Virgin Galactic

Live from the 2020 ASCEND Space Conference, Acquired covers the full story behind the most "out there" technology story of the past few years: Virgin Galactic. How did this space tourism company grow out of the winning X Prize team, and catch the eyes and fancy of billionaires like Paul Allen, Sir Richard Branson, and, most recently, company chairman Chamath Palihapitiya who took it public via the first "modern" technology SPAC transaction in history? Tune in to find out!! Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Playbook Themes from this episode are available on our website at https://www.acquired.fm/episodes/virgin-galactic Links: Virgin Galactic's "One Small Step" reservation program: https://www.virgingalactic.com/smallstep/The November 2020 launch delay: https://www.virgingalactic.com/articles/virgin-galactic-adjusts-test-flight-schedule-in-response-to-new-state-government-covid-19-restrictions/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Ben Gilbert?

  Should we put in a little bit of fake reverb in post so that it sounds like we were actually live, like at an auditorium?

• 0:07David Rosenthal?

  That'd be awesome.

• 0:08Ben Gilbert?

  Live from the cavernous Ascend Auditorium.

• 0:12David Rosenthal?

  Live from Spaceport America.

• 0:25Ben Gilbert?

  Welcome to season seven, episode six of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder of Pioneer Square Labs, a startup studio and venture capital firm in Seattle.

• 0:40David Rosenthal?

  And I'm David Rosenthal. I'm an angel investor and independent advisor to startups based in San Francisco.

• 0:46Ben Gilbert?

  And we are your hosts. Today, we are coming to you live from Ascend, the event defining the future of space. Over the next hour, we will tell the fascinating story of Virgin Galactic and the swirling cocktail of the billionaires, Richard Branson, Paul Allen, and Chamath Palihapitiya, and the aerospace pioneers, including Burt Rutan and Peter Diamandis, behind it. We also thought it would be very timely because in the next week, Virgin Galactic expected to make their first flight from Spaceport America in New Mexico, followed by next year in early 2021, Sir Richard Branson himself flying on their first commercial trip. However, the news did break this morning that, and this probably

• 1:30Ben Gilbert?

  won't surprise longtime followers of the company, they announced that this flight is delayed indefinitely. And we'll put a link in the show notes to read that press release. But for you regular Acquired listeners, this is our very first episode covering a company that went public via a SPAC. And we will unpack the business behind and hopefully ahead of the company. And a few fast facts. Virgin Galactic, if they are successful in opening up space tourism, it will have a massive impact on the percentage of our species to go to space. As pointed out in their S4, the SPAC version of an IPO prospectus, only 573

• 2:10Ben Gilbert?

  Humans had ever been to space by August of 2019 and Virgin Galactic already has over 600 customers, or as they call them, potential future astronauts who have prepaid deposits on their trip to space. And the sticker price for one person to take that trip, $250,000.

• 2:29David Rosenthal?

  Cool quarter mil.

• 2:30Ben Gilbert?

  Pretty steep.

• 2:31David Rosenthal?

  There were, just yesterday, was it two more new first time folks in space with the SpaceX launch?

• 2:38Ben Gilbert?

  Oh, interesting.

• 2:39David Rosenthal?

  I know one of them was the first trip. I think maybe two of the four astronauts might have been the first trip.

• 2:44Ben Gilbert?

  Super cool. Well, I do know now SpaceX, I think, has sent more humans to space than the entire Mercury program. That was a stat that I saw thrown out yesterday. So amazing how the pace is picking up. Well, for those of you watching this live at Ascend, a few words about Acquired, this podcast and sort of what the show is. So first of all, David and I are not from the aerospace industry. We are venture capitalists and entrepreneurs that invest in consumer and B2B startup technology companies, but we're big fans and observers of space. So today, this episode will reflect an outsider's perspective, albeit, we hope, a fairly well researched one. And our goal, besides our own self indulgence in getting to geek out on the topic that we love, is to try and make space more accessible to

• 3:29Ben Gilbert?

  those in adjacent fields. And I know I'm not alone when I say this, but I think that the space ecosystem is poised to explode over the next decade or so. And this is one of the most exciting places in technology to be right now, though I'm sure all of you who are watching this live probably feel like it's been this way for a while. And who is this guy who thinks he just discovered something Walton in here? So really excited to tell the story with you today. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 4:14David Rosenthal?

  Yep, your risk surface changes every week now. A vendor turns on an AI feature, or someone writes in a new model without telling IT, and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote-unquote "shadow AI" running with no security review at all.

• 4:35Ben Gilbert?

  Right, and that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap, and the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes, and cuts the time that you'd spend on vendor assessments in half.

• 4:56David Rosenthal?

  In half, which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor, and Snowflake all stay audit-ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 5:15Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here, and literally hundreds of Acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off, and just tell them that Ben and David sent you. As always, if you love Acquired and want to hone your craft of company building, you should join the community of Acquired Limited Partners. Among other things, you will get access to the LP Show, where we dive deeper into the fundamentals of company building and investing.

• 5:56Ben Gilbert?

  The last LP episode that we had was with Rahul Vora, and it was insanely valuable and a very enlightening conversation, where he pulled back the curtain on the unorthodox tactics that he used in raising venture capital investment for Superhuman, which is now valued at over a quarter billion dollars. If you are not already an LP, you can click the link in the show notes or go to acquired.fm/lp, and all new listeners get a seven-day free trial. You to some awesome sources in our research. Julian Guthrie wrote an awesome book, How to Make a Spaceship, that covers the entire history of the X Prize. There's a great documentary called Black Sky that covers the entire development of the Spaceship One program. And we will put all the links that were a part of our research, the talks we watched

• 6:41Ben Gilbert?

  by Virgin Galactic executives like George Whitesides, lots of other great bits that powered the research here into the show notes when this does come out as a podcast that you can find anywhere where fine podcasts are distributed. Well, David, with that, should we dive into the history and facts?

• 6:57David Rosenthal?

  Indeed. And for folks who listen to Acquired, you'll know that we can't start our episodes without going back at least like 50 years. In this case, we're going to go back over 100 years. It's just like, makes us so pleased here, Ben and me. We're going to go back to 1919 and the announcement of the Orteg Prize, which was a $25,000 prize announced by, I think, the Orteg family, I believe, was behind it, for anyone who could fly a plane, an air vehicle, nonstop from New York City to Paris, or vice versa. And of course, famously, a few years later, actually more years than I would have thought,

• 7:40David Rosenthal?

  eight years later, in 1927, Charles Lindbergh won that prize in the famous Spirit of St. Louis, which I think is now in the Air and Space Museum in Washington, hanging there.

• 7:50Ben Gilbert?

  Has to be.

• 7:50David Rosenthal?

  Has to be. That was the first, I believe, the first major aviation prize to spur innovation. And of course, there would be later prizes after that as well. And that would lead directly into what we're, what we're about to talk about here with the X Prize. But this whole idea of like, using a prize to spur innovation is pretty cool.

• 8:12Ben Gilbert?

  Totally. I think there's this brilliant, I'm not sure this was the intention behind it, but all these prizes, since them have sort of realized, you get an amazing amount of leverage on your dollar. This $25,000 prize, I think, had $400,000 poured into the research and development by all the different teams who were competing for it. So not a bad return there. If you had to go and raise that $400,000 100 years ago by yourself, you know, I think that would have been a much taller order to get a similar sort of outcome.

• 8:41David Rosenthal?

  Yeah, totally. So inspired by this history, we now fast forward about 70 years past the Lindbergh flight to 1995, when a gentleman named Peter Diamandis puts forward an idea at a space conference, not the Ascend Space Conference, which we'll see it takes him a while to get traction here. If this were Ascend, it would have been immediate. He puts forward an idea for a similar aeronautical innovation prize, this time for space. And he posits, if we put forward a $10 million prize for somebody, not a government, to build and launch a reusable crewed spacecraft into space.

• 9:22David Rosenthal?

  Because at this point in the mid 90s, people are already thinking like what Elon and SpaceX have popularized this idea that like, hey, it kind of doesn't make sense how we do space right now, where it'd be like every time you flew a 747 to a destination, you would scrap the 747 at the end of it and not use it to fly back or fly anywhere else. Reusability can vastly change the economics of going to space.

• 9:47Ben Gilbert?

  Even the shuttle program, which was amazing in many ways and had its big problems in many ways. Even that had an element of reusability or refurbishability to it. Certainly with the reusable shuttle and then the sort of refurbishable boosters.

• 10:00David Rosenthal?

  Yeah. So Peter puts forth the idea for this prize that anybody who can launch a spacecraft up to what's known as the Karman line, which is 100 kilometers above the earth is one definition of of space. Kind of in other words, you get to the canonical black sky where the sky is no longer blue. It's it's black at that point. And actually, I believe happens a little bit below the Karman line, but it's lower than orbits. You don't have to make it up to like satellite orbit. But any team that can do that with a vehicle twice in two weeks with the same vehicle will win a $10 million prize. So he has this idea for the prize. This is 1995. It ends up taking quite a while to actually secure the funding.

• 10:43David Rosenthal?

  He doesn't have the funding when he puts forward this idea.

• 10:46Ben Gilbert?

  You can't just tweet funding secured unlike space entrepreneurs these days.

• 10:51David Rosenthal?

  That only works with electric cars, not with space vehicles.

• 10:54Ben Gilbert?

  Oh, boy.

• 10:54David Rosenthal?

  Oh, boy. So notably, he approached Sir Richard Branson twice, I believe, right, Ben? And was turned down.

• 11:04Ben Gilbert?

  Yep. I mean, it wasn't just Branson. This was a massive list. Everybody who you would think would fund this thing basically looked at it and didn't. I mean, Paul Allen looked at this thing and turned it down, although that was for more strategic reasons that we'll sort of get into later. He even approached Elon Musk in 2001. And let's just say 1995 to 2001. So like, the funding was not secured for quite a long time after sort of having the idea for this and ultimately launching it. And Elon also said, hey, this is really interesting, but I have a certain amount of money. It's finite. I kind of want to do my own thing. I want to be specifically focused on Mars. There's actually, it's a little digression, but a great Elon quote that said, yeah, we want to do something that's significant, but something on a reasonable budget, not 10 million, just sort of a couple million.

• 11:48Ben Gilbert?

  We have 10 to 15 million to spend, but we want to start with like a one or $2 million project, which, you know, if you're, if you're Peter and you hear that from Elon, this guy that's starting to get some traction as an entrepreneur in this ecosystem, and then, and then you go and watch how they do end up spending money, it must just be like, are you kidding me?

• 12:07David Rosenthal?

  Well, as we covered on the SpaceX episode, the idea originally was they were going to spend not that much money, but of course, that changed. So some of the notable early donors that they do get to the prize are Tom Clancy, the author, and also the Lindbergh Family Foundation comes in and donates some money to the, to the cause. But eventually, there's actually quite a cool story that I think you have been here about how they fund about half of it. But the biggest donor ends up being the Ansari family, which is a super cool story on its own. It's a family, it's a family of Iranian immigrants who founded a telecom empire in the early 90s, I believe, late 80s, early 90s, and made a lot of money through that. So they end up. Becoming the sort of title sponsors and it becomes the Ansari X Prize at that

• 12:52David Rosenthal?

  point, but that was only for about half of the $10 million, right?

• 12:57Ben Gilbert?

  Yeah, it was less. So the way it basically worked is they raised like two or three and then before the Ansari's came in, which I think their initial pledge was 1.75 million. The way that they got from that two or three up to like eight ish was that they approached First USA, who eventually became Bank One and then finally JP Morgan Chase.

• 13:21David Rosenthal?

  JP Morgan Chase, yeah.

• 13:22Ben Gilbert?

  Everyone ultimately lands either there or Bank of America. But basically after raising this few million dollars, that a huge chunk, 5 million, was actually filled by a hole in one insurance policy. And so in a sense, the 10 million was never actually raised, but rather they found a price at which First USA was willing to bet against anyone ever actually successfully win it. And that price was $50,000 a month insurance premium that Peter and the X Prize team had to be sort of paying in overhead in order to keep the prize alive to hopefully get that hole in one cash out, which is totally wild. And you think about the motivation there of First USA, their biggest motivation

• 14:05Ben Gilbert?

  was that the X Prize, while it was underfunded, it was a really sort of like cool sexy brand. And they saw a market to be the credit card issuer to people who were space enthusiasts. And so they wanted to sort of do this multifaceted deal that included being the provider or underwriter of the policy that would reward the prize winner, but also to be able to issue X Prize branded credit cards. And so it also came with some other strings attached. So in addition to the 50K monthly payments for the $5 million insurance policy, first of all, if no one won by a certain date, or if the full 10 million wasn't raised, the 5 million from First USA would never have to be paid out at all. And second, that

• 14:46Ben Gilbert?

  certain date was not very far in the future. It was actually just December 17th, 2003, which I think this point was like 99, 2000, right around there. So it really set up the X Prize for quite the photo finish, because anybody who sort of wasn't already working on it had to throw their hat in the ring very quickly.

• 15:05David Rosenthal?

  Yeah, that's why this is foreshadowing. We're going to get to Virgin's and Branson's involvement in a minute here, but the power of space as a marketing vehicle already. Okay, so one of the teams, really, I think, just about the only credible team that ends up entering the XPRIZE competition.

• 15:23Ben Gilbert?

  There were a few credible. When you go, I spent a bunch of time and actually went and read the whole How to Make a Spaceship book. And there were several credible teams, but the only one that got like really, really close and the only one sort of left standing by the end of the competition was Rattan. So we should give credit where credit is due to some of the other international teams that did pretty amazing things.

• 15:43David Rosenthal?

  Ah, okay, great. Well, this team led by aviation pioneer, which probably everyone listening here live at Ascend will know and know well, Bert Rattan and his company, Scaled Composites, enters the competition. Bert is a total legend in the aerospace industry. He had founded Scaled in 1982, and Bert had been a former Air Force test pilot, but was this just legendary independent airplane designer. So he designed the record-breaking Voyager aircraft, which for folks who've been to the Air and Space Museum in Washington, it's hanging there, I think, right in the atrium when you walk in. In 1986, it was

• 16:26David Rosenthal?

  the first plane to fly around the world without stopping or refueling, which is just incredible. So Scaled, interestingly, the company he had founded in 82, it's had a long storied M&A history of its own. It was bought in 85 by a company called Beech Aircraft, which they were collaborating with to design a plane at the time. Then Beech was owned by Raytheon, so Scaled was owned by Raytheon. After a while, I think this was post Voyager, Bert bought it back from Raytheon, then sold it again to a company called Wyman Gordon. They got acquired, Bert bought it back again, this time with some financing from Northrop Grumman, who was already investor. And then later, as we'll see in the story, Northrop ends

• 17:08David Rosenthal?

  up acquiring Scaled fully itself. And so that's where the company lives today. But like, this company has been part of it. It's been independent, it's been part of Raytheon, it's been independent again, it's now part of Northrop. Kind of amazing. And just speaks to like the talent of both Bert and the team.

• 17:22Ben Gilbert?

  Totally. And it's not called scaled composites by accident. Their thing that they're really good at is coming up with these really innovative designs and then using incredibly lightweight materials, you know, composites to basically create aircrafts that people didn't think were possible before, that use less fuel, that do more things. And frankly, you just push the edge of applying cool principles of aerospace and physics to figure out what sort of new goals you can accomplish. And so many of the scaled planes are ones where you kind of look at funny at first, and then they go on to achieve something that humans didn't really think was possible until they were able to do it.

• 17:57David Rosenthal?

  Yeah. So Ben, you know, tell us about the design that Bert ends up coming up with and entering here, the feather design. It's pretty awesome.

• 18:05Ben Gilbert?

  Yeah, it's unbelievable. So anyone who's never looked at Spaceship One or now Spaceship Two, you can kind of hear about it and sort of in your head, you're like, okay, I kind of get what that might look like. It is a goofy looking plane. Like it is a crazy looking like-

• 18:21David Rosenthal?

  Well, two planes, actually.

• 18:22Ben Gilbert?

  Yes, animal of a system. So let's talk first about Spaceship One, and then we can talk about the mothership in a moment. The whole idea that Bert sort of initially figured out is, okay, well, if we're going to send this really lightweight thing all the way up 100 kilometers above the earth to win this prize, it's going to have to come back down. And normally, when winged things come back down, think the X-15 or the Space Shuttle, it needs an incredible amount of heat shielding because these things go crazy fast through the atmosphere. I mean, famously, they were putting like new tiles back on the Space Shuttle every single time it landed because these things would heat up and fall off. I mean,

• 19:04Ben Gilbert?

  they're amazing at doing their job, but it's hard to maintain. It's heavy. And of course, in scale, they're building a lightweight aircraft. So what do they do? Well, they come up with this design called the Feather, which does two really, really interesting things. The first is that it applies an incredible amount of drag while keeping the aircraft very stable. And so what's going to happen is it's going to come back down to earth slow enough that heat is actually not a huge issue. When I say slow enough, it's still supersonic, or at least starts supersonic and then goes through that.

• 19:39David Rosenthal?

  Slow is relative here.

• 19:40Ben Gilbert?

  Exactly, but it has maximum drag, so heat isn't a factor. And it comes down very, very stable and steady. It sort of automatically flips into the correct position that they want it in. And the final thing that sort of makes this all work is that it can be unfeathered while it's launching. We'll talk in a moment about what the launch system looks like. And of course, while it's going like Mach 3 straight up and basically being a rocket that's going up into space, it can be sort of unfeathered. The feather then flips into position, which is this 55-degree angle to come back through the atmosphere with maximum drag. And then unfeathers it again and boom, it's a glider. It comes down, it lands real nice on a runway, the way that you would expect sort of a lightweight glider airplane with no fuel in it to land. So remarkable genius system.

• 20:25David Rosenthal?

  I mean, basically this thing is like a transformer.

• 20:27Ben Gilbert?

  Totally, totally. So, okay, that's the Spaceship One. Then, of course, they're like, well, wait a minute. You know, we're not going to throw Spaceship One vertical on a launch pad the way that SpaceX or the Apollo missions or any of these are doing it. The way that they're going to do it is they're going to create a mothership, the White Knight, that I think it's a dual fuselage, or at least Spaceship Two's a dual fuselage.

• 20:51David Rosenthal?

  I think White Knight One was also a dual fuselage.

• 20:54Ben Gilbert?

  Okay, that they put the cargo on, the Spaceship One on, they fly it up to about 50,000 feet. And then the way that they launch Spaceship One is they're flying this thing, they drop Spaceship One, takes, I don't know, five, 10 seconds, and then boom, ignites and the rocket goes off and then it flies straight up. Like, this is the craziest system to imagine. Like, if they had not had precedent for this before with, you know, some of the very early prototype, I think the X-15 took off this way, at least some of the early vehicles in that era did, then it would be hard to imagine how they thought this was like the right idea, but...

• 21:31David Rosenthal?

  I mean, this is like a video game thing, like a trick shot or something. It's amazing.

• 21:36Ben Gilbert?

  Yeah, it's wild.

• 21:37David Rosenthal?

  So they enter the competition and pretty quickly they achieve supersonic flight, actually in December of 2003. So there must have been an extension on the X-PRIZE insurance policy then.

• 21:50Ben Gilbert?

  There was.

• 21:50David Rosenthal?

  There was. So December 2003, they achieved the first, so from zero when they entered in like 2001, 2002 to first supersonic flight with the Spaceship One dropped off the White Knight in December 2003. And this actually means this was the first private manned airplane, so not a government project. And I guess the, I don't know how the Concorde fits into this, that went supersonic, which is maybe because the Concorde was perhaps developed with the government? I'm not sure.

• 22:20Ben Gilbert?

  That's a good point. Yeah, I suppose that would be why. I do know in the Black Sky documentary, they point out specifically, this is the first non-government supersonic, non-government funded supersonic plane.

• 22:31David Rosenthal?

  Maybe.

• 22:31Ben Gilbert?

  And of course, it also is a, it goes to space, but.

• 22:34David Rosenthal?

  Also goes to space, right? So then in April of 2004, so a few months later, the US Department of Transportation issues, burnt and scaled, the world's first license, like private license to go to space, which is incredible. And then in June of 2004, they make the first flight. I believe, I don't know if they hit the Karman line in that first flight in 2004. They may have, but it was just one flight, so they didn't win the prize. They get Spaceship One back down.

• 23:05Ben Gilbert?

  They did, because they would have had to go above the 100K line to qualify to make that the first flight.

• 23:09David Rosenthal?

  Ah, interesting. Okay. So they hit the Karman line. And then over two weeks, at the end of September, beginning of October 2004, they do it. They make consecutive flights within those two weeks, and they win the prize. It's incredible. Perhaps even more incredible is what happens right before and after.

• 23:28Ben Gilbert?

  So from a like physics and human accomplishment perspective, yes, what we've already talked about at the amazing part. Now, from like.

• 23:35David Rosenthal?

  Within three years, by the way, too, from like nothing to going to space twice in two weeks.

• 23:41Ben Gilbert?

  100%. It's wild. So it's worth noting before we talk about what happened the night before the first flight, who was bankrolling and who was sort of funding all the operations to create Spaceship One and the White Knight?

• 23:56David Rosenthal?

  So it was not mostly Scaled itself, because remember Scaled is kind of an independent company at this point. They did have a semi-secret backer of the project, who was Paul Allen, the Microsoft co-founder, and of course, a late Microsoft co-founder and great space enthusiast during his time. But this was unbeknownst to the XPRIZE Foundation and to Peter and to Diamandis. So it was relatively secret that this was happening.

• 24:27Ben Gilbert?

  Yeah, and it's no surprise among Seattleites. I mean, me and my colleagues at Pioneer Square Labs know Vulcan and Paul well in the Seattle ecosystem, and he is always funding very eccentric, crazy projects that no one else is funding, particularly in space, particularly in oceans, particularly in these interesting exploration fields. But for whatever reason, it was not disclosed until the successful flights that Paul had poured, I can't remember exactly what the number is, but on the order of 20-ish million into the project to fund the thing and into Scaled. And the partnership with BERT, which is sort of an amazing partnership that the two of them formed and built trust with each other. And it was so secret that

• 25:09Ben Gilbert?

  actually Peter Diamandis and the XPRIZE folks didn't even know who was behind, or at least where the money was coming from to fund Scaled to go and make this amazing run at the prize.

• 25:19David Rosenthal?

  So Paul Allen's involved here. Now, the night before, so it's pretty, obviously they have to, you know, they have to make the second flight to win the prize. But it's a pretty safe bet that they're going to do it. They've made multiple flights at this point. Everything's ready to go. So the night before, who re-enters the picture? But the one and only Sir Richard Branson.

• 25:46Ben Gilbert?

  Yes.

• 25:48David Rosenthal?

  Ben, you may have the whole story. Does he, he contacts Paul Allen first? Is that right?

• 25:52Ben Gilbert?

  Yeah, so there's two deals that happen. The first one is a press conference that they have that basically announces that Sir Richard has sort of seen the innovation that's happening here. And even though he didn't decide to fund the X Prize originally, and even though he doesn't have a competing team here, he sees the future and he wants to buy the assets and all the intellectual property and partner with scale to take everything they've built and build a venture out of it after they, you know, complete this flight and win the X Prize. And the second thing that happens is overnight, he pays Paul Allen $2 million, or he cuts a deal to pay $2 million to put a gigantic Virgin decal on Spaceship One.

• 26:34Ben Gilbert?

  So everyone who's coming in for the flight the next morning, including Pierre Diamandis, the whole X Prize team, they come in and the plane now has a Virgin logo on it and it has, you know, prominent placement on the runway. And Richard Branson also has another project that's going on that's got a Virgin logo on it on another plane that's also out on the runway, front and center in front of all the press. So suddenly they're like, all this media attention is descending upon the X Prize, hopefully about to be won. And boom, there's Virgin branding everywhere.

• 27:03David Rosenthal?

  Yeah.

• 27:07David Rosenthal?

  I think Diamandis, the X Prize, they're pretty gracious about this. They're like, oh, well, cool. I mean, great, good for space. The goal is evangelize space and that is happening. So after, I think this is after the flight, Branson holds a press conference with Rattan and says that Virgin is going to be buying this technology. And people are like, wow, okay. Well, why? What does Virgin do? Now, I mean, Virgin could be an episode all on its own. I think Branson actually got to start in the magazine industry and then moved into the music industry with Virgin Records and then retail with Virgin Megastore. But at this point in time, probably the biggest and best known part of the Virgin empire.

• 27:52David Rosenthal?

  Are the airlines, the Virgin Atlantic in the UK and then Virgin America, which is now a big part of Alaska here in the US. So what is he going to do with this space technology? He's going to form the world's first space line. What a brilliant marketing move.

• 28:09Ben Gilbert?

  Airlines been working well for us. Like, let's do it on a grander scale.

• 28:13David Rosenthal?

  What's bigger than, you know, the air, space?

• 28:16Ben Gilbert?

  And I've seen Sir Richard talk a few times, once in Seattle and once in Indianapolis at a marketing conference that I went to there once. And I do remember, I think he's even said this in both talks that I, I watched. He has this line, screw it, let's do it. And you could just imagine him sort of seeing the world change in front of him and saying, screw it, let's do it. We have to be a part of it. Space is the future and I know the business model to do it.

• 28:39David Rosenthal?

  Wow. So they announced that they are forming, quote unquote, Virgin Galactic, a new space line. And the business model is that they're going to take private tourists into space for a very high ticket price. And the idea is that this is going to be an airline. So Sir Richard puts one of his top lieutenants at Virgin, Will Whitehorn, in charge of this new company. They form a JV with Burt and Scaled called the Spaceship Company. So Virgin Galactic is the airline. The Spaceship Company, this new JV, is going to be like essentially the, you know, the Boeing or the Airbus. They're going to build and, and also operate these planes, at least in the beginning.

• 29:24David Rosenthal?

  Virgin puts up the money, reportedly over a hundred million dollars to fund all this. Scaled brings the technical know-how. The Spaceship Company is initially 70% owned by Virgin, 30% owned by Burt and Scale. And Virgin Galactic, the space line, immediately contracts five Spaceship 2s. So the Spaceship 1, which we'll get into in a minute, this is really, this is not safe for passenger, passenger use.

• 29:53Ben Gilbert?

  And certainly not enjoyable or smooth.

• 29:55David Rosenthal?

  Yeah. So they, they're going to build five Spaceship 2s and two White Knight 2s to launch them, all contracted. And they're going to finance this, the revenue model is they're selling these tickets at initially $200,000 a piece.

• 30:10David Rosenthal?

  And the crazy thing is people buy them. So like, pretty quickly, they sell a good number of tickets. So Angelina Jolie and Brad Pitt buy tickets. I think they were together at the time. I wonder if they're taking their flights together or separately now. Lady Gaga buys a ticket. Stephen Hawking, I think Branson actually gave Stephen Hawking a ticket. Eventually, some of the last folks to buy tickets were the Winklevoss Twins later are on the list on the flight manifest.

• 30:39Ben Gilbert?

  And you can understand the demand for this because this is a completely underserved market at this point, or unserved. You think about the people that the civilians that have been to space have either found their way to pay to be on a Russian rocket. And I think they have to become honorary or temporary members of the Russian Space Agency to be able to do this. Or, you know, you look at the folks, I think Charles Simone has gone up twice, and I think has paid north of 50 million, maybe 75 to 100 million dollars to be able to go up. Of course, that's orbital flight that they're going up to. So this is a different thing. But like, you know, civilians are not finding their way to black sky space

• 31:19Ben Gilbert?

  and experiencing minutes of weightlessness. There's no real product for that. In fact, the only product to experience weightlessness doesn't really go all the way to space, but is Peter Diamandis's previous company. And so there's this funny, you know, it's such a small world in the sort of space community. But you can totally imagine why there's an entire tier of wealthy, but not crazy wealthy people where you're like, oh, yeah, this is cheap. And what a unique and different experience.

• 31:46David Rosenthal?

  Yeah. I mean, you could spend a lot more than $200,000 on a vacation house somewhere, or you could go to space. Pretty cool. So the product that they're selling is, this evolves a little bit over time, but current product is a four day experience where you get training at Spaceport America, which is now in New Mexico, which we'll get to. You get 90 minutes in the air and about a little over five minutes of weightlessness with five to six people in your ship. And then probably most importantly, you get astronaut wings when you land because you will have been to space.

• 32:19Ben Gilbert?

  Pretty cool.

• 32:19David Rosenthal?

  Pretty cool. Okay, so this is all happening in 2004.

• 32:25David Rosenthal?

  Now, remember, it was like three years to get Spaceship One up, reused, flown. Like, things are moving here.

• 32:31Ben Gilbert?

  It's like the classic software engineering aphorism that, you know, the, the first 90%, you know, all you have left then is the second 90%.

• 32:39David Rosenthal?

  Exactly, or maybe in this case, the second 99%.

• 32:43Ben Gilbert?

  Yeah.

• 32:43David Rosenthal?

  So, you know, we mentioned that Spaceship One was really a prototype vehicle built, like all of Burt's designs, like the Voyager and all those other great planes. Like, this is not, uh, this is not ready for Virgin America, let alone, uh, Virgin Galactic safety measures or comfort here. So, three years later, in 2007, we still don't have Spaceship Two ready, or really even close to ready. Very tragically, in July of 2007, there was an accident at Scaled when they were testing some of the engine components, and three Scaled employees were killed in an explosion when they were testing these engine components, which was terrible and unfortunately not

• 33:27David Rosenthal?

  the only tragedy to, uh, that'll happen in Virgin's history here. Shortly after that is actually the very next month when Northrop acquires all of Scaled. So, I don't know if that was part of what was behind the acquisition, but, uh, certainly, and then it was a few years later after that that Burt retired. So, you've got some transition happening here where the major technology provider to the spaceship company is now part of Northrop.

• 33:53Ben Gilbert?

  And importantly about that accident, that wasn't something like, you know, they thought a design would work and it wouldn't, or that it didn't and it crashed or anything like that. This was literally, hey, we're doing a, an on-the-ground test with fuel that we perceived to be safe, and it just wasn't safe. And, and that's most observed by the fact that the folks who are watching were behind a chain-link fence. So, it wasn't even like we have to go to a facility because something could go wrong. Just people didn't think anything could go wrong there.

• 34:20David Rosenthal?

  Yeah, and it did, unfortunately. So nonetheless, the next year, in the next summer, July 2008, is when we get the first predictions from Sir Richard about when, when commercial flights are gonna happen. The first of many. So July 2008, Branson predicts the first passenger flight will happen within 18 months. Then, not quite, almost 18 months go by. In October of 2009, Virgin puts out a press release saying that actually it'll be within two years from then. So within two years of 2009, okay, okay, we're moving. And in March of 2010, actually, the first Spaceship Two, the first Spaceship Two is built, the first White Knight Two is built at this point, and the first kind of captive flights of the two of them up in the air

• 35:05David Rosenthal?

  together do start happening in early 2010. But Spaceship Two is not yet flying on its own. And despite Virgin and Sir Branson having put in $100 million, the project is starting to run out of money. So in 2009, they go to the Sovereign Wealth Fund of Abu Dhabi, and they invest $280 million in Virgin Galactic at an $875 million valuation. And part of that deal is that they announced plans that a Middle East region spaceport is going to be built in Abu Dhabi. So that'll be great. And Virgin announces at that time that they

• 35:47David Rosenthal?

  have over 300 reservations at $200,000 each. So, great, things are moving along.

• 35:53Ben Gilbert?

  Definitely signs of demand, yeah.

• 35:55David Rosenthal?

  Yep.

• 35:56Ben Gilbert?

  One, one other classic acquired theme that I'll pull out here is this $875 million valuation, I don't know what discounted cash flow you do to arrive at this company being worth that. This is your classic example of company needs X amount of dollars and how much of the company does the funder need to own in order to be willing to do that deal. It is a backed into valuation, if I've ever seen one.

• 36:18David Rosenthal?

  You might say a venture capital style valuation, a theme that'll come back up in a minute here. So at the end of 2009, they do a big event at the Mojave Spaceport in California, where Scale is based. They unveil officially the Spaceship Two. Branson says at the event that flights are going to begin now in 2011.

• 36:38David Rosenthal?

  Okay, 2011 rolls around. Branson says, "I hope that 18 months from now, we'll be sitting on a spaceship and going to space." So the trend continues. And then, as we mentioned, in April of 2011, Burt does retire from Scale.

• 36:52Ben Gilbert?

  All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is no longer the hard part.

• 37:07David Rosenthal?

  Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real.

• 37:21Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

• 37:30David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 37:48Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 38:04David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 38:21Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 38:30David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you.

• 38:41David Rosenthal?

  Okay, so clearly, things are not totally on track here. And remember, like, so Bert's now retiring from Scaled. Virgin is the space line, but who like, who's the technical space leadership now? So they bring in, they end up reorging the entire organization. And Branson brings in a new CEO to Virgin Galactic, actually at the end of 2010, George Whitesides. Now, who is George Whitesides? Because he, part of who, uh, his background is that he was actually one of the very first people to purchase a ticket on a Virgin Galactic as soon as they went on sale because he had recently

• 39:21David Rosenthal?

  gotten married and he and his wife wanted to spend their honeymoon in space. So they actually got a lot of publicity around this.

• 39:29Ben Gilbert?

  So cool. And, you know, George is a longtime space entrepreneur. I think this is like a, we're not talking about Brad Pitt wealth here. This is like, George is like, hey, this is like a material amount for me and, you know, hoping to be able to do this soon. So my, my honeymoon isn't decades in the future.

• 39:46David Rosenthal?

  Yeah, he really does have passion for and commitment to this company and project. But he also has some serious cred. So he was the chief of staff at NASA immediately before becoming CEO of Virgin. And prior to that, he was the executive director of the National Space Society. So the idea here is bringing him in. It doesn't happen immediately, but I have to imagine that this was the plan was with Bert stepping back, hey, Virgin realized like this, we can't just be a space line for this. We need to like actually control production and the science and the technology in space and be vertically integrated here.

• 40:26David Rosenthal?

  So shortly after he joins in 2012, Virgin buys out Scaled's stake in the Spaceship Company and takes full control, integrates the companies. And George and Virgin are now running everything. George has a great quote about this. He says, "We've changed dramatically as a company. When I joined in 2010, we were mostly a marketing organization. Right now, we can design, build, test and fly a rocket motor, motor all by ourselves and all in Mojave, which I don't think is done anywhere else on the planet," which is pretty incredible.

• 40:57Ben Gilbert?

  Right. It just makes sense for them to be vertically integrated here. I mean, it reminds me a lot of, um, taking the Apple approach of needing to, to control the core technologies upon which your experiences are based and your products are based. Like, it always struck me as a little bit strange that There was Virgin Galactic and there was TSC and the spaceship company. And it was a contractual relationship of which they had different shareholders. Like it just kind of makes sense.

• 41:20David Rosenthal?

  Yep. I mean, it works for like Boeing and the airline industry, but we're not anywhere near that level of maturity yet. So there's actually a pretty cool little, Ben, you found this little history and connection between Peter and George, right?

• 41:34Ben Gilbert?

  Yeah. So George Whitesides was actually briefly Peter Diamandis's roommate back in the X Prize days, when Peter was also running the space tech startup blast off from around the year 2000 in the sort of go-go days of the internet, which is its own whole separate story that we don't need to get into today. But an interesting thing here is like, the world of space is so small. Like, we always joke about this with Silicon Valley, where we're like, my gosh, that's the same person that showed up in that other episode. Like, everyone in this story is really only connected by, you know, one, maybe two degrees of separation. And while we're on tangent territory here, I gotta do this.

• 42:14Ben Gilbert?

  One more insane connection is when Peter was in college at MIT, so this is long before the X Prize, he started a college organization called Students for the Exploration and Development of Space, or SEDS, which has since become, you know, this international organization. There's chapters all across these college campuses all over the world, inspiring thousands of future space enthusiasts and entrepreneurs. I suspect there's many people in this audience who were in SEDS in college. The president of the SEDS chapter at Princeton around 1985.

• 42:47David Rosenthal?

  This is so great.

• 42:48Ben Gilbert?

  Jeff Bezos, which is crazy.

• 42:51David Rosenthal?

  So great.

• 42:53Ben Gilbert?

  For all the stuff that people want to say about Elon and Bezos and all these just negative headlines that we saw, I don't think you see them anymore, but for the longest time, you know, billionaire pet project, going to space. Jeff in college was the president of his, you know, it's, it's, it's just cool to see the seeds of these passions starting so, so early.

• 43:14David Rosenthal?

  Totally.

• 43:15Ben Gilbert?

  Anyway, back to Virgin Galactic.

• 43:17David Rosenthal?

  Back, back to, back to Virgin and George. Total, totally worthwhile digression there. So the other thing that George does is lands a deal. Now, remember, George comes from the government. He lands a deal with the New Mexico state government to construct and finance a spaceport, a $200 million launch facility in the desert there, appropriately titled Spaceport America, Christen Spaceport America. And he gets a fantastic deal for Virgin. So the New Mexico state government constructs and finances the whole spaceport. Virgin is the anchor tenant, and I believe they pay $5 million a year in rent, which is a total wonderful deal for them.

• 44:02David Rosenthal?

  The other thing he does is, this is the beginning of sort of the excitement around the small satellite industry. So he starts a new operation within Virgin to see if they can use this same tech to launch small satellites into space, not just people. And in July of 2011, Abu Dhabi invests another $110 million into the company behind this business plan. We'll see what eventually becomes of this. But it starts to work. In, in August of 2013, they announced that, Virgin announces that they now have twice as many customers as before who had reserved flights, up to 640 reservations, about $80 million of prepaid flight reservations. So things are on track.

• 44:44Ben Gilbert?

  And they actually closed down new tickets at this point, right? Like they're, they haven't, they haven't sold another ticket since.

• 44:52David Rosenthal?

  Well, they, I believe it was actually after What Happens Next that they closed new ticket sales. So unfortunately, and you know, George has also has said this often, I think, space is hard and this is new stuff. So in September of 2014, so now we're now in 2014, Branson goes on David Letterman and he, he says, we're, we're so close. I think we're going to have the first passenger flight in the beginning of next year in February, March of 2015. And who, who knows if that may or may not have happened, but.

• 45:26David Rosenthal?

  Very tragically, the second major tragedy in Virgin's history happens on October 31st, Halloween 2014. They're doing a test flight of Spaceship Two. They had just switched out the fuel system to a new type of fuel. And the Spaceship Two, the same one, the original one, they had the VSS Enterprise, breaks apart in midair during the test flight after it's released from the mothership. And the co-pilot, Michael Asbury, is killed. And the pilot, Peter Sebold, survives, but is seriously injured. And this is, you know, obviously not the headlines you want when you're trying to, well, it's tragic period, but not the headlines you want when you're trying to

• 46:06David Rosenthal?

  attract customers to come and reserve tickets on your new space line to have the craft blow up in midair.

• 46:12Ben Gilbert?

  No, just enormously sad. I mean, the both tragedies so sad in their own right, but the fact that they're both so different too, and so many years apart, it's a, it just shows what early days it still is for humans trying to go to space.

• 46:26David Rosenthal?

  Yeah, yeah, this is, this is really real pioneer stuff. So it turns out the, the government, the Transportation Safety Board, does conduct a full investigation of the crash. And it turns out it actually was not a real technology problem or a problem with the fuel. Unfortunately, the feather system that we described early, deployed way too early on the way up, not on the way down. And the G-forces from that tore the ship apart. The investigation revealed it was, it was likely, I don't know that they know for sure, likely the result of pilot error, which of course raises questions about like, hey, shouldn't there be safeguards about all this? So it was back to the dashboard for a lot of things.

• 47:07Ben Gilbert?

  And of course, they also said, I think, you know, while it was likely pilot error here, it is incumbent upon the designers to consider human factors in designing the technology in the first place. Like a person undergoing that much sort of stress and pressure, what should you expect of them? And what should the systems sort of do on their behalf? Which is a fascinating sort of philosophical concept that we don't have time to all the way dive into on this show. But we definitely can say-

• 47:33David Rosenthal?

  Deploy the feather on the way up.

• 47:36Ben Gilbert?

  Which is of course how Virgin Galactic changed the design for the next, the next ship that they created.

• 47:41David Rosenthal?

  Yeah. So after that, George and the company sort of refocus on getting all of this right. They spin off the small set, launch operations into a separate company to remove that distraction. It's called Virgin Orbit, which is actually, it's still an independent company, part of the Virgin Group today. It's not part of Virgin Galactic Holdings.

• 48:00Ben Gilbert?

  It is crazy cool. Like they're basically strapping a rocket to a modified 47 and launching it the same way that the White Knight 2 launches spaceship to. So really excited to watch that, but totally different market, different, different company at this

• 48:14David Rosenthal?

  point. And different tech now too. It's not using the White Knight. It's using a 747 as the launcher. So they need a new spaceship now. So they start work on the next spaceship too. This one, Chris and the VSS Unity, actually named by Stephen Hawking, which is super cool. They do a big event in Hawking where they introduce it. Hawking announces the name. So they unveil that in December 2016. And then in April 2018, it performs its, its first powered flight, the first flight for the company since the 2014 crash. So it ends up being four years after the crash, almost four years, three and a half years until the first flight of, of the Unity. And then in December 2018, so just about two years

• 48:55David Rosenthal?

  ago, we have the big moment when Unity finally reaches in a test flight, 82.7 kilometers above the earth, 51.4 miles, which is below the Karman line. But, and this is what we were referring to earlier, NASA's definition of space is actually the 50 mile mark. So they passed the 50 mile mark.

• 49:16Ben Gilbert?

  Such a hilarious, like standard versus metric system. Like the international metrics would be like 100 kilometers and America would be like 50 miles.

• 49:24David Rosenthal?

  Yeah.

• 49:28David Rosenthal?

  Totally. For something that's, uh, space is such an exact science.

• 49:33Ben Gilbert?

  It's like the atmosphere thins at, like, gravity pulls the atmosphere toward the Earth and it thins in a way that can be described by an algorithm. And here we are defining arbitrarily what height space starts.

• 49:44David Rosenthal?

  Totally. So this is huge for the company. I mean, it's taken now 14 years, but they finally have a viable, you know, not yet ready for passengers, but like, design that will be ready for passengers that reaches space by some definition. NASA awards the pilots, Mark Stuckey and Frederick Stuckrow, astronaut wings. It's all happening. This is great. And it's, and this is actually, you know, this was pre the SpaceX launch this year. So it's the first human spaceflight launched from American soil since the retirement of the shuttle, uh, was, was actually Virgin Galactic. It was the SpaceX launch earlier this year and then their second launch yesterday.

• 50:25Ben Gilbert?

  That's fascinating.

• 50:27David Rosenthal?

  Were the first American launches into orbit and up to the space station. But it was actually Virgin that did the first, uh, human spaceflight from American soil after the shuttle retirement program.

• 50:38Ben Gilbert?

  That's a good tidbit. Yeah. Of course, on the business side of this too, after the 2014 tragedy, as we mentioned, they stopped selling tickets. So I think there's 603 people who have paid that 200, 250K, some with some discounting, but, um, they basically haven't sold tickets since then. What they have done, because they need to know as a business, is there demand for this thing? And is there continuing demand? Are our marketing efforts working? They do have the ability for you to indicate interest by paying a thousand dollars in a Tesla model.

• 51:06David Rosenthal?

  Well, this actually only launches this year.

• 51:09Ben Gilbert?

  Oh, okay.

• 51:09David Rosenthal?

  This is post SPAC.

• 51:11Ben Gilbert?

  This is a Tesla Model 3 style refundable deposit. And so someone in the chat just said, I, I reserved a ticket. I'm actually curious if that's, uh, what we're talking about here or sort of the full, hey, I paid, you know, 250K. But what you can basically do is we'll put the link in the show notes. You can go to their website. You can fill out a form. I think you can put your credit card information in and put down a thousand dollars and say, put me in line and contact me when I can pay.

• 51:34David Rosenthal?

  Quote, quote, one small step program that then, uh, once they are selling tickets for real, you will make the one giant leap to, from the $1,000 to the $250,000. That's a pretty giant leap.

• 51:49Ben Gilbert?

  I didn't realize that was recent. I thought that was sort of before they SPAC'd and went public.

• 51:53David Rosenthal?

  No, it was only in February of this year that they launched that. So of course, we're referring to the SPAC. Okay, so by the end of 2018, like this is, this is big. This is huge for Virgin. And finally, they're on track. You know, they have demonstrated, put a vehicle into space. This can work. The only problem is they're running out of money again. The money from Abu Dhabi is, you know, it takes a lot of, lot of capital to do this stuff. So that's okay, though, because Branson and Virgin have a plan. They have secured, they literally have secured funding, a billion dollars from another sovereign wealth fund in the Middle East, this time Saudi Arabia. And this is now in 2017. They announce that they have secured funding from the Saudi Arabian Sovereign Wealth Fund,

• 52:38David Rosenthal?

  a billion dollars to fund continued operations and hopefully soon.

• 52:43Ben Gilbert?

  And notably, that sovereign wealth fund, I mean, they're the largest LP in SoftBank Vision Fund, Fund One. Like, they're, they're doing big deals all around the world at this time, many billions of dollars each.

• 52:54David Rosenthal?

  And Saudi Arabia, under Crown Prince MBS, is, you know, had to make a big deal over the past few years of they want to diversify their economy from oil, they're getting into tech, their LPs in lots of venture funds, not just the Vision Fund, lots of money in the public markets in tech. So this all seems like a great path. So the deal is agreed to in 2017, but it's under regulatory review in the US and the UK and takes a while to close. During that time, in 2018, folks will remember, the journalist Jamal Khashoggi, who is vehemently, I believe he was Saudi and was living in the US and was vehemently opposed to the Saudi government, he enters the Saudi consulate in Turkey.

• 53:43David Rosenthal?

  And never comes out. And it is assumed and very likely that he was murdered by the Saudi government inside the consulate, which of course, A, is just horrible, but also B, for the tech industry specifically, causes all sorts of problems because there's so much Saudi money all over the tech industry at this point. And this is a major like international event.

• 54:08Ben Gilbert?

  Yeah. And I mean, this is the, this is the start of startups being very aggressive and asking venture firms before they invest, "Hey, tell me who your LPs are. This used to be faceless money to me. Now I don't want this particular money or, or money that seems like this type of money to be profiting from my startup or having control over my startup." So very much shook the entire venture landscape of what it means to take capital and, and how much you should care about the who's invested in your investors and who's invested in those investors, et cetera.

• 54:37David Rosenthal?

  Yeah. This was a huge wake up call. We all remember vividly. So fortunately, you know, for Virgin and Branson, the deal wasn't done yet. And, you know, Sir Richard does what he thinks is, is right. And he pulls out of the deal, even though, hey, Virgin is like bleeding cash, needs money. They're not going to do this deal with the Saudis anymore. And that is when he meets yet another colorful character, this time in the Silicon Valley tech world, Chamath Palihapitiya, which for anybody who's a long time listener have acquired, and certainly anybody in the tech industry at this point, well beyond, is probably familiar with Chamath. So Chamath

• 55:20David Rosenthal?

  was an early Facebook executive. I think he was like employee, he was within the first 30 employees. And he was pretty senior there. And he was the guy, by all accounts, his own and others, who really figured out Facebook's viral, well, viral growth strategy, started the growth team at Facebook, and then particularly also figured out international growth for Facebook. So a super, super key executive. He was also the guy at Facebook behind, remember the Facebook Home, I think it was called, the operating system for phones?

• 55:56Ben Gilbert?

  Oh, yeah. And I think the Facebook one, like they partnered with HTC to make a Facebook specific phone.

• 56:03David Rosenthal?

  That's right. That's right. Well, it was built off of Android. It was kind of like the Fire Phone. Man. Other companies building off of Android, uh, turns out that wasn't a good idea. So anyway, right after that, he left Facebook, but uh, Facebook had already gone public at this point and he had a very large equity stake, made hundreds of millions, if not billions of dollars from Facebook. And then he did a pretty audacious thing was he said, I'm going to take most of my money and I'm going to roll it into a venture capital firm. So he started a venture capital firm called Social Capital with a few partners from USVP, Mamoon and Ted from USVP come over, they start Social Capital.

• 56:44David Rosenthal?

  And I remember when they were breaking in, so this was like, what, 2012, 2013 timeframe, I think. Sounds right. They made a big splash. I think their first fund, gosh, I want to say it was like 600 million or so. They got into some great. Big fund for back then. Yeah. You know, now. Clock could change now, but. Now it's a quaint early stage fund, but that was big. They got in early into some really great companies. They did the series B in Slack, a bunch of other great companies. They, um, I think led the A for front and really established themselves as at that point in time, no new venture firms had really broken onto the scene in a big way in this same way that Social Capital did. So Chamath engineers all of this.

• 57:25David Rosenthal?

  And then in 2017, a few years later, this has been chronicled much elsewhere and we'll have to tell the full story ourselves and acquired someday. Social as a venture firm basically breaks up at Chamath's direction. Remember he's, I think by far the largest LP in the fund. He converted into sort of a Berkshire Hathaway style, holding company slash family office. And I believe some of the LPs did roll into this, but he turns it much more into. He's mostly investing his own money at this point. Mostly investing his own money. And he had made some great calls on the public markets too, along the way. He went all in on Amazon. He had a hedge fund within Social as well. That was also managing a bunch of his money.

• 58:06David Rosenthal?

  He went big into Amazon at like a $300 stock price, or maybe it was even lower. Seemed high at the time. Yeah, made some great bets on Bitcoin early. So he has a lot of capital to play with. So he's in the process of converting Social into this holding company and. He sees this, gets this idea and sees this thing that's happening in the venture industry, which is now news to nobody, but at the time was really ahead of the curve, which is companies are staying private longer. They're not going public. Time to liquidity is awful. And when companies do go public, because we had started to see some IPOs at this point in time, it's kind of a raw deal for the companies. Like you're seeing these big IPO pops,

• 58:51David Rosenthal?

  but that leaves so much money on the table, literally billions of dollars in market cap that is just a wealth transfer from these companies to the investment bank clients that are buying into IPOs.

• 59:04Ben Gilbert?

  Yeah. And for folks who are new to acquired and haven't heard us talk about this on our, on our limited partner show, which is our sort of second show that we go deep with our biggest fans who are actively building companies to talk about these concepts. We did one on SPACs and talked about this. And in talking about comparing against the IPO pop, you know, my, my favorite example of this is when people are saying, what do you mean the IPO pop isn't that good? Well, you think about it this way, it's like I own something that's worth, call it, you know, 20 bucks and I sell it to someone for 20 bucks. And then at the end of the day, they run over and they sell it to their friends for 30 bucks and everyone does this.

• 59:41David Rosenthal?

  Or 40 bucks or 50 bucks.

• 59:43Ben Gilbert?

  And you're like, wait, wait, but you just bought it for me for 10. And it's literally, it's nothing has happened in the time since then. How come all of you told me, like the whole market, like you all only told me that it was worth 20. And now suddenly you're all saying it's worth 30 and you're willing to, and it's just this ludicrous thing where you're like, I spent a freaking decade holding this thing from $1 to $20. And here you are now doubling the price, you know, or putting some big multiple on the price within a day. This is stupid. So yes, that is the approachable corollary.

• 1:00:13David Rosenthal?

  So, and this is the, the real leap that Chamath makes, which is, you know, Bill Gurley was already starting to rant against this. And, you know, you had the Spotify direct listing, I think happened right around this time. So people are looking for alternative ways. Chamath thinks he finds a really good vehicle to solve this in a more elegant way, which is he dusts off this old concept called a special purpose acquisition company, or a SPAC as abbreviated that Ben referred to. And he says, hey, we can use this thing, which used to be like a financial engineering play to take old school private equity type companies, public and profit off of some cash flow from them.

• 1:00:52David Rosenthal?

  And we can actually use this, this vehicle to take tech companies, public in a alternate route to an IPO. That's going to be way easier, way faster. And most importantly is going to avoid this mispricing aspect where this wealth transfer is happening just to basically investment banking clients. So now this is crazy at the time, like Chamath has a great quote on this. He says, you know, this is something where like, everybody wants to be second. Nobody wants to be first. And it's a kind of an apt analogy to being a passenger on Virgin Galactic here. So 2017 Chamath teams up with an investor out of the UK named Ian Osborne, who runs a fund called Hedosofia, which is funny.

• 1:01:37David Rosenthal?

  Ben and I were texting when we were preparing for this. I thought social capital Hedosofia, which is the name of the SPAC, was like a name that Chamath came up with to name his SPAC. No, it's actually his investment partner, the Hedosofia firm in the UK. And Ian, he and Chamath probably knew each other from the Facebook days because Ian was a partner at DST. DST was a large-

• 1:01:58Ben Gilbert?

  Yuri Milner's Russian firm?

• 1:02:00David Rosenthal?

  Yuri Milner's Russian tech investment vehicle. They were, I think they led the first real like, big, big valuation growth round in Facebook at a $10 billion valuation, I think. Meritech led the, Meritain Greylock did the B at a $500 million valuation, which is crazy at the time. But then like this, you know, multi-billion dollar valuation, DST were the ones that got this. So Ian and Chamath launch a $700 million SPAC in late 2017, under the ticker IPOA. And they go out looking for a tech company to merge with and take public.

• 1:02:36Ben Gilbert?

  Yeah. And I remember- Like, of course, I didn't really remember before the Virgin Galactic announcement, when it was just a SPAC and they didn't know what they were going to buy because that wasn't well marketed. Like, there wasn't, you know, the press wasn't writing about what Chamath's doing this SPAC and we don't know what he's going to buy. What they were writing about came months later when he did know what he was going to buy.

• 1:02:56David Rosenthal?

  And within Silicon Valley, I mean, I remember this. People were talking about it, like Chamath's doing this crazy thing. Social Capital's turning from a venture firm into a holding company. Like, what is going on here? What is a SPAC? I don't understand this.

• 1:03:07Ben Gilbert?

  And SPACs, I mean, they're bad. Like, at this point, they are for bad companies. This is like a way to get crappy companies public. And it's like, well, whatever he buys with this thing can't be good.

• 1:03:17David Rosenthal?

  Yep.

• 1:03:18Ben Gilbert?

  Well, the counter argument to that is, well, whatever he's buying here is non-traditional, is something that, you know, most traditional retail investors with some specific time horizon and herd mentality wouldn't be, you know, taking public the normal way or investing in the normal way. So at the very least, whatever he's going to buy here, this is likely their only or one of a limited set of options that they have.

• 1:03:42David Rosenthal?

  Indeed. Well, and all that would be true when Branson and Chamath meet. I don't know the actual story of how they got introduced. I wonder if Hedosofia and Ian had something to do with it, given that they're based in the UK, as is Branson, of course. Anyway, after the Saudi deal falls apart for Virgin Galactic, they get introduced and it's a perfect match. So by mid 2019, they agree to a deal and on October 28th, 2019, it's finalized. IPOA, Hedosofia, one, DSPACs, quote unquote, which means merges with Virgin

• 1:04:26David Rosenthal?

  Galactic, bringing Virgin Galactic to the public markets as now a publicly traded company under the symbol, the ticker symbol for the company changes from IPOA to the very appropriate S P C E or space.

• 1:04:40Ben Gilbert?

  Love it.

• 1:04:41David Rosenthal?

  Love it. So here's the deal. Here's what happened. So remember, the SPAC was a $700 million SPAC vehicle. With $700 million in a trust.

• 1:04:50Ben Gilbert?

  And that just means like it's it's basically worth $700 million. And the reason it's worth $700 million is because it's literally a cash account of $700 million.

• 1:04:59David Rosenthal?

  Yep, to be used to consummate a transaction, a merger with with Virgin Galactic, which they do. So in the deal, $674 million from the SPAC, from IPOA, goes into Virgin Galactic. Presumably, the delta there was operating expenses for the SPAC in the search period over the year and a half-ish where they were, or it's close to two years, really, where they were looking for the right target before they finalized the merger. Plus Chamath invests another $100 million himself in new capital. So we have $774 million going into the deal. $274 million of that goes to buying out insiders in Virgin Galactic.

• 1:05:42David Rosenthal?

  So I'm not sure exactly who. I presume this is probably longtime employees' options and probably also at least some portion of Abu Dhabi's stake. At that point, I believe they owned about a 37% stake in Galactic. And then there's close to $50 million in transaction fees associated with the deal. So Virgin, at the end of the day, becomes a publicly traded company with

• 1:06:07Ben Gilbert?

  Also, God, $50 million in transaction fees.

• 1:06:10David Rosenthal?

  I know.

• 1:06:12Ben Gilbert?

  That is going to come down over time.

• 1:06:13David Rosenthal?

  Totally. I have to imagine that part of the reason that was so high was this was the first like technology SPAC that was happening. So they were pioneering a lot of stuff here, which of course means lots of legal fees. So Virgin gets $450 million in new cash to the balance sheet after transaction fees and the 274 million buying out insiders. The deal includes Virgin Galactic and the Spaceship Company, which remember now is wholly owned subsidiary. Virgin Galactic is vertically integrated, does not include Virgin Orbit, so that's a separate company. But when the dust settles, Virgin Galactic, S P C E, is now publicly traded at the end of the first day of trading, worth about $2.3 billion on the public markets.

• 1:06:58David Rosenthal?

  The SPAC shareholders own 33% of the company, almost exactly a third. Virgin and the previous shareholders own 52.5%. And Chamath and the social capital head of Sophia team own 13.2%. And Chamath is chairman of the board of the company. Wow, an untraditional match if there ever was one, but it works incredibly. You know, as we sit here today, well, there's more news this morning, but as of last week, the company was trading at over a $5 billion market cap.

• 1:07:31Ben Gilbert?

  It works is a funny thing to say there, David. It's like the speculation party has continued. I would say like the merry go round or the musical chairs or whatever you want to call like, yes, that's continued. Of course, we haven't really seen results yet. The cash did go to the balance sheet, so the company gets to keep building toward its goal of launching, paying all of its expenses. It seems to be close to going to plan, but like, if you just want to look at it from an equity investment perspective, sure, yeah, the thing's doubled in market cap since the, uh, since the IPO, which seems good for anyone who invested at that point.

• 1:08:03David Rosenthal?

  Yeah, well, that's probably, probably just like tracking to market at this point, at least for tech markets.

• 1:08:08Ben Gilbert?

  That's a great point. Yeah, I'd compare it against the, against the NASDAQ.

• 1:08:11David Rosenthal?

  Against the NASDAQ, but it's pretty funny when they do. So as part of the de-SPAC merger process, there's not a typical S1 prospectus. There is an S4 merger document though, which includes much of the same information, actually more, because they can talk about forward looking projections. It's pretty funny. So for the prior 12 months ended June 30th, 2019, the last quarter in the books at the time of the de-SPAC-ing, uh, Virgin Galactic had revenue of $4 million and an operating loss of $173 million. So very much a non-traditional IPO.

• 1:08:47Ben Gilbert?

  A number that has gone up since then is their operating loss because I think they're burning about $250 million a year now on a, on a run rate basis.

• 1:08:54David Rosenthal?

  So the question is like, why would public market investors receive this stock with such enthusiasm or at least equal enthusiasm to the NASDAQ over the past couple of years? You know, and really I think it just comes down to like what this could be. Like this is an option on this future market. Now, Virgin said at the time of the mer, the de-SPAC-ing merger, that it believed it could complete 16 flights in 2020, serving 66 passengers, which would equate. Wait to 16 million in revenue and hopefully growing quickly from there. Now, of course, here we are in November 2020 and zero of those flights have happened. Virgin would argue on them that is valid to a certain point that coronavirus had a lot to do with that.

• 1:09:39David Rosenthal?

  But there's also the IP and all the physical, actual physical property associated with the company, which is worth a lot. There's the Spaceport America lease. There's the Virgin brand that they have a license to.

• 1:09:50Ben Gilbert?

  There's all the IP of the, the actual planes.

• 1:09:53David Rosenthal?

  Technology, the spaceship company. Yep. I think at the end of the day, the biggest thing though, and why this has traded so well is there's just no other way or very, very few other ways for people who don't have access to venture capital as an asset class to make these kind of, you know, bets.

• 1:10:13Ben Gilbert?

  It's a public moonshot bet and it is literally a public moonshot bet. Like, yeah, it's such a good point, David.

• 1:10:22David Rosenthal?

  What else could you invest in where there's legitimately a chance of 100x or 1,000x return in the public markets? Now, I mean, I could, there probably are some good examples of those, but nothing that is so clear cut, pure play. Hey, I can put a little bit of money into this and I might get a thousand times my money back. Or it might go to zero, but it is an asymmetric upside.

• 1:10:44Ben Gilbert?

  Yeah, it's funny. David and I were texting last night and I was like, so market cap of 5.2 billion. I mean, I guess because it's either worth a lot more or a lot less.

• 1:10:53David Rosenthal?

  Yep.

• 1:10:56David Rosenthal?

  Okay. So what's happened since the merger? In February of 2020, like we talked about, they reopened the ticket sales with the one small step program. The Elon inspired $1,000 to reserve your place. They've had 900 people sign up so far, so close to a million dollars in revenue there. Great. And then in July of 2020, the big news, they bring in a new CEO. So George Whiteside's transitions becomes chief space officer within the company. He's very much still a part of the company, but the new CEO, Michael Colglaser, is drumroll acquired theme. Literally, he spent his whole career, except for his internship during business school,

• 1:11:38David Rosenthal?

  30, close to 30 years at the Walt Disney Company.

• 1:11:43Ben Gilbert?

  In parks, right?

• 1:11:44David Rosenthal?

  In parks, mostly in parks. I believe he started in, this would have been the late eighties, early nineties, I think. I believe he started under Eisner in the strap planning group. And then

• 1:11:55Ben Gilbert?

  Legendary.

• 1:11:56David Rosenthal?

  Spent a couple of years doing that and then went to business school. He interned at Bain, I think, during business school, then came back to Disney after that. And then spent most of his career in parks under Higer. And of course, now under new Disney CEO, the other Bob, Jay Beck, running the parks business, which, you know, you could imagine that being a really great fit for now running this new.

• 1:12:20Ben Gilbert?

  Look, if I am going to spend $250,000 to go and do four days, it better feel like Disneyland the entire time, like Disneyland in space. That is like the perfect, that is what you should be promising me for, for this price tag.

• 1:12:35David Rosenthal?

  I mean, gosh, when you put it that way, I wasn't planning on doing this, but Disneyland in space, that's pretty compelling. I might have to book a ticket.

• 1:12:44Ben Gilbert?

  It's such a good, yeah, it is interesting. I mean, it's, it, in a lot of ways, it shows the maturation of the company where it originally, you know, with, with Burt and the scaled team, it's like some, it's originally Cowboys, right? And then it goes from Cowboys to like space industry veterans who are well-connected and have sort of like the ability to work with government agencies and much bigger contractors if they need to farm out parts to either, you know, the Boeing or Lockheed's or the subcontractors of the Boeing and Lockheed's of the worlds. And then on top of that, like now it's like George can be the chief space officer and sort of have all the space relationships and understand that ecosystem. But now we need sort of like the person who can craft the consumer brand to be the CEO of the company going forward.

• 1:13:29Ben Gilbert?

  And so I don't know exactly what the narrative they sold to Wall Street or sort of talked about internally was, but those sort of three eras of the company make a lot of sense to me.

• 1:13:38David Rosenthal?

  Totally, totally. So that was in July of this year of 2020. Two weeks ago on November 5th, they announced earnings, earnings, i.e. losses.

• 1:13:50Ben Gilbert?

  They don't like to call them losses calls though.

• 1:13:52David Rosenthal?

  Yeah, loss calls. But they announced on that, that the first test flight at Spaceport America will be happening later this month in November 2020. And they're on schedule for the first passenger flight to take place in Q1 of 2021 with Richard Branson onboard as the first passenger, after which they will open up real ticket sales again. So all that is good, the stock reacts well. But then here we are, it's Monday morning, November 16th, 2020, as we're recording this and they announce this morning that that flight from Spaceport America is now delayed indefinitely, supposedly due to new guidelines from the new Mexico Department of Health to disrupt the spread of COVID-19, which makes sense, that very well could happen. I don't know what the New Mexico new governments are, we're in the middle of a surge.

• 1:14:37Ben Gilbert?

  We're in the middle of the worst moment of the pandemic in the United States. So yeah.

• 1:14:41David Rosenthal?

  Totally makes sense. On the other hand, you do have to ask the question, it's not like COVID is a new development.

• 1:14:49Ben Gilbert?

  Well, this is also the 15th year that there's been a delay. Like at some point, you have to say like, can you give us a date and hit it?

• 1:14:56David Rosenthal?

  Yeah, exactly. So when we started recording, the stock was down about 10%. But yeah, I mean, that really is the question now going forward. And we'll wrap up history and facts here and transition into analysis. Like, the promise here is immense. And we'll get into the TAM and what this could be if they do execute on Disneyland in space. But unlike another company that we've covered on the show and in the startup in the space industry, SpaceX, that despite some early missteps, has now just had a decade-long track record of launching, hitting their targets, now putting people.

• 1:15:33Ben Gilbert?

  Sort of hitting their targets. I would say like, they're very good at revisionist history. Both SpaceX and Tesla are good at like setting an incredibly aggressive target, missing it by like 12 to 18 months, but then being like, yeah, it's kind of the plan the whole time. And then, but they make enough progress, fast enough, and they ship stuff where you're like, okay, like it still feels really fast to me.

• 1:15:54David Rosenthal?

  Yep. Yep. You get that 18-month leeway. You know, Virgin has used this 18th month leeway. I wasn't counting, but five, six times and still hasn't launched. So.

• 1:16:06Ben Gilbert?

  Space is hard.

• 1:16:07David Rosenthal?

  Now, funny coda, which is totally appropriate to put a bow on history and facts. Last month, in October of 2020, do you know who the latest entry to the SPAC game was?

• 1:16:19Ben Gilbert?

  Oh, was this Branson's?

• 1:16:21David Rosenthal?

  It's Branson himself. We come in full circle, going from being the first SPAC target to now a participant on the SPAC side.

• 1:16:30Ben Gilbert?

  What will he buy? That's interesting.

• 1:16:32David Rosenthal?

  I don't know. I think they're targeting a consumer or a technology company, $480 million VG Acquisition Corp.

• 1:16:39David Rosenthal?

  If any SPAC investors out there want to go speculate on what Sir Richard might buy that is available for you to do so in the public markets now.

• 1:16:50Ben Gilbert?

  Yep. All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 1:17:05David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 1:17:21Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 1:17:36David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 1:18:00Ben Gilbert?

  And they recently launched Logora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective, then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 1:18:19David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora now has over 100,000 lawyers on the platform, from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 1:18:49Ben Gilbert?

  Truly insane numbers, and that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at lagora.com/acquired and just tell them that Ben and David sent you. Okay, analysis?

• 1:19:16David Rosenthal?

  Let's do it.

• 1:19:18Ben Gilbert?

  All right, so narratives?

• 1:19:20David Rosenthal?

  Yeah, I think narratives are the right one for this because, boy, are there ever.

• 1:19:25Ben Gilbert?

  We've pretty much danced around narratives, but I think it's worth specifically articulating what the bull and bear cases are around the company. So the bull case is that SPACs actually are an incredible vehicle to finance these long-term, capital-intensive projects. And what they were used for before, sure, was bringing crappy companies to market and, you know, they deserve the reputation that they had. But the vehicle itself, like not having to do a roadshow and actually consummating a transaction with one buyer who has done a ton of research on your company, brings a ton of capital all at once to bear, it's actually an awesome way to raise a good amount

• 1:20:09Ben Gilbert?

  of money, to provide the right amount of liquidity to shareholders, and to only need that sort of like one party that believes in your long-term vision and is willing to get you public to allow any future investor to make a moonshot bet. Whereas the traditional IPO process, like it would be really hard to run the traditional bookmaking process on Virgin Galactic, had never made a dollar or a material dollar before, well, still basically never. It was really hard to estimate when that would start happening, when it would turn a corner, really hard to estimate how much future capital would be required. And sure, you can make a projection, but like, how much is any retail investor going to believe that?

• 1:20:52Ben Gilbert?

  So you sort of risk going public and then the whole business dying based on trading down immediately. Or based on being able to sort of not subscribe the offering. Whereas in a SPAC, like you really just need that one true believer.

• 1:21:06David Rosenthal?

  Well, that one true believer, and it's at a negotiated price. I mean, I think that's an important piece of

• 1:21:12Ben Gilbert?

  Yep, great point.

• 1:21:12David Rosenthal?

  story here, which is the SPAC vehicle, both the insiders of the SPAC and the SPAC shareholders, acquired 50% of the company here.

• 1:21:22Ben Gilbert?

  Right. It's a pretty dilutive financing.

• 1:21:23David Rosenthal?

  This was a, even though it ended up first day trading at $2.3 billion market cap, I think this was basically a more or less appropriate valuation for something like this, which is, hey, this is a very high beta bet, right? But the upside is huge. So like shareholders will be very much appropriately compensated if this works out. It could go to zero, but like it's, you know, you're buying half the company here. So at that day one market cap, it was trading at about 2X the capital that had gone into the company, which I know is not a like ideal academic way to value the company. But you can just sort of think about it like, okay, a billion dollars now of R and D has been put into this.

• 1:22:07David Rosenthal?

  Am I willing to pay $2 to every $1 of R and D that's put into this for an option?

• 1:22:13Ben Gilbert?

  Pretty cheap.

• 1:22:13David Rosenthal?

  On the upside here. It's, it's not, you could make an argument that this is not a crazy valuation.

• 1:22:19Ben Gilbert?

  All right. So that's our, that's our bull case on the transaction. But let's talk about the future of the company.

• 1:22:24David Rosenthal?

  Yeah.

• 1:22:25Ben Gilbert?

  So let's talk about the market here because of course there have only been 600 people to date who have been willing to pay the $250,000. These are pre-orders. Like, these are people who have been lining up to do this. I don't think they knew it would be a decade before, but a decade before they could actually get on this ship. How many people potentially could do that? Well, they ran some analysis. I think they worked with an investment bank to figure out that it's something like 90% of the people on that 600 person waitlist, 90% of those have over a million dollars in net worth, which makes sense if you're going to go spend 25% of your net worth. 70% is less than 20 million. So their sort of sweet spot is, you know, people

• 1:23:09Ben Gilbert?

  Between one and 20 million. In all likelihood, it's a lot more than one. So the way to think about that is-

• 1:23:14David Rosenthal?

  But they might be able to get the price down over time. Like if you have $1 million in net worth, would you pay 25,000 for this? Like, yeah, probably.

• 1:23:22Ben Gilbert?

  They won't get the price down that much, and I can talk in a minute why. But the the bulk case is basically like, okay, let's just say like 10 million plus is is what the majority of people who are going to do this will have. Well, there are 1.8 million humans on Earth that have that much money. So you actually don't need a huge percentage of that market in order to like make a really, really nice business here.

• 1:23:47David Rosenthal?

  I ran the numbers by my math. If 10% of those 1.8 million people buy tickets at some point in time, which, you know, you may argue that 10% is way too high, you may argue it's way too low. But if 10% of the 1.8 million people buy tickets at the $250,000 ticket price, that's close to $50 billion in revenue to Virgin.

• 1:24:10Ben Gilbert?

  So that's sort of like lifetime revenue for the company, lifetime potential revenue. Another another bottoms up way to build that, which is using the company's stated goal, which is to get to 1,000 people per year, which if you think about that, that's 200 flights per year. These things are fully reusable. They can get to $160 million a year in gross profit. So the the way that I got to that number is they actually have 65% gross margins. Because if you look at the fuel and launch costs and insurance, it's really only, it's like $400,000 to $500,000, but you can generate 1 and 1/4 million per flight. And so those are almost software gross margins. So you really, you know, that 160 million in gross profit can cover a lot of overhead, a lot of R and D, a lot of G and A.

• 1:24:55Ben Gilbert?

  And there's a lot of like, if you can actually get that coming in in cotton, in revenue that you don't have to pay out in fuel and all that, you can subsidize a nice, nice amount of overhead.

• 1:25:06David Rosenthal?

  Yep. Yep. And if you can get, you know, this is part of why the original contract was for five spaceship twos. And then obviously, the idea is that they're going to build out more spaceports around the world. Like, yeah, you could get to a point, if this is a popular product, where you're doing- Many launches a day and thus, you know, hundreds to thousands of launches a year. You could start to make real money with this.

• 1:25:34Ben Gilbert?

  Yeah. Okay. So what's the bear case narrative on this company?

• 1:25:38David Rosenthal?

  What isn't the bear case narrative here? No, that's too, that's too harsh. But I mean, I think the big one, right, is like, it's been 16 years. And still, there has not been a passenger flight.

• 1:25:51Ben Gilbert?

  Yeah. And, and, and the biggest issue is like, you do have, I mean, these, these are companies going after completely different markets, but you do have a second launch spaceship company called SpaceX that has wildly outperformed over basically the same time period. And didn't have the head start of being able to just buy the successful Spaceship One IP. When did SpaceX start? Was it 2003?

• 1:26:16David Rosenthal?

  Two, two, two. Yeah, that was like early, early. That was when the go buy a Russian rocket days in 2002.

• 1:26:23Ben Gilbert?

  Right. And again, lots of reasons why these things are in no way apples to apples, but SpaceX is going to orbit one to two times a month and Virgin hasn't flown a suborbital flight until last year. So that, that would basically be the bear case on why investors are falling all over themselves to get money via secondary transactions into the non-public SpaceX versus buying retail shares of Virgin Galactic in the public markets. And that's reflected in their valuations. We, we've talked about this $5.2 billion number. SpaceX most recently raised money in the private markets at $50 billion. So you can decide which risk profile you would rather take, but that's sort of why there's a 10x delta in, in value.

• 1:27:05David Rosenthal?

  Yep, totally. And I think there is still, you know, SpaceX, the current business model is totally proven. Like they're making a lot of money, launching, doing both government contracts and satellite launches into space. There's more speculative, but very promising additional business models to come with Starlink and then potentially future, you know, exploration and moon and Mars and all that. But it's a real business. I think there is also. A question and unknown of just like, how deep is demand here for Disneyland in space? Like, how many people are really gonna A, just want to do this? And B, be willing to pay a large sum of money to do it?

• 1:27:48Ben Gilbert?

  Yeah, I think the bet is that they have to be able to graduate from this market quickly to be able to make orbital flights and do things beyond just space tourism. And I think that's in the company's plans, not only to be able to do more than just space tourism, so sort of open up additional markets, but also de-vertically integrate or horizontally integrate, where you're already seeing them sign NASA contracts that were announced just in the last couple of months to do things like identify the people who want to go to the ISS as tourists and help train them, but not actually fly them on Virgin hardware, in all likelihood going up on other launch providers. But Virgin Galactic has these competencies

• 1:28:29Ben Gilbert?

  that they seem to be willing to unbundle from their sort of full service offering and be able to generate revenue in other ways. And of course, this makes sense. Like, you look at companies like Blue Origin that are unbundling their engines and selling their engines to ULA and other rocket builders and not just staying fully vertically integrated. It makes sense in sort of an early Wild West industry that, hey, there's a material revenue opportunity to go chase this thing, and it requires me doing a little bit of unbundling and changing my strategy a bit, at least for the time being. Sure, that seems reasonable to me.

• 1:29:04David Rosenthal?

  Totally. And then there's also another sort of big opportunity on the horizon, which is if this becomes a safe, regular thing, these launches that Virgin is doing, and there are multiple spaceports around the world, well, you could take off at one spaceport and land at the other, like, two hours later, halfway around the globe. Now, SpaceX has also talked about doing this, too, as part of their business. But, you know, I can totally understand the demand for that.

• 1:29:32Ben Gilbert?

  Virgin's actually better set up for it, though. Like, if they set up an Abu Dhabi spaceport and have Spaceport America, and you can do that point-to-point travel sub-orbital and in this fashion, rather than, you know, strapping yourself to the top of a Falcon 9, like, that makes a lot more sense to me.

• 1:29:50David Rosenthal?

  Yeah, totally. Okay, so I think that's the, I think that's the bare case. Do we want to do what would happen otherwise quickly?

• 1:29:56Ben Gilbert?

  Yeah. And the big, the big question here is basically, like, if you look at the comparable... Of SpaceX. Why is it that SpaceX has done what they've done while Virgin hasn't? Let's pull out execution for a moment. A big component of that, I think, is SpaceX's strategy to go get those government contracts and basically have an enormous amount of capital in the form of revenue from government customers to launch satellites. Like, that has just been, you know, billions and I think over $10 billion now in non-dilutive revenue funding that the company has gotten, which of course translates to things like 10x the headcount. You know, you look at Virgin Galactic, still a startup. It's like 700 people. SpaceX is 7,000. So,

• 1:30:38Ben Gilbert?

  let's for a moment just say it is by no means an apples-to-apples comparison because of the way that they chase dollars differently.

• 1:30:46David Rosenthal?

  Space industry folks may correct me here because I'm wading out into somewhat technical territory that I'm unqualified to. But I do wonder if SpaceX's technology strategy too of basically laddering up from the Falcon 1 to the Falcon 5 to the Falcon 9 to the Falcon Heavy to the Starship.

• 1:31:06Ben Gilbert?

  Never shipped the Falcon 5. It was never built.

• 1:31:09David Rosenthal?

  But it was part of the roadmap, right? And then they never, they just went straight to the 9, right?

• 1:31:13Ben Gilbert?

  I think they basically just strapped four more Merlins on it and went straight for the 9. Yeah.

• 1:31:18David Rosenthal?

  Straight to the 9, yeah. But anyway, they basically, they've stair stepped up into where they are now, whereas Virgin from the get-go was like, hey, we're going to go from this prototype 891 to like, all the way to a commercially viable, like, they haven't actually changed the design in 16 years. It was like a big, heavy lift to start with. Not that all of these things aren't heavy lifts, but I do wonder if a more stair-step strategy would have been more appropriate here. But I think probably the bigger thing is what you said, Ben, just the capitalization and the amount of funding that SpaceX had was order of magnitude

• 1:31:52Ben Gilbert?

  Yeah. And another, I mean, this is actually, this is great segue to playbook. This is our first playbook item. Another structural way to look at this is Virgin Galactic is chasing a market that doesn't yet exist of space tourism, whereas SpaceX was serving a market that totally existed, which is governments that want to get things into space and are willing to pay a lot for it. So of course, there was revenue financing available, whereas Virgin Galactic needed to demonstrate they could do it before people would pay. Of course, notwithstanding the $80 million that they have raised in revenue capital, but since this is sort of pre-orders, I imagine they can't quite use that for, you know, I don't know, I think you have to be very careful in how you spend that $80 million.

• 1:32:27David Rosenthal?

  Yeah, I do think that I think they have restricted cash there. Yeah. Okay. Playbook, let's do it.

• 1:32:32Ben Gilbert?

  Big one in my mind is an industry prize. Like what a fun concept that provides an immense amount of leverage on the initial dollars raised that brings in so many more people to an ecosystem that stimulates way more innovation than you would have if you just took that same amount of capital and plowed it into a single company trying a single thing. And of course, there's way more losers because if you don't win the prize, then you spent your millions, you know, trying to achieve something. Not only did you fail, but then you also didn't win the prize to get reimbursed for your costs. But I just, you don't see it in that many other industries. It's very interesting how this seems to be unique to aerospace and space.

• 1:33:10David Rosenthal?

  The only other one that comes to mind in our world is the Netflix prize. I wonder if, I think to run this playbook, you have to have something that is like so sexy that like people are going to want to do it. There's also the DARPA competition with autonomous driving, but like you're not going to be able to run this playbook if you're building a SaaS company.

• 1:33:32Ben Gilbert?

  Right. Right. I can just imagine the launch website of someone trying and Twitter just hating it.

• 1:33:39David Rosenthal?

  Of course, we joke in this market, like probably somebody could stand up like a prize for like some innovative SaaS company. And I bet they would actually get. Entrance.

• 1:33:49Ben Gilbert?

  Someone should do a prize for making Chrome faster. That would be a

• 1:33:52David Rosenthal?

  Oh, that would be amazing.

• 1:33:53Ben Gilbert?

  Or Gmail faster.

• 1:33:54David Rosenthal?

  Gmail, yeah. Rahul's already on that.

• 1:33:57Ben Gilbert?

  Yep. Yep. Okay, cool. So that's a prize. I think that important second one here is the, the concept of the best time to invest was yesterday, but the second best time is today, where Branson sort of famously turned down Peter twice for the X Prize. Not that that would have been an investment anyway, but you know, stayed out of this game until literally the night before the first sort of all eyes on the prize, successful flight, and then comes in and funds it then. You know, to say that that was still the first inning of consumer space travel would be a vast understatement. And so the, the idea of when you know you're early to a market, having no shame about sort of passing and then coming back and saying, nope, still, still lots of runway ahead.

• 1:34:39Ben Gilbert?

  I think that's a important one and one not to be missed.

• 1:34:43David Rosenthal?

  Totally. The only one I would add, unless you have other playbook themes you want to talk about?

• 1:34:48Ben Gilbert?

  Uh, nope, go for it. And I'll think about if I have one more or not.

• 1:34:51David Rosenthal?

  Cool. The only one I would add to those two you said is, uh, I think actually something from the SPAC and social capital, the head of Sophia Chamath's side of things here, which, you know, I've heard Chamath talk a lot about this on all the other media he's done. I think there really is something to what he said about with a new risky thing. Everybody wants to be the second person to do it. Not that many people want to be the first. If you're willing to be the first, and if you size your quote unquote bets right and your risk exposure, that's how you can get extremely outsized returns by doing stuff like that. Like doing this whole SPAC thing,

• 1:35:35David Rosenthal?

  like that was crazy. And a lot of people thought Chamath was nuts for doing this. Well, it turns out, you know, the, the story is still being written on SPACs. It turns out it was actually a pretty good idea. And it was a good financing product, certainly for Virgin Galactic. And I think it's going to end up being a good financing product for a lot of other companies here. And Chamath has benefited, you know, Hugely from that. He now has six, I think, as of today, SPACs that he and Heta Sophia have launched. Just on this Virgin one alone, the founder shares in the SPAC and sponsor promote, you'd have to disentangle his secondary investment that he made as part of it. But he made a lot of

• 1:36:18David Rosenthal?

  money right off the bat in successfully completing this SPAC. And I think at a broader level, you know, he's talked about on other shows, how he really tries to have a barbell strategy with his holdings and his portfolio now within the holding company of social capital of one large end of the barbell is like relatively low risk stuff. I don't know exactly what all he would put in there. Traditionally, you'd think like bond funds and whatnot. Today, it's probably like Amazon stock. But then another heavy barbell on the other side of like out there, high risk stuff with not a lot in the middle. And this type of thing, whether it's Virgin Galactic or SPACs or anything in the like, this is that other side of the barbell. And yeah, most of that's

• 1:37:01David Rosenthal?

  not going to work. A lot of it's not going to work. But for the ones that do work, you're going to get truly outsized returns.

• 1:37:07Ben Gilbert?

  Yep. And not being afraid to look like a moron. Like, there's going to be a long period between when you declare you're going to do this and when it works, if it works, and being willing to to take the heat. I just think most humans aren't set up for that psychology. Like, you kind of want to social check your ideas with your friends. And if they tell you it's stupid, and enough people tell you that, you kind of don't do it. And that does not seem to be how Chamath operates.

• 1:37:30David Rosenthal?

  No, not at all.

• 1:37:33Ben Gilbert?

  Well, the last one that I want to bring up before we get into grading here is frankly, applauding government. And I think it's government finding the right way to be involved to enable private enterprise in a win-win. And the big one that jumps out to me here is the New Mexico state and county governments that actually funded Spaceport America. Virgin Galactic has this $5 million a year lease on it, which, you know, that's expensive. And, you know, it's a material cost for the company. It would have been completely impossible for this company to go and raise 200 million on their own to build this facility. Like in addition to all the other money they needed to raise, like who is going to fund that if that's in your pitch deck?

• 1:38:11David Rosenthal?

  Right. I mean, think about that. At $5 million rent a year, that's 40 years to just pay back the construction costs.

• 1:38:19Ben Gilbert?

  Right, right. And the state of New Mexico being forward looking to say like, gosh, if we can actually, this could be huge for our local economy if we become the Silicon Valley of space and we build this thing and not only the sort of goodwill that comes from that and the who knows how much money we'll make in the future if we're actually the center of this ecosystem, but then on top of that, like the literal dollars that will come from tenants two, three, four, five, the payback period actually isn't bad if you can get several Virgin Galactics in there. And for anyone who's curious, you should go to Virgin Galactic's website and look at the pictures of Spaceport America. This thing is awesome. Like it looks like a spaceship while you're driving up to it. And they just did a fantastic job working with this great architecture firm and making

• 1:39:01Ben Gilbert?

  the whole thing. Like, I mean, it does feel like the front door to Disneyland of space. So they did an amazing job at that. And I do think, it reminds me a lot of our SpaceX episode where we covered NASA's forward thinking approach with the crew resupply and cargo crew initiatives to outsource those missions to the private companies. We just saw Crew One and we've talked about it several times, launched last weekend, actually yesterday as we record this. And I think governments take a lot of heat for being stodgy, for being backward looking. And I think these are two great examples of government enabling not only sort of private sector innovation, but in a way that will benefit the government and that government's shareholders over time.

• 1:39:42David Rosenthal?

  Hundred percent. Great. Fantastic investments to be applauded on both cases.

• 1:39:48David Rosenthal?

  All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 1:39:55Ben Gilbert?

  Yes. There is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:40:06David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 1:40:26Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags and product analytics into one unified system. So teams can ship safely, test rigorously and directly link what they changed to how users actually behaved.

• 1:40:38David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:40:49Ben Gilbert?

  All right, let's bring this home with grading.

• 1:40:51David Rosenthal?

  Let's do it.

• 1:40:52Ben Gilbert?

  So we thought, listeners, about the standard acquired thing is grade the transaction. Hey, was this a good use of capital to spend it on this transaction? Like, we could get into that on the SPAC. We sort of have litigated a little bit. Feels like the wrong way to do this. So what we want to do is paint the A+, the C and the F scenarios for Virgin Galactic as a business over the next 10 years. So I want to start, and we covered some of this in the Baron Bull case, but I just want to put a little bit more color around what the picture of an A+ could look like. The business is awesome on a unit economics basis. Like, obviously, we haven't yet seen a unit happen yet because a customer hasn't flown.

• 1:41:32David Rosenthal?

  This sounds like a seed startup pitch, like, hey, we don't have any revenue yet, but our unit economics are going to be awesome.

• 1:41:39Ben Gilbert?

  That's so true. I'm so guilty of this. But like, really, if you think about it, if this works, like, and they've sort of tested each part of the system individually. They've tested the fact that the thing can fly, it can go above 100K, it can take people. There's some number of people who are willing to pay a quarter million dollars for this. You can put five, six people in these capsules. So like, if you really can generate one and a quarter million per flight and you really can make 65% gross margins, the fact that they have this fully reusable design of both aircrafts, or if you want to compare it to like a rocket, effectively like a first stage In a second stage, both of Virgin Galactics are reusable, which is not a common thing in the industry right now.

• 1:42:22Ben Gilbert?

  So they really could fly it. I don't know if it's every day, but you land it, you inspect it. Inspection doesn't take terribly long. You refuel it, you clean it up and you fly it again. It's an airplane. And so, you know, I think that to me is the A plus case. It's a strong, you know, gross margin business, super reusable, could be super high volume. If you believe what we were talking earlier about the, the market, if you really think you get a thousand people to do this per year or more of the 1.2 million person market of the 10 million air plus club. And of course there's going to be a handful of the people below that, but you know, the 10 millionaire plus is where it's a drop in the bucket. You know, it feels like you could get to a profitable business there.

• 1:43:03Ben Gilbert?

  And I think that David, you mentioned earlier that the fact that the price could come down over time. Unless the fuel price dramatically goes down, it seems unlikely they'll materially lower it. Like, I think that's a very long-term horizon unless they were willing to start taking lower margins. But at least at the quantities we're talking about here, I think that it needs to be a pretty high margin business in order to be sustainable.

• 1:43:26David Rosenthal?

  Fair enough, fair enough. But to your point, could still be big.

• 1:43:29Ben Gilbert?

  Yep. All right. What's the F?

• 1:43:32David Rosenthal?

  So the F, well, the, we have a few things in our notes here. I mean, I think, I think the biggest, the biggest risk for the F here is that for whatever reason, it just continues to be that they can't actually get this thing off the ground. Which you hate to say, I hope is not the case, but it is hard to ignore that it's been 16 years. And it still hasn't happened. So if history is any guide, then how much longer? And, and not just how much longer, but how much more capital? Let's assume that they can get off the ground and make this happen.

• 1:44:12David Rosenthal?

  Are there unforeseen things or things that aren't baked into the projections that are gonna require them to raise a lot more money to make this happen? You know, this last round of financing. While obviously being a great outcome for the company was extremely dilutive, you know, 50% dilution. Now, if this takes a few more years, they're burning whatever $200 million a year run rate now. So that probably means, I didn't actually look at their cash balance, but let's assume they probably only have two, two and a half years of maybe even less of runway left at this point without revenue. So it doesn't take many delays, and we've just seen another delay here this morning,

• 1:44:55David Rosenthal?

  before they're back needing more capital.

• 1:44:58Ben Gilbert?

  Yeah, it's a great point. And at what point does any existing shareholder employee start looking at their equity and going, this is never going to be worth anything because it just keeps getting crammed down. Even if we become a $20 billion company, like we've taken on so much capital that my shares divided by the total number of fully diluted is just a very, very, very small percent.

• 1:45:18David Rosenthal?

  Totally. And then we have another couple of other things here. I mean, the other big one is just like, hey, demand might not actually be there. Like these 600 people that have paid the full ticket price, plus the 900 people that have taken the one small step. Maybe that's like half the market here.

• 1:45:34Ben Gilbert?

  I think that's like 2,500 now. I think they've gotten a fair number of deposits on the one small step. But you're right, like it could just be that, you know, this is only cool for so long. Well, just to touch quickly on the C, I think it's the sort of horizontally disintegrating thing that we mentioned earlier, where the core business never works out, but they're able to sort of scrape some revenue from providing a lot of different things to a lot of different people licensing technology out, basically not having a focus and not executing their main strategy. They'll just never build power as a business and sort of have a repeatable engine for free cash flow. So that would be my, that would be my C case.

• 1:46:11David Rosenthal?

  Yep. They look more like a Samsung than an Apple.

• 1:46:16Ben Gilbert?

  Well put. All right, should we, should we land the spaceship?

• 1:46:20David Rosenthal?

  Yeah.

• 1:46:21Ben Gilbert?

  All right.

• 1:46:22David Rosenthal?

  We're going to deploy the feathers.

• 1:46:23Ben Gilbert?

  De-feather, we'll go into glider mode.

• 1:46:26David Rosenthal?

  Yeah.

• 1:46:26Ben Gilbert?

  We'll land the plane. Well, Ascend attendees, thank you so much for coming to this session. If you are interested in hearing more Acquired, we highly recommend checking out our SpaceX episode that we did earlier this year just before the Demo Two mission. You can look up the show anywhere where great podcasts can be heard, any podcast player, or at acquired.fm. Thank you so much to the Ascend organizers, in particular, friend of the show, Rob Meyerson. If you are new to Acquired, you can learn more at Acquired FM, as mentioned, and if you are looking to invest in yourself as an entrepreneur, investor, or a company builder of any sort, you should join the Acquired Limited Partner community at acquired.fm/lp. And all new listeners get a seven-day free trial, so we hope that you'll give it a shot.

• 1:47:10Ben Gilbert?

  Lastly, if you liked this episode, feel free to rave about it wherever you see fit: social media, Apple Podcast reviews, or our personal favorite, just sending it to one friend that you think would enjoy it, too. All right, everyone, we will see you next time.