Jockeying for Number One: Management of the NewSpace LargeCaps

Who will you put your money on -- Richard Brandson, Jeff Bezos or Elon Musk?

Like many investors, NSG Analysts know that the management team is the most important criterion or “screen” to use when evaluating a company in NewSpace, and the stakes are high for the LargeCap NewSpace management teams. More than any product, market opportunity, or level of capitalization, smart management will more often than not determine the difference between a successful company, and a great idea that ultimately fails in the marketplace. That’s why when NSG Analysts evaluate a NewSpace company for inclusion in the NSG 100, NSG PTC, or NSG OTB indices, they value Management over all other company characteristics. And that is why NSG analysts prioritize Management as the first of the “NSG 4-Screens.”

Savvy and experienced executives can often overcome deficits in the other three NSG screens: Market, Capitalization, and Technology. As many investors and entrepreneurs know, this may be true of all companies, in all industries, whether large or small, public or private. NewSpace LargeCaps, despite their emphasis on bleeding-edge technology, are certainly no different. And given that many NewSpace companies begin with a novel idea that has been developed and championed by an engineer (often with scant business experience) NSG Analysts recognize that sound management is even more important to the larger players of NewSpace. With this in mind, we will examine the management of three high-profile LargeCap NewSpace companies: SpaceX, Virgin Galactic, and Blue Origin, and the track records and roles of their respective founders, Elon Musk, Richard Branson, and Jeff Bezos.

As nearly every investment prospectus claims, “past performance is no guarantee of future results”; however, NSG Analysts pay close attention to the management history as the most influential factor in predicting future success. (Please see “Letter From The Editor” in the October 2012 issue of Thruster.) In evaluating a LargeCap company for the NSG indices, NSG analysts first look to the track record of the company’s management. Specifically, they focus on whether the NSG 100 or NSG OTB’s management has taken a previous company to IPO, acquisition, or cash cow. Although many LargeCaps have experienced management, that experience often comes from well-established aerospace corporations, military, academia, or government agencies, and is not readily transferrable to the far more challenging arena of entrepreneurial endeavors in NewSpace.

SpaceX, Virgin Galactic, and Blue Origin are all major players in the NewSpace industry. SET is poised to dominate the private orbital industry; VG seems positioned to thrive in the suborbital tourism industry; and BLUE inhabits a favored space that crosses both the orbital and suborbital industries. While SET and VG tend to be the media darlings of NewSpace, BLUE is a much more tightly-held company that, at this point, values secrecy over publicity, a veritable NewSpace skunkworks. (Please see “LargeCap Review” in the Premiere issue of Thruster.)

Space Exploration Technologies

SET may very well be the best-run LargeCap; this is why it currently occupies the top spot on the NSG 100 index. Recent successes and setbacks may or may not affect this ranking. For instance, the successful berthing of the Dragon spacecraft on its resupply mission to the International Space Station (ISS) despite an issue in one of the Falcon 9’s first-stage engines, which caused a failure of the Falcon 9’s secondary payload (Orbcomm’s OG2 Prototype satellite), caused SET’s NSG index score to drop by -1.32%. (Although, as reported in NewSpaceWatch.com, it is ORBC’s contention that had it been the primary payload, the OG2 satellite could have been boosted into the proper orbit.) (Please also see the “NSG Index Review” in this month’s issue of Thruster.) However, of more concern to NSG Analysts – and in line with this month’s theme – what will determine a larger change in their NSG rating and index position will be SET management’s reaction to this failure. The one-time failure of a company’s technology will not necessarily drastically alter the score and ranking on the NSG indices, but the ability (or inability) of management to address and rectify the failure most certainly will.

Elon Musk, the founder and CEO of SET, has built the company from the ground up into a powerhouse that is currently the hottest NewSpace company in existence. With an unparalleled record of wins in NASA’s COTS, CRS, and CCDev programs, multiple successful launches of its Falcon 9 launch vehicle, two successful trips to the ISS by the Dragon spacecraft, and a multi-billion dollar backlog of booked business, both governmental and private, SET sits on top of the NewSpace world with Musk at the helm. (Please see “Public Policy in NewSpace” in this month’s issue of Thruster.) As impressive as SET’s technological achievements are, NSG Analysts have ranked SET #1 in the NSG 100 for nearly 12 straight months due to SET’s management team’s track record prior to launching the company. Musk has an impeccable business track record. He co-founded and grew internet giant PayPal, which was the first successful IPO in the post “dot.bomb” environment in February of 2002, and was later sold to eBay for $1.5Bln in October of 2002. Musk started SET in 2002 with $100Mln of his own money and has attracted private investment at every step of growth, including $20Mln from Founders Fund in 2008, $30.4Mln in 2009 from Draper Fisher Jurvetson and Scott Bannister, and $50Mln in 2010 from Musket Research Associates, Draper Fisher Jurvetson, and Founders Fund. (Please see “LargeCap Review” in the Premiere issue of Thruster.) 

NSG sources indicate that SET is 80% vertically integrated – i.e. it builds its own spacecraft and launch vehicles, a rarity in the NewSpace industry. Furthermore, to achieve economies of scale in a traditionally inelastic market, Musk recently built a factory to mass-produce the Merlin engines that power SET’s vehicles – NSG sources tell us that Musk seeks to leverage Tesla Motors mass-production expertise in building  the Merlin engines. (Please see “Down-To-Earth” in the April 2012 issue of Thruster.) In a Henry Ford-esque move to control all aspects of SET’s production and operations, Musk is currently seeking to build a SET-owned commercial spaceport from which to launch their non-NASA missions. (Please see “Spaceland” in the May 2012 issue of Thruster.) It is in this way Musk can price SET’s launch services to compete favorably against United Launch Alliance, the European consortium EADS, Russian giant RKK Energiya, and Chinese launch service provider, the China Great Wall Industry Corporation; this is a very impressive feat, especially in light of the willingness of the Chinese government to greatly subsidize WALL in order to keep launch prices artificially low. (Please see “Point-To-Point: Russia and Eastern Europe” in this issue of Thruster and “Point-To-Point: Asia” in the October 2012 issue of Thruster.)

NSG analysts look at management’s business track record, not just cumulative time in the industry, as do others who focus on numbers of years in traditional space, e.g., NASA, Boeing, or another aerospace prime. Rather, as mentioned above, NSG analysts look at the track record of taking prior companies to acquisition, IPO, or cash cow status. It is here that Musk’s record shines. In addition to his IPO and subsequent  sale of PayPal, Musk has a strong business record. In 2003 Musk co-founded Tesla Motors, a high-end electric car company. TSLA benefitted from Musk’s managerial excellence, raising multiple rounds of private equity funding, then launching its IPO on NASDAQ in June of 2010, raising $226Mln. It may be argued that TSLA is one of only a few successful IPOs since the 2008 economic meltdown, which is especially impressive in light of the Facebook and Groupon IPO debacles. (Please see “Investor Watch” in the May 2012 issue of Thruster.) Not content to sit back and rest, Musk co-founded Solar City, a green energy services company, where he currently serves as Chairman. Solar City has partnered with several leading US banks to fund its green energy projects and recently raised $280Mln through a Google investment vehicle to develop residential solar installations that will provide clean energy to communities. Additionally, Solar City has recently filed for a $201Mln IPO.


Paypal share price and historical events

Tesla share price and historical events

SpaceX share price and historical events

Despite this impressive resume, Musk cannot be everywhere at once. As a result, he has hired some impressive executives to run the day-to-day operations at SpaceX. Among Musk’s best management hires are Gwynne Shotwell and Tim Hughes. Shotwell, as SET’s President, manages the day-to-day operations and customer and strategic operations (and NSG sources indicate Shotwell also covers the vital but often overlooked HR department.) Prior to this, Shotwell was SET’s Director of Business Development and helped develop the Falcon launch vehicles. Shotwell came to SET from the Aerospace Corporation, where she managed a key study for the US Government on commercial space transportation. She has put this experience to use when managing the NASA/SET relationship.