos and two White Knight twos to launch them. all contracted and they're gonna finance this. The revenue model is they're selling these tickets at Initially.

30:42 Two hundred thousand dollars. A piece. And the crazy thing is people buy them. So like pretty quickly they sell A good number of tickets. So uh Angelina Jelee and Brad Pitt buy tickets. I think they were together at the time. I wonder if they're taking their flights uh together or uh or separately now. Lady Gaga buys a ticket.

31:01 Uh Steven Hawking. Branton actually gave Stephen Hawking a ticket. Eventually some of the last folks to buy tickets were uh the Winkelvoss twins later are are on the list on the Flight Manifest. And you can understand the demand for this because this is a completely underserved market at this point, or unserved. You think about the people that the civilians that have been to space have either found their way to pay to be on a Russian rocket and I think they have to become honorary or or temporary members of the Russian space a agency to be able to do this. Or, you know, you look at the the folks, I think Charles Simone has gone up twice and I think has paid

31:41 north of fifty million, maybe seventy five to a hundred million dollars to be able to go up. Of course that's orbital flight that that they're going up to, so this is a different thing. But like You know, civilians are not finding their way to black sky space in and experiences of weightlessness. th there's no real product for that. In fact the only product to experience weightlessness doesn't really go all the way to space, but is Peter Diamondis's previous company. And so there's this funny, you know it's such a small world in in the sort of space community. But that you can totally imagine why there's an entire tier of wealthy but not crazy wealthy people where you're like, Oh yeah, this is cheap and what a unique and different experience. Yeah. I mean you could spend

32:23 A lot more than two hundred thousand dollars on a vacation house somewhere. Or you could Go to space. Pretty cool. So they the product that they're selling is uh this evolves a little bit over time, but current product is a four day experience where you get training at Spaceport America, which is now in New Mexico, which we'll get to. You get ninety minutes in the air and about a little over five minutes of weightlessness with five to six people. In your Ship.

32:49 And then uh probably most importantly, you get astronaut wings when you land because you will have been to space. Pretty cool. Pretty cool. Okay, so this is all happening. In two thousand four. Now remember it was like three years to get spaceship one up, reused, flown, like Things are moving here. It's like the classic software engineering aphorism that, you know, the the first ninety percent, you know, all you have left then is the second ninety percent. Exactly. Or maybe in this case the second ninety nine percent. Yeah. So you know, we mentioned that spaceship one was really a prototype vehicle built like all of Bert's designs, like the Voyager and all those other great planes. Like this is not uh this is not ready for a Virgin America, let alone uh Virgin Galactic safety measures are a comfort here. So

33:36 Three years later in two thousand seven, the We still don't have spaceship two Ready, or really even close to ready. Very tragically, in July of two thousand seven, there was an accident at scaled when they were testing some of the engine components, and three scaled employees were killed in an explosion when they were testing these engine components, which was terrible and unfortunately not the only tragedy to uh that'll happen in Virgin's history here.

34:06 Shortly after that is actually the very next month when Northrop acquires all of scale. So I don't know if that was part of what was behind the acquisition, but uh Certainly, and then it was a few years later after that that Bert retired. So You've got some transition happening here where the major technology provider to the spaceship company Is now.

34:27 part of Northrop. And and importantly about that accident, that wasn't something like you know, they thought a design would work and it wouldn't, or that it didn't and it crashed or anything like that. This was literally hey, we're doing a an on the ground test with fuel that we perceive to be safe and it just wasn't safe. And and that's most observed by the fact that the folks who were watching were behind a chain link fence. So it wasn't even like we have to go to a facility because something could go wrong. Just people didn't think anything could go wrong there. Yeah, and it did, unfortunately. So nonetheless, the next year in uh the next summer, July two thousand eight. Is when we get the first Predictions from Sir Richard about When uh when commercial flights are gonna happen. The first of many. So July two thousand eight, Branson predicts the first passenger flight will happen within eighteen months.

35:15 Then uh not quite almost eighteen months go by. In October of two thousand nine. Virgin puts out a a press release saying that uh actually it'll be uh within two years from Then so within two years of two thousand nine. Okay, okay, we're moving. And in March of two thousand ten Actually the first spaceship two the first spaceship two is built, the first White Knight Two is built at this point, and the first kind of captive flights of the two of them up in the air together.

35:41 Do start. happening in early two thousand ten. But spaceship two is not yet flying on its own. And despite Virgin and Sir Branson having put in a hundred million dollars, the project is starting to Run out of money. So in two thousand nine

35:57 They go to the sovereign wealth fund of Abu Dhabi and And They invest two hundred and eighty million dollars in Virgin Galactic. at an eight hundred and seventy five million dollar valuation. And part of that deal is that they announced plans that a

36:13 Middle East region spaceport. is gonna be built in Abu Dhabi. So that'll be Great. And Virgin announces at that time that they have over three hundred reservations at two hundred thousand dollars each. So

36:26 Great. Things are Shall moving along. Definitely signs of demand. Yeah. Yep. One one other classic acquired theme that I'll pull out here is this eight hundred and seventy five million dollar valuation. I don't know what discounted cash flow you do to arrive at this company being worth that. This is your classic example of company needs X amount of dollars and how much of the company does the funder need to own in order to be willing to do that deal. It is a backed into valuation if I've ever seen one. You might say a uh venture capital style valuation. A theme that'll come back up in a minute here. So at the end of 2009, they do a big event at the Mojave spaceport in California, where Scales is based. Uh they unveil officially the spaceship to

37:09 Branson says at the event that flights are gonna begin now in twenty eleven. Okay. twenty eleven rolls around. Branson says, I hope that eighteen months from now we'll be sitting on a spaceship and going to space. So the trend continues. And then as we mentioned in in April of twenty eleven, Bert does retire from scale.

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39:16 So Clearly things are not totally on track here. And remember, like so Bert's now retiring from scaled. Virgin is the space line, but who like who's the It's technical space leadership now. So They bring in

39:32 They End up re arguing. The entire organization. And Branson brings in a new CEO to Virgin Galactic, actually at the end of twenty ten.

39:42 George Whitesides. No, who was George Whitesides but he Part of Who uh his background is that he was actually one of the very first people to purchase A ticket. On

39:53 A Virgin Galactic as soon as they went on sale because he had recently gotten married and he and his wife wanted to spend their honeymoon. In space. So they actually got a lot of publicity around this. So cool. And you know, J George is a longtime space entrepreneur. I think this is like a we're not talking about Brad Pitt wealth here. This is like Geor George is like hey, this is like a a material amount for me and you know, hope hoping to be able to do this soon, so my my honeymoon isn't Decades in the future. Yeah, he really does have passion for and commitment to This.

40:26 P company and project. But he also has some serious cred. So He was the chief of staff at NASA immediately before becoming CO of Virgin. And prior to that, he was the executive director of the National Space society. So the idea here is bringing him him in. It doesn't happen immediately, but I have to imagine that this was the plan.

40:48 Hey, Virgin realized like This We can't just be a space. line uh for this, we need to like actually control production and the science and the technology and space and be So shortly after the

41:02 he joins in twenty twelve. Virgin buys out scale stake in the spaceship company and takes full control Integrates the companies. And George and Virgin are now running. Everything. George has a great quote about this. He says, We've changed dramatically as a company. When I joined in twenty ten, we were mostly a marketing organization. Right now we can design, build, test, and fly a rocket mold motor.

41:24 All by ourselves and all in Mojave, which I don't think is done anywhere else on the planet. Which is Pretty incredible. Right. And it it just makes sense for them to be vertically integrated here. I mean it reminds me a lot of um taking the Apple approach of needing to to control the core technologies upon which your experiences are based and your products are based. Like It always struck me as a little bit strange that There was Virgin Galactic and there was TSC and they're the spaceship company and it was a contractual relationship of which they had different shareholders. Like it it just kinda makes sense.

41:55 Yeah. I mean it works for like Boeing and the airline industry, but uh We're not anywhere near that level of maturity yet. So there's actually a pretty cool little then you found this little history and connection between Peter and George, right? Yeah. So George Whites was actually briefly Peter Diamondis' roommate back in the X Prize days, uh when Peter was also running the space tech startup Blast Off from around the year two thousand in the sort of go go days of the internet, which is its own whole separate story that we don't need to get into today. But an interesting thing here is like The world of space is so small. Like we always joke about this with Silicon Valley, where we're like, My gosh, that's the same person that showed up in that other episode. Like everyone in this story is really only connected by, you know, one, maybe two degrees of of separation. And

42:45 While we're on tangent territory here, I gotta do this. One more insane connection is when Peter was in college at MIT, so this is long before the X Prize, he started a college organization called Students for the Exploration and Development of Space, or SEDS, which has since become, you know, this international organization, there's chapters all across these college campuses all over the world inspiring thousands of future space enthusiasts and entre entrepreneurs. I suspect there's many people in this audience who are in SEDs in college. the president of the said chapter At Princeton around nineteen eighty five. So great. Jeff Bezos.

43:24 Which is crazy. Great. Uh for all the the stuff that people want to say about Elon and Bezos and all these just negative headlines that we saw, I don't think you see them anymore, but for the longest time, you know, billionaire pet project going to space. Jeff in college was the president of his sp you know, it's it's it's just cool to see the seeds of these passions starting so so early. Yeah. Totally. Anyway, back to Virgin Glor. Uh total worth totally worthwhile digression there. So The other thing that George does is

44:00 lands a deal. Now remember, George comes from the government. He lands a deal with the New Mexico state government to construct and finance A spaceport, a two hundred million dollar launch facility in the desert there, appropriately titled Spaceport America, christened spaceport America. And he gets a fantastic deal for Virgin. So the New Mexico State government Construction finance is the whole space port. Virgin is the anchor tenant And I believe they pay five million dollars a year.

44:31 in rent. Which is a total Wonderful deal for The other thing he does is This is the beginning of sort of the excitement around the small satellite industry. So he starts a new operation within Virgin. to see if they can use this same tech to launch small satellites into space, not just people. And in July of twenty eleven, Abu Dhabi invests another 110 million dollars into the company.

44:59 behind this. Business plan, we'll see. What eventually becomes this. But it starts to work. In in August of twenty thirteen, they announced that Virgin announces that. They now have twice as many customers as before who had reserved flights up to six hundred and forty. Reservations about eighty million dollars.

45:15 Of Prepaid. flight reservations. So things are on track. And they actually closed down New tickets at this point, right?

45:25 They haven't sold another ticket since. Well they uh I believe it was actually after what happens next that they close new ticket sales. So unfortunately and um You know, George has also has said this often, I think. Space is hard and uh this is new stuff, so

45:41 In September of twenty fourteen So now we're in we're now in twenty fourteen. Branson goes on David Letterman and he uh he says We're we're so close. I think we're gonna have the first passenger flight in the beginning of next year in February or March of twenty fifteen. And uh Who d uh who knows if that may or may not have happened, but uh very tragically the second major tragedy in Virgin's history. happens on October thirty first, Halloween, twenty fourteen.

46:08 They're doing a test flight of spaceship two. They had just switched out the fuel system to a new type of fuel. And the spaceship two, the same one, the original one they had, the VSS Enterprise. Breaks apart in midair during the test flight after it's released from the mothership. And uh the co-pilot Michael Asbury is killed. And the pilot. Peter Seabold survives but is seriously injured. And this is a You know, obviously not the headlines you want when you're trying to Well, it it's tragic.

46:37 Period, but not the headlines you want when you're trying to um attract customers to come and reserve tickets on your new space line to have the craft blow up in midair. No, and just just enormously sad. I mean that the Both tragedies so sad in their own right, but the fact that they're both so different too and so many years apart i it's a It just shows what early days it still is for humans trying to go to space. Yeah.

47:02 Yeah, this is this is really real pioneer stuff. So it turns out the the government, the transportation safety board does conduct a a full investigation of the crash and turns out it actually was not a real technology problem or or a problem with the fuel uh Unfortunately the feather system that we described early deployed way too early on the way up, not on the way down. And the G forces from that tore the ship apart. The investigation revealed it was it was Likely.

47:32 I don't know that they know for sure, likely the result of of pilot error, which of course raises questions about like, hey, aren't shouldn't there be safeguards about all this? So it was back to the drawing board for a lot of things. And of course it they also said, I I think, you know, while it was likely pilot error here, it is incumbent upon the designers to consider human factors in in designing the technology in the first place. Like a person undergoing that much sort of stress and pressure what should you expect of them and what should the system sort of do on their behalf, which is a fascinating sort of philosophical concept that we don't have time to all the way dive into on this show, but be able to deploy the feather on the way up. Which is of course how Virgin Galactic changed the design for the next the next ship that they created. Yeah.

48:16 So after that, George and the company sort of refocus on. Getting all this right. They spin off the small stat launch operations into a separate company to remove that distraction. It's called Virgin Orbit, which is actually it's still an independent company part of the Virgin Group today. It's not part of Virgin Galactic holdings. It is crazy cool. Like they're basically strapping a rocket to a modified four seven and launching it the same way that the White Knight Two launches spaceship two. So

48:44 Really excited to watch that, but totally different market, different different company. Tech now, too. It's not using the white knight, it's using a seven forty-seven as a launcher. So they need a new Spaceship now. Uh so they start work on the next spaceship too. This one christened the VSS Unity, actually named by Stephen Hawking, which is super cool. They do a big event and Hawking when they uh introduce it, Hawking announces the name. So they Unveil that in December twenty sixteen and then in April twenty eighteen, it performs its its first powered flight, the first flight for the company since the two thousand fourteen crash. So it ends up being four years after the crash, almost four years, three and a half years. Until

49:23 The first flight of of the unity. And then in December twenty eighteen, so just about two years ago We have The big moment when Unity finally reaches

49:35 And a test flay. eighty two point seven kilometers above the earth, fifty one point four miles, which is below the Carmen line. But this is what we were referring to earlier. NASA's definition of space is actually the fifty mile mark. So they passed the fifty mile mark. Such a hilarious like standard versus metric system that the international metrics would be like a hundred kilometers and America would be like fifty miles. Yeah. Totally. For something that's uh

50:05 Completely arbitrary. It's like the atmosphere thins at a like gravity pulls the atmosphere toward the earth and it thins in a way that can be described by an algorithm, and here we are defining arbitrarily what height space starts. Totally. So this is huge for the company. I mean it's taken Now fourteen years. But they finally have Mm. Viable.

50:28 You know, not yet ready for passengers, but like g design that will be ready for passengers that reaches space by some definition. NASA awards the pilots Mark Stecke and Frederick Stuckrow astronaut wings. It's all happening. This is good. And it's and this is actually, you know, this was pre- the SpaceX launched this year. So it's the first human spaceflight launched from American soil. since the retirement of the shuttle uh was was actually Virgin Galactic. It was the SpaceX launch earlier this year and then their second launch yesterday was recorded. Fascinating were the first

51:02 American launches into orbit and up to the space station. But it was actually Virgin that did the first uh human space flight from um American soil after the shuttle retirement program. That's that's a good tidbit. Yeah, of course, on the business side of this too, after the twenty fourteen tragedy, as we mentioned, they stopped selling tickets. So I think there's six hundred and three people who have paid that two hundred, two fifty K, some with some discounting, but um they basically haven't sold tickets since then. What they have done because they keep need to know as a business is their demand for this thing and is their continuing demand. They do have the ability for you to indicate interest by paying a thousand dollars in a Tesla model. This actually only launches this year. Oh, okay. This is post spec. This is a Tesla model three style

51:48 refundable deposit. And so someone in a chapter said I I I reserved a ticket. I'm actually curious if that's uh what we're talking about here or sort of the full hey, I paid, you know, two hundred fifty K. But what you can basically do is we'll put the link in the show notes. You can go to their website, you can fill out a form. I think you can put your credit card information in and put down a thousand dollars and say, Put me in line and contact me when I can pay. One small step program. that then uh once they are selling tickets for real, you will make the One giant leap to from the one thousand dollars to the two hundred and fifty thousand dollars. That's a pretty giant leap.

52:23 I didn't realize that was recent. I thought that was sort of uh before they spAC'd and went public. No, it was only in February of this year that they launched that. So of course we're referring to the SPAC. Okay, so by the end of twenty eighteen, like this is this is big. This is huge for Virgin. And finally They're on track. You know, they have demonstrated put a vehicle Into space this can work. The only problem is they're running out of money again. The money from Abidabi is you know, it it takes a lot of lot of capital to do this stuff. So that's okay, though, uh because Ransom and Virgin. have a plan. They have secured. They literally have

52:57 Secured. funding a billion from another sovereign wealth fund in the Middle East, this time Saudi Arabia. And this is now in twenty seventeen, they announce That They have secured funding from the Saudi Arabian Sovereign Wealth Fund, a billion dollars.

53:14 Two Fund. continued operations and and hopeful soon. And notably that sovereign wealth fund. I mean they're the largest uh L P in soft bank vision fund fund one. Like they're they're doing big deals all around the world at this time, many billions of dollars each. And Saudi Arabia under Crown Prince MPS is, you know, had to make a big deal over the past few years of they want to diversify their economy from oil, they're getting into tech, they're LPs in lots of venture funds, not just the vision fund. Lots of money in the public markets in tech.

53:45 So this all seems like Agreed. Path. So the deal is agreed to in twenty seventeen, but it's under regulatory review in the US and the UK and takes a while to close. During that time, in twenty eighteen, folks will remember, the journalist Jamal Kashoge It was

54:04 vehemently I I believe he was Saudi and was living in the US and uh was vehemently opposed to the Saudi Government. He Enters the Saudi Consulate in Turkey.

54:17 And never comes out. And it is assumed and very likely that he was murdered by the Saudi government inside the consulate. Which of course A is just But also B.

54:30 for the tech industry specifically causes all sorts of problems because there's so much Saudi money all over the tech industry at this point. And this is a major like international event. Yeah, and I mean this is the this is the start of uh st uh startups. being very aggressive and asking venture firms before they invest, hey, tell me who your LPs are. This used to be faceless money to me. Now I don't want this particular money or or money that seems like this type of money to be profiting from my startup or having control over my startup. So very much shook the entire venture landsc what it means to take capital and and how much you should care about the Who's invested in your investors and who's invested in those investors, et cetera. Yeah. This was a huge wake up call. We all remember.

55:14 Vividly. So fortunately. Yeah, for Virgin and Branson, the deal wasn't done yet, and

55:21 You know, Sir Richard does what he thinks is is right and he pulls out of the deal, even though a Virgin is like bleeding cash, needs money. They're not gonna do this deal with the Saudis anymore. And that is when He meets yet another colorful character, this time in the Silicon Valley Tech world, Chamath Polyopatia. Uh, which Fire.

55:44 Anybody who's a longtime listener of acquired and uh certainly anybody in the tech industry at this point well beyond is probably familiar with. Chamath. So Chamath Was an early Facebook executive. I think he was like employee he was within the first thirty employees.

56:01 And he was Pretty senior there, and he was the guy by all accounts his own and others, who really figured out Facebook's Viral well, viral growth strategy. Uh started the growth team at Facebook.

56:16 And then particularly also figured out international growth. for Facebook. So a super, super key executive. He was also the guy at Facebook behind um remember uh the Facebook home, I think it was called the uh operating system for phones. Oh yeah. Yeah, and I think the Facebook one, like they partnered with HTC to make a Facebook specific phone. That's right. That's right. Well it was built off of Android. It was kinda like the Firephone, man. Other companies building off of Android, uh Turns out that wasn't a good idea. So anyway, right after that he left Facebook, but uh Facebook had already gone public at this point.

56:52 And he had a very large equity stake. Main. Hundreds of millions, if not. billions of dollars. From Facebook.

56:59 And then he you know did a Pretty audacious thing was he said, I'm gonna take most of my money and I'm gonna roll it into a venture capital firm. So we started a venture capital firm called Social Capital with a few partners from USVP, Mamoon and uh and Ted from USVP come over and they start social capital. And I remember when they were breaking in. So this was like What, twenty twelve, twenty thirteen time frame, I think. Sounds right. They made a big splash. I think their first fund, gosh, I wanna say it was like six hundred million or so.

57:30 They got into some great. Big fund for back then. It's uh pocket change now, but now it's a quaint early stage fund. But that was big. They got in early into some really great companies. They did the series B and Slack, a bunch of other great companies. They um I think led the A for Front and really established themselves as at that point in time no new venture firms had really broken onto the scene in a big way. In this same way that social capital did. So Chamath. Yeah.

57:59 And then in twenty seventeen, a few years later, this has been chronicled much elsewhere, and we'll have to tell the full story ourselves and acquired someday. Social as a Venture firm. basically breaks up at Shamath's direction. Remember, he's I think by far the largest LP in the fund. He converts it into sort of a Berkshire Hathaway style.

58:21 holding company slash family office. And I believe some of the LPs did roll into this, but he turns it much more into the most money at this point. Mostly investing his own money. And he had made some great calls on the public markets too along the way. He went all in on Amazon to get a hedge fund within social as well. That was also managing a bunch of his money. He went big into Amazon at like a three hundred dollar stock price, or or maybe it was even lower. Yeah, made some great bets on Bitcoin early.

58:50 So he has a lot of capital to play with. So he's in the process of converting social into this holding company. And He Sees this.

59:00 that gets this idea and sees this thing that's happening in the venture industry, which is now news to nobody, but at the time was really ahead of the curve. Which is companies are staying private longer. They're not going public. Time to liquidity is awful. And when companies do go public, because we had started to see some IPOs at this point in time, it's kind of a raw deal for the companies. Like you're seeing these big IPO pops

59:26 But that leaves so much money on the table, literally billions of dollars. in market cap that is just a wealth transfer from These companies to The investment bank clients that are Buying into IPOs. Yeah, and for folks who are new to acquired and haven't heard us talk about this on our on our limited partner show, which is our sort of uh second show that we go deep with our biggest fans who are actively building companies to talk about these concepts, we did one on on SPACs and talked about this. And in talking about comparing against the IPO pop,

59:56 You know, my my favorite example of this i when people are saying, Well do you mean the IPO pop isn't that good? Well, you think about it this way, it's like I own something that's worth call it. you know, twenty bucks and I sell it to someone for twenty bucks. And then at the end of the day, they run over and they sell it to their friends for thirty bucks. And everywhere. And you're like, wait, wait, but you just bought it for me for 10. And it's literally it's nothing has happened in the time since then. How come all of you told me it w like the whole market, like you all only told me that it was worth twenty, and now suddenly you're all saying it's worth thirty and you're willing to f and and it's just this ludicrous. thing where you're like, I spent a freaking decade holding this thing from one dollar to twenty dollars, and here you are now doubling the price, you know, or some putting some big multiple on the price within a day. This is stupid. So yes, that is the approachable corollary. So and this is the the real leap that Jamath makes, which is you know

1:00:51 Bill Gurley was already starting to rant against this. And you know, you had the Spotify direct listing I think happened right around this time. So people are looking for alternative ways. Chamat. thinks he finds a really good vehicle to solve this in a in a more elegant way, which is he dusts off this old concept called a special purpose acquisition Company or a spec. as abbreviated that been referred to.

1:01:15 And he says, Hey, we can use this thing which used to be like a financial engineering play to take old school private equity type companies public and profit off of some cash flow from them. And we can actually use this this vehicle to take Tech companies

1:01:31 Public. In a alternate route to an IPO that's gonna be way easier, way faster, and most importantly is going to avoid this mispricing aspect where this wealth transfer is happening just to basically investment banking clients. So now this is crazy at the time. Like Tamath has a great quote on this. He says, you know This is something where like everybody wants to be second. Nobody wants to be first. And it's a kind of an apt analogy to being a a passenger on Virgin Galactic here. So

1:02:01 Twenty seventeen. Chamath teams up. With an investor out of the UK named Ian Osborne, who runs a fund called Hetosophia, uh, which is funny. Ben and I were texting when we were preparing for this. I thought social capital Hetosophia, which is the name of the SPAC, was like a name that Shamath came up with to name his SPAC. No, it's actually his investment partner, uh, the Head of Sophia. firm in the UK. And Ian

1:02:27 He and Chamath probably knew each other from the Facebook days'cause Ian was a partner at D S T. DST was a Yuri Milner's Russian firm. Yuri Milner's yep, Russian tech investment. Vehicle. They were I think they led the first real like big, big valuation growth round in Facebook at a ten billion dollar valuation, I think. Maritech led the Maritek and Greylock did the B at a five hundred million dollar valuation, which is crazy at the time. But then like this, you know, multi billion dollar valuation, D S T were the were the ones that

1:02:57 Got this. So Ian and Shamat launch a seven hundred million dollar spAC in late twenty seventeen under the ticker IPOA and they go out looking for a tech company to merge with and take public. Yeah, and I remember Like

1:03:13 Of course I didn't really remember before the Virgin Galactic announcement when it was just a spAC and they didn't know what they were gonna buy, because that wasn't well marketed. Like there wasn't you know, the press wasn't writing about well, Chamath's doing this spAC and we don't know what he's gonna buy. What they were writing about came months later when he did know what he was gonna gonna buy. And within Silicon Valley, I mean I remember this, people were talking about it, like Chamath's doing this crazy thing Social capital's turning from a venture firm into a holding company. Like what is going on here? What is a spac? I don't understand this. And spacks, I mean, they're bad like at this point, they are four bad companies. This is like a way to get crappy companies public and it's W it's like well, whatever he buys with this thing can't be good. Yep.

1:03:52 Well the counter argument to that is well, whatever he's buying here is non-traditional is something that, you know, most traditional retail investors with some specific time horizon and herd mentality wouldn't be, you know, taking public the normal way or investing in the normal way. So at the very least, whatever he's gonna buy here. this is uh likely their only or one of a limited set of options that they have. Indeed. Well And all that would be.

1:04:20 True. When Branson. And T'Moth. Me and w I don't know the actual story of how they got introduced. I wonder if

1:04:28 Hed a Sophia and Ian had something to do with it, given that they're based in the UK. As is Branson, of course. Anyway, after The Saudi deal falls apart for a virgin galactic. They get introduced. And It's a perfect match. So by mid

1:04:45 twenty nineteen. They agree to a deal. And on October twenty eighth. twenty nineteen. It's finalized. I P O A

1:04:54 hit a social capital hit a Sophia one. D spacks. quote unquote, which means merges. with Virgin Galactic. Bringing

1:05:02 Virgin Galactic to the public markets as now a publicly traded company. Understand. The symbol, the the ticker symbol for the company changes from my POA to the very appropriate S P C E

1:05:14 Or space. Love it. Love it. So here's the deal. Here's what happened. So remember The spAC was a seven hundred million dollar SPAC vehicle. Seven hundred million dollars in a trust. And that just means like

1:05:26 It's it's basically worth seven hundred million dollars. And the reason it's worth seven hundred million dollars is because it's literally a cash account of seven hundred million dollars. Yep, to be used to consummate a transaction in a merger with with Virgin Galactic, which they do. So in the deal, six hundred and seventy-four million dollars. From This back. From IPOA. goes into Virgin Galactic. Presumably the Delta there was operating expenses for the spec in the search period over the year and a half ish where they were or it's close to two years really where they were looking for the right

1:05:58 Target before they finalize the merger. Plus Tamath invests. another hundred million dollars himself in new capital. So we have seven hundred and seventy four million dollars. Going into the deal. Two hundred and seventy four million dollars of that.

1:06:13 Goes to buying out. insiders in Virgin Galactic. So I'm not sure exactly who I presume this is probably longtime employees. options and probably also at least some portion of Abu Dhabi's stake. At that point, I believe they owned about a thirty seven percent stake in Galactic. And then there's close to fift million dollars in

1:06:34 transaction fees associated with the deal. So Virgin At the end of the day becomes a publicly traded company with four hundred. fifty million dollars in transaction fees. It's like That is gonna come down over time. Totally. I have to imagine that part of the reason that was so high was this was the first, like, technology spAC that was happening. So They were pioneering a lot of stuff here, which of course means lots of legal fees. Uh so

1:07:01 Virgin gets four hundred and fifty million dollars in new cash to the balance sheet after transaction fees and the two hundred and seventy four million buying out insiders. The deal includes Virgin Galactic. And the spaceship company, which remember now is wholly owned subsidiary of Virgin Galactic, is vertically integrated, does not include Virgin Orbit. So that's a separate company. But when the dust settles Virgin Galactic.

1:07:24 S P C E is now publicly traded at the end of the first day of trading worth about two point three billion dollars on the public markets. the spac shareholders own thirty three percent of the company, almost exactly a third. Virgin and the previous shareholders own fifty two and a half percent. And Shamat and the social capital had a Sophia team.

1:07:45 own thirteen point two percent, and Jamat is chairman of the board of the company. Wow, an untraditional match if there ever Was one. But It works. Incredibly. You know, as we sit here today, well, there's more news this morning, but as of last week, the company was trading it over a five billion dollar market cap. It works as a funny thing to say there, David. It's like the speculation party has continued

1:08:11 I would say like the Merry Go round or the musical chairs or whatever you want to call like y yes, that's continued. Of course, we haven't really seen results yet. The cash did go to the balance sheet, so the company gets to keep building toward its goal of launching, paying all of its expenses. It seems to be close to going to plan, but like uh if you just want to look at it from an equity investment perspective, sure, yeah, the things doubled in market cap since the uh since the IPO, which Seems good for anyone who invested at that point. Well, that's probably probably just like tracking to market at this point, at least for tech markets. That's a great point. Yeah, I'd compare it against the against the Nasdaq. Against the Nasdaq, but it's pretty funny when they do so as part of the D SPAC merger process, there's not a typical S1 prospectus. There is an S four merger document, though, which includes much of the same information. Actually more because they can talk about forward looking projections. It's pretty funny. So for the prior twelve months ended June thirtieth, twenty nineteen, the last quarter in the books at the time of the D spacking.

1:09:12 Uh Virgin Galactic had revenue of four million dollars and an operat of a hundred and seventy three million dollars. So very much a non traditional IPO. A number that has gone up since then is their operating loss,'cause I think they're burnt at about two hundred and fifty million dollars a year now on a on a run rate basis. So the question is like Why would public market investors receive this Stuck with such

1:09:34 enthusiasm, or at least equal enthusiasm to the Nasdaq over the past couple of years. You know, and Really, I think it it just comes down to like what this could be. Like this is An option.

1:09:47 on this future market. Now Virgin said at the time of the murd the D spacking merger that it believed it could complete sixteen flights in twenty twenty, serving sixty six passengers, which would equate to sixteen million in revenue and hopefully growing quickly from there. Now, of course, here we are in November twenty twenty and Zero of those flights have happened. Virgin would arguing um that is valid to a certain point that coronavirus had a lot to do with that. But there's also the IP and all the physical actual physical property associated with the company, which is worth A lot. There's the Spaceport America lease, there's the Virgin Brand that they have a license to. There's all the IP of the the actual

1:10:27 The planes. Technology, the spaceship company, yep. I think at the end of the day the biggest thing though and why this has Treated so well is There's just no

1:10:38 other way or very, very few other ways for people who don't have access to Venture capital as an asset class. To make these kind of You know, bet and it is literally a public moonshot bet. Yeah. Like yeah, you're at such a good point, David. What else could you invest in where there's legitimately a chance of a hundred X or a thousand X return in the public markets? Now I mean I could there probably are some

1:11:07 Good examples of those, but nothing that is so Clear cut, pure play. Hey, I can put a little bit of money into this and I might get a thousand times my money back. Or it might go to zero, but it is an asymmetric upside. Yeah. It's funny, David and I were texting last night and I was like so market cap of Five point two billion.

1:11:25 I mean I guess,'cause it's either worth a lot more or a lot less. Yeah. Uh Okay, so what's happened? Since

1:11:33 The merger. In February of twenty twenty, like we talked about, they reopened the ticket sales with the one small step. program. The Elon inspired one thousand dollars to reserve your place. They've had nine hundred people sign up so far. So close to a million dollars in revenue there. Great.

1:11:50 And then In July of twenty twenty The big news, they bring in a new CEO. So George Whiteside's transitions becomes chief space officer within the company. He's very much still part of the company, but the new CEO Michael Coleglazer. Is drumroll acquired theme.

1:12:09 Literally he spent his whole career except for his internship during business school, thirty close to thirty years. At the Walt Disney Company. In parks, right? In parks, mostly in parks. I believe he started in this would have been the late eighties, early nineties, I think. I believe he started under Eisner in the strap planning group. And then spent a couple years doing that. and then went to business school. He interned at Bain, I think, during business school, then came back to Disney after that. And then spent most of his career in parks under

1:12:42 Higer and uh and of course now uh under new Disney CEO, the other Bob, JPEG, running the parks business, which You know, you could imagine that being a really great Fit for now running this new Look if I am gonna spend two hundred and fifty thousand dollars

1:12:58 to go and do four days, it better feel like Disneyland the entire time. Like Disneyland in space, that is like the perfect That is what you should be promising me for for this price tag. I mean, gosh, when you put it that way. Oh wow, I wasn't planning on doing this, but Disneyland in space, that's pretty compelling. I might have to book a ticket. It's such a good Yeah. It it is interesting. I mean it it's it it in a lot of ways it shows the maturation of the company where it

1:13:25 originally, you know, with with Bert and the scaled team, it's like some it's originally cowboys, right? And then it goes from cowboys to like space industry veterans who are well connected and have sort of like the ability to work with government agencies and much bigger contractors if they need to farm out parts to either you know, the the Boeing or Lockheeds or the subcontractors of the Boeing and Lockheeds of the world. And then on top of that, like Now it's like George can be the chief space officer and sort of have all the space relationships and understand that ecosystem, but now we need sort of like the person who can craft the consumer brand uh to to be the CEO of the company going forward. And so I don't know exactly what the narrative they sold to Wall Street or sort of talked about internally was, but those sort of three eras of the company make a lot of sense to me. Totally.

1:14:13 Totally. So that was in July of this year of twenty twenty. Two weeks ago on November fifth, they announced earnings. Earnings I I. Losses. I don't like the calls, though. Yeah. The loss calls. But they announced on that that the first test flight at Spaceport America will be happening later this month in November twenty twenty. And they're on schedule for the first passenger flight to take place in Q one of twenty twenty one.

1:14:40 With Richard Branson on board as the first passenger. After which they will open up. Real ticket sales again. So all that is good. The stock reacts well. But then here we are, it's Monday morning, uh November sixteenth, twenty twenty, as we're recording this and the

1:14:53 announce this morning that that flight from Spaceport America is now delayed indefinitely. Supposedly due to new guidelines from the New Mexico Department of Health to disrupt the spread of COVID nineteen. Which makes sense. That very well could happen. I I I don't know what the New Mexico are we're in the middle of a circle. Totally makes sense. On the other hand, you do have to ask the question.

1:15:20 It's not like Covid is a new development. Well, this is also the fifteenth year that there's been a delay. Like at some point you you have to say, like c Can you give us a date and hit it? Yeah, exactly. So um when we started recording the stock was down about ten percent. But yeah, I mean that really is the question now going forward. We'll wrap up history and facts here and transition into analysis like Oh the promise here is immense, and we'll get into the TAM and what this could be.

1:15:47 uh if they do execute on Disneyland in space. But unlike Another company that we've covered on the show and in the startup in the space industry, SpaceX, that despite some early missteps Has now just had a decade long track record of launching hitting their targets.

1:16:05 Did it now putting people Sort of hitting their targets. They're they're very good at revisionist history. Both SpaceX and Tesla are good at like setting us an incredibly aggressive target. missing it by like twelve to eighteen months, but then being like yeah it's kinda the plan the whole time and then but they make enough products fast enough and they ship stuff where you're like okay like it still feels really fast to me.

1:16:28 Yep, yep, you get that eighteen monthly way. You know, Virgin is used this eighteenth monthly way. I I wasn't counting, but Five, six times and Still hasn't. Watched. So

1:16:40 Now, funny coda. Which is totally appropriate. To put a bow on history and facts. Um Last month.

1:16:48 In October of twenty twenty. Do you know who the latest thing is? Entry to the spack game. Was. Oh, is this Branson's spec? It's Branson himself. We coming full circle going from being the the first spec Target.

1:17:02 to now a participant on the SPAC side. What will he buy? That's interesting. I don't know. I think they're targeting a consumer or a technology company. Four hundred and eighty million dollar VG acquisition corp. Of any SPAC investors out there wanna go speculate on what uh What's her return might

1:17:20 Might buy It is available for you to do so in the public markets now. Yep. All right listeners. Now is a great time to thank our longtime friend of the show, ServiceNow.

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1:19:17 Do it. Alright, so Narratives? Yeah, I think narratives are the right one for this. Because boy are there ever.

1:19:25 We've pretty much danced around narratives, but I think it's worth uh specifically articulating what the ball and bear cases are around the company. So the bull case is that SPACs actually are an incredible vehicle to finance these long term capital intensive

1:19:42 Projects. And what they were used for before, sure, was bringing crappy companies to market and you know, they deserve the reputation that they had. But the vehicle itself, like not having to do a a road show and actually Consummating a transaction with one buyer who has done a ton of research on your company brings a ton of capital all at once to bear, it's actually An awesome way to raise

1:20:09 a good amount of money to provide the right amount of liquidity to shareholders and to only need that sort of like one party that believes in your long term vision and is willing to get you public to allow any future investor to make a moonshot bet. Whereas the traditional IPO process Like it would be really hard to run the the traditional bookmaking process. on Virgin Galactic had never made a dollar or a material dollar before

1:20:38 Well, st still basically never. It was really hard to estimate when that would start happening, when it would turn a corner, really hard to estimate how much future capital would be required. And sure you can make a projection, but like how much is any retail investor gonna believe that? So you sort of risk going public and then the whole business dying based on trading down immediately, or based on being able to sort of not subscribe the offering. Whereas in a spac, like You really just need that one true believer. Well, that one true believer and it's at a negotiated Price. I mean I think that's an important piece of Yeah, great point.

1:21:15 The SPAC vehicle, both the insider as of the SPAC and the SPAC shareholders, acquired fifty percent of the company here. First day trading at$2.3 billion market cap. I think this was basically a a more or less appropriate valuation for. something like this, which is, hey, this is a very high beta bet, right? But the upside is huge. So like shareholders will be very much appropriately compensated if this works out. It could go to zero, but like it's you know, you're buying half the company here. So at that day one market cap, it was trading at about two X

1:21:56 the capital that had gotten into the company, which I know is not a like ideal academic way to value the company, but you can just sort of think about it like, okay A billion now of R and D has been put into this. Am I willing to pay two dollars to every one dollar of R and D that's put into this for an option on the S idea. It it's it's Not

1:22:16 You could make an argument that this is not a crazy valuation. All right. So that's our that's our bull case on the transaction. But let's talk about the future of the company. Yeah. So Let's talk about the market here because Of course There have only been 600 people to date who have been willing to pay the$250,000. These are pre-orders. Like these are people who have been lining up to do this.

1:22:38 I I don't think they knew it would be a decade before, but a decade before they could actually get on this ship. Well how many people. potentially could do that. Well, th they ran some analysis. I think they worked with a an investment bank to figure out that It's something like ninety percent Of the

1:22:55 people on that six hundred person wait list Uh 90% of those have over a million dollars in net worth, which makes sense if you're gonna go spend twenty-five percent of your net worth. Seventy percent is less than twenty million. So their sort of sweet spot is, you know, people between one and twenty million. In all likelihood, it's a lot more than one. So the way to get the price down over time. Like if you have one million dollars in net worth, would you pay Twenty five thousand for this? Like, yeah, probably. They won't get the price down that much, and I can uh uh talk in a minute why. But the the bulk case is basically like okay, let's just say like ten million plus is is what

1:23:32 the majority of people who are gonna do this will have. Well, there are one point eight million humans on earth That have that much money. So you actually don't need a huge percentage of that market in order to like Make a really, really nice business here.

1:23:48 By my math, if ten percent of those one point eight million people Buy tickets. Or at some point in time, which, you know, gr y you may argue for ten percent is way too high, you may argue it's way too low. But if ten percent of the one point eight Million.

1:24:02 People buy tickets at the two hundred fifty thousand dollar ticket price. That's close to fifty billion dollars in revenue. to merge in so that's sort of like lifetime revenue for the company. lifetime potential revenue. Another another bottoms up way to build that, which is uh using the company's stated goal, which is to get to a thousand people per year, which if you think about that, that's two hundred flights per year. These things are fully usable, they can get to a hundred and sixty million dollars a year in gross profit.

1:24:31 So the the way that I got to that number is they actually have sixty five percent gross margins because if you look at the fuel and launch costs and insurance, it's really only it's like four to five hundred thousand dollars, but you can generate one and a quarter million per flight. And so those are almost software gross margins. So you really you know, that a hundred and sixty million in gross profit can cover a lot of overhead, a lot of our R and D, a lot of G and A. And I there's a lot of like if if you can actually Get that coming in. in c and in revenue that you don't have to pay out and fuel and all that. You can subsidize a nice

1:25:05 Nice amount of overhead. Yep. Yeah. And If you can get you know, this is part of why the original contract was for five spaceship twos and then obviously the idea is that they're gonna build out more spaceports around the world. Like, yeah, you could get to a point if this is a popular product where you're doing

1:25:25 many launches a day. And Thus, you know. hundreds to thousands of launches a year. Yeah, you could start to make real money with this.

1:25:34 Yeah. Okay, so what's the bear case narrative on this company? What isn't the bear case narrative here? No, that's too that's too harsh. But I mean I think the big one, right, is like It's been sixteen years. And

1:25:48 Still there has not been a passenger flight. Yeah, and and a and the biggest issue is like you do have I mean th these are these are companies going after completely different markets, but you do have a second launch spaceship company called SpaceX that has wildly outperformed over basically the same time period. And didn't have the head start of being able to just buy the successful spaceship one IP. When did SpaceX start? Was it two thousand? Three?

1:26:18 Yeah, that was like early, early that was when the go by a Russian rocket days in two thousand two. Right. And again, lots of reasons why these things are in no way apples to apples, but SpaceX is going to orbit one to two times a month, and Virgin hasn't flown a suborbital flight until last year. So that that would basically be the bear case on why investors are falling all over themselves to get money via secondary transactions into the non public SpaceX versus buying retail shares of Virgin Galactic in the public markets. And that's reflected in their valuations. We we've talked about this five point two billion dollar number. SpaceX most recently raised money in the private markets at fift billion dollars. So you can decide which uh risk profile you would rather take, but that's sort of why there's a ten X delta in uh in value. Yeah.

1:27:06 Totally. And I think there is still You know, SpaceX. The current business model is Totally proven. Like they're Making

1:27:15 A lot of money launching doing both government contracts and satellite launches. Into space. There's more speculative but very promising additional business models to come with Starlink and then

1:27:26 potentially future, you know, exploration and moon and Mars and all that. But it's a real business. I think there is also a question an unknown of just like how deep is demand here for Disneyland in space. Like how many people are really

1:27:43 gonna A just want to do this, like and B be willing to pay a large sum of money to do it. Yeah, I think the bet is that that they have to be able to graduate from this market quickly to be able to make orbital flights and do things beyond just space tourism. Um and I think that's in the company's plans not only to be able to do more than just space tourism so sort of open up additional markets, but also de vertically integrate or horizontally integrate, where you're already seeing them sign NASA contracts that were announced um just in the last couple of months to do things like identify the people who want to go to the ISS as tourists and help train them but not actually fly them on Virgin hardware, you know, on on in all likelihood going up on other launch providers. But Virgin Galactic has these competencies that they seem to be willing to unbundle from their sort of full service offering and and be able to generate revenue in other ways. And

1:28:37 Of course this makes sense. Like uh the you look at companies like Blue Origin that are unbundling their engines and selling their engines to ULA and other rocket builders and not just staying fultically integrated. It makes sense in sort of an early Wild West industry that hey, there's a material revenue opportunity to go chase this thing and it requires me doing a little bit of unbundling and changing my strategy a bit, at least for the time being. Sure, that that seems reasonable to me. Totally. And then there's also another sort of big opportunity on the horizon, which is

1:29:10 If this becomes a safe regular Thing. these launches that Virgin is doing, and there are multiple spaceports around the world. Well, you could take off at one spaceport and land at the other, like two hours later, halfway around the globe. Now SpaceX has also talked about doing this too as part of their business.

1:29:29 But you know, I I can totally understand the demand for that. Better set up for it though. Like to if if they set up a an Abu Dhabi spaceport and have Spaceport America and you can do that point to point travel suborbitally and in this fashion rather than you know strapping yourself to the top of a of a Falcon Nine, like that makes a lot more sense to me. Yeah. Totally. Okay. So I think that's the I think that's the the fair case. Do we want to do what would happen otherwise quickly? Yeah, and the and the big uh the big question here is basically like if you look at the comparable

1:30:02 w why is it that SpaceX has done what they've done while Virgin hasn't? Let's pull out execution for a moment a a big component of that, I think, is SpaceX's strategy to go get those government contracts and basically have an enormous amount of capital in the form of revenue from government customers to launch satellites. Like that has just been, you know billions and b I think over ten billion dollars now in non dilutive revenue funding that the company has gotten which of course translates to things like 10x the headcount. You know, you look at Virgin Galactic's still a startup. It's like seven hundred people. SpaceX is seven thousand. So Let's for a moment just say it is n by no means an apples to apples comparison because of the way that they chase dollars differently. Space industry folks may correct me here,'cause I'm I'm wading out into somewhat technical territory that I'm unqualified to. But I do wonder if

1:30:55 SpaceX's technology strategy too of basically laddering up From the Falcon One to the Falcon five, to the Falcon Nine, to the Falcon Heavy, to the Starship. Never ship the Falcon Five. It was never built. But it was part of the roadmap, right? And then they never they just went straight to the nine, right? I think they basically just strapped four more Merlins on it and went straight for the nine, yeah. Straight for the nine, yeah.

1:31:19 But anyway, they basically they've stair stepped up into where they are now, whereas Virgin from the get go was like Hey, we're gonna go from this prototype Wait Night One to like all the way to a commercially viable, like they they haven't actually changed the design. In sixteen years. It was like a big

1:31:36 heavy lift to start with. Not that all of these things aren't heavy lifts, but I do wonder if a more stair step strategy would have been more appropriate here. But I think probably the bigger thing is what you said been just the the capitalization and the amount of funding that SpaceX had was order of magnitude bigger. Yeah. And another I mean, this is actually this is great segue to playbook. This our first playbook item. Another structural way to look at this is Virgin Galactic is chasing a market that doesn't yet exist. of space tourism, whereas SpaceX was serving a market that totally existed, which is governments that want to get things into space and are willing to pay a lot for it. So of course there was revenue financing available, whereas

1:32:13 Virgin Galactic needed to demonstrate they could do it before people would pay. Of course, notwithstanding the eighty million dollars that they have raised in revenue capital, but since those are sort of pre orders, I imagine they can't quite use that for, you know I don't know. I think you have to be very careful in how you spend that eighty million. Yeah. I do think they I think they have restricted cash there. Yeah. Okay, playbook. Let's do it. Big one in my mind is an industry prize. Like what a fun concept. that provides an immense amount of leverage on the initial dollars raised, that brings in so many more people to an ecosystem that stimulates way more innovation than you would have if you just took that same amount of capital and plowed it into a single company trying a single thing. And of course, there's way more losers because if you don't win the prize, then you spent your millions, you know, trying to achieve something. Not only did you fail, but then you also didn't win the prize to r get reimbursed for your costs. But

1:33:03 I just we don't see it in that many other industries. It's very interesting how that this seems to be unique to aerospace and and space. The only other one that comes to mind in in our world is the Netflix prize. I wonder if I think to run this playbook, you have to have something that is like so sexy that like people are gonna wanna do it. Um there's also the DARPA competition with autonomous driving, but like you're not gonna be able to run this playbook if you're building a SaaS company.

1:33:30 Right. Right. I can just imagine the launch website of someone trying and and Twitter just Hating it. In this market, like probably somebody could stand up like a prize for like

1:33:45 Some innovative SaaS company. And I bet they would actually get Entrance. Someone should do a prize for making Chrome faster. That would be uh Oh, that would be amazing. Or Gmail faster. Yeah. Rahul's already on that. Yeah. Yep. Okay, cool. So that's a prize. I think that important second one here is the the concept of the best t time to invest was yesterday, but the second best time is today, where Branson sort of famously turned down

1:34:10 Peter twice for the X Prize. Not that that would have been an investment anyway, but you know, stayed out of this game until literally the night before the first sort of all eyes on the prize successful flight and then comes in and funds it then. You know, to say that that was still the first inning of consumer space travel would be a vast understatement. And so the the the idea of when you know you're early to a market, having no shame about sort of passing and then coming back and saying, Nope, still Still lots of runway ahead. I I think that's a important one and one not to be missed. Totally. The only one

1:34:46 I would add unless you have other playbook themes you want to talk about. Uh nope, go for it and I'll think about if I have one more or not. Cool The only one I would add to those two you said is uh I think actually something from the spec and Social

1:34:59 Capital d hophia Chamas side of things here, which You know, I've heard Jama talk a lot about this on all the other media he's done. I think There really is something to what he said about with a new risky Yeah.

1:35:14 Everybody wants to be the second person to do it. Not that many people want to be the first. If you're willing to be the first and if you size your quote unquote bet's right and your risk exposure. That's how you can get extremely outsized returns by doing stuff like that. Like doing this whole spAC thing. Like that was crazy. And a lot of people thought Chamath was nuts for doing this.

1:35:39 Well, it turns out, you know, the the the story is still being written on SPACs, it turns out it was actually a pretty good idea. And It was a good financing product, certainly for Virgin Galactic, and I think it's going to end up being a good financing for a lot of other Companies here. And Tamath has benefited, you know, hugely from that. He now has six

1:36:00 I think as of today. Uh SPACs that uh he and uh Heta Sophia have launched just on this virgin. one alone, the founder shares in the spec and sponsor promo. have to disentangle his secondary investment that he made as part of it, but he made a lot of money right off the bat in successfully completing This back.

1:36:22 And I think at a broader level, you know, he's talked about on other shows. how he really tries to have a barbell strategy with his holdings in his portfolio now within the holding company of social capital of One large end of the barbell is like relatively low risk.

1:36:38 stuff. I don't know exactly what all he would put in there. Traditionally you'd think like bond funds and whatnot. Today it's probably like Amazon stock. But then Another heavy barbell on the other side of like out there high risk stuff with not a lot in the middle. And this type of thing, whether it's Virgin Galactic or SPACs or anything in the like, this is

1:36:59 That other side of the barbell. And yeah, most of that's not gonna work. A lot of it's not gonna work, but for the ones that Do work. You're gonna get truly outsized returns. Yep. And not being afraid to look like a moron. Like there's gonna be a long period between when you declare you're gonna do this and when it works if it works, and being willing to to take the heat. I just think most most humans aren't set up for that psychology. Like you kinda wanna social check your ideas with your friends and if they tell you it's stupid and enough people tell you that, you kinda don't do it. And that does not seem to be how Chemoth operates.

1:37:30 No. Not at all. Mm. Well, The last one that I wanna bring up before we get into grading here is uh uh frankly applauding government. And I think it's government finding the right way to be involved to enable private enterprise in a win-win. And the big one that jumps out to me here is the New Mexico state and county governments that actually funded Spaceport America. Virgin Galactic has this five million dollar a year lease on it, which, you know, that's expensive and you know, it's a material cost for the company.

1:37:59 It would have been completely impossible for this company to go and raise two hundred million on their own to build this facility. Like in addition to all the other money they needed to raise, like who is gonna fund that if that's in your pitch deck. Right. I mean, think about that. At five million dollars a rent a year, that's forty years to just pay back the construction costs, like Right. Right. And the state of New Mexico being forward looking to say, like, gosh, if we can actually this could be huge for our local economy if we become the, you know, Silicon Valley of space and we build this thing and not only the sort of goodwill that comes from that and the the who knows how how much money we'll make in the future if we're actually the center of this ecosystem, but then on top of that, like the literal dollar that will come from tenants two, three, four, five. The payback period actually

1:38:43 isn't bad if you can get several Virgin Galactics in there. And for anyone uh who's curious, you should go to Virgin Galactic's website and look at the pictures of Spaceport America. This thing is awesome. Like it looks like a spaceship while you're driving up to it. And they just did a a fantastic job working with this great architecture firm and and making the whole thing like I mean It does feel like the front door to Disneyland of space. So they did an an an amazing job at that. And I do think it reminds me a lot of our SpaceX episode, where we covered NA's forward thinking approach with the crew resupply and cargo crew initiatives to outsource those missions to the private companies. Um we just saw Crew One and we've talked about it several times launch last weekend, uh actually yesterday as we record this. And I think governments take a lot of heat for for being stodgy for being backward looking. And I think these are two great examples of government enabling not only sort of private sector innovation, but in a way that will benefit

1:39:39 the government and that government's shareholders over time. Hundred percent. Great. Fantastic investments. To be applauded.

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1:40:38 So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com slash acquired to get started. All right, let's bring this home with grading. Let's do it. So we thought listeners about the the standard acquired thing is grade uh the transaction. Hey, was this a good use of capital to spend it on this trans like we could get into that on the spac. We sort of have litigated a little bit. feels feels like the wrong way to do this. So what we want to do is paint the A plus, the C, and the F scenarios for Virgin Galactic as a business over the next 10 years. So I I wanna start and we covered some of this in the Baron Bull case, but I just want to put a little bit more color around what the picture of an A plus could look like. The business is

1:41:24 Awesome on a unit economics basis. Like, obviously we haven't yet seen a unit happen yet because it I love how this sounds like a like a seed startup pitch. Like, hey, we we don't have any revenue yet, but our unit economics are going to be awesome. That's so true. I'm so guilty of this. But like it really, if you think about it, it if this works, like it and and they've sort of tested each part of the system individually. They've tested the fact that the thing can fly, it can go above a hundred K, it can take people, there's some some number of people who are willing to pay a quarter million dollars for this. You can put

1:41:58 Five, six people in these capsules. So like if you really can generate one and a quarter million per flight and you really can make 65% gross margins, the fact that they have this fully reusable design of both aircrafts Or if you want to compare it to uh like a rocket, effectively like a first stage and a second stage, both of Virgin Galactic's are reusable, which is not a common thing in the industry right now. So they really could fly it. I don't know if it's every day, but you land it, you inspect it, it inspection doesn't take terribly long. You refuel it, you clean it up, and you fly it again. It's an airplane. And so You know, I I think that to me is the A plus case. It's a strong, you know, gross margin business, super reusable, could be super high volume. If you believe what we were talking earlier about the the market, if you really think you get a thousand people uh to do this per year or more of the one point

1:42:50 two million person market of the 10 millionaire plus club. And of course there's going to be a handful of the people below that, but you know, the 10 millionaire plus is where it's a drop in the bucket. You know, it feels like you could get to a profitable business there. And I think that David, you mentioned earlier the the fact that the price could come down over time. Unless the fuel price dramatically goes down, it seems unlikely they'll materially lower it. Like I think that's a very long term horizon unless they were willing to start taking lower margins. uh at least at the quantities we're talking about here, I think that it needs to be a pretty high margin business in order to be sustainable. Fair enough. Fair enough. But

1:43:28 Your point. Could still be big. Yep. Right. What's the F? So The F. Well the we have a few things in our notes here. I mean I I think I think the biggest

1:43:40 The biggest uh risk for the F here is that for Whatever reason. It just continues to be that they can't. Actually. Get this thing off the ground. Which you hate to say it, I I hope is not

1:43:53 the case, uh But it is hard to ignore that it's been sixteen years. And that still hasn't happened. So if history is any guide, then um How much longer and and not just how much longer, but how much more capital. Let's assume that they can get off the ground and and make this happen.

1:44:12 Are there unforeseen things or things that aren't baked into the projections that are gonna require them to raise a lot more money to make this happen. You know, this last round of financing. Well obviously being a great outcome for the company was extremely dilutive, you know fifty percent dilution. Now, if this takes a few more years, they're burning whatever,$200 million a year run rate now. So that probably means I didn't actually look at the cash balance.

1:44:40 But let's assume they probably only have two, two and a half Years of uh maybe even less of runway left at this point. Without revenue? So it doesn't take

1:44:52 Many delays, and we've just seen another delay here this morning. Before They're back. Needed more capital. Yeah, it's a great point. And at what point does any existing shareholder or employee start looking at their equity and going, This is never gonna be worth anything'cause it just keeps getting crammed down. Even if we become a twenty billion dollar company, like we've taken on so much capital that m my shares Divided by the total number of fully diluted is just a very, very, very small percent.

1:45:18 Totally. Another things in here. I mean, The other big one is just like Hey, demand might not actually be there. Like these six hundred people.

1:45:27 that have paid the full ticket price plus the nine hundred people that have taken the one small step. Maybe that's like half the market here. I think that's like twenty five hundred now. I think they've gotten a fair number of deposits on the the one small sp step. But you're right. Like it could just be that uh You know. This is only cool for so long.

1:45:44 Well, just to touch quickly on the C, I think it's the sort of horizontally disintegrating thing that we mentioned earlier, where the the n the core business never works out, but they're able to sort of scrape some revenue from providing a lot of different things to a lot of different people, licensing technology out. basically not having a focus and not executing their main strategy. W they'll just never build power as a business and sort of have a repeatable engine for for free cash flow. So that would be my uh Uh that would be my C case. Yeah. They look more like a Samsung than an apple.

1:46:14 Well put. Alright, should we uh Should we land the spaceship? Yeah.

1:46:22 We're gonna deploy the feathers. D feather will go into glider mode and uh Land the plane. Well ascend attendees. Thank you so much for coming to this session. If you are interested in hearing more Acquired, we highly recommend checking out our SpaceX episode that we did earlier this year, just before the demo two mission. You can look up the show anywhere where great podcasts could be heard, any podcast player or at acquired.fm.

1:46:47 Um, thank you so much to the Ascend organizers, in particular friend of the show, Rob Myerson. If you are new to Acquired, you can learn more at Acquired FM, as mentioned. And if you are looking to invest in yourself as an entrepreneur, investor, or a company builder of any sort, you should join the Acquired Limited partner community at acquire.fm slash LP. And all new listeners get a seven day free trial, so we hope that you'll give it a shot. Lastly, if you liked this episode, feel free to rave about it wherever you see fit. Social media, Apple Podcast reviews, or our personal favorite, just sending it to one friend that you think would enjoy it too. All right, everyone. We will see you next time.

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