NewSpace Financing: Monoplies in the Sky

Image Credit: Founders Fund

An interesting article from WSJ.com from Elon Musk friend and PayPal co-founder Peter Thiel challenging the notion that open and widespread competition is an ideal to be pursued.

“Americans mythologize competition and credit it with saving us from socialist bread lines. Actually, capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition, all profits get competed away. The lesson for entrepreneurs is clear: If you want to create and capture lasting value, don’t build an undifferentiated commodity business.”

Thiel raises some interesting questions in what to many could be an uncomfortable context, and it is difficult not to consider the piece in relation to SpaceX; not where the company is today, but where it plans to be soon with its goal to establish a rapidly reusable launch capability with the Falcon series of rockets. Outside of Blue Origin, where will its most likely RLV competition come from? Based on the non-response from the rest of the existing launch industry, the answer may be “nowhere.”

From Thiel:

“To an economist, every monopoly looks the same, whether it deviously eliminates rivals, secures a license from the state or innovates its way to the top. I’m not interested in illegal bullies or government favorites: By “monopoly,” I mean the kind of company that is so good at what it does that no other firm can offer a close substitute.”

It goes much further than that however, as the rationale Thiel puts forward could be taken to apply to much of the “NewSpace” industry as a whole, where the “new” can often refer to previously (or still currently) non-existent markets, and not just to younger companies attempting to change existing, ossified markets such as the ComSat launch industry.

In his position as a partner in the Founders Fund, the motto of which is “What happened to the future?,” Thiel has played a key role in raising the resources for start-up space oriented companies such as Planet Labs and SpaceX itself at one critical juncture in 2008.

As difficult as it may continue to be for traditional finance sources to embrace NewSpace business concepts, the logic put forward in this piece may provide some insight as to why Thiel, as well as others, will continue to do just that.

 

 

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