SpaceX

Dude, you got to get on Starlink. I know, I know. Can't wait. Fix up this latency in a heartbeat. Seriously. Welcome to Season 6, Episode 7 of Acquired, the podcast about great technology companies and the stories behind them. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts.

Today, we are talking about SpaceX, the company that will, this very week, be attempting to launch humans into space as a private company and make the United States a spacefaring nation for the first time since the end of the space shuttle program. which, unbelievably, was it a decade ago. David, how crazy is it that it's already been a decade since the end of the shuttle program? And also how crazy is it that we haven't sent humans to space as the U.S. since then?

So crazy. I remember when that happened, just like how disappointing that was, which makes what's about to happen so exciting. Yeah, because I mean, there was no date set for when it was going to start again. We decided, OK, the shuttle program is coming to the end. You know, it was expensive. It was dangerous. And it had its mishaps. And there's plans for stuff that's coming next. But there wasn't.

There was no date. There was no plan. There was no mission. And so now here we are almost a full 10 years later. With a date, a plan, and a mission, which we'll get into. All right, so listeners, here's the things that I knew about SpaceX more or less before we started researching. They're the first private company ever to launch a rocket to orbit, recover it, and reuse it.

They can do all three of those things simultaneously where they bring two rockets back down on land and one rocket back down on a boat almost a thousand miles away. Pretty unbelievable. They're, of course, led by the controversial genius, Elon Musk, or I should say genius entrepreneur. Yep. And of course, he has a plan, many would argue a credible plan, of getting a million human beings to live on Mars. But...

Until I dove into this mountain of research, I didn't understand the company's truly amazing business model, the winds of change going on around the company in the space industry at just this moment in time. or really how they were actually going to be able to pull any of this off. So what is the business? Who pays them? And for what? And what's with all these satellites that they've been launching recently? So today...

David and I are going to dive into all of that in full gory detail. Yeah, we are. Well, a few announcements before we get into it. If you love Acquired and you want more, you can become an Acquired Limited partner. Our most recent episode was a crash course in fundamental startup concept pricing with Patrick Campbell, the founder and CEO of ProfitWell. So Patrick is literally the world's expert on the topic. And so we brought him in.

to dive into how you should price software, because most people do it wrong, how you can raise your prices and still have that be okay for your existing customers, and things like what's the proper way to do a free trial. want to join, you can get access by clicking the link in the show notes or going to glow.fm slash acquired and all subscriptions come with a seven day free trial.

And also come with access to our monthly LP calls that we've started doing, which I don't know about you, Ben, but they are super fun. Super fun. We've had a lot of awesome LPs joining us. Super great chat and just like an amazing reminder of.

the incredible people that listen to this show and rlbs so i can't wait for the next one great way to get to know so many of you Okay, listeners, now is a great time to introduce a new friend of the show who many of you will already be very familiar with, Claude. Claude is an AI assistant built by Anthropic, and it's quickly becoming an essential tool for us in creating Acquired.

and the go-to AI for millions of people and businesses around the world. Yep. We are super excited to be partnering with them because Claude represents exactly the kind of step change technology that we love covering here on Acquired. It is a powerful tool that fundamentally changes how people work. And Ben, I know you have used Claude for some acquired work here recently. Yes.

So I used to take four to six hours to put all the dates from my raw notes into a table at the top of my script on recording day. You know, this is a hundred different dates that are all sort of laid out. It's a tedious task. But all the data is there in my raw notes. So on the Rolex episode, I tried just feeding all of that into Claude and asking it to do that for me, which worked perfectly. And I could just export the table and paste it right into my notes. Super easy.

So that freed up an extra half day that I used instead to focus on explaining the section on how a mechanical watch actually works. Oh, so awesome. Made the episode so much better on both fronts. I was just chatting with Claude today to brainstorm ideas for something big that you and I are working on for this summer, and it was insanely helpful. Listeners, stay tuned on that front.

Yes. So listeners, by using Claude as your personal or business AI assistant, you'll be in great company. Organizations like Salesforce, Figma, GitLab, Intercom, and Coinbase all use Claude in their products. Whether you're brainstorming alone or building with a team of thousands. Claude is here to help. Yep. And if you, your company, or your portfolio companies want to use Claude, head on over to Claude.ai or click the link in the show notes. And now, David, over to you to take us into SpaceX.

Wow. Where do you even start? Well, the place to start, listeners, if you haven't already, go back and listen to our Tesla episode, which was now a couple of years ago, which is... Just crazy, man. We got to revisit that because a lifetime has happened to Tesla since we recorded that episode. But in that, we talk obviously a lot about Elon and his background.

and some of the crazy things that happened to him that have turned him and his personality into the unique brew, the unique blend vintage that it is. But just to... My quick way of background to catch everyone back up on it. So Elon obviously was born in South Africa. He grew up with a pretty insane family and even in an even more insane.

time to grow up in South Africa with apartheid and all the terrible violence that was happening there. And he wanted none of it. He wanted to come to the US. He thought America was the land of opportunity. He thought it was where things could happen. He was particularly... interested in space and sci-fi and making the future uh the present um and so he basically at age 17 hitchhiked his way from south africa to canada

lands in Canada and then ends up going to the University of Pennsylvania. From there, he makes his way out to Silicon Valley. He starts two very successful internet companies, one of which was a little company called paypal and somehow in in true elon fashion managed to get himself ousted as ceo of these two internet companies at least three and potentially four times, which is pretty impressive given that it's only two companies.

This is X.com. And then I'm sorry, before this, this is Zip2 and then X.com, which merged in to become PayPal. Yep. First company, Zip2, got asked to the CEO. Second company, X.com, his employees staged a coup. That's the one that you... may or may not count then the board removed him then uh he came back quickly then they merged with paypal confinity.com which would become paypal then the board removed him again

So all of this, before you start your rocket company, have all these experiences to form you and then see what happens. Let's just play that experiment out. Exactly. Well, so... This unique brew of life experiences for this man who's only 29 years old. He decides after in October of 2000 being ousted for the final time from the newly merged PayPal. that he's had enough. He is done with Silicon Valley. He's hanging up his spurs. He is walking away from it all at age 29 with about $200 million.

some of which, a small amount of which coming from his Zip2 sale earnings and a large amount of that from his equity in PayPal and a silver McLaren. F1. Oh, by the way, we didn't talk about this in the Tesla episode. Did you know, Ben, that he and Peter Thiel were driving said McLaren F1 up Sand Hill Road to go meet with Sequoia Capital one day? Peter asked him.

what this thing could do elon said essentially hold my beer and they end up spinning it around completely totaling it being an amazing stroke of fate that they do not die um And then they end up going to the meeting afterwards with the car totally wrecked. My God, I knew they totaled it. I had no idea it was with Peter or going to Sequoia. That.

It's like almost to thank God they got away with their lives. I mean, this is Elon we're talking about here. So a lot of this history comes from the great, great Ashley Vance biography of Elon, appropriately titled. elon musk because what else are you gonna title a biography like that um and uh and ashley writes to take this into spacex now and set the stage ashley writes about what

is going on with SpaceX. He says with SpaceX, Musk is battling the giants of the US military industrial complex, including Lockheed Martin and Boeing. He's also battling nations. Most notably Russia and China. And then shortly after he has a quote from Elon, he says, my family fears that the Russians will assassinate me, man. And you thought online banking was rough. No kidding. And how do you think about Elon at this point in time? Like, is he a rich tech guy who...

now wants to get into rockets, much like the many sort of billionaire types before him who want to start a rocket company? Are you referring to Jeff Bezos? Well, I'm referring to the litany of people who have started a rocket company, bought one rocket, crashed it and give it up. I mean, there's like people who have started all sorts of companies have then gone and done this as their second act when they, you know.

have a god complex and uh yeah there's it's interesting you almost always it's it's uh well always it's men that do this it's like little boys growing up wanting to be astronauts make a bunch of money then decide to go create some spaceships as their toys. And that's what everybody thought Elon was doing here, including all of his friends, which we'll get into now. So it's October, 2000.

He's just been ousted. He's decided he's leaving Silicon Valley for good, like literally like metaphorically leaving, but also physically leaving. He's going to move to Los Angeles because space is now what he's going to do with the rest of his life. And. The aerospace industry is primarily headquartered in the Los Angeles area. And so he's going to move there. He's going to make connections and he's going to figure out what's next for him.

Kind of amazingly through all this, this also says a lot about Elon, despite having been housted from PayPal twice, he remains really retains really good relationships with with all the team there, including. peter and max and and um you know all the paypal mafia and and rolloff and so one weekend paypal is starting to really take off at this point

They're not public yet, but they're starting to figure things out. The whole team, including Elon, goes to Vegas for a weekend. And Kevin Hartz, who was an early angel investor in the company. is interviewed in Vance's book. And he talks about that they are sitting, he says, we're all hanging out in this cabana at the Hard Rock Cafe.

And Elon is there reading some obscure Soviet rocket manual that was all moldy and looked like he had bought it on eBay. He was studying it and talking openly about space travel and changing the world. So this is like. everybody's like okay man this guy is like gone off his rocker yeah and he's not sort of like hiring someone to go do this for him and saying put my name on it like i'm gonna flash way forward to today but he's the

he's effectively and maybe even entitled the chief engineer. I believe he is entitled the chief. Yeah. Like, I think I've heard the NASA director refer to him as chief engineer of SpaceX, Elon Musk. Like he was a. Like, he would go find resources on... rockets and just go like suck all of the information out of physics textbooks and physics professors and you know exactly what you just pointed out rocket manuals um i don't want to i don't want my

I don't want my question from a moment ago to linger too long, feeling like I'm mischaracterizing him. Elon is absolutely not a eccentric billionaire who now decided to get into space because there's nothing else to do. This is sort of the plan all along. And online payments were sort of this brief exit from the highway before he got back on to go and really run at this big problem. Yeah. Well, it was a way to get all of these resources.

So when he lands down in LA, he gets hooked up with a non-profit organization called the mars society and elon's been percolating on mars uh he talks about um he when he first started thinking about all this he goes to the nasa website and he's expecting on the nasa website to find you know all sorts of great

plans about the future and exploring space and in particularly mars like makes sense that people should go explore mars we've been to the moon and there's nothing there and so he gets really disillusioned he's like i kind of want to make like i've got some resources I want to make a grand gesture. He's not thinking about a company. He's not thinking about a business. He's thinking about something to inspire people to get back into space exploration.

the mars society this is their charter so he makes a hundred thousand dollar donation to um to the mars society he joins the board and he starts meeting all of these aerospace people in uh la and um And not just in LA, of course, back up in Silicon Valley, there's NASA's Jet Propulsion Lab in Mountain View. And so Elon, he's, he's mostly down in LA, but he's going back and forth and he starts organizing these Saturday salons. He calls them where he's just getting together.

industry leaders in aerospace and at jpl both in la and palo alto and um he's just kind of like there's no agenda but he he kind of lets it be known to all of them that like he's got some resources he's you know a dot-com rich guy and he wants to make a gesture and like what could be done on the order of kind of 10 to 20 million dollars so

They start to coalesce the group on this idea of building a quote unquote Mars oasis. And the idea behind a Mars oasis is that they're going to buy a rocket and they're going to put a plant on it. and they're also going to put a robot on it and they're going to shoot this rocket to mars and when it lands on mars i can't remember if the mars rover had landed at this point Think so was a thing. The lander that was the one that I remember was a really big deal that I think found ice.

Yeah, I remember that. The Mars Phoenix lander was somewhere like 2008.

eight and so that hadn't happened yet um but i think the rover had yeah i think the river was there anyway it wasn't like i mean it was kind of crazy but obviously everything about this is crazy but you know you could sort of piece together how you could string along somebody that this could happen um so they were going to put this there and then the idea was that the robot was going to create a greenhouse and then was going to put the plant in the greenhouse

and let the plant grow on mars and then they the robot would have a camera and it would have video feed and kind of like the you know the whole earth picture that the first apollo astronauts took of uh of the earth from the moon that this would be a live video feed of a plant growing on Mars to beam it back over the internet onto a.com site and inspire the people of the world to explore space with this. Love it. Love it. Sounds great.

So the purpose being sort of like inspiration, a little bit of like a philanthropy stunt. Maybe even like a, you know, some kind of performance art. project, not to foreshadow what's going on in Elon's life today. But yeah, that's kind of the idea. There's one problem though, and nobody... in the group and the salon group is really willing to tell Elon, you know, he's thinking.

He's got, you know, probably 10 ish million left over from the sale that he made. He made about 20, I think 22 million from the sale of zip to his first company. He's probably got about 10 million left over. He thinks he can probably scrape together maybe 20 million, maybe take some loans out against.

It's PayPal equity. That's his budget for this. And David, earlier you had said that number $200 million. That obviously would come later when he did get liquid on those PayPal shares. Now he's only got sort of this...

10 to 20 million from their first company right he's you know he could he will end up being with 200 million dollars in liquidity but at this moment uh it's all tied up in paypal so the thing that none of these space experts want to tell him is that like he's off by an order of magnitude on the cost of this thing uh and uh 10 20 million isn't going to cut it you're needed more 100 200 million 300 million dollars

so musk though like he's very um you know he's singular in his focus and so he keeps pushing forward on this and he comes up with this idea i think this was his idea that the way he was going to make this happen was he was going to get a deal on a rocket by instead of using a, you know, purpose-built space-launching rocket, he was going to go over to Russia. And remember this point, we're not that far removed from the, you know, dissolution of the Soviet Union. Like, it's kind of the Wild West.

Right. It's like 1989 to 2001. Yeah. We're now in 2001. And Musk's idea is he's going to go over there. He's going to buy an intercontinental ballistic missile because the Soviet Union has disintegrated. You can like kind of do that in Russia these days. Apparently, there's an open market where you can go and buy.

well maybe it's not open but it's you know it's gray it's it's uh that's right didn't he have some sort of like shady not shady but uh a connection like well we're about to get into this we we should also contextualize here I think to be able to actually buy one of these in the US through more appropriate channels, like if you could actually get your hands on one, I think it's something like $65 million. Like the...

The reason to sort of look elsewhere is there's no way you're getting one here for any reasonable amount. Yep. He thinks he's going to get a deal by buying a missile and converting it into a rocket. This is like, you know. Cue the James Bond villain theme here. So he goes over there. He hears from his network that there's a guy who can maybe make this happen.

And that guy's name is Jim Cantrell. And so Jim lived in Utah. He's an American. And he had worked for NASA and also the French Space Agency and ended up doing a lot of. actually like super classified collaborative missile defense projects with the Russians. I don't know if this was during the Cold War or just after where they were actually working together on, you know, missile defense. So he knows the Russians pretty well.

So he tells the story. One day he's in Utah. He's driving. He gets a call on his cell phone and he says, this is in Vance's book. This guy in a funny accent said, I really need to talk to you. I am a billionaire.

this is elon by the way elon is not a billionaire at this point i am going to start a space program and musk finally refuses to give cantrell his cell phone number uh and musk made the call from his fax machine line he's like starting to get paranoid about what this is going to entail to go try and buy a missile um so must ask cantrell to

if there's an airport near where he is and if he could meet the next day. And Cantrell says, my red flag started going off. And then he's fearful that one of his enemies is trying to set him up. He says, okay, I can meet you at the Salt Lake City Airport.

but only behind security because he wants to make sure that these it's actually really smart i mean he's used to dealing with the russians here just like it's a it's a good if i ever want a super high security meeting like now i know how to do it yeah go to an airport it's probably

pretty empty these days in the coronavirus you're gonna have a very private meeting um so Cantrell rents out a conference room in the Delta lounge at the Salt Lake City airport uh and they mean they end up hitting it off and Cantrell's like oh okay like I mean this guy's something but he's not totally crazy and so he says he agrees he says okay i'll go back to russia with you um and i can i think i can help you buy a rocket

So at this point, Elon's friends all basically try and stage an intervention. They create like a compilation video of rockets blowing up. You know, they come up with all the stories, Ben, you were mentioning of everybody who's lost all their money doing this. He goes forward, but...

one of his best friends from college, Adeo Resi, who started the funded.com and founder Institute is not great entrepreneur in his own right. He says, I'm going to come with you. Like he's like the, the friends must've like nominated him to kind of keep tabs on Elon. So the three of them, Cantrell, Elon, Resi, and one other guy end up...

Going to Russia and making a pilgrimage to try and do this. The other guy who goes with them is a guy named Mike Griffin, who they get introduced to. Wait, Mike Griffin went on? Yeah, I'm seeing Ben's face right now. We'll come back to Mike Griffin later in the episode. My God. I have Mike Griffin listeners in my notes. I won't tell you where or what his title was, but wow. It's the same Mike Griffin. Yeah. Ben and I were talking before the show and I was like.

All right. There's going to be a thing. Like, just wait. Just wait, listeners. There's going to be a thing about Mike. Wait. So what's Mike's role in this? So he comes over to just be part of this.

what's the right word like emissary entourage maybe to just kind of you know make introductions and meet with people see how one would go about buying an icbm from russia yeah i mean you could call it an icbm you could call it a rocket to get to space which is what you know the intention here is so mike he had worked at nasa earlier in his career

And then he had run In-Q-Tel, which is the, it is part of the government, but it's the CIA's kind of venture arm for investing in commercial ventures that are going to be helpful to the government.

so you know who knows why mike was coming with them you know again he's he's coming from the government he's coming from make you tell maybe he's keeping tabs on everything that's going on here uh so he comes along and uh it basically goes as you would expect listeners they meet with a bunch of russians you know can't trail and maybe maybe mike sets set up some meetings um and they kind of go like this you know vance describes a bunch of them in the book you know they walk

in they sit down there's a lot of you know the first thing that happens of course is vodka shots and uh vance talks about one meeting where uh they do everybody in the room does vodka shots and the russians are toasting uh to america and uh that um that probably should set you know some some red flags off there for everybody just in the get-go there um and then you know they chat for a while they're not really

talking about anything related to buying a missile lunches served you know a couple hours go by and then finally they get around to like so the purpose of your visit and for anyone who's ever met with any of elon's companies let alone elon himself like this is not how you get to have a meeting with someone at spacex it's quick it's to the point it's how fast give me really good reasons for everything and let's move on and like elon is the personification of that type of meeting

Yep. So he starts getting really frustrated by all these meetings. And finally, you know, by the end, he's, he's had enough of this kind of Russian way of doing things. And he just starts coming out like right after the vodka shots. Like I want to buy, I want to buy rockets, you know, here's.

my offer and he's he's calculated he's willing to offer um the meeting with one group this is the last group they meet with i think has either two or three rockets he offers them eight million for um for the two of them and they're like yeah how about eight million each each and uh they um needless to say they don't come to a deal so

Everybody leaves the meeting. By the way, they're there in the middle of Moscow and Russian winter, which is obviously pretty depressing. I've been in Moscow in February and it is like... It is like freeze your face off cold. So it is literally February 2002 when this is happening. Wow. Yeah. So let's recap dollars real quick. Because dollars are going to be an important thread through this. through this whole story, not just because...

This is an expensive endeavor. But because the scale of dollars to other dollars is important to think about, how would you go about solving this problem? So Elon's basically got $170 million from PayPal of post-tax dollars. happens which is not for another which didn't happen yet so he's got 20 million total now um but you know he'll eventually have 170 million and and um so

That number that I quoted, buying a rocket like this from a U.S. company that manufactures, it's like $65 million. So he's trying to buy him for $8 million for two of them in Russia. So keep those sort of...

relative dollar amounts in your head of course the deal goes blows up he doesn't actually end up buying them but um that would have been what it cost him and he couldn't you know even if he were willing to put all his money into this he couldn't do the 65 million dollar launch because that's just the launch like you know then you gotta like

get the stuff there you got to build the robot you got to set up all this stuff like um i'm sorry that 65 million that i'm quoting you is literally to buy a rocket from oh interesting yes i didn't realize that you couldn't even i guess you couldn't at that point in time just walk up and like reserve a launch spot on a rocket you had to actually buy the rocket yeah who who can you just go and say hey i wanna yeah Well, imagine if there were a company that did that.

And also, I take that back. I think such a concept did exist, but I think it would have cost you 150 million to 500 million, quoting some of my numbers that we're going to sort of bust out later in our future cost comparisons. Wow. Wow. So, okay. So back to February 2002 in Moscow, they leave the meeting. this, uh, this motley crew, they get on the airplane and, uh, and they, you know, head back to, to the U S uh, on the plane. And, um, uh, Cantrell talks about this. He says, um,

Whenever you get on a plane in Moscow, particularly in February, heading back for the States, he says, you always feel particularly good when the wheels lift off in Moscow. It's like, my God, I made it. So he and Griffin, you know, they're veterans here. They call over the drink cart and they start celebrating getting out. Meanwhile, Elon's sitting in front of them and he's just like furiously typing away on his laptop silent. They can't figure out what's going on.

About halfway through the flight, he turns to them and he says, hey, guys, I think we can build this rocket ourselves. And then he hands them the laptop and they look at it and they're just like dumbfounded.

elon has this spreadsheet on his laptop this i don't know if it's like it must have been excel like google sheets didn't exist at this point he's got this excel doc and it's like a hyper detailed spec sheet with costs and all the materials needed to build a rocket not necessarily a rocket that would get them to mars but it's like you know it's real and um and so they're they're stunned and they say

How did you build this? Well, it turns out Elon had been reading a lot of Soviet rocket manuals and he had also met as... part of this kind of group of advisors he'd been putting together, he met this guy named Tom Muller. And Tom had worked at Hughes Aviation. Hughes, of course, being Howard Hughes. back in the day speaking of uh of billionaires who started rocket companies indeed um and then moved on to trw space and he was kind of known in the industry as a real savant about engines like

Probably the best, most impressive rocket engine engineer in the world. And Musk had gotten in touch with him.

and uh and met him and started asking him all these questions about how rocket engines work and what needs to you know go into building a rocket and he had helped him put together this spreadsheet so it was it was pretty damn good so they get back to the u.s and then basically a whole chain of events gets kicked off that ends up in spacex uh and uh tomorrow an american company launching people into space yeah another um

Just to keep the dollars thread going, I think it was, I can't remember exactly which of the sources it is. David and I have 20 or 30 different sources that are in the show notes where you can go and read more about this. I want to say this was originally from a SpaceX engineer, but... pointed out, if you calculate the cost of goods sold for aerospace-grade aluminum alloys plus some titanium, copper, and carbon fiber on the open commodities market, it's about 2%.

of what rockets cost. And I want to plant that seed because the question in your mind throughout all of this should be, why is this expensive? Like, obviously, this is expensive. It's almost unfathomably expensive. When you hear about anything in this industry, contracts awarded, cost of emission.

So NASA's budget, which, by the way, in the last 20 years has gone from about 1% of our federal budget down to about half a percent. It was as high as 5% in 1969 at the height of the space race. So just interesting to think about that. That's of the U.S. government budget, by the way. Yes, that's correct. That's of the entire federal government. Yes. So it's immensely expensive, almost to the point where it's...

you can't even discern between the millions and the billions. And I'm trying to sort of paint a picture here where you really should just try and figure out every single time you hear a high number. Why is it expensive? And where does the money go? And of course, you can't make a rocket just by throwing commodities at a wall. So you're not going to get it all the way down to 2% of what that rocket costs. But 2%... being sort of like the hard materials.

I'm not someone who's in an industrial's job, but I have to imagine that in most manufacturing businesses, the actual hard materials are much more than 2% of the final sticker price of whatever rolls off the line. Yeah, the bomb versus the...

msrp totally well and this is you know elon elon studied physics in undergrad in addition to business you know he is a physicist and this is the question he asked himself he's like you know yeah like this is hard but at the end of the day these are atoms and like you know it's a bunch of gas in a tube right like that's what a rocket is um and so this is what he's putting together in the spreadsheet so they touch down back in the u.s and basically at the same time paypal finally goes public uh

And right after, so even they were the first, we talked about this with Ruloff in our adapting episode with Ruloff at Sequoia, who was at the time the CFO of PayPal. They broke, you know, they were the one bright spot in the dot-com, you know, the Russian-like dot-com winter. The stock pops 55% right after the IPO. Uh, so Elon sees this, he's got this spreadsheet and something clicks in his mind and he says, you know what? This isn't just a gesture. This isn't just a inspirational.

thing i want to do i can actually disrupt this industry i want to build a company i can take you know all of this cost bloat that's happening in this industry um use my spreadsheet use my connections and do this for real so he gathers up you know they walk up the plane he gets cantrell he gets griffin he gets smaller uh the rockets you know literally the rocket scientist and a guy named chris thompson who is an aerospace engineer at boeing

And he says, let's do this. Let's start a company. Nonprofit is dead. I'm going to start this. I'm going to fund this all myself. PayPal is a liquid public currency. The lockup will be over soon. I can exit my stock and I'm willing to go all in on this. Almost all in. Almost all in. Greater than half in. Greater than half in. Now, he hasn't yet met J.B. Straubel and gotten introduced to the electric car scene. So at this point, he's thinking all in.

Um, the one person who everybody's in except for.

for mike griffin uh he lives on the east coast you know he's the former rank you tell guy he says you know look guys i'm a little farther on in my career i'm a little more senior you know this is all a great adventure best of luck i'm rooting for you but i'm not going to move out to california and and do this uh and that ends up being a very good thing for space x that he uh did not do that as we will see like i'm like learning in real time for you on this episode i had

It's a very good thing for SpaceX that this is how it shook out. Very good thing for SpaceX and the world that he did not do that. Everyone else, though, is in. Cantrell's in for a few months. He ends up leaving a few months later. But in June 2002, they officially incorporate space exploration technologies. And then the very next month, in July 2002, eBay buys PayPal for $1.5 billion. And Elon now doesn't just have a liquid public.

stock currency he has 180 million dollars plus in straight up cash that uh that he gets out of paypal and at this point in time he says you know remember he's been ousted three or four times from the two companies he started in the past This is going to be his life's work, his next company. He says, I don't want any, any chance that anyone could kick me out here ever again.

I am not taking on any outside investors. I am putting my entire fortune into this. I will fund it all myself. It's mine. And the super interesting thing is, you know, Ben and I, we were talking about this. We were texting about this. All told over the life of SpaceX, I think Elon has only put in about $100 million into the company versus...

Bezos at Blue Origin puts in a billion dollars a year. And so many other people that have entered into the space industry just become money pits. That's a good... Let's plant that seed because, yes, SpaceX is very revenue funded instead of sort of equity funded. Of course, it's very equity funded, too. This is a company that has a, what, $35 billion valuation today and has over $3 billion invested in it.

from not much of which is outside of elon yeah uh oh interesting good point yeah i think much of which is secondary okay well the the the point i want to drive home here is SpaceX was founded, and there's one thing that's known about the company at this point and one thing that's not super solidified, at least as far as I can tell. The thing that is known is...

we're going to freaking Mars. Like we're figuring this Mars thing out and we're going to start by lighting a one engine candle on fire. And like, we're going to, we're going to figure out how to, you know, take baby steps here. So that part is figured out. The part that's not figured out is what you'll find in the very first paragraph of the Wikipedia entry on SpaceX, which is this sentence. They were an American aerospace manufacturer and space transportation services company.

It is very, very important to understand SpaceX today is both of those things, and they are different. They are a company that makes stuff for aerospace and may well one day run a business on that. And then they also have this business where they're basically a logistics company to ship stuff up to space. And that latter business funds the former business. I think the missing puzzle piece that sort of comes along that lobbies for SpaceX to do that is not yet in place yet.

Yeah. Well, so the business plan for this new company, and again, Elon is very insistent. This is now a company, is that he's seen all this cost bloat in the industry. He thinks they can... do much better and he realizes really the hard part about launching things into space is the engine of the rocket and he has the best rocket engine engineer in the world tom moeller working for him

they're going to build their engine completely in-house. And then the idea is that the initial initial idea is they're going to go to third party suppliers and commodity folks and get all the, all the rest of the stuff together and work with, work with contractors kind of like, um,

You can imagine the business plan, ironically, is sort of like the traditional Detroit automotive companies where they make the engines and they make the finished products. But everything in between the engine and the final car. comes from a whole network of suppliers yeah yeah a horizontally integrated company yeah exactly exactly um so the plan is this is what they're going to do they're going to build the engine and um They're going to start launching in September 2003. It is now July 2000.

One. Yeah, that was some wishful Elon thinking. Classic. Yeah. Classic. It may have been the first, the beginning of the Elon timeline, because in software, you can ship that fast.

A little harder in hardware. We should also say, and this I think is from the Ashley Vance book as well, the way that Elon calculates these deadlines is he thinks about it... about literally how long would he sort of like builds a Gantt chart in his head and then he tries to compress all the minutes together and then he also tries to apply a speed acceleration there where he says look like

I would work on this really fast all the time. So anybody that I'd hire would also do that. And so he basically creates this like ultra... ultra compressed gantt chart that's massively sort of like uh has the elon multiplier on it and that's sort of how he expects the work to get done yep yep so they decide they're going to name this first um

Rocket, the Falcon 1 after the Millennium Falcon, of course. And since the rocket is named Falcon and the key is the engine, they're going to name the engine Merlin, which is a... type of a type of falcon also i wasn't able to find i don't know if you were if this was intentional or not but the merlin engine actually has a storied history as a different type of engine which is the rolls-royce merlin engine

Um, which powered all of the, most of the British, uh, air fleet during world war two and the battle of Britain and was like storied for being its power and reliability and, um, you know, helping, uh, the allies win the war. That threw me for an SEO loop because I was searching for information on the Merlin and kept getting this Rolls Royce thing. And I was like...

I thought SpaceX always made their own engines. Wouldn't that be funny if Rolls-Royce made the SpaceX engines? That would be the ultimate irony based on where the company would end up today and their sort of strategy and principles. I know, I know. Okay, so they get to work building the Falcon and the Merlin, working with all of these, you know.

the network of contractors and suppliers being, you know, a horizontally integrated company. And they pretty quickly find that it's not just Boeing and Lockheed and everybody who is... Subject to cost bloat and time bloat and project scope bloat in this industry. It's all the contractors all the way down. So Elon starts asking questions of these guys pretty quickly. And this isn't just like two levels of contractors. It's not like, well, I'll sub it out to...

bowing and then they'll sub it out to someone this is like like it's turtles all the way down type type thing like there's this crazy recursive loop where yeah So Elon, of course, starts asking questions and people in this industry aren't really used to. Questions being asked of them. And he starts figuring out that some of these components, whether it's, you know, part of the shell for the fuel tank on the rocket or some of the avionics components that.

Contractors are charging a hundred thousand multiple hundreds of thousands of dollars a piece that they can just manufacture them either in-house fab them in-house or use off the shelf you know consumer grade electronics and computers for you know one percent or less of the cost that uh that these contractors are quoting them so he says

all right, screw it. We're not just like Tesla. We're not going to take the Detroit approach to this. We're going to vertically integrate. We're going to make 90% plus of this rocket in our own factories. Which is wild. I mean, SpaceX sort of...

Coyle talks about how raw material rolls in one side of the factory and rockets roll out the other side. And they almost talk about it like, well, minerals show up on the left side and rockets show up. It's not quite that. They do have a network of suppliers. I think the number is 3,000 suppliers and 1,100 that supply them product every week. But the way to think about it is those suppliers are just sort of like way lower level. Like they're more the raw...

you know, material, you know, think about sheet metal and wiring rather than fully assembled, you know, motherboards and, you know, fuselages. This is like... It's kind of a crazy undertaking because really in business, the theory is only take your core competency in-house and outsource everything else. Outsource everything that can be commodity.

There were so few players in this industry and such limited number of customers on the demand side that there was a very... specific way that it was done and that way just involved this wild scattering of subcontractors each of which had to make their own product profit margin and so you end up with this stacked like margin, margin, margin, margin. And as...

Someone who we will talk about here shortly brings up in a speech, her quote is, it's exponential GNA that you get when you have multiple layers of integration. And I've never heard someone describe it so aptly that of course this is exponential. exponential because every time somebody needs to make their 30% or whatever it is, that's on the previous person's 30% or whatever it is. And I bet it's a lot higher than 30.

Yeah. Well, and let's think about who the end customers were in the space market, mostly, you know, pre SpaceX, well, and even now post SpaceX, uh, they were governments, you know, primarily the u.s government but also other governments around the world these are entities like a lot of these contracts are done on a cost plus basis which you know by the way side note playbook theme if you

ever as an investor or an operator encounter a situation where there is a cost plus contract uh as a way of doing business you need to either if you're an entrepreneur disrupt them as soon as possible or if you're an investor run the other way because Because with a cost plus, literally, there's the cost of what it costs to make something. And then the contractor makes a percentage profit on the cost.

the incentive of the contractor is to make it cost as much as possible so that their absolute dollar profit as a percentage of the bigger number is bigger. Like, it's nuts. Yeah, that's a great point, David. And I think, you know, it's ambitious, but it still seems silly that this is a company that is both best in class at, you know, creating motherboards.

for this purpose and best in class at writing software and best in class at creating rocket engines or, you know, top three in class at creating rocket engines. It's like an insane number of core competencies. And operating those rockets. Right. That's the other thing is... They, yeah, they are the operator of the final product. Yeah, they vertically integrate everything. It's just, you know, it's obviously it's a 7,000 person company now, but it is.

just shocking how many core competencies they need to be excellent at. Yeah. So, okay. So what's the business model for all this? Like what's the target market? So Elon, you know, he comes from This internet industry, you know, new, you know, PayPal, new markets, lots of demand, you know, highly rapidly growing markets and all the folks.

that he's surrounded himself with who are instrumental at spacex they're all the these are the bleeding edge of the bleeding edge folks in the space industry the people who like boeing and lockheed aren't moving fast enough for them so they think there's this concept

in the space industry at the time um and has been for many many years that small satellites are going to take over and there's going to be this big democratization of the space market um you know and where whereas it was just governments and big satellite companies that were launching big stuff into space, there's going to be small sats and cube sats. And now like everybody, there's going to be this massive opening of the market, kind of like there was with PCs and cell phones.

And that's who SpaceX is going to try and serve. Exactly like PCs and cell phones. Like, if you think about it, the reason that a lot of these CubeSats can do what they do is because we've got... you know, a few billion smartphones out there and we can massively bring down the cost of, you know, the really innovative stuff that goes into creating something that, you know, fits between your hands outstretched. Yeah. And it really...

amazed me doing the research. We've all heard this story about space and small satellites. in recent years with the venture funding in the space but this was the story even back in 2002 2003 like it's that's true that's a fair point this is five years before the iphone yeah you know eight nine years before smartphones had scale so people

People were always thinking this and, you know, I think it will materialize in the future, but the reality is it didn't quite materialize for a long time, a big market there. And so at this point, SpaceX makes a critical.

critical hire that ben you were alluding to earlier a woman named gwen shotwell and gwen is just an incredible force of nature in uh every dimension today she is the president and coo of spacex and runs most of spacex at the time but runs most of spacex today at the time she was the first salesperson and so she had come actually Vice President of Business Development, David. Don't call it sales. Oh, it was sales. Which, you know, in Elon's world is a good thing.

And so Gwen started in the automotive industry earlier in her career, but then moved into the space industry. And she says, hey, wait a minute, guys. So everything around the... The company was architected to sell to this emerging market of small satellites like the Falcon. The Merlin engine was incredible. It was the most highly efficient rocket engine ever built. But the Falcon 1 using one of these engines was a pretty small rocket.

and could get just small satellites up. I think it's like 70 feet tall. Does that sound right? I can't recall exactly. When you think about walking up to a rocket and marveling at sort of this skyscraper structure, that's not what the Falcon 1 was. When I sort of made a joke earlier about strapping a rocket to a candle, it's tall, but it's not that tall.

no i mean compared to like um saturn five or something like this is this is just a little bean shoot right um and uh so gwen says you know yeah like let's go pursue you know try and sell to these small site guys but honestly the market like she knows the market and she says it's not there but i think you guys are i think she's the one who says this you guys are missing something The big players, the governments...

the big satellite guys, the Department of Defense, NASA, they're also interested in what you're doing. Like they don't like it that they are paying so much money for all of these rockets and these. launch uh operations that they need uh you know if we can prove to them that we can actually do this we can get some money out of the big boys and yeah

And Gwynn importantly spent a decade at the Aerospace Corporation and Microcosm. So she sort of like knew the way that this... industry did business and sort of knew the way that money flow around floated around knew like what the different total addressable markets were like I think Elon probably didn't have a pie chart on his computer of sort of like in the TAM for sending stuff to space. Like, Gwyn lived in that pie chart.

She was the second tab of the model. Yes. And when we were alluding earlier to, of course, my comment on Gwyn with the sort of... benefits of and cost savings of vertical integration, but also to the sort of dual business model of SpaceX, the sort of owned and operated things that they send up versus the, hey, we're a shipping company.

she sort of is the force behind hey we're a shipping company and that's gonna fund the rest of this operation yeah like proof of concept um of the falcon one let's load it up on a truck and let's take it to washington dc and just park it in front of the I think it was in front of the FAA, not the Pentagon. But the engineers are like, what are we doing? This is crazy. This is like just showmanship. But it works. They get the attention of DC.

That's crazy. And I think I remember too, it's something like it's a more shiny, nice, idealized rocket than the one they were actually designing. But it had the SpaceX logo on it. Yep. So meanwhile, the... Tom and the team are working away at building the Merlin and the rocket. And, um, and of course the original, uh, well, so the original goal was to fly in 2003 that gets pushed to 2004. And then finally in 2005, they're ready to go. And Gwen has managed.

to land not a small satellite deployer as the first customer, but the Department of Defense. They're starting to experiment with launching smaller satellites. And so they want to say, they say like, okay, we'll take a flyer on you guys. we'll put up a small you've never set a rocket to space like let's take our satellite and we'll put that right there in the nose cone in the fairing of your uh of yeah of your of your rocket so so they do um

They believe they're going to launch out of Vandenberg Air Force Base, just north of LA in California. But typical bureaucratic red tape. Also because... there's some competitors that may or may not also have some launches going on at Vandenberg at the time, may have forced them out. They have to go find another site. So they scour the world. They find an abandoned, not abandoned, but a not currently used space in the Pacific Ocean between Hawaii and Guam and the...

Kwajalean Islands, or Kwaj, which is part of the Marshall Islands. Yeah, I think it's the Kwajalean Atoll. The Kwajalean Atoll. And... They basically, they ship the rocket and they ship the company out there. They say like, all right, we're going to set up a rocket launch site there. Yeah. All right. Well, let's talk about this. So the launch site is on Omelette Island in the Kwajalein Atoll.

And so if you work for SpaceX at this time and you have to go out there, here's how you do it. So you take a five hour flight from LAX to Hawaii. You stay overnight. You catch the 7 a.m. flight to the Marshall Islands. which of course makes several stops in the...

that area of the Pacific because you're not, you don't just have a everyday back and forth single shot to the Marshall Islands. This is like a place where, in fact, I think my high school guidance counselor went on the Peace Corps there. Like this is a remote, remote location.

Also, sadly, a place where we tested lots of weapons in World War II and I'm sure many other times. So then you get to the Marshall Islands. You then have another hour-long boat ride to actually get to Olamec Island. So you're like...

Every time you go out and back, I mean, it's like a multi-day experience that you're putting up with, changing time zones all over the place just to do your job, which is... top 0.1 percent in terms of cognitive requirement to do that job yeah and spoiler alert a good portion of the company spends most of the next three and a half years going back and forth to this island um they

initially think they can launch in november 2005 there's a valve problem the launch gets canceled it takes them until march of 2006 until get they get all systems go again they ignite the falcon one It takes off. It starts climbing. Everybody's going nuts. And about 25 seconds in, it blows up. And remember, it has the Department of Defense. you know, experimental small set in its bearing as its payload.

that gets blown out of the rocket ends up falling through the roof of the building of the launch facility there mostly ends up surviving realize that um yeah a lot of the rocket ends up getting blown into the But Elon notes in his post-mortem from the event. It is perhaps worth noting that those launch companies that succeeded also took their lumps along the way. SpaceX is in this for the long haul and come hell or high water, we are going to make this work.

They're not deterred. It takes them another year to attempt a second launch, March 2007. This time they make it three minutes.

into the flight um the first stage uh of the rocket had separated the merlin engine did its job uh fantastically the second stage kicks in the kestrel the smaller kestrel engine and uh that's going to take the rocket and the payload up into orbit everybody's cheering high-fiving then as it says as ashley says in the book it starts to wiggle and this was i can also imagine this must have been so demoralizing

So two things I want to point out here. One is, and I remember like thinking about this the first time I watched Apollo 13 when I was a kid, like they don't. know exactly what's going to happen when it goes up but you can model a lot of it out with equations and so you do and you run computer simulations and you know you do your best but you don't

what if you didn't think of like just one force that's going to be acting at one point during the journey? And in this case, the one force that they either didn't think of or that, you know, it just, you know, was miscalculated in some capacity is that. It was either the fuel or some kind of coolant was like sloshing around.

causing it to spin it was that everything functioned perfectly as it was going up because the fuel tank was mostly full but then when it got to the second stage and the fuel tank was getting down towards empty and there was all this empty space in there it started sloshing around in and in the body of the rocket. And that started it wiggling and moving around in a circle. And then eventually it sloshed so much that there was an air bubble.

And the air bubble got into the engine and it exploded up almost into orbit. God, that just must have been so demoralizing. Especially after just having the last year. Yeah. A whole year. Yeah, I think this is a good place to just do a...

all systems go on our terminology here. Because listeners, as you know, David and I, neither of us are in the aerospace, but I'd say know enough to be dangerous here. So it's worth just articulating some of the terminology we're using and what are these rockets. So the things that that's the big main body of the rocket, I'm going to work my way out from the bottom, is called the first stage. And this is where all that liquid fuel is that gets it up, not...

all the way to orbit, maybe all the way to orbit, it basically gets it off the ground. It gets it through the thick atmosphere close to the Earth, and it sets it off on its sort of more horizontal journey to start orbiting. Of course, the engines are sort of attached to that, or in this case, in the Falcon 1, just the one Merlin engine.

That goes up. And David, you mentioned the stage separation. So the first stage sort of falls back toward Earth. Nowadays, it can land. Then it couldn't. And, you know, splashes down somewhere. Just casually dropped that. Yeah, nowadays it can land. Doesn't it feel barbaric? Okay, I was thinking about this the other day. Some of SpaceX's competitors have rockets that the first stage, when they come down, they splash down into the ocean and they're useless. Doesn't that feel barbaric?

Like it was mirrors a few years ago where it was the most amazing thing in the world that, oh my God, we vertically oriented a rocket and then we can sort of like clean it up and then we can use it again. And now you're like, wait, wait, I'm sorry. It's just wasted.

it's just like you can never, it's just trash. Like it feels like, like you just threw at the bottom of the ocean. Yeah. Yeah. It feels like I just like finished a LaCroix and then threw it directly in a trash can. And it's like the, you know, that scene.

in uh in madman i think it's in the first season maybe where um the draper family is out on a picnic in a park and they just yes and they just dump all the trash from all that they pick up the blanket and just kind of shake it and all of it just gets And then they just walk off like happy family. I take it back. This is like finishing your Nalgene water bottle and then throwing it in the trash. It's like, it's amazing how your perspective changes. But anyway, I digress.

We, uh, so we've got through that first stage, then you've got the second stage of the rocket, or, um, you know, the, the, this is the part that does something out in space. This has another engine on it. David, you just mentioned the Kestrel engine. That's the smaller engine that's sort of better for little maneuverability out in space because these Merlin and then later the, what's the current? Remind me the... Oh, Raptor.

Yeah, the Raptor. These are powerful freaking engines. Like if you're going to go try and dock it against something, that's going to create a problem. It's a big freaking baseball bat. Yeah, yeah. It's the Falcon Punch. And so you've got this... you know smaller stage that has a single you know smaller engine on it so that's the second stage that we're going to talk about it does stuff in space then there's one more thing on top and that can be one of two different things one is a payload

that is contained within, I think the right way to say it is within a fairing. I think so. Or maybe within fairings. But basically, the fairing splits into two. Those things fall back toward Earth, and then it's got something in there. It's got, for example, a satellite or a bunch of... satellites in there. The other configuration is that it could have a capsule on there. That would be a spacecraft that, you know, humans could operate one day. Who knows? And so...

And that's sort of the structure of the rocket and the terminology that for a long time when people talked about the multiple stages of a rocket or my eyes would sort of glaze over. But it's at least in SpaceX's case, because it's a relatively straightforward design. it's good to just sort of keep it in mind so you can go, oh, okay, and follow along. Yep, yep.

So they were so close. They were so close to actually doing this, being the first private company ever to launch a satellite into orbit. And then right at the last minute, it failed. So they're undeterred. In classic Elon fashion, he says, not only are we go for number three, we're go for... So this is the Falcon 1, which was both the first and one engine, one Merlin engine. They had been...

Tom Muller is a genius. He and Elon have been thinking about this isn't just one. This is a modular system. And you can have multiple of these engines put together. And build bigger rockets with the same engines. And so the idea initially was they were going to have the Falcon 1 and then the Falcon 5, which was going to have five Maryland engines, and then the Falcon 9 with nine Maryland engines.

elon says not only are we undeterred by the second failure we're gonna uh go full steam ahead with trial number three try number three with the falcon one i'm green i'm killing the falcon five to green light the falcon nine

all systems go development on that while we haven't even launched the Falcon one. Now there was a big reason why he did that, which we've, we've been building up for the whole episode, but when we add eight more and an Octo web around that engine, it will really work. It will.

really work uh to be fair the first stage did work so uh that that that second launch was a success by some measure although they never could have delivered whatever payload was you know on the second stage and going into space yep So the third try, again, takes them a year to the summer of 2008 when they are finally ready to give the...

third try at the Falcon 1 launch from the island to go. The first attempt on August 2nd, 2008, they have to abort the launch at T minus zero seconds, but they've got a launch window. The weather's cooperating. They're going to try again on the same day. They go later on that same day. It all starts working well again. And then there's another failure before the first stage is even finished. And Elon only has so much money. I know, I know. It's just like...

It's crazy. So Elon is what? So we said a total of $100 million into SpaceX. I think he said at some point that that was enough for three or four, and I'm quoting the Wait But Why piece from Tim Urban. which was great, which is three or four launches. Right. But that's cool because, you know, hey, look, like he's deep into this. He said they're going to do this hell or high water. He's put 100 million in, but he made like close to 200 from PayPal. Right. So like he's good for it. Right.

No, he's not. Because this is 2008 and two things had just happened. This is summer of 2008. One, Elon has now, summer of 2008, he takes over as CEO of Tesla and he's pumped. almost all of the rest of his money into Tesla. 70 million. 70 million. And two, Lehman Brothers is about to collapse and the world is about to the financial world is about to go nuts. So good luck raising money. So internally, like he keeps a cool head to the company and externally, but internally he is like.

freaking out so what does he do he calls up his old friends from paypal who are now at Founders Fund. Hey, remember that time we were in a McLaren? Yeah. He calls up Peter and Peter's partner is at Founders Fund and says,

Yeah, I didn't want to raise outside capital, but I guess if I'm going to do it from anybody, I'll do it from you guys. Peter, you replaced me as CEO once, so there's no way you would do it again. Yeah, right. Well, I don't think that was Peter's choice to replace him at PayPal. No, I don't think it was. And so Founders Fund in the summer of 2008 invest $20 million into the company. That is enough to very quickly turn around for a fourth.

And what would be final attempt to first do the first successful launch of a Falcon 1 the very next month in September 2008, the same month that Lehman Brothers went under. They finally succeed in a launch.

And it's crazy. They only have a dummy payload. At this point in time, the only customer that trusts them that Gwen has been able to wrestle up is, I believe, the Malaysian government, I think, to launch a communications satellite. And that was not... the next one yes well the malaysian government didn't even trust them enough that it wasn't going to blow up so they said all right we'll like we'll let you take us up

But on this one, you got to put a dummy payload on there. And like, if this works, then you're going to do another one and you're going to take our actual satellite up. Yeah. And revenue for these Falcon 1 launches was pretty low. It was something like $7 million. Yeah. Oh, wow. The initial price was $7 million. I don't know if they'd raised it by this point in time. Well, they only ever did five launches of the Falcon 1, so couldn't have climbed too high.

So they finally succeed. Elon gives a speech afterwards. In classic Elon, he says, well, that was freaking awesome. There are a lot of people who thought we couldn't do it. A lot, actually. But as the saying goes, the fourth time is the charm, right? There are only a handful of countries on earth that have done this. It's normally a country thing, not a company thing. My mind is kind of frazzled, so it's hard for me to say anything. But man, that was definitely one.

one of the greatest days in my life. Now, to be fair, he has a family and five kids. And so yes, one of, but like classic Elon, I think probably for most people here too, we showed people we can do it. This is just the first step of many. I'm going to have a really great party tonight. I don't know about you guys. So, Elon. Was he on the quaj? Do you know where? I believe he was there. Yep. Okay.

Because this was it. Like everything was riding on this. And he had taken out a loan against his SpaceX. He was about to take out a loan against his SpaceX stock to fund Tesla at this point. Yeah.

I mean, that's a whole other story. I suppose that's worth telling here, too. Well, we'll get into that in one sec. But the code on this is that finally in... in july 2009 they did do a fifth launch of the falcon one to get the actual malaysian satellite up into orbit but by this point in time they had already moved on to what was going to be the real business model here which is

The Falcon 9 and government contracts. Yep. And again, the real business model of the space shipping company. We're still very far from the, hey, we own a... a rocket and we're our own internal customer like we also own things that we're sort of operating in space we're very much hey we're a shipping company we're a shipping company indeed so remember A little bit ago when Elon and Gwen put the model of the Falcon rocket into DC and started, you know.

currying favor there and remember all the way back to that trip to russia where the guy mike griffith was along for the ride well guess who's head of nasa at this point Mike Griffin. Mike Griffin. Just incredible. And he was a Bush administration appointee, if I remember right. Indeed, he was. Indeed, he was. And then I believe he resigned amicably when the Obama administration took over. So this is right at the end of his tenure.

like literally the 11th hour we're talking here at the end of december 2008 and through presumably through mike and other contexts gwen and elon had found out that nasa was gonna bid out a resupply contract, a new resupply contract for the International Space Station. And this is going to be a big, big contract. And NASA was maybe open to a new entrant in the space potentially taking on this contract. Yeah, I mean...

So reflecting back, now understanding who the NASA administrator was at the time, Makes a lot of sense how incredibly fast SpaceX was able to build and be awarded this contract. I'm sure they went through all the proper review and everything, but that relationship has to help. I do want to give a little bit of context to listeners on sort of what a big shift this was in space policy. Like if you think about the Apollo missions, like...

NASA would design something. It was the NASA engineers. And then they would bid out these sort of subcontracts to different people. And like, ultimately, it was a NASA owned and operated vehicle that they paid. enormous amounts of money to someone else to build and then they'd run their own missions on it. And this is, you know...

over many more decades than sort of getting compounded, things get more expensive, they're bidding out more and more and more. If you're Northrop Grumman or Lockheed Martin, you then have subcontractors under you and on and on.

And this is a huge policy shift where NASA is basically saying, well, instead of us just subbing out the manufacturing, let's just tell people, hey, our statement of work is we need to get... this thing the iss and like we will pay you to do that for us whoever can do it cheapest and best yeah like that's that's all we're asking here and

That's like a staggering shift in policy that enabled this to actually happen. The nuts and bolts of it are COTS, the commercial orbital... transportation services that later led to other contracts for both cargo to go to the ISS and people to go to the ISS. But this is a, what they call a space act agreement, which is, it's sort of like a contract where the, you know, NASA has done a ton of these over the years, but this timeframe we're talking about this 06.

to 08 timeframe is when they really started to use them to say, hey, can one of you be a shipping company for us? And we'll fund you helping to build your UPS trucks and figure out how to design those. But then you get a big contract for doing the shipping. And you may know this more than me. Was Mike kind of the architect of this huge change in policy for NASA?

He was, I don't think the architect, but it was definitely under his watch and a big shift for sort of the industry that he's sort of credited with kicking off. Yeah. I mean, this is... This is so huge and incredibly visionary. I mean, without this change in the way NASA operated, there'd be no SpaceX. There'd be none of all the innovation that's happened in space.

It's incredible. So the thing is, you know, for SpaceX to bid on this contract, they got to be able to get like stuff like a lot of stuff up to the. ISS, that means you need a lot more than the Falcon one. So back, remember when Elon canceled the Falcon five and said, we're going straight to the Falcon nine, this is what it was all about. They needed the nine to be able to get up to the ISS and bring enough stuff up there.

So this is crazy. Like 2008 is winding down or in December, 2008, like Elon is literally running on fumes. Like he's not going to be able to make payroll at either Tesla. or SpaceX for like the January 1st, 2009 payroll on December 23rd, two days before Christmas. They get the news from NASA. They have won. They're two winners. Two companies get the contract, split the contract. SpaceX gets a big part of it. $1.6 billion.

payment from NASA to fund, I think it was 12 missions, cargo missions up to the ISS. And it's just like, I remember they were charging, you know, $10 million on the order of that for like a space for a Falcon one launch. Um, you know, this is, uh, this is $1.6 billion for 12 missions. Just.

completely changes the company um so at this point then elon does a whole bunch of stuff he also has he's quoted in the ashley vance book as he says it's like the uh uh flipping and he doesn't say flipping matrix uh the moves the financial moves that he was making to stay alive at this point so this contract comes in he takes out a loan against his spacex shares um he uh

He's an investor in a company called Everdream, which is a hosting company, gets acquired. He gets liquidity from that. And he's able somehow to make it out of this with both Tesla. and uh spacex surviving him with spacex at this point like completely set up to transform from these ragtag guys are launching you know rockets from an island in the pacific to like no we're going to cape canaveral we're launching out of the kennedy space center um yeah completely incredible

You say they make it out alive by the skin of their teeth and it was a near-death experience. That will continue to happen for Tesla over and over and over again in the coming years. The amount of financial engineering that it takes to keep that company alive and the amount of...

of spikes in production and all that, that we've all watched them go through. Funding secured. Yeah, I mean, it would be nice if you weren't triggering SEC investigations. That would make it easier. But the point that I want to make here is to... contrast SpaceX because there are places where SpaceX definitely puts it all on the line, but they were kind of out of the woods at this point. They didn't have the constant near-death experience after this that...

that Tesla would have. SpaceX is a company that very, very quickly grew from this ragtag bunch of guys that smelled bad and were all sleeping in a room in the quaj. to to suddenly having guaranteed revenue if they could come through on some promises so they staffed up aggressively they got huge um and they turned into a grown-up company and of course you know they they um

they kept a lot of their same culture. I mean, Elon famously has these weird interviews that he did for the whole first thousand people and all the engineers after that. And, you know, it's a very different company that's still aggressive on vertical integration. That's still... A lot of the same principles, but they weren't on the verge of dying constantly the way that we described Tesla in that last episode.

Yeah, this is the moment when it like it's it's all a step change at this moment. And and again, like I think it was was all the way back to Gwen saying like, no, no, we got to go like.

this is the market we got to go after these contracts um and then having mike as as head of nasa and like having this come through um yeah so the other thing so now they got to make the falcon 9 work but again because tom had muller designed this modular in a modular fashion like they know the merlin engine works now and the kestrel you know second stage engines

It's a lot easier, even like you said, Ben, with stringing together an octoweb, which is the configuration that they have them in together. But it's a lot easier to go from, you know, that to building a whole brand new engine to take up. rocket the size of the Falcon 9. The other thing they have to do, though, is they have to make a capsule to go on top of it. So they're not just taking satellites up. They got to take a spaceship up. No, an unmanned spaceship to...

to bring cargo to the ISS, but a spaceship nonetheless. And so they... David, that would have poked funny to hear from it. In the Wait But Why article, one of the best lines is... When he's describing the thing that I did with each component of the rocket, he's like, and of course, the thing that sits on top is a spacecraft. Or... If you're nine, a spaceship. Yeah, that's right. Oh, I thought you were going to go with the other part of that post where, you know.

Of course, these things all look like, uh, back to childhood. Yeah. Yeah. I mean, basically we're all nine years old, you know, with everything that's happening here. For sure. Okay, listeners, now is a great time to thank one of our newest sponsors here at Acquired, Huntress. Huntress is one of the fastest growing and most loved cybersecurity companies today. They provide enterprise grade security for companies of all.

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Yeah. So I alluded earlier that, you know, SpaceX has been heavily revenue funded and, you know, lots of that by NASA. There's a great publication, which is the great thing about. NASA is a government agency. So everything's public. So there's this audit. It's called Audit of Commercial Resupply Services to the International Space Station. And this was published in 2018 that has this great diagram of, you know, money that flowed to different companies, SpaceX, Boeing.

orbital sierra nevada others um and and what it flowed for all the different programs be it commercial crew or um or shipping people up. And SpaceX has received $7.7 billion in contracts from NASA for launches, which is astounding. Compared to a company that would be trying to sort of do as much as SpaceX has done without actually having a customer on the end of every rocket, it'd be impossibly hard.

takes so much more capital and it would change your priorities. And what SpaceX really has done here... And I don't think I realize this every time I'm watching one of these SpaceX launches and getting all excited about a new piece of technology on that rocket, which, by the way, there's a new piece of technology on.

Every rocket, every single mission they fly is different hardware than the previous one because they're constantly iterating. Every time they do that, almost every time, save for 10 or so, there's a customer that's paying them. money to send that thing up. And so, you know, NASA has been responsible for 7.7 billion of that. The other thing that NASA has put in money for, which has been really interesting.

is when you mentioned the spaceship, David, which would ultimately be called the Dragon Capsule, developing the... sum total, the Falcon 9, which we're about to go into the story of, and the Dragon, that cost about $400 million of NASA's money and about $450 million of SpaceX's money to go and develop that.

And at some point, NASA did an internal audit to basically say, well, how much would that have cost us if we didn't bid this out to SpaceX to go and do this? If we had built this the way that we built the space shuttle, how much would that have cost us? And it basically... what they find is the number is about 4 billion. Wow. So it is one 10th of the cost. Absolutely. Like say what you will about, wow, SpaceX really got in there and scored that NASA contract, but they're, they're saving.

NASA an enormous amount of money by sort of taking on the risk to vertically integrate all of this and making much cheaper rockets. Yeah, it's actually, you know, I hadn't thought about this till down to we're recording the episode. I suppose you could listen to everything we just said and say, wow, what a case of cronyism. Like, you know, this dude, Mike, was on the initial trip to Russia with Elon, and then he's headed NASA. And like, of course, they get the contract.

I don't think that's what's going on here at all. This is a combination of several people, all the folks at SpaceX and Elon. Mike at NASA, lots of other people in the government and the DOD coming together and saying like the industry needs to like. Innovation has died and progress has died in this industry and we need to change the way it works. And if we can do that, you know.

maybe we can get people excited and recording podcasts about a space launch again and here we are yeah and build a real industry yeah i mean this is an actual great example of sort of a win-win where, you know, they're able to enable a company to bootstrap itself by, you know, SpaceX now...

owns and operates rockets that NASA is not paying them for, and missions that NASA is not paying them for. So, you know, on the one hand, you could say, hey, come on, that's... taxpayer money that's now going to allow this company to generate profits and enterprise value all on their own. It's a win-win because it costs the taxpayers a lot less to get these missions done. And I think it's just this really interesting example where, I don't know, who loses here? Probably just the...

congressmen who's, uh, who represented districts where there was a sub, sub, sub, sub contractor and they were, you know, winning, uh, winning on sort of bureaucracy to, to be able to win those contracts. But, uh, yeah, it's a, It's a great example of a growing pie. So this is probably a good time to give a little context on the industry around SpaceX because...

They're not the only people that NASA is trusting to go and send stuff up. They're awarding contracts to other people. They're a big incumbent. So what the heck, this startup isn't just going to come in and win the one point whatever billion dollar contract.

everybody else goes home and that's not how this is going to play out. So what's happening in the industry around them? Well, in the space industry to date, at least for governments, The goal has really been build a really extravagant machine to do one thing where price is basically no object because either we're trying to win the space race or we're calling it a part of national defense or that's the...

lineage of whatever we're currently working on. So that's the only thing that we know that it costs. So we're just going to keep going. You know, these things are funded by the military and NASA and all of the stops were pulled out for reliability and performance.

And, you know, we talked about how it's very subcontractor driven here. So the if you were a sub sub subcontractor and you could make your thing slightly more reliable or slightly more performant, even if that's not totally necessary for that.

you know, practical purpose for that mission, you know, you do it anyway to kind of win the bid. And so you can almost think of... these existing space incumbents, like United Launch Alliance, who we'll go into detail on, as sort of the intel of this world and intel today.

where SpaceX is a lot more like the arm. And the reason I draw this comparison is, you know, Intel made much more powerful chips for computers, but notoriously lost in smartphones. But, you know, those chips were hotter, they were bigger, and they were more

expensive which is fine when we all had desktops and spacex being like these arm chips you know especially early on and having this you know sort of toy rocket with the uh the falcon one worked under a very different set of requirements and it ended up building a completely different system, one that was cheaper and they could iterate on it very quickly, shipping up a different rocket every single time. Especially because they controlled the whole stack. Right, exactly.

But initially, it didn't seem very useful for anything. I don't know for sure, but this feels like it could be a case of disruptive innovation here. Yeah, looking like it. I mean, the Falcon one definitely looks like a toy to a lot of people in the industry.

Right, absolutely. You don't look at the Falcon 1 and say, well, they're just a few years away from resupplying the ISS and probably sending people up to it too. Like, that's just not, it's not your natural inclination there. But David, as you were mentioning, like the... design requirements around a lot of the other stuff that they would send up in the meantime was totally changed with these small satellites, CubeSats, commercial space sort of developing.

So getting back to United Launch Alliance, who I mentioned there, and I think they're important to understand in the context of this story. So Lockheed Martin and Boeing had both been longtime government contractors. They built amazing things to their credit, still build amazing things. And a few examples, you know, Lockheed made that big orange tank on the space shuttle that we all know.

and it's iconic and I think still one of the most elegant, you know, when you see the space shuttle launch videos, that still to me is this romantic version of space that in some ways the SpaceX rockets aren't as beautiful and don't... just sing space to me the way that that shuttle design did. They also made the Hubble telescope and the Mars lander. So, you know, the Phoenix. So lots of...

Really storied stuff that they manufactured. Boeing, on the other hand, made everything from the lunar rover back in 1971 to the actual space shuttle orbiter itself. So long time space companies. So here we are in 2006, Boeing and Lockheed, and I think it's important to understand their motivations because then you really get the context for what people thought the space industry was.

Boeing and Lockheed had decided that the one real customer that they were both doing work for was the US government, but the government didn't have enough business for both of them to justify their massive size. So by combining the manufacturing and research work of the... two companies, this would be a cheaper and safer way to get the same stuff out the door. Boeing already had the Delta.

Lockheed had the Atlas, you know, these existing rocket programs. It kind of sounds like a good idea unless you've heard this story before or a story much like it. The first thing I want to tell you is you don't need to look any further than the ULA logo to discover that everything was basically designed by committee. Something where ULA had a massive advantage with all the existing contracts that the two companies had.

They actively continued to work on the space shuttle program for another five years after this. They just had years of knowing how the industry worked. What they didn't see was that the industry was undergoing this massive change. For one, with other potential non-US government customers, there could be this real commercial industry. And that was something that...

the U S had basically lost to nations who could launch stuff cheaper, like Russia, China, China. Yeah. China through all that. We haven't talked about China. China was, um, you know, Hey,

I think Vance wrote the Elon Musk book in, when did it come out? Like 2014, 15, maybe? Somewhere in there. No, 16. At that point in time, you know, the Russians were still... predominant in space but china was making a push now china like china and their long march rocket like like space today uh ben correct me if i'm wrong but is is a two-horse race between spacex And China. And it's crazy. Yeah, in a lot of ways. And I think Elon certainly looks at it that way.

Another thing that I didn't really realize was that there's this great talk linked in the show notes. It's a relatively under-viewed video on YouTube of Gwen Shotwell giving a small fireside chat to some industry insiders. 2014 and she points out that the US was competitive in commercial space sort of in the

up till the 80s or in the 80s, but has basically lost it since then. And that was the case really until, you know, until this re-ignition of a commercial space industry here. So long story short, ULA was completely... successful in capturing a commercial market in the US. You know, if you think about it, it's actually...

a huge failing on their part because there were tons of commercial satellites starting to go up. You have DirecTV, who sort of owns and operates tons of satellites in order to... provide their service. You have intelligence satellites, you have surveillance, you have research concepts, you have startup companies. David, you mentioned these CubeSats. ULA managed to capture basically zero of this because they were focused on winning contracts from the US government.

There's more to blame than ULA themselves. International traffic and arms regulations in the 90s sort of built up barriers. But the biggest problem was Boeing and Lockheed Martin. just didn't compete anymore. And so everything got so bloated and expensive when they just combined into one big behemoth. And so...

You know, you might see the opportunity here. And, you know, if you do, then you are similar to, you know, Elon and Gwen and everyone else who sort of saw this gap and then decided, hey, we're going to go build a... frickin cash cow of a business in the falcon nine and we're gonna go shoot that gap yeah it's really well ben you said i mentioned a minute ago that um i think over the life of spacex thus far

They've received, what, just under $8 billion from the government. Now, by our calculation, SpaceX is obviously a private company, but you can tell by their launches and launch manifests are public. we think based on sticker price for Falcon nine launches of which there's now been over 80, right. Um, that they've done.

Yeah. I think over 80. 86 launches and somewhere around 55 on the future manifest. Yep. And something like 22 of those-ish are for government and the Dragon program. The rest of it, they probably... made just about that same amount another eight billion dollars give or take in commercial revenue from you know other governments launching satellites from commercial satellites from all sorts of stuff

Yeah, I don't think it's quite that much. I think it's probably about half that. But the revenue mix will definitely start to skew toward commercial as we sort of see them fly out their backlog. You know, there's all these committed launches that they have. they haven't launched yet.

And you're right. I definitely don't think it's more than the U.S. government right now. By the way, private companies, so who the heck knows. But if you just sort of add up the sticker price of 60 million times the... number of commercial launches that they've sent up, which are probably, I don't know, 40, 50, 60, somewhere in there. Yeah, you're right. You're in the single digit billions. Yeah.

So, yeah, it all, you know, we'll move kind of quickly. It's funny to move quickly through all the amazing technical and engineering feats that SpaceX has accomplished since then. But I think, Ben, you hit the nail on the head, like getting this contract. This was the moment that like.

made the company, getting that initial NASA ISS contract. Real quick before we move on, because I know I just threw a bunch of shade and I always want to make sure I do right by someone rather than just blasting them on the show. ULA has since replaced their CEO.

They're actually working with Blue Origin now and designing a new rocket called the Vulcan and hoping to use, or I think they are going to use Blue Origin engines on there. And so Blue is actually commercially selling those engines to... to ULA, which is kind of amazing. One more digression on ULA here. I can't help but do this. The supplier that they have for the engines on...

I think it's the Atlas five. I'll correct myself later if I'm wrong, but their, their main, they're basically their competitor to the Falcon, either Falcon nine or Falcon nine heavy. It uses Russian engines. Oh, interesting. And this is the main US government contractor for sending up things like intelligence satellites. And the current iteration of that uses Russian engines, of which the Russians have decided for the US...

we don't want to keep supplying you those. So they've stopped. Like there's only something like there's some number in the single digits or teens of, of those engines in country in the U S that like, that ULA can use. And so like, I think it's called the RD 180 is the, it's the Atlas five is the, is the rocket. Like ULA is in this position where.

The world is closing in on them from every direction. They're running out of the engines that they can use for these launches. SpaceX is massively undercutting them on price, which we'll talk about here in a moment. And like... The clock is just ticking with basically their one customer looking to them and going, wait, I'm sorry, in what ways are you better? And so they're going to try and run out of the house before it burns down with the new Vulcan program and partnering with Blue.

They're a powerhouse and will continue to win contracts for a while, but they are certainly SpaceX's number one enemy. Yeah, indeed. Well, it's disruptive innovation coming to the launch market. the space shipping market. So it was end of 2008 when SpaceX gets the contract from NASA for the ISS resupply. pretty quickly within 18 months they have a successful test flight of the falcon 9 which again they'd already been working on and then so that was june 2010 and then only six months after

That, in December 2010, they have a successful test flight of the Falcon 9 plus the Dragon capsule, which they've engineered from scratch, you know, in-house at SpaceX. And it takes a little while longer after that, but on May... 22nd 2012 the first real dragon mission reaches the iss they do the first of the 12 resupply missions And this is just incredible. I mean, I remember this happening like a private company has made a, not just a rocket, but an entire spacecraft and operated it.

and sent it to the iss you know again like elon said um with the first uh with the first successful falcon one launch like this is the stuff that countries do not companies and here's spacex you know, doing it, uh, it's just, uh, just crazy. Yeah. And, and to layer onto that, the reason it's called dragon is, uh,

Elon named it after the Peter, Paul and Mary song, Puff the Magic Dragon, where basically it was to give the finger to everyone who said he could never do it. And you're sort of chasing the dragon and saying, look, here it is. I did it.

Yeah. And I think the, um, I think the ISS, as they were, they were pulling in the dragon said something like, uh, Houston, we've caught ourselves a dragon here, something like that. We've got a dragon by the tail. Um, Then the next year in 2013, to what we were talking about, about using these, you know, all the technology they built for the government in the commercial sector in September 2013, the first commercial.

Falcon nine launch takes place. They launched several Canadian satellites, um, up into orbit, you know, less, uh, just about a year later. And, uh, in Then in 2014, so they complete six Falcon 9 launches in 2014. In 2015, they complete seven Falcon 9 launches, including the first... successful test of a new program with nasa for the crew dragon which is what's going to happen on wednesday the first step towards what's going to happen here um takes place in 2015 and then at the very end

of 2015, this is the other big, big thing we want to talk about. The one more thing, they land a rocket. Do you remember when this happened? Just a holy, holy God moment. I just... It is so unnatural. I remember thinking that when it was happening. It was like this moment of sci-fi. Yeah, I was traveling because it was over the holidays. It was like late December. Yeah, it was.

of 2015. It was right after we started Acquired. Yeah. And it was... it was on the drone ship and so uh no it was first was on land uh the drone ship first was on land yep yep so they had to do the boost back burn to they were they had done several attempts so here's here's how it goes down so all the way back in 2011 elon and the team had started thinking about this and it was the analogy we talked about earlier like it's crazy that you would build these massively expensive things and

The analogy they use is every time you fly a 747 from New York to London, just throw it away afterwards. Imagine how expensive airline tickets would be if that were the case. So they started working on the technology in 2011 to land rockets.

and people think this is impossible like the laws of physics people think won't allow it and so they called the program grasshopper and then in march 2013 then grasshopper they're just sending these building these short rockets shooting them up not into space or anywhere near space and they're just trying to land them they've land their first grasshopper in 2013 and then ben what you might be thinking of

in 2014 in one of those falcon 9 launches they're like they're pretty quickly getting this tech into production they try and land in april 2014 a falcon 9 rocket on on a drone ship uh and it falls over that one blew up yeah that blows it got really close though got really close yeah uh then the second attempt

january 2015 that fails the third attempt fails it's just like the first uh getting that first falcon one up and then finally the fourth attempt was uh was on land because it's much easier to do it on the ocean like the you know it's on the ocean like the ship is bobbing up and down and moving around um they successfully land the first time on land in December 2015. Then they have two more fails in the ocean. And then in April 2016, they successfully land the 23rd.

Falcon 9 launch on a drone ship, followed by a second successful landing. Of course, I still love you. Yep. Yep. Yeah, this is that's right. It was on land. It's interesting thinking about this because the way that. SpaceX lands these looks really unnatural. I remember watching the first Blue Origin rocket that went to space and came down and successfully landed.

back on Earth, which they actually beat SpaceX to. So SpaceX was doing the grasshopper stuff first, but Blue Origin flew a rocket, not to orbit, but above 100 kilometers above the Earth. I mean, it's the formal definition of space, so I think it's the... carmen line i don't know exactly but yeah um and you know spacex sort of was the first then to beat them to that big milestone of of getting to orbit and then landing back down but if you watch like

blue origins rocket do this it it sort of seems more natural they sort of decelerate and then it lands kind of gently and the way that it works for spacex in the industry the way they sort of refer to it is as the hover slam or in a much less delicate way of referring to it people call it a suicide burn where basically what they do is they put just one of the nine engines that you know they turn one of those nine engines on

And even at the minimum thrust from one of those nine, if you just leave it burning, it will decelerate the rocket and then it will go back the other direction. Like these are just, those Raptors are so crazy powerful. mention too the raptors are flying today have twice the thrust of the raptors they started with um in the original falcon 9 so like their iteration i think it's i think it's still the merlins the raptors are the engines for the starship

Oh, you're right. Okay, cool. I was referring to the wrong thing. Yes, the Merlins have gotten twice as performance.

Anyway, they turn just one of the Merlin engines on as it's sort of decelerating. And the reason they call it the Hover Slam is it comes in so fast and then just at the exact right time, like they have unbelievable sensors on this rocket. They can... fire it at minimum you know the minimum amount of thrust just in time for it to decelerate and and hit basically you know zero miles per hour zero meters per second right as it's setting down and so it's this like

magic trick every time they pull it off of unbelievable sensors and unbelievable precision over when they're firing that engine at minimum thrust. Yeah, incredible.

So now, of course, the point of all of this is that you're going to reuse the rockets. So in 2017, they have the first successful Falcon 9. reuse in march of 2017 um and 2017 was just a banner year for spacex 18 successful launches no failures and they landed every single one of them except the few that they were that was the end of the useful life of the rocket where they were planning not to land them yeah coming out coming out of 2015 this is a company that is firing on all cylinders like

Perfect product market fit on the business side, iterating super fast, launching all their R&D stuff actually into production super fast. They're flying out their backlog at remarkable pace. It's just impressive. Totally. The next year in 2018, they hit their 50th successful Falcon 9 launch. They have 21 total launches in 2018, including... the Falcon Heavy, which is an adapted, I mean, folks have probably seen this and watched videos, but like, it is amazing. So this is three Falcon 9 rockets.

Wired together for 27 total engines burning that can bring up, you know. an incredible amount of payload and these guys and what they do is all three rockets go up and then they all land and is honestly like watching a magic trick like it's like a ballet anyone that watched the uh SpaceX fly Tesla's Elon's Tesla Roadster up with the Starman in it like this was on a Falcon Heavy and then exactly that ballet of the two come down simultaneously land next to each other on pads on land the third

sort of main booster then goes and lands on the drone ship which um actually that one ended up tipping over and that one's a lot harder to do because that one's um It's especially reinforced to be able to hold on to the other two boosters. Right. Yeah, which apparently in the Block 5, which is the most recent and I think final version of Falcon 9, yeah, they've actually figured out a way to...

to sort of fix that problem and they're going to be able to, I suppose, catch them much more easily out in the drone ship. But yeah. So that brings us to now there, there are a couple of things where we're not talking about here that we might mention, uh, at the end of the episode, but, um, in. Less than 48 hours now. The plan is...

one of these Falcon 9s is going to have a manned crew capsule dragon on it. And we're going to be sending astronauts up to the International Space Station. It's so funny. I'm saying we like it's, you know, like it's us. It's very patriotic. company yeah like i know we're a little bit of a u.s centric show but like my gosh for a u.s company to fly you know u.s astronauts up to the iss is is uh you know it's compelling it's cool

Yeah, it is. So this goes back to in September 2014, NASA bid out a $2.6 billion contract to do this. This was the point of, you know. all of Griffin's work to re-architect how NASA operated with, um, with their suppliers, uh, for a private company to fly humans to the ISS and, uh, and SpaceX wins it. So they last year in 2019. A big key step in this is they completed the first autonomous.

ISS docking with a dragon capsule. So it was a crew capsule. There were no people on it. It was just cargo. It was like a little stuffed animal, I think, that then the ISS astronauts went in there and showed and waved to the camera. and held up the stuffed animal. That's amazing. Of a globe, I think. And on Wednesday, May 27th, scheduled to bring U.S. astronauts Bob Behnken and Colonel Doug Hurley up to the ISS. Yeah.

It's it's it's it's astoundingly cool. I mean, it's just what a time to be alive. Yeah. So the items that people might think about in SpaceX that we haven't dove into here because.

we might talk about a little bit but there's so much to talk about obviously uh are obviously starlink their own small satellite communications broadband communications internet network that they're developing um the starship which is the future ben you alluded to this they're going to be retiring the falcon program and the dragon program and uh merging everything into one giant spacecraft the starship

which will eventually go to Mars thing rocket of some sort, the spaceship or the starship, the starship. Yeah. Which I wish was still called the BFR. I know. So cool. Um,

They've had a successful engine test for that, so that work is well underway on that. And then there's the little thing called The Boring Company. Yeah, which I think is something like, it ended up... spinning out and spacex is a minority investor along with elon yep so elon owns about 90 of the company i believe maybe a little less spacex owns six percent uh and then there's the employee oh the employees are the other minority yeah

Yeah. Wow. So there we have it. SpaceX as of May 25th, 2020. Yep. Well. I do think before moving out of history and facts here, because we're sort of ending history and facts with the events that are happening Wednesday, it is worth talking about this particular contract. Because a skeptic could say something like, there's lots of interesting skeptics of SpaceX, but one skepticism could be, why is it so impressive what they're doing? Other countries have been flying people up to the ISS forever.

you know, get off your high horse and get less excited. So what? It's a private company instead of a government. So what? They maybe spend a little bit less money. Like, not that this is easy to do, but like there's plenty of other people that could do it. Well... NASA doesn't sole source crap. Like NASA always awards multiple contracts because like this stuff is super hard. And the second person or the second company that got this same contract.

was Boeing. And Boeing has built a thing to produce, you know, it's basically their version of the dragon called the Starliner. But in December of last year, it launched a test to dock with the ISS and ended up veering off course. And they did manage to get it home, but basically scrubbed the mission in order to do it.

And Boeing took a $410 million write-down on earnings last quarter as they prepare for NASA to potentially ask them to run another full test, do another full launch of the exact same thing. Which is actually quite telling that for Boeing, that's a $400 million expense because for SpaceX, that would be somewhere between a $60 and $100 million expense. But, well...

Maybe that's not fair because there's more reusability. Anyway, the point that I want to make there is like this could be Boeing, you know, later this week, but it's not. It's SpaceX. And they managed to do it. you know, better, cheaper, faster, safer, more reliable. Yeah. And so fingers crossed everything goes well, but, uh, it's, uh, You can throw shade at Elon in whatever way that you want or at this company in whatever way that you want, but you can't argue with results. Yeah.

Should we talk about narratives? Yeah. Yeah. Let's do it. Well, um, I think there's at least three vectors that I can think of around Bull and Bear here. One is around Elon himself by people, you know, the...

You could call him the savior or you can call him an egomaniacal, sort of work you to the bone, words we can't say on this show. So, David, any sort of like... color that you want to add to narratives on elon i mean what else could we add uh it is interesting though like again until really until doing recording this episode now i hadn't I'd obviously thought, you know, SpaceX and Tesla had very different situations, but, but I think the Elon factor.

The Elon randomness factor in SpaceX is just so much less than in Tesla, you know, probably one because he has Gwen, but then also two, because the company at least. Tesla, I think, is in a very good place now. But, you know, six months ago, Tesla was not in a very good place. And SpaceX is. So there's just kind of less, even though SpaceX is in many ways in a more.

politically sensitive position uh than than tesla like there's just kind of less for one person to mess up right now yeah yeah i mean it's also a private company Which is nice because if you could tune out all the noise around Tesla stock and only focus on the more intrinsic stuff, I think there'd be a lot less narratives, period. 90% less narrative around Tesla. SpaceX has that. And they also have the benefit of long, long-term commitments with agencies and governments that...

can always come through on that cash. And so to the extent that they can deliver, they have guaranteed, stable, predictable revenue. The only thing that's not predictable is when are you going to crash a stage one into a drone ship and have to take a... multi-dozen, if not $100 million write-off, but that's the hard part that comes with the guaranteed contractual revenue.

The other narrative that I think is important to highlight, so that one, the Elon one is one that everyone outside of aerospace talks about. The one that's more internally debated is around reusability. And so a lot of the SpaceX bears will tell you that's total BS that those things are reusable.

It's total BS that even if they are reusable, that it's cost efficient. In fact, some of these people include CEOs of competing companies who, when someone flags the point, well, SpaceX is able to do this cheaper because they've done this. perform this miracle of engineering of reusing the rockets they'll say things like well you don't know their cost structure you don't know that it's actually cheaper And examples exist in the past of the solid rocket boosters, for example, on the...

the space shuttle, those white ones on either side of the big red tank, those would fall back down to the ocean and then they would be refurbished and then those would launch again. So this sort of thing theoretically has happened, but the difference is with things like that,

the order of magnitude, it's probably an order of magnitude more expensive, where they basically cycle out every part, scrub it clean, and then send it back up. And SpaceX is iterating toward, you know, this is the bull case on reusability, being able to just...

give a one or a two-day inspection on the rockets and then send them back without replacing anything and only needing to replace things maybe every 10 times or so that you send it up. And right now, I think the maximum that they've sent...

a rocket backup or a stage one backup has been three times. But, you know, there are very, very real cost savings that you have here from, you know, not having to produce a... I don't know what the cost of goods sold are on a Falcon 9, but $20, $30 million rocket every single time. You know, I think in the coming years, we'll see if SpaceX is actually able to get to the milestone of you just need to give it a once over and 48 hours, you can fly it again.

There's massive debate over whether the reusability actually provides the type of savings that SpaceX claims. Yeah. Should we move on to what would have happened otherwise? Yeah, let's do it. Where do you even start here? There's so many moments where this all could have gone off the rails. I mean, I think the biggest one is what if NASA hadn't sort of changed their...

their tune on how we bid stuff out. Yeah. I mean, I think without that, the small set market just, you know, I think it probably will, like we said, will materialize in the future and it is materializing now. But during the time period that SpaceX needed it to, it just wasn't going to. Yeah. And this is actually, I think, a big point related to we didn't really talk about Starlink at all in this episode thus far. But I think one of the reasons.

besides Starlink and providing satellite internet access being a big market and attractive in and of its own, that SpaceX decided to launch this division internally was... to stimulate the small sat market and demand for it. Like now they are going to be their own first and best customer for small sats and the ride share. program that they launched where you know when they're sending up big stuff having having space available for for little sats as well

Yeah, I want to give a little bit of detail on both of those things that you just described now that we've sort of we've tipped our hand a little bit. So for people who don't know what Starlink is, which is me probably two months ago and mostly me even a week ago, SpaceX is going to put.

1,200 satellites up in low Earth orbit around the Earth. I'm sorry, 12,000 satellites, low Earth orbit. So way, way, way closer than the DirecTV satellite that needs to be out in geosynchronous, which is, I don't know, 22,000 miles away. These things are on the order of 200-ish miles away. So, you know, it takes a rocket to get it up there, but, you know, it's not...

It's not as far away as the old stuff is or as a lot of the fixed geosynchronous stuff. So Spaces is going to launch these 12,000 satellites. They are all going to have line of sight to each other, and they are all going to be able to provide broadband internet anywhere on Earth at any time to anyone in a cost-effective way.

And the way that it works is kind of a miracle. The fact that all of them have this line of sight to each other and can communicate in high bandwidth between one another, it means that the latency can be way less. So since they're way closer right now, problem with using satellite internet is it has to round trip all the way out 22,000 miles and back. And even at the speed of light, that's still time. And so you're getting...

you know, dog crap slow speeds on satellite internet. And if you have a whole bunch of them pretty close here and they can all communicate with each other... It's kind of okay if there's not a single same one above you all the time, as long as there's something above you all the time and they can communicate with each other. This is the Wi-Fi mesh network of satellite broadband.

Totally. It's genius. And so you might think, my gosh, that's so many satellites. That must be really far in the future. Well, they launch 60 at a time. And they've done this, I think, three times now. Like they literally stack them real tight. They jam 60 of them in a fairing in a nose cone of a Falcon 9 and they shoot them up. And they all sort of make a little string in the sky and they go right behind each other.

And it works. Like Elon Musk has sent a tweet from Starlink Internet. Oh, no way. I haven't seen that. He has. He tweeted something like, I'm tweeting this from Starlink. And then he replied to himself a minute later and was like, got it. And, you know, it's, it's these publicity sense, but like that you can see turning into this very interesting owned and operated business where they can be. you know, it's a huge fixed cost to send them up there. It's, you know, to them, the cost...

It would cost me $62 million to send something up on a Falcon 9, and it would cost the government something like $90 million because they have additional regulatory stuff. But for SpaceX, I don't know what their costs are. Call it $40 million. So it's that sort of... big fixed cost investment to get them up there but they can run a profitable business and we can all or a lot of people get their internet from Starlink and that can be a cash machine

that then can bankroll future endeavors. So they're not just getting paid every launch, but they can get paid in perpetuity for a subscription to something that's already in the sky. I know I'm dipping all over the place here in analysis and business model, but when you dip into Starlink there, I think it's important to sort of like what the heck that is and how real it could be and how soon it could be, you know, two, three, four years.

before that that starts to be meaningful yeah yeah i mean it's like the satellites are already up there yeah Totally. And they've got competitors there too. Amazon's got Project Kuiper and SoftBank funded a company called OneWeb that's doing it. Yeah, it's futuristic stuff that's actually happening now. Well, and SpaceX has the, you know, back to the vertical integration, like they have the advantage of, you know, their...

It benefits all sides of the business. A, they're building this business internally. B, they're giving more They're stimulating more demand for launches, of which they are the primary provider. It's going to lead to more launches, more vertical integration, cost comes down farther, and then the flywheel is just going to keep spinning. 100%.

100%. And you mentioned ride share, too, which is a funny word to use in space. But it's a thing that they put on their website in the last year or so, where, by the way, you can put in a credit card for them to take a deposit on this, and they will charge you a credit card. basically pay as little as a million dollars to hitch a ride. So it's exactly what you said, David. You're sending a big satellite up. Take my little one up too. You can go to the website and you can say, I want...

I want to send up something that's 100 kilograms by 2024 and quote me. And it is the craziest thing. I didn't realize they take orders. So this is like the equivalent of an Apple Pay down payment on a Tesla on the website. Absolutely. Do you know if Shopify powers it? I don't know. That would be amazing. That's a good question. The design is pretty similar between the Tesla website and the SpaceX website. Yeah. I wonder if it is Shopify.

Yeah, like just because I don't want to talk about this twice, I'm going to pull forward my playbook thing now about the pricing there. It is a massive disruption to the entire aerospace ecosystem. that spacex has a pricing page like it is the craziest thing you can go to to there's the rideshare thing but then there's also like literally just a pdf that you can click and pull up and it's like do you want

A Falcon 9? It's $62 million. Do you want a Falcon Heavy? It's more expensive, and I don't know what it is, but this has never been an industry with price transparency. And by bringing that, it is just like... You know, it freaks everyone in the industry out for them to be that transparent. Plus the Uber pool. Right. Right. Okay. So.

That was what would have happened otherwise. I dipped us into playbook. Let's keep going. If someone wanted to do something like this, what is the playbook they should run? And what are some of the themes that we noticed here? Oh, man. Well, OK, I'll run through some of the ones I jotted down quickly. One, I started thinking, doing the research about like. What would Hamilton Helmer say about what is SpaceX's? Does SpaceX have power? If so, what is it?

And I think the right one, and I think this is basically what we've been banging the drum on all episode is they came out with counter positioning, like the vertical integration and the whole approach that they've taken. with price transparency and everything to the industry if ual and other competitors matched that it would destroy their whole

organizational structure and business model. Totally. So there's no way they can match it. But I think there's another interesting thing here and I'm not quite sure.

I'm not quite sure if this is a power or how many other industries this is applicable to, but I started thinking about vertical integration. And in so many industries, you see... going from the disruption happened when you go from vertical to horizontal like this is what happened in the pc industry um you know and i started thinking about why and i think it's often when if you think about like

When computing was vertically integrated in the deck days, it was when you had mainframes and you had pretty few units shipped like at a very high price for each of them. That's like when it makes sense to vertically integrate. And then as volumes grow and you get a lot more units shipped and goes up and price goes down, then horizontal integration makes more sense because you can be more nimble. You can define layers of the stack where there's more power.

versus another and you can have more profitability and outsource commodity parts. What's interesting here is that you had this industry structure where you had an extremely small N number of units shipped, like number of rocket launches. around the world was extremely small. And yet you had these, because of the way most of it being government business, you had these like horizontally integrated players that were competing within it.

SpaceX came in and said, like, oh, no, no, there's actually like an anti scale economy here. We should be vertically integrated. And like. I can't think of any other markets that exist like that where you have like a really small number, but you have this bizarrely horizontalized industry. But it just struck me that like this was like a major key to.

how spacex uh was able to disrupt it that's interesting because in some ways i'm trying to think if the analogy holds in the other direction like apple has has apple vertically integrated the iphone Well, they started it vertically integrated.

oh boy i think there's actually a great tech repost on the fact that this is not vertically integrated that they they do make they make the things that they view as differentiable to tightly couple so like cpus um the os and actually interesting they don't make them they design them

That's true. But then they outsource thousands of parts. Right, right. They have in a lot of ways really outsource. I mean, if anything, Apple is kind of like the Detroit audio manufacturer model where they design it, they make the core engine, and then... They have a ton of suppliers for all the other parts. Yep. But they have so much power over those suppliers that they're able to squeeze margins on those. Yep.

Whereas there was nobody squeezing margins in aerospace. Everybody was happy to let their downstream partners have fat margins. Yep, yep, yep. Because again, from the Lockheed's, the Boeing's perspectives, the higher the total price, the better. the more money they made because they were just getting a straight percentage yeah so interesting

It's funny, I didn't articulate it quite the same way you had, but I tried to write out the bullet points of the business model, which is like, one, get paid exorbitant fees, but not as exorbitant as everyone else for every launch. NASA's willing to pay this because the old world...

competitors, had crazy high cross structures, and importantly, no reusability. Hasn't been important yet, but will be. And so what I think they're gross margin positive on every launch now, on the first try, even without reuse. I'm not totally sure, but that's what... some estimates suggest. So then two is take those profits to fund the development of more reusability and more lower cost systems. Three.

make even more margin from doing that and getting paid for those contract launches of satellites, et cetera. Four, enjoy these fat margins while everyone else is trying to catch up to reusability and trying to vertically integrate or squeeze all their suppliers. And as a data point here, SpaceX charges less than their competitors, but obviously well above their cost basis.

If they're actually able to harvest all this margin there, they would have been giving away by vertically integrating. The data point is that Falcon 9 missions... even to the U.S. government with the additional $30 million in Costco for under $100 million. And ULA's contract that was... I can't remember which one, but basically has all of the launches at 400 million. And so like, there's just so much margin in there. So then, then.

Component five, use the funds from these fat margins to fund their own owned and operated businesses like Starlink or like the Mars stuff that I think we'll talk about here, where basically SpaceX themselves will be able to charge for those owned. assets on an indefinite basis. They're able to bootstrap the production of rockets using NASA and then bootstrap their owned and operated business.

with all this margin that everyone let them play with. It's like this two-step bootstrap. Yeah. Yeah, it's pretty awesome. A couple of the quick ones I want to hit on. One, we've alluded to... blue origin a little bit on this and um that's probably another episode for another day but i just you know with different strategies different approaches but it strikes me as interesting back to the whole you know um

fun analogy i use is mo money mo problems like bezos is putting a billion dollars a year into blue origin bezos is selling a billion dollars in amazon stock

that could be used for funding for Blue Origin. But certainly a lot more than $100 million has gone in in terms of equity funding into Blue Origin. It's interesting, though, like... spacex in terms of equity funding has raised so much less money and elon from the beginning was focused on this is going to be a revenue generating profitable business and so

On the one hand, you'd think naively like, oh, they have so much fewer resources. But I think it's in many ways precisely because of that resource constraint and having to build this profitable business that they've figured out how to disrupt the industry.

and accomplished so much and it's just like that's just such a theme like we see all the time and on this show and in startups right is like sometimes you think when you're out of the gate like you see these companies raise tons of money and like think they're gonna you know

clear out the industry and have all the success, but it ends up hurting them because like they're not forced to, they're not forced to build a real business. Yeah. I hadn't really thought about it in those terms. Um, And then the last one just related to that, you know, man, is Elon across SpaceX and Tesla, is he just like the living embodiment of, you know.

the Nassim Taleb, uh, skin in the game, uh, you know, um, actually I'm like this guy, like absolutely put his money where his mouth is. And you can say, many things about elon but um you know he's been quoted on so many occasions saying like if either tesla or spacex goes bankrupt i will personally go bankrupt

And that is as it should be. And the number of near-death moments they've had and pulled through, like, if that weren't the case, if he were like, eh, you know, I'll be fine. I'll still have my McLaren. if this goes back up like would they have had the fortitude and he had the fortitude to to pull through like i don't know

I do think so. I think you're reversing the chicken and the egg there, but that's why it's a chicken or the egg thing. The way that I would think about this is like Elon's drive to make this thing a success. is the reason. It's not any monetary skin in the game. I mean, he cares if he goes bankrupt, but not really.

Like if he really cared about not going bankrupt, then he wouldn't have doubly leveraged himself across two companies. So like clearly the thing he cares about is succeeding in this mission. And that is what drove him to put all of his money in. It's not like he's like locked into succeeding now because of the fact that he's so invested. Yeah. But he definitely burned the bridges behind him. Yes. Yes. There is no way for him to, uh, I mean.

Now there's a way out because there's just he still owns probably 40 something percent of SpaceX. And there's so much equity value there that, you know. Yeah, he there's a way out for Tesla purely by. by Elon getting out of SpaceX. Yep. At this point. And it's such a good business. I mean, truly like making, making a hundred, a hundred million bucks a pop. If you can do that twice a month. Yeah, especially if you can reuse those rockets. Yeah.

Sorry, go for it. Go for your themes. Yeah, yeah, yeah. No, I've got a couple of fun ones. So I want to talk about a different type of vertical integration, which is... SpaceX assembles their rockets horizontally and most other companies assemble their rockets vertically. And as you can imagine, when you lay them on the ground and you build them that way...

You don't have to take really expensive, crazy hydraulic machines and move around. You know, you don't have to construct a skyscraper around your rocket. And I'm using this as an example, but it's super. illustrative of how spacex problem solved every single component of building their company in a cash constrained environment into finding a more innovative more inexpensive way of doing something and like I think Elon has this interesting quote where he's like, yeah, actually the Russians...

I don't know if it's Elon or Gwynn, but the Russians actually manufacture them on the ground. Most of these U.S. companies actually manufacture them vertically. But the number that Gwynn cites is that she says SpaceX's rocket factory is 50 cents a square. foot. And if you vertically integrate your rocket, no pun intended, stand it up and assemble it that way, space ends up effectively costing you $12 to $18 a square foot because you're moving people up and down.

these rockets way the heck up in space. And it's just like, it's just a great illustration of the incredible constraints that SpaceX was under that... no other player that's ever reached the scale that they're at has been under yeah man that's crazy that's such that's like a so it's more than an order of magnitude difference in the cost absolutely and like Why the F wouldn't you do that then? Absolutely. It's really amazing.

The other one that we talked about is sort of new market needs. So they sort of built a, this is from the Elon Musk book, but they built a Honda Accord instead of building a Ferrari when everyone else thought only Ferraris would be wanted. But it turned out there's... emerging market for Accords, which is

unexpected and cool to see. And I think we'll see the innovation compound now that we're having all these CubeSats and things like that up there much faster than we saw with only shipping a Hubble up once a decade. Well, and it turns out even the people who drive Ferraris or McLarens, you know, they don't want to drive those every day. Right. And then at some point, you know. Tesla did SpaceX did exactly the same thing Tesla did which is like hey we know how to make

Accord's really cheap. So now we're also going to make a really cheap Ferrari. And sorry, existing Ferrari people, but you're also going to want ours. I was looking at this the other day. What is the... performance model three which granted is still a very expensive car it's like a 55 000 60 000 yeah right still way too it's like yeah base i'm not gonna buy one but um yeah but but the you know

So for, call it, let's say $60,000, you can get zero to 60 time. What, it's down like three, below three now? Oh, I don't know, something like that. Yeah, for like, you used to have to spend a couple hundred thousand to get that, you know? Yep. That's a great point. All right, my last, is this my last? I think it's my last playback here is customer diversification.

So they are not reliant on one customer or even one type of customer. They have all these different sectors. So within the government, they have defense and they have civil. So NASA's resupply and human contracts. And the defense, they have these Air Force contracts, among other things. And then they've got the commercial business with telecom, with media. And so it's at this point, it's a robust and diversified business that is just, that was not true in space.

largely before now and it's uh um it's it's going to be defensible for them and it's going to help them weather storms in different markets yeah it's interesting well we're going to get to we'll get to this in grading in a minute so i'll hold off but yeah The question is like, okay, so how big is this market going to get? All right. Yes, let's hold for grading.

Lastly, the thing that I want to point out, I think as of May 2019, Elon owned 54% of SpaceX. And so they did just raise something like 550 million since then. But like... holy God, did that guy hold on to equity in his company. Elon is a master of many things. He's the chief engineer. He's lots of things. He is a master of raising capital.

Well, I mean, it's interesting, right? He didn't raise cash. He put his own capital in. But then I think what's interesting is, so we didn't talk about this in History and Facts, but. After they got the NASA contract and after the successful Falcon 9 and Dragon, after the successful Dragon rendezvousing with the ISS, I think there was a lot of pressure internally from employees for the company to go public.

Because they were like, look, we just hit this massive step change in valuation. And we've been killing ourselves here. We want some liquidity. And Elon actually wrote a memo, an email to the company. With the reasons why he thought like they should like going public isn't as good as you think, you know, and he's lived through all this Tesla. But in the wake of that.

They started doing these regular, um, fundraisers, but I. believe most some of the capital may have been primary but i believe most of it was secondary for employees to buy out the employees interesting liquidity and i think elon was pretty outspoken about this said like this is like i'm gonna do this

this is going to be a much better solution for SpaceX. We won't have to be a public company. We can get employee liquidity. We've got this massive long-term vision of getting to Mars. Right. Yeah, so I actually don't...

think that the money was raised for the company mostly interesting well that that speaks even uh better to the profile of the business than that you know they've been able to to fund with at least gross margin profit dollars rather than funding the business with all new equity capital. Yeah, I don't think SpaceX is a profitable business, but I do think they're profitable on a unit basis. Well, and I believe Gwen has said they have operated profitably in certain years. Huh. Wow.

I mean, I'm sure they're not now, now that all the R&D is happening in both Starlink. Well, I mean, first of all, they lose money every time they... launch a start do a starlink launch because that could have made them 90 million bucks from someone else and they've estimated it's going to take 10 billion dollars in capital to get that all whoa built it up crazy

And then the other thing they're spending tons of money on is the R&D for the Starship. But yeah, interesting that those are mostly secondaries. All right. Value creation and value capture. So I'm going to be very brief on this. This is a two part. segment that we usually do. The first part covering of all the value that they created in the world, did they do an effective job of capturing it? People who do a good job of this are Google. People who do a bad job of this are Craigslist.

And then the second piece, you know, did they actually do value creation in the world at all? Or did they maybe... either destroy value like we've talked about on many episodes with SoftBank-backed companies, or did they perhaps just shift value from one person's pockets to another person's pockets?

I think it's just like an absolute no-brainer that it was new value creation in the world, enabling new markets, accelerating markets, and they're doing a bang-up job capturing value from it. Yeah, totally. A little... a little opaque because they're a private company to know on part one, but it seems like yes, but oh my God, if there were ever a no brainer on part two, like you said on this show, like.

There is no reasonable argument. I mean, I'm sure there's some arguments, but like to my mind, there's no reasonable argument to be made that like SpaceX did not like having it exist is not good for the world, you know? Right. All right, listeners, it is time to talk about one of our favorite companies, Statsig. It's funny, David, Statsig has gone from this little startup when we first started working with them a couple of years ago to this total powerhouse now.

I know, it's wild. I was looking it up and they have added all these customers since we started working together. OpenAI, Figma, Atlassian, Vercel, Notion, tons more. At this point, if there's a growth stage tech company out there, there's pretty good chance they're using Statsig. Yep. So listeners, if you are unfamiliar with Statsig, they basically took what was the standard product infrastructure at every big tech company.

and they built it as a standalone company. This includes advanced experimentation tools, A-B testing, feature flags, product analytics, session replays, and more. So if you're building the next great software company, this sort of infrastructure is essential because it allows your product and engineering teams to release things quickly, measure the impact of them and track progress over time. Totally. So, I mean, as we've talked about on the show.

forever at companies like Facebook or Netflix. Data was just a part of how everything was built, which contributed to all the crazy bottoms up organic growth that they had. Now with Statsig, you can get that from day one at your startup. And today they're not only trusted by startups, but also by more mature enterprises like Bloomberg and Microsoft and Electronic Arts. Turns out that a single system for data-driven product decisions is useful at any scale.

Yeah. And by the way, the scale they're operating at is completely insane. They process over 2 trillion events per day now. By the way, David, this is updated. The last I checked, it was 1 trillion. And then this morning I pulled it up 2 trillion. and they handle releases to billions of end users. If you're listening to this podcast and you've used software in the last few years, there is a very good chance you've been a part of many experiments orchestrated by Statsig. Yeah, it's just awesome.

And as they've gone upmarket, they've also started to offer some interesting deployment models, like being able to run the whole thing natively inside your existing data warehouse or just using Statsig's fully hosted solution. If you want to leverage Statsig to grow your business, there are a bunch of great ways to get started. Statsig has a very generous free tier for small companies, a startup program with a billion free events that's $50,000 in value.

and significant discounts for enterprise customers. To get started, go to statsig.com slash acquired and just tell them that Ben and David sent you. Thank you, Statsig. All right, grading. So... There's never been a transaction, which is normally what we would grade. If you're new to the show, the way this section works is big company buys little company. We grade in hindsight, how good of a use of capital was it for big company to buy a little company? Was it as good as Instagram?

as bad as AOL. issue a letter grade the way that we do that in this world where there hasn't been a transaction yet is talk about what would an a plus b or uh you know what would an f be and maybe what would a c look like um and in this case because i don't think we're talking about it IPOing or, you know, somebody, um, buying them. I think we're basically just going to talk about what is a, an end state look like for this company in each of these, um,

in each of these scenarios. And David, you asked the question earlier, which I wish I could reach through Zoom and slap you for, which is, well, really, come on, how big is the market? And it's called foreshadowing. Yeah. Like, sure, we could talk about a market for how many of the people without broadband would pay for broadband. And sure, we could talk about both the commercial and the government markets for launching satellites.

How big is the entire Mars economy going to be in 2300? You know, like there is some future where the what we're talking about here. is the GDP of Mars and the GDP of Mars with a productive capacity of a million people on it. And I know I sound like a nut job for throwing that out, but like that is Elon Musk's A-plus case here is like... that's the whole goal of this thing. Yeah. Yeah. Well, so, okay. Is that,

Do you want to say more or do you want me to jump in? I'm painting. That's the A plus here. Like it is nothing shy of we figure out a multi-step process to get people to Mars reliably, cheaply, safely and build a society and economy there. Yeah.

Well, now the interesting thing though is, so usually when we do this, it's so funny with SpaceX, the usual rules don't apply. We provide a timeframe, a time horizon of like five years. That's fair. So. The interesting thing about SpaceX versus I think a lot of other new age space companies, not all of them by any means, but certainly there have been many new age space companies in the past several years that.

have had a similar a plus case of like something like the mars economy or like um you know planetary resources right now like we're you know gas stations in space uh mining mining asteroids um the problem with those companies was it was it was a it was a binary yeah we get to that a plus in some far future state there's nothing along the way what's amazing that elon and space x have done is they've stair stepped up to it it's like oh well okay first we're going to become a you know um

We're going to build rockets and then we're going to become essentially a space shipping company. Well, and then we're going to be a satellite company and provide internet. satellite broadband well then we're gonna spin off the boring company because actually if we're gonna be on mars like we need tunnels to live on mars so we need that anyway and actually that's useful on earth

okay, then we're going to supply the ISS and we're going to do, uh, uh, we're going to do, um, the dragon program with NASA. And it's like every step along that, like you can hit an a plus in each kind of five year time horizon. Yeah, that's a fair point. I also shouldn't have said 2300. I said that because I couldn't think of the timeline is to actually get a million people up there. But like, it's much sooner. But yeah, you're right. Like the...

There are potentially incremental A pluses. I don't know what the... i actually should know this but don't what the goal of starlink is is how much internet do we intend to provide to how many people and at what price like there's some there's some um business case for like uh

Just operating Starlink is a really good business to be in and might be a $30 billion enterprise value thing on its own. I don't know if that's true. I suspect it's not. Well, it might be. I mean, it might be more. We know that they expect... to put 10 billion dollars worth of capex into it um both from that's capex funded by cash flow from other projects within spacex they have raised a lot of the

primary capital that they've raised recently has been four star link um so i don't know i mean like would you would it be reasonable to put 10 billion dollars of capex into something if you didn't think you could generate 30 plus billion in revenue out of it. Yeah, that's a good point. I haven't seen the pitch deck, but I'm sure it says something like that. Yeah. Not to mention...

you know, they'll continue to sort of pull away, I think, in the launch market. And, I mean, Falcon 9 is just a workhorse and a... and an amazing business of doing these launches. And so for the next... three, four years until they really have a starship humming. Um, if they can actually take up to a month, there's, there's a, you know, they'll do what is, what's a 60 million times. Times 24 is $1.4 billion a year in revenue just from the Falcon 9 launches.

I don't know what kind of multiple you want to apply to that or if we should figure out actually what the EBITDA margin is and do it that way. But yeah, it's good business. All right. Should we move to the F case? F. Yeah, I mean, there's some F cases that I don't want to say, so I'm not going to. But one would be that factors outside of SpaceX's control cause more than one launch to go poorly, or in fact, an important launch to go poorly.

basically make it so that they don't get orders anymore. This business is incredibly brand dependent in a way that other businesses that are not this high risk are not. I think it would be very, their revenue could go to zero much more easily than other businesses because of that risk factor. Yeah. It's interesting, though. I mean...

At the same time, that risk factor, well, because a private company has never really been doing this kind of stuff before, but that risk factor has always existed in this industry. Like this is a dangerous industry. And in fact, there have been.

terrible you know accidents in the history um you know of of the industry made by governments um yeah but we i mean we canceled the shuttle program right but was that that wasn't because of um the columbia was it i don't know for sure feels like a compounding factor though that it was both expensive and unsafe yeah yeah for sure well hopefully we don't uh face that

particular case but but it's a good point i mean like you know as elon makes the point and we've made the point several times on this episode typically this stuff is the domain of countries not companies um

And so there might be all sorts of unforeseen factors that pop up here. Totally. Yeah, you could have governmental problems. I mean, you could have problems where... foreign governments aren't able to do business with american companies i mean the risk factors that would go on this company's x1 are just at such a bigger scale than you would ever see in in most uh for most companies yeah well so here's one

i mean i guess this is a sort of a um f scenario well i think kind of is an interesting lens through which to look through grading here which is if they're ultimately successful in everything that they're talking about here and they get a million people to Mars.

What does that actually mean? There's a lot of questions that are going to have to get figured out. Is SpaceX... the government of mars like i was wondering is this a company or is this a country or is this like we're starting to sound like pretty uh pretty sci-fi uh dystopian future here i mean Like if Columbus makes it to the U S does the Dutch East India company own North America or does like Columbus, the Spanish government, you know, it's a good question. Yeah.

Um, over time, whoever has the army that's able to conquer it probably owns it. Yeah. I mean, just looking at history as a, as a guide. Yeah. Um, I mean. Again, this sounds sort of crazy, but, you know, Elon talks about this, that this is sort of he hopes the same type of analogy with Mars is like, you know, it's been 300 plus years since there was a new world.

you know, if this happens, there will be a new world and like, well, who owns that world? Yeah. If you've thought about this question or, you know, the answer to this question, um, Please reach out. Join us in the Acquired Slack, acquired.fm slash slack, or email us at acquiredfm at gmail.com.

This goes with everything else in the episode, too. I'm sure there's lots of people here who are more sort of aerospace native than we are and certainly lots of sci-fi geeks. So, yeah, I think we'd love to think more about this with... With folks. Yeah. I suspect this won't be our last, uh, space facts episode. Yeah. Or space episode broadly. Yeah, totally. All right. Carve outs. Let's.

do it it's been a while since we've had a carve out yeah so much good stuff been going on uh i think among much great content i've been consuming during quarantine from books to both fiction and nonfiction to, um, uh, podcasts to, uh, um, to TV shows to movies. I think the last dance takes the cake for me. I wrapped it up earlier this week. Have you finished it yet? I haven't yet. Oh, it's so good.

So good. Just like, especially like, you know, growing up watching, you know, I remember being a kid and watching a lot of those games on TV, especially the 98 run for the Bulls. And then like just getting this super deep behind the scenes, you know, look at all of it and the portrait, not just of Jordan, but of everybody on that team. So, so great. I enjoyed every single second of it. I want episode three. All the best parts are spoiled because I saw all the memes, but I am...

Still looking forward to finishing the whole thing. Oh, man, the memes are just... Isaiah Thomas meme. So good. I met all the criteria. I don't know why. Yeah, why wasn't? Was not selected. So great. Oh, that's right. So good. Mine is, I think there's some chance that this may have already been a carve out because I've recommended this so many times to different people. But it is a five-year-old talk by Michael Malbison.

This one at Google for his, I think, book tour or at least discussing the book Untangling Skill and Luck, The Success Equation. And it is one of the best hours you could spend with your time where he lays out. Games of skill and games of luck, and most things are both, and understanding where a lot of the different sports that you love or games that you love are on that continuum, and also thinking about competitions in your life of what's more skill-based.

what's more luck-based and doing this really analytical and theoretical analysis of it that is just a privilege to watch because he uncovers weird paradoxes like this one the more skill an activity requires the more luck will play a role in the outcome the uh what's that the the paradox of skill right yeah And it's so interesting. And if you're a sports fan or if you're an investor or if you compete in anything at the highest level, it is wildly clarifying to watch this and understand.

sort of um what game you're in and i i can't recommend it enough so good and uh you read a book uh about this right um same title yeah and with the same title and um yeah I think it was, I should go back and reread that or at least rewatch the video. I remember it being fantastic. It's awesome. It's awesome. Well, before our usual sort of wrap up here, we have one more kind of fun announcement.

That is that David and I are going to be speaking at an aerospace industry conference in November called Ascend. That's something that, you know, obviously based on both of us. Getting to go deep on the research here, I'd call ourselves aerospace novices, but... but curious and, and love diving into this stuff. And, and we were fortunate enough to, to get to attend and, and do some talks at Ascend. And so if, if you're like us where this.

stuff is interesting to you or you think space may be the future or you're interested in getting into a space-adjacent industry, Ascend should be a great event. Hopefully we'll get to do it in person, but folks should check it out.

We'll put a link in the show notes if that tickles your fancy. I can't wait for it. I really hope it'll be in person. It'll be such a great, you know, in many ways, I think this time has... for us that acquired us personally um and for many of our listeners too you know forced us to grow and obviously adapt but uh you know

Folks may know we used to do all of our episodes with guests in person. We would fly to go see our guests. Obviously, we haven't been doing that now, which has on the one hand been great, but on the other hand, you know, I miss it and it'd just be great. to hope that happens in person, be there together and, and just have our community together. Yeah, for sure.

Well, one, I mean, one talk I'm really excited for is Jim Bridenstine, who's NASA's administrator, who was sort of overseeing everything about what's going to be happening this week. He'll be speaking there. And it's a lot of, you know, it's... as sort of high up as the sort of folks go in the aerospace industry. And one other person who I'm sure will be a fascinating one to hear is the...

The president and CEO of ULA is going to be there. And so for all the shade I just threw, I think it'll be really interesting to hear how they're sort of navigating, you know, SpaceX and other competitive threats. Seriously. All right. That's Ascend. Check it out. Ascend.events. If you aren't subscribed and you're new to the show and you like what you hear, you totally should. You can subscribe to us in any...

any podcast client, or we are now sending out new episodes via email. And so you can subscribe to that on our website at acquired.fm, either in the footer or in the top right-hand corner there. And that way we can shoot you a note.

we post something new if you want to become a limited partner subscribing gets you access to our bonus show and as mentioned the LP calls where we get to interact with all of you which will be super fun And to listen, you can click the link in the show notes or go to glow.fm slash acquired and all new listeners get a seven day.

free trial. If you just want to hang out and chat, you should join the Slack. We've got over 4,000 people in there talking about different topics of company building, news of the day, acquisitions, and discussing previous episodes. So I'm sure we'll be... chatting in there after we drop this episode with that we will see you next time see you next time