Dear readers,
Welcome to Quartz’s newsletter on the economic possibilities of the extraterrestrial sphere. Please forward widely, and let me know what you think. This week: A different kind of space engineering, a Ukrainian space mystery, and New Shepard is back.
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The new space economy is built on two things: Government contracts and venture funding. Neither provides the kind of funding that might enable stable and sustainable economic development.
The folks at the US military in charge of obtaining innovative technology think one of the solutions is better engineering—better financial engineering.
“Unless you’re in telecommunications, the bulk of the space economy is kind of a false economy,” Air Force general Steven “Bucky” Butow, who directs the space portfolio at the Defense Innovation Unit, tells Quartz. “It’s also mostly funded by either billionaires or venture capital investments; it doesn’t really benefit from the full scope of other financial services or investment types that are out there.”
That problem led Butow to Bruce Cahan, a lawyer and former banker who runs the nonprofit Urban Logic and teaches finance and ethics to engineers at Stanford University. In 2012, a grad student studying how lunar dust could be used to make a kind of concrete on the moon asked him how to finance a start-up in space. Cahan developed ideas for a space commodities exchange and space bonds to expand financing options for entrepreneurs, which would eventually find their way into Butow’s 2020 report on the space industrial base (pdf).
“I constantly bridge the vocabulary of engineers and finance,” Cahan tells Quartz. “So I’ve come up with phrasing like ‘financial engineering’ to nudge engineers to ask, ‘where can the money for my space technology come from other than the government?'”
The problem with venture capital is that most funds operate on a three to five-year time horizon. It’s an understatement to say that most space technology projects take much longer.
“Space presents a classic finance time-matching challenge: We want and need to build essentially infrastructure assets today that pay for themselves and their technologies over lifecycles of many decades,” Cahan says.
One major reason this problem has been avoided so far are large, long-term government contracts to space contractors. But officials like Butow are eager to see private investment take a larger role, in part because of a belief that such initiatives are more efficient than big government programs.
So what is a space commodities exchange? It would function like any other commodities market, allowing participants to make bets on delivery of future goods and services. The “commodities” in question could be rocket launches, payload delivery, spacecraft fuel, debris removal, data connections, or even moon rocks and space-manufactured goods.
In one hypothetical, a market to buy and sell rocket launch futures would allow satellite makers to buy cheaper insurance against launch failures and delays, the same way a market for corn futures allows farmers to hedge against gluts and droughts.
“By making a financial commodity of the risks the space entrepreneur doesn’t control, they can conserve their company’s limited venture capital equity to cover the development and other risks that their technology can control,” Cahan says.
The key is standardizing the definitions of these goods so they can be traded effectively. One reason existing exchanges haven’t jumped into the fray is the challenge of unifying the industry around precise contractual language.
“Ultimately, the commodities trading systems that are used by terrestrial economies can certainly be used by the Space Commodities Exchange,” Cahan says. “But the actual defining of what is it that’s been traded, the contractual terms on which it would trade, and the network members trusted to trade on the Exchange, all are details that the space community should come together to define for itself.”
If it can do that, then access to debt financing for space companies could become far more prevalent. Borrowing can generate cheaper capital for companies than selling equity, yet few long-term investors are prepared to lend to space projects on a long-term scale. A space commodities exchange can help fix this problem by reducing uncertainty with public, transparent data about supply and demand, allowing for more reliable underwriting.
The trick, then, is bringing together the space companies, non-space companies from mining firms to Microsoft, and Wall Street to create a Board of Trade. Cahan has been briefing executives, military officials, and industry consultants, arguing that an exchange will provide vibrant financing for a US space industry.
“Then, we can have an adult conversation about how everyone is going to play their role in space and pursue the parts of the space economy that they value with greater certainty in 2030 or 2040,” he says.
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IMAGERY INTERLUDE
Today marks the birthday of the late US astronaut John W. Young in 1930. At 42 years of service, Young holds the record as the longest-serving US astronaut, and the only one who flew on the Gemini, Apollo, and Space Shuttle missions. Here he is on the surface of the moon 1972, jumping off the ground and saluting the US flag.
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It’s not just Elon Musk big-upping Starlink latency: Idle bros brag about Ookla speed readings as a “yardstick of virility,” gamers trade tips on how to shave milliseconds off their ping rate, and geopolitics wonks fret over their country’s place in global internet connection rankings. With the rise of remote working and homeschooling due to the pandemic, internet speed is a universal concern. A recent Pew trends survey found that over half of Americans now consider home internet an essential utility.
As part our latest field guide, we offer tips on how to design your home office for happiness, meaning, and efficiency including supercharging your wifi (and checking out how your countries download speeds compares to others).
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SPACE DEBRIS
Firefly’s Fire Guy. The company Firefly is pushing to develop rockets that efficiently launch small satellites, and it recently had a successful engine test. Behind the company is the intriguing story of the Ukrainian financier who took the company out of bankruptcy in 2017, Max Polyakov. The source of Polyakov’s wealth and even the size of it is uncertain, but the magnitude of his ambition to build a rocket company while revitalizing his home country’s proud heritage of space engineering is indisputable. However, doing both while avoiding American laws that prohibit the export of space technology might prove a challenge.
Blue is my Shepard. Jeff Bezos’ space company Blue Origin plans to launch its suborbital rocket, New Shepard, today. It’s the first launch since Dec. 2019. After 12 successful missions and a scotched plan to fly humans for the first time in 2019, industry observers have been wondering what is keeping Blue from bringing the vehicle into regular service, and if those challenges are related to engineering or the pandemic. Today’s mission will include a number of experimental payloads, including systems that will help NASA land on the moon. Yet it’s remarkable that a company whose plans now include a moon lander and a space habitat has yet to finish developing its suborbital rocket or launch a spacecraft into orbit.
Lunar deadline approaches. Eighteen months after setting a goal of returning people to the moon by 2024, NASA administrator Jim Bridenstine has a top-line number for the mission cost: $28 billion. He also has a deadline: He hopes that Congress will approve $3.2 billion to hire private companies to build a moon lander this year. If NASA doesn’t get that money by March 2021—a likely possibility if a fractured Congress chooses to maintain current budget levels during an election year—the goal, Bridenstine says, “becomes more difficult.” Given the concerns many outside of NASA have about the timeline already, that’s a flashing red warning light.
Garbage Mashers. The New Yorker has a deeply reported story about how the US space program came to reckon with the space debris problem through the work of Donald Kessler. It makes gripping reading as the Space Station dodges debris. Stakeholders throughout the space world are talking about and taking on the problem, but with stakes this high, it’s easy to worry that not enough is being done to protect the environment in low-earth orbit.
New Yorker.
Your pal,
Tim
This was issue 66 of our newsletter. Hope your week is out of this world! Please send your plans to finance elaborate space projects, predictions for NASA’s 2021 budget, tips, and informed opinions to tim@qz.com.