Episode #110 - Burn Rate Intelligence #4 – Moon Economy | $566 Mrd. bis 2050 | Wer bezahlt die ersten 20 Jahre?

00:00:00: The original podcast was recorded in German.

00:00:03: This podcast was translated using artificial intelligence, Burnrate the Venture Insider Podcast with Max Meister and Guy Jufredi.

00:00:12: Hello!

00:00:12: And welcome to Burnrate – the VC Insider podcast.

00:00:16: I'm speaking here with Guy Juffredi about a startup scene with focus on venture capital.

00:00:22: We've reached episode ten of our new Wednesday format Burnrate Intelligence.

00:00:27: In these episodes, we take up current and relevant topics from the VC world.

00:00:32: We put them in context.

00:00:46: Yes,

00:00:56: today we're leaving earth for a moment and were discussing the lunar economy.

00:01:00: I'm extremely curious what will find in be able to share there?

00:01:03: Yes!

00:01:03: A focus topic for Koyo

00:01:05: right?!

00:01:06: We have many cases where looking at right now including case right now in due diligence with us from this area.

00:01:12: yes!!

00:01:12: At burn rate we talk about companies that has deploy very large amounts of capital before they can prove their business model really works.

00:01:21: But with the moon or space, this logic takes on a completely different dimension one has to say.

00:01:27: A study from Deloitte landed on our desk and it tried to quantify the possible economic value of future lunar economy.

00:01:35: depending how quickly infrastructure technology and commercial demand develop accumulative economic value between three hundred forty-three five hundred sixty six billion dollars could emerge by twenty fifty.

00:01:48: That's quite a wide range in that statement, one has to say.

00:01:52: Yes but this number is actually only the beginning because before any larger commercial business models can even emerge on the moon... ...a complete infrastructure first has to be built transport energy supply communications navigation surface mobility construction and also life support.

00:02:09: For transport alone, Deloitte calculates in the accelerated scenario a potential economic value of around two hundred billion dollars.

00:02:18: Then come business models that could build on this infrastructure for example resource extraction rocket fuel in space manufacturing data services compute infrastructure or also applications in the area of national security.

00:02:33: Yes, the decisive point is that nobody knows today exactly which of these markets will become large.

00:02:40: so we have a situation where enormous sums have to be invested over years or decades even though a large part A great deal of capital is already flowing into the space sector and states play a special role in that.

00:02:59: They are not only regulators, but increasingly also anchor customers and indirectly risk capital providers.

00:03:06: they finance missions buy transport capacities And thereby help the first markets to emerge at all.

00:03:13: one has seen That very nicely with SpaceX.

00:03:16: yes The real question Is not just whether the moon economy can eventually be six hundred billion dollars large.

00:03:22: The exciting question is, how much capital has to be burned beforehand?

00:03:26: Who bears this risk and from what point does a state finance vision become a genuinely commercial market.

00:03:32: Guy when you hear these six hundred billion dollars or to be more precise it was five hundred sixty-six Is that for you already?

00:03:39: are real future market Or currently still very large venture capital thesis?

00:03:44: Yes so right now if we look at moon landings there have been so far and how few people of actually being in space so far i would currently still see it as future music and as a thesis or rather is market development.

00:03:58: I mean the interesting question isn't necessarily just can the moon at some point to generate an economic value for around six hundred billion dollars, Who pays for the first ten or twenty years of upfront investments?

00:04:14: I mean, many business models that are supposed to contribute to these six hundred billion in economic output only work once fundamental infrastructure on the moon is in place.

00:04:24: And as you said, you need transport.

00:04:25: You need energy unique communications and a certain level of logistics and reliability also has to be built up.

00:04:32: only then can you seriously talk about topics like mining manufacturing computing on the moon or production rocket fuel.

00:04:38: yes exactly for that reason burn rate in this early phase is extremely high so tens of billions will now be invested if one wants get there your investing today.

00:04:48: infrastructure from market whose customers who would participate it don't even exist.

00:04:53: I mean, there isn't yet an interstellar spacecraft that simply zips around the galaxy or back and forth between Earth and the moon.

00:04:59: That doesn't exist today!

00:05:01: And if one pulls it to our normal discussions with a start-up which would be an enormous warning signal... The decisive difference is here.

00:05:11: we still have an actor who can take on part of this risk —and that's the state—or many states in the lunar economy.

00:05:18: Yes, exactly.

00:05:19: And this is where it gets interesting.

00:05:21: governments are increasingly stepping up as anchor customers and in some cases also as anchor investors.

00:05:27: does that fundamentally change the risk for private investors?

00:05:29: In your view

00:05:30: yes massively of course.

00:05:32: I mean if a NASA or another state actor says hey we're buying transport capacity We're financing missions Or were buying communications and infrastructure services then at least from The very beginning form of guaranteed demand emerges And that's a good initial demand to have.

00:05:50: That is enormously important for the investor, you're not simply financing a bet at some point – a complete market emerges!

00:05:58: You've got a large customer who also helps finance technology validate missions and bring down costs... ...and in principle already a de-risking mechanism one shouldn't underestimate.

00:06:11: A state takes on part of early demands thereby giving private investors confidence that there can at least be a market in the short term.

00:06:20: And, The hope is then of course that it's some point.

00:06:24: self-sustaining commercial markets emerges from that just as one sees today in orbital space.

00:06:30: There too.

00:06:30: earlier It was really only an NASA and state driven market.

00:06:35: Today A very large private economy has emerged From it.

00:06:38: That's decisive for me In long run.

00:06:41: the moon economy Can simply sustain itself if not government missions go up, but a private market also emerges.

00:06:51: And this transition from government demand to commercial demand?

00:06:56: Yes that's of course when it gets exciting.

00:06:59: and the big open question- When does that happen and which companies survive financially long enough to experience that moment?

00:07:06: That will be exciting to see!

00:07:08: Yes Max what actually distinguishes a space company

00:07:12: With a software company, you can test with relatively little capital whether a product works.

00:07:19: We discussed that in the last episode with The Listener question.

00:07:22: You build an MVP bring it to customer and see relatively quickly.

00:07:28: Is there demand or not?

00:07:30: In space sector that work completely differently.

00:07:33: Sometimes have invest enormous sums before show your technology works technically.

00:07:40: I also recommend The biography of Elon Musk here, where a great deal is also told about SpaceX and the early days of SpaceX.

00:07:50: That's very entertaining right?

00:07:52: And even then when technology does work you don't automatically have large commercial market.

00:07:59: There are second problem on top that many business models depend each other.

00:08:04: Lunar mining becomes more economical when transport gets cheaper.

00:08:08: Transport gets cheaper when there are many missions, but many missions in turn only exist when enough economically interesting applications emerge.

00:08:19: That's a classic chicken and egg problem just with billions in capex added to it And that's why financing itself becomes a decisive competitive Advantage.

00:08:29: So I think bootstrapping here would be rather difficult, you'd agree with me on that.

00:08:35: it's not enough to simply be technologically strong.

00:08:38: You also have to have enough capital To hold out long enough until the market actually emerges.

00:08:44: and those are roughly The biggest differences.

00:08:47: yes exactly And that's why the upside could of course Also be extraordinarily large.

00:08:51: I mean, an enormous amount of capital is currently being invested in space companies.

00:08:56: We covered the forty million financing round from PowerSpace in one of the recent episodes a seed round from a Swiss startup at forty million.

00:09:03: so huge and enormous amounts of capital flowing into Europe this area too.

00:09:08: just to brief note on that.

00:09:10: Yes is that perhaps actually the investment thesis in this area max that we don't yet know today what the most valuable applications will be and I could therefore represent.

00:09:22: An enormous or extraordinary upside?

00:09:24: Yes,

00:09:25: absolutely.

00:09:25: I mean we can today describe relatively well what infrastructure will be necessary.

00:09:30: as i said transport energy communications navigation construction for example.

00:09:35: those are things We Can understand.

00:09:36: but much harder is the question of which business models Will at some point emerge on this infrastructure.

00:09:43: so Today we talk about helium three About rocket fuel in space manufacturing and so on and so forth And Some Of Those Could Become Very Large Others, perhaps not at all.

00:09:53: And probably some of the truly big applications will be things we're not even talking about today and We know that from other technology waves there.

00:10:01: We've seen that very clearly with The early internet.

00:10:04: one could probably predict relatively well That connectivity would become important but that From it business models like Instagram uber YouTube and so on and So forth the entire cloud industry Would eventually emerge?

00:10:20: And exactly for that reason, I also find the term Terra incognita quite fitting here.

00:10:25: So you're building infrastructure for an economic space whose most important application areas may not even have been invented yet and that makes the investment extremely exciting but extremely risky!

00:10:38: That's where potentially enormous upside lies as well.

00:10:43: One has to say this too.

00:10:44: so if your really bold then go all in.

00:10:49: Let me briefly summarize, I would take away three things here.

00:10:52: First these five hundred sixty six billion dollars that's not a revenue forecast for tomorrow.

00:10:57: they describe a possible economic value that could emerge if the necessary infrastructure is actually built and commercial markets develop on top of it.

00:11:05: second in the early phase The probably most important customer is not a private company but states.

00:11:10: governments finance missions by transport capacities And create an initial demand.

00:11:15: They thus take on part of the risk that private investors alone could or would probably find difficult to bear.

00:11:22: Yes, and third exactly for that reason The Moon economy is actually a perfect burn rate topic.

00:11:27: A great deal of capital has to be deployed today To build a market whose greatest application Or applications we may not even know yet.

00:11:35: And it can take many years until a truly self-sustaining commercial market emerges from this infrastructure.

00:11:45: But if transport costs keep falling, infrastructure is built and ever more private applications emerge then from that could genuinely become a completely new economic space.

00:11:57: Exactly!

00:11:58: That's good closing word.