Speaker 1: I'll try to make this as interesting as possible. If
you like space, you'll like this talk. So my background
in brief, I'll talk a little bit about ZIP two
and PayPal, and then mostly about space and what we're
doing in space. So I originally came out California to
do energy physics at Stanford actually and ended up putting
this is in ninety five, and ended up putting that.
Speaker 2: On a hold to start ZIP two and zip too.
I'll tell you a little bit.
Speaker 1: About the thought process of exactly what happened there in
ninety five, that it wasn't at all clear that the
Internet was going to be a big commercial thing. In fact,
most of the venture capitalists that I talked to hadn't
even heard of the internet, which sounds bizarre. On sand
Hill wrote, So, but I wanted to do something in there.
I thought it would be a pretty huge thing, and
I thought it was one of those things that only
came along once in a very long while.
Speaker 2: So I got a.
Speaker 1: Deferment at Stamford, and I thought I'd give it a
couple of quarters.
Speaker 2: And if it didn't work out, which I.
Speaker 1: Thought it probably wouldn't, then i'd come back at school
and actually When I talked to my professor and I
told him this, he said, well, I don't think you'll
be coming back, and that was.
Speaker 2: The last conversation I had with him.
Speaker 1: But there weren't a lot of waste Again, the only
way to get involved the Internet in ninety five that
I could think of was to start a company, because they.
Speaker 2: Want a lot of companies to go and work for
Apart from Netscape, maybe one or two others.
Speaker 1: So, and they didn't have any money, so I thought, well,
we've got to make something that's going to.
Speaker 2: Return It's going to return money very very quickly.
Speaker 1: So we thought, well that the media industry would need
help converting its content from a print media to electronic
and they clearly had money, so if we could find
a way to help them move their media to the Internet,
that would be an obvious way of generating revenue. There
was no advertising revenue on the Internet at the time,
so and that that was really the basis of ZEP two,
And we ended up building quite a bit of software
for the media industry, primarily the print media industry. So
we had as investors and customers Hearst Corporation, night Ridder,
most of the major US print publishers. We built that up,
and then we had the opportunity to sell to Compact
in early ninety nine, and basically.
Speaker 2: Took that offer.
Speaker 1: It was for a little over a three hundred million
dollars in cash, and that's that's a currency I highly recommend.
Speaker 2: So we had that and and.
Speaker 1: But I wanted to do something something more after ZIP too,
so post the sale, in fact, immediately post the sale,
I didn't really take any time off. I was just trying
to think of where where the opportunities in this in
the early ninety nine, where the opportunities remained in the Internet,
And it seemed to me that there hadn't been a lot.
Speaker 2: Of innovation in the financial services sector. So and when
you think about it, money is low bound with You
don't need some sort of big infrastructure improvement.
Speaker 1: To do to do things with it. It's really just
an entry in the database. The paper form of money
is really only a small percentage of all the money
that that's out there. So it should lend itself to
innovation on the Internet.
Speaker 2: And so we thought of a couple of different things
we could do.
Speaker 1: One of the things was to combine all of somebody's
financial services needs into one website, so you could have banking, brokerage,
insurance and all sorts of things in one place.
Speaker 2: And that was actually quite a difficult problem to solve,
but we sold most the issues associated with that. And
then we had a little feature which.
Speaker 1: Took us about a day. That was the ability to
email money from one customer to another. So you could
type in an email address or actually any unique identifier
and transfer funds or conceivably stocks or mutual funds or
whatever from one account holder to another. And if you
try to transfer money to somebody who didn't have an
account on the system, it would then forward an email
to them saying, hey, why don't you sign up and
open an account. And whenever we demonstrate these two sets
of features, we'd say, well, this is a feature that
took us a lot of effort to do, and look
how you can see your bank statement and your mutual funds.
Speaker 2: And insurance and all that. It's all on one page,
and look how convenient that is.
Speaker 1: And people got home and then we'd say, and by
the way, we have this feature where you can enter
some of these email address and transfers funds and they
go wow. So we were like Okay, So we focused
the company's business on on email payments and in the
early game going, the company is called x dot com
and then there was a there was another company called Confinity,
which had actually also started out from it from a
different area.
Speaker 2: UH. They started out with the PalmPilot cryptography, and then
they had as a demo application the ability to beam
token payments from one.
Speaker 1: Pomp pilot to another by the infrared coort uh. And
then they had a website which is called PayPal, where
you would.
Speaker 2: Reconcile the beamed payments and and what they found was
that the website.
Speaker 1: Portion was actually Palm more interesting to people the then
pomp pilot cryptography was.
Speaker 2: So they started leading their business in that direction. Uh.
Speaker 1: And then in basically early two thousand, uh X dot
com acquired Confinity UH. And then about a year later we.
Speaker 2: Uh uh we ended up changing the company's name to PayPal.
Speaker 1: And that's that kind of how the approximate evolution of
the company and the PayPal is really a case of
where the whole viral marketing. It's really a perfect case
example of viral marketing like hortmail was where one one
customer would essentially act as a salesperson for you, for
all of you, for bringing in other customers, so they
would send money to a friend and essentially recruit that
brend into the network. And so you had this exponential growth.
The more customers you had, the faster it grew. So
it was like bacteria in a petri dish, you know,
it just goes like does this s curve? And in
fact I ran paypaler for about the first two years
of its existence, and we launched after year one, and
by the end of year two we had a million
of customers. So it gives you an example, you know,
to get your sense for how fast things things grow
in that scenario.
Speaker 2: And we didn't have a sales force.
Speaker 1: We actually didn't have a VP of sales, we didn't
have a VP of marketing, and we didn't spend any
money on advertising. In about February of last year, for
those some of your probably following it, In February of
last year, PayPal went public and we were I think
we were the only internet company to go public in
the first part of last year. It went off reasonably well,
although I think we had more sec rewrites than any
company I can imagine, Like we said a record on
sec rewrites. This was right around the en run time
and when there was all sorts of corporate scandal, so
they put us through the ring. And then shortly thereafter,
in about June July, we struck a deal with eBay
to sell a company to eBay and for about four
and a half billion dollars. But that was when eBay's
stock price was about fifty five dollars and they hadn't split,
so I guess in today's dollars were about three billion dollars,
so it worked out pretty well.
Speaker 2: It happened coincidentally that.
Speaker 1: In the first part of last year I've been doing
just some background research on space, and let me talk
a bit about that. So essentially, I was trying to
figure out why we had not made more progress since
Apollo in nineteen In the sixties, we went from basically nothing,
not being able to put anyone into space, to putting
people on the Moon and developing all the technology from scratch.
Speaker 2: To do that.
Speaker 1: And yet in the seventies and eighties and the nineties
we've kind of gone sideways, and we're currently in the
situation where we kindt even put a person into low
Earth orbit, and that doesn't really cherell with all of
the other technology sectors out there. The computer that you
could have bought in the early seventies, you know, would
have filled this room and had less computing power than
your cell phone.
Speaker 2: And so just about every sector of technologies improved. Why
has this not improved? So I started looking into that.
Speaker 1: Initially, I thought, well, perhaps it's a question of funding,
and that funding can be garnered by really marshaling public support.
So I thought, well, one way to get the public
excited about space would be to do maybe a privately
funded robotic mission to Mars. And so we figured out
a mission that would cost about fifteen to twenty million dollars,
which isn't a lot of money, but it's about a tenth.
Speaker 2: Of what a low cost nasamission would be. And the
idea was.
Speaker 1: Called Mars Oasis, where we would put a small robotic
glander on the surface of Mars with seeds and dehydrated nutrients.
They would hydrate upon landing, and you'd have plants growing
into Martian radiation and gravity conditions, and you'd also be
maintaining essentially a.
Speaker 2: Life support system on the surface of Mars.
Speaker 1: And this would be interesting to the public because they
tend to respond to precedents and superlatives, and this would
be the furthest that life's ever traveled in the first
life on Mars.
Speaker 2: So pretty significant.
Speaker 1: And then when I started looking at launch vehicles that
the lowest cost vehicle in the US is Boeing stalt
To two, which costs about fifty million dollars, and that's
a bit that's a bit steep what we were trying
to do. So I made three visits to Moscow to
Russia to look at buying a Russian launch and it's
actually pretty interesting going to moscowt to negotiate for a
refurbished ICBM. If you know, on the range of interesting experiences,
that's pretty pretty far out there. But we actually did
get to a deal, but there were so many complications
associated with the deal that it didn't I wasn't comfortable
with the risks associated with it. So when I got
back from the third trip, I thought, well, you know,
why is it the Russians can build these low cost
launch vehicles, because it's not like we drive Russian cars,
fly Russian planes, or have Russian kitchen appliances, and you know,
when's the last night brought something Russian that wasn't vodka.
So I think the US is a pretty competitive place
and we should be able to build a cost efficient
launch vehicle.
Speaker 2: So I put together a feasibility study which consisted of
engineers that have been involved with all the major launch
vehicle developments over the last three decades, and we iterated
over a number of saturdays in the beginning.
Speaker 1: Of last year to figure out, well, what would be
what would be the smartest way to approach this problem
of not just launch cost but also launch reliable. And
we came up with a default design and that actually,
uh sort of fortunate timing. That feasibility study finished up
right around the time that we agreed to sell paypalt
the eBay, So coincident with that sale, I moved down
to la where there's actually the biggest concentration of aerospace
industry in the world. It's actually the biggest industry in
southern California, much bigger than entertainment or anything else.
Speaker 2: I was living in pala Alta for about nine years
before that.
Speaker 1: Anyway, So just to talk it a little broadly about
space and where things are today, Obviously US government manned
exploration is not in a great place. We've got the
three remaining shuttles are grounded, it looks like first flight
might only be a year from now. If that, and
we've got a vehicle that is incredibly expensive and really
quite dangerous. It's you know, for reasons to mention there,
it's got a side mounted crew compartments, so if there's
an explosion, that's basically instant death.
Speaker 2: Uh.
Speaker 1: The you've got solid rocket boosters which once you nite them,
you can turn them off. And there's something fundamentally dangerous
about pre mixing your fuel and oxidizer, I think, Uh.
Speaker 2: And then it's you've got wings.
Speaker 1: And control surfaces when you when you re enter, you've
got to maintain a precise angle of attack. Even a
momentary variance in that can break the whole vehicle apart.
So and then and then of course it's got no
escape system, so if anything does go wrong, your toast
and and that you've got a cost that is really
pretty hard to fathom. The shuttle program, when you add
up all the pieces, is about four billion a year.
And so you can divide uh four billion by the
number of flights and that I'll tell you what the
cost is. And and if there's say four flights a year,
which they haven't been for a while. Then you're talking
about a billion dollars a flight. The plans for the
mutate future are, obviously we've got to continue building the
space station, so we're going to keep flying the Shuttle,
but I think it's probably going to be the minimum
number of Shuttle flights that we need to launch. The
long term plans are build something called overital space plane
out safe plane in quotes, because one of the options
is a capsule, so it should be called, you know,
maybe overtal space thing. But the basic idea is to
have something that's hopefully a little cheaper and a lot
safer than the Space Shuttle. So in particular, it's going
to have an escape system so if something does go wrong,
you can abort to safety. The downside is that it's
still while it might be a little cheaper, it's still
going to be pretty darn expensive. Estimated cost per flight
of overital space plane is someone in the region of
three hundred to four hundred million dollars a flight, and
of that amount, two hundred just two hundred million dollars
alone goes to Boeing for the Delta four heavy expandable booster,
and it's a fifteen billion dollar development effort and expected
to be completed in nine or ten years now.
Speaker 2: Typically, typically things.
Speaker 1: Have not been under budget and under time, so it's
unlikely I think, given historical precedent that it will stay
within fifteen billion dollars and the twenty twelve twelve timeline,
and a bit about what's going on on elsewhere in
the world in Russia, that this is really the Sawyers
is our only access to space station. It's considerably cheaper,
considerably safer. The Sawyers has a very good track record.
Its crew is top mounted, it has an escape system,
there are no wings or control services to go wrong. Overall,
it's a pretty good system. And the estimated carts are
about sixty million dollars a flight, which is an auto
more than Autobank two less than the Space Shuttle. The
thing that constrains them, obviously, is the weakness of the
Russian economy. It's very hard for them to embark on
ambitious programs with an economy the size of Belgium. So
China is probably the most interesting thing that's going on
in space.
Speaker 2: This month. China is expected to be only the third
it's expected to launch their first person into space, they
will make them only the third country ever to put
someone in orbit, and that they've put a lot of
money and effort into this program.
Speaker 1: If anything serves as a spur for human space exploration,
it is likely to be China's ambitions in space, and
hopefully a sentence in America that we want to at
least keep up with China. And they have grand ambitions
beyond just low with orbit. They are planning on setting
up a space station, putting a base on Mars, and
eventually sending humans to Mars. So what's happening in the
US that I think might ultimately surpass all of that
stuff is entrepreneurial space activities, where things are led by
the spurt of free enterprise. And I think there's perhaps
an analogy here where just as DARPA served as the
initial impatus for the Internet and underwrote a lot of
the costs of developing the Internet in the beginning, if
may be the case that NASA has insentially done the
same thing by spending the money develops some of the
fundamental technologies in the beginning, and then once we can
bring sort of the commercial pre enterprise sector into it,
then we can see the dramatic acceleration that we did
that we saw.
Speaker 2: In the Internet. So there are several serious more vehicle
efforts underway.
Speaker 1: Talk about each one's Bertrictann of scale composites. Bert Riccann
is one of the world's foremost aircraft designers, and he's
developed a suborbttle vehicle that they're actually flying out of Mahabi.
This is an X Prize class vehicle. There's John Cormack,
who wrote Quake and Doom. It's probably one of the
best software engineers in the world, one of the best
engineers that I know period, and he's developing a vertical
take of the landing vehicle. Jeff Bezos, who I understand
was here last week, is a huge space advocate and
to my understanding that he intends to spend something on
the order of a billion dollars over the next twenty
years on space exploration, and then space then my company SpaceX,
and I think.
Speaker 2: Within the next several years these entrepreneurial efforts will actually
be what derives space exploration.
Speaker 1: So a little bit about each one. That's a picture
of the potratan effort. It's called White Knight is the
carrier plane. And then spaceship one is the thing that's
held in the belly there. And this project is supposedly
funded by Paul Allen, so there's quite a lot of
capital also, it should make that point, quite a lot
of capital.
Speaker 2: That's sort of entering this entrepreneurial space sector as well.
The only drawback I think of this architecture is that
it's not really scalable for.
Speaker 1: For something that would get to orbit. This is pretty
good for sub orbital, but I think the architecture would
need to change for an orbital vehicle. And there's a
John Comas effort. He's a little irreverent. This is from
his website.
Speaker 2: His his vehicle is a vertical takeoff and landing vehicle.
He's made. He's made really incredible progress for somebody who
has no background in.
Speaker 1: Airspace engineering and is also kind of doing it all
himself with him in like three bodies, so and I
think that will make something that works. Actually, if you
can check out their website Agell Aerospace, it's pretty interesting stuff.
But in order to get to orbit, this would require
a substantial improvement in the mass efficiency, in the engine efficiency.
Speaker 2: And probably be a two stage vehicle. Jeff Bezos, who
I'm sure almost everyone here is aware of. He is
a pretty huge fan of space.
Speaker 1: In fact, his high school baledictorian speech was about the
necessity of humanity expanding to other planets, so it's pretty
important to him.
Speaker 2: From what I understand, this is our effort.
Speaker 1: We're spanning quite a bit more than the three prior
entities that I mentioned, in some cases, probably an or
of magnitude more, because what we're doing is really an
order of magnitude more difficult. We're building an orbital launch
vehicle to two stage, very high efficiency engines, very high
mass efficiency launch vehicle, and it's targeted to the satellite
delivery market. So our approach is really to make this
a solid, sound business. And so I predicated the.
Speaker 2: Strategic plan on a known market, something that we know
for a fact.
Speaker 1: Exists, which is the need to put small to medium
sized satellites into orbit. And so that's what we're going
after initially, and then with that as a as kind
of a revenue base, we will move into the human
transportation market. It's the long term management. Company are definitely
in human transportation, but I think the smart strategy is
to first go for cargo delivery. Essentially satellite livery and
our eventual a great path is to build the successor
to Saturn five, build a super heavy lift vehicle that
could you know, be used for setting up a Moon
base or doing a Mars mission.
Speaker 2: That would be the Holy Grail objective.
Speaker 1: On the upper right there you can see a testifying
of our engine and on the lower right you can
see the our first stage tank. This is an engine
test of our main engine, which is called Merlin YEA
and that that generates about roughly seventy five pounds of thrust.
Speaker 2: At sea level. This is our upper stage engine. It's
about it.
Speaker 1: It's about seventy five hundred pounds of thrust in vacuum.
And this is an accelerated version of our launch sequence.
Our first launch will be from the SpaceX Launch Complex
at Vanderberg Air Force Base an approximately March of next year,
basically early next year, and we will be applying a
Navy satellite, maybe communications satellite. So it's notable because often
launch bicle companies are not able to get somebody get.
Speaker 2: A paying customer on their first flight. That we've been
able to do that. This is also the Falcon development
at SpaceX is the fastest launch veicle development in history,
including wartime.
Speaker 1: That's actually Vanderberg Airport Base, which is about two hours
away from Santa Barbara. Common themes between Zip two and PayPal, well,
I guess both of them involved had had software at.
Speaker 2: The as the heart of the technology.
Speaker 1: Even though ZIP two was in was servicing the media
sector and obviously PayPal was servicing the financial sector, the
the heart of it was really software and and Internet
related stuff. So certainly that's a huge commonality. They were
both in pala Alta, where I lived. I think we,
you know, took a similar approach to building both companies,
which was to have a small group of very talented people.
Speaker 2: And and keep it small. You know, I think PayPal
had at its height probably thirty engineers for for a system.
Speaker 1: That's I would say it is more sophisticated than the
Federal Reserve clearing clearing system. I'm pretty sure it is
actually because the clearing system sucks, So.
Speaker 2: What else is there it?
Speaker 1: Generally, you know, I think the way both zip to
and PayPal upgrade was was really your It was your
canonical Silicon Valley startup. Uh, you know, pretty flat hierarchy.
You know, everybody had a roughly similar cube, and anyone
could talk to anyone. We had a philosophy of best
idea wins, as opposed to you know, the person proposing
the idea winning because they are who they are, even
though there were times when I thought that should have
been the way it goes. And obviously, you know, everyone
was was an equity stakeholder. I don't give us anything.
If there were two paths that you know, let's say
we had to choose through one thing or the other,
and one wasn't obviously better than the other, then rather
than spend a lot of time trying to figure out
which one was slightly better, we would just pick one
and do it. And sometimes we'd be wrong and and
we've picked itself off the more path. But often it's
better to pick a path and do it than to
just vacillate endlessly on a choice. We didn't worry too
much about intellectual property, paperwork, legal stuff.
Speaker 2: We really were very focused on.
Speaker 1: Building the best product that we possibly could. Both to
PayPal were very product focused companies. You know, that's incredibly
obsessive about how do we build something that is really
gonna be the you know, the best possible customer experience
and that that was a far more effective selling tool
than having a giant salesforce or thinking of you know,
marketing gimmicks or twelve step processes or whatever.
Speaker 2: I'm not super familiar with Friendster certainly.
Speaker 1: I mean the essence of viral marketing is do you
have something that one customer is going where one customer
is going to sell another customer without you having to
do anything.
Speaker 2: And there are there are lots of instances of that. Friends,
there might be one. Obviously, Hotmail was one, PayPal was one,
eBay was one.
Speaker 1: And in a situation like that, going back to what
I said about product, product matters incredibly because if you're
going to recommend something to somebody, you've got to really love.
Speaker 2: The product experience.
Speaker 1: Otherwise you're not going to recommend it because you don't
want to burn your friend.
Speaker 2: Hurdles in the space industry.
Speaker 1: Entering the space industry, well, you know, it is a
very complicated regulatory structure, as you might have mansion. When
somebody tries to build an orbital launch vehicle, which is
not really all like distinguishable from an ICBM, there's a
lot of regulation and they probably should be because you know,
you don't want.
Speaker 2: To launch something and end up hitting LA where I live.
Speaker 1: So probably the regulatory stuff was very difficult. The environmental
approvals certainly proven very difficult, much more so than we expected.
I mean here in silicon value. You look, you know
what I came to appreciate is silicon value. You live
in a libertarian paradise. There's almost no regulation. And what
can be very frustrating is that regulation.
Speaker 2: Is often irrational. It doesn't make any sense.
Speaker 1: But you've got somebody there who's simply executing a set
of rules independent where those rules make sense, and you
can try to convince them that rules don't make sense,
and they won't listen to you.
Speaker 2: So probably regulation is the most annoying thing. I would say.
Speaker 1: Overall, I'm very pleased because I think we've had a
very smooth development process and on the whole I can't
complain at all. Yeah, why is it so expensive to
send something into space? Well, let me tell you what
makes a rocket hard. The the energy and the velocity
required to get into orbit is so substantial that compared
to say a car or even a plane, you have
almost no margin to play with. Typically, a launch vehicle
will get about two percent of its liftoff mass to orbit.
So and that's the case for for a Falcon. And
so if you can only get two percent of what
your rocket ways to begin with to orbit, you can.
Speaker 2: If you're wrong by.
Speaker 1: Two percent, you're not gonna get anything to orbit, you know,
come crashing down on the Pacific somewhere. So that means
all of your calculations have to be right. If you miss,
if you mis calculate something, you get an answer wrong,
it blows up.
Speaker 2: And it's very expensive trying.
Speaker 1: To get all your answers right and then double checking
that they're right and testing them all and doing as
much as you can on the ground. I think that's
a lot of what makes rockets expensive. The low launch
rate typically is also what makes rockets Brook's expensive. If
you had, you know, thousands of flights a year, then
it would be a lot cheaper. Although it's a bit
of a chicken and egg because it needs to.
Speaker 2: Be cheaper in order to have thousands of flights a year.
Speaker 1: But at the end of the day, when you in
the final analysis, I would say that rockets really should
be a lot cheaper than they are today. And I
think the way they're both, the way they're operated, is
just very inefficiently. And I think with with SpaceX and Falcon,
we're going to we're going to show that that's that's
the case. Our vehicle will sell for about six million
dollars a flight. That our nearest competitor is the Pegasus
from Orbital Sciences, which is about twenty five million dollars
a flight, and that has less capability than our rocket.
Speaker 2: So Falcon will represent a pretty substantial breakthrough on the
cost of access to space.
Speaker 1: Than Yeah, the customer base with SpaceX is just it's
dramatically different, obviously from PayPal. PayPal is a consumer product,
whereas SpaceX we're selling rockets, and the number of people
who want to buy rockets is quite small. If anyone
here has six billion dollars and once a rocket, I mean,
if they glance to sell it.
Speaker 2: To a.
Speaker 1: But so it's much more of an individual selling process.
There's a great deal more thought that goes into any
purchase of a launch, much more so than signing up
a PayPal account where which doesn't really cost you much.
Speaker 2: So, Yeah, and there's not a lot of viral marketing
that's going to happen with the rocket. I suspect I'm
hoping that you know, I'm not counting on it. It's
a I think a successful entrepreneurs probably come in all
size of shapes and flavors. I'm not sure there's any
one one particular thing for me.
Speaker 1: You know, some of the things I've described already I
think are very important. I think really an obsessive nature
with respect to the quality of the product, it is
very important. So, you know, being obsessive compulsive is a
good thing in this context. Really really liking what you
do whatever area that you get into, given that, you know,
even if you're if you're the best, the best.
Speaker 2: There's always a chance of failure. So I think it's
important that you really like whatever you're doing. If you
don't like it, life is too short, you know, i'd
say if.
Speaker 1: And also if you if you like what you're doing,
you think about it even when you're not working. I mean,
it'll just it's something that your mind is drawn to,
and if you don't like it, you just really can't
make it work.
Speaker 2: I think SpaceX is about thirty people.
Speaker 1: And what we do internally at SpaceX is we do
all of the design analysis, integration of hardware testing, and
then launch operations. But a lot of the heavy manpower
stuff like welding together our primary structure, the heavy machining
and so forth that we outsource, so we'd be a
much larger company, But do all of that internally. And sorry,
you had another party question. Oh yeah, Actually we.
Speaker 2: Don't have any lawyers. The regulatory stuff that we deal
with is very technical.
Speaker 1: It's it's it's really a lot like trying to get
an aeroplane certified with the FAA.
Speaker 2: We're just getting a rocket certified. So so our documentation
is it's very I wish we could offload it to
some latch. They wouldn't know what the heck to do. So,
you know, how did the Wharton degree help? I think it.
Speaker 1: A business degree teaches you a lot of the terminology.
It introduces you to concepts that you would otherwise. You know,
this terminology is somebody to be said for that. It
introduces you to concepts you you would otherwise have to
learn them perrectly. I mean, I think I think you
can you can learn whatever you need to do to
start a successful business, either in school or out of school.
Speaker 2: School, and you know, theory should help accelerate that process.
Speaker 1: And I think it, you know, oftentimes it does it's
it can be an efficient learning process, perhaps more efficient
than perrectly learning lessons.
Speaker 2: But really I think you there are examples of success.
Speaker 1: Entrepreneurs who never graduated high school, and there are those
that have PhDs. So I think the important principle is
to be dedicated to learning what you need to know,
whether that is in school or in Berkeley. Well, I
should point out that Falcon outpost vehicle, it doesn't really
have the same capability as either the Chinese, the Russian
or the Space Shuttle vehicles that I mentioned.
Speaker 2: Falcon would be in the in the light class of
launch vehicles, whereas the Space Shuttle would be a heavy
class launch vehicle. So it's not it's not quite apples
to Affle's comparison.
Speaker 1: However, the right comparison would be Falcon compared to the
Pegasus from Overtal Sciences. Falcon is six million, the Pegasus
is twenty five million. And the way we've got our
prices low, our cost low, is we've really focused on
every element of the launch vehicle. There's really no one
silver bullet that has been responsible for a substantial portion
of the cost savings. It's been really hundreds of small
innovations and improvements. And so we've done improvements in the
propulsion system, the structure, the abionics, and the launch operations,
as well as maintained a very low overhead organization. And
when you add up all the things we've done, those
areas that allows us to produce the launch vehicle at
six million dollars.
Speaker 2: As far as PayPal, there were a lot.
Speaker 1: Of back office relationships that we needed to establish and
to attach to various heterogeneous data sources. We needed to
attach to the credit card system for pricesing credit cards.
We needed to attach to the Federal Reserve system for
doing electronic funds transfers. We needed to attach to is
fraud databases to run fraud checks. That there was a
lot that we had to uh, we had to interface with.
Speaker 2: And and that that that took. That took a while, but.
Speaker 1: It all came together, I think roughly simultaneously. I mean,
developing the software and having it ready for for the
general public reasonably coincided with us being able to conclude
those deals and interface with the outside vendors and all
that took.
Speaker 2: About a year.
Speaker 1: I think one thing that's important is to try not
to serialize dependencies, so if you can put as many
elements in parallel as possible. That a lot of things
have a gestation period and there's really nothing you can
do to accelerate. I mean, there's it's very hard to
accelerate that justation gestation period. So if you can sort
of have all those things just dating in parallel, uh,
then then that is one way.
Speaker 2: To substantially accelerate your timeline. I think people tend to
serialize things too much. We did do a few.
Speaker 1: Patents on PA on the PayPal system, although nothing that
ever actually mattered. So patents are mostly useful in a
defensive situation rather than offensive. It can be very difficult,
actually offensive, but prosecute a patent, so.
Speaker 2: I think.
Speaker 1: I think in certain industries like pharmaceuticals and so forth,
patents can be incredibly important. In software, particularly when you've
got a very rapid life cycle, where you know you
made sure you've got a patent, but now it's redundant,
So who cares? It's less relevant in when you've got
a rapid life cycle.
Speaker 2: Well, I don't you know.
Speaker 1: I've looked at the various There are a couple of
things that I think are pretty bogus. One is space mining.
Another is a space solar power. I mean, if you
if you calculate how much it costs to bring either
the photons from uh space solar power, you know, back
to Earth or the raw material.
Speaker 2: Back to Earth.
Speaker 1: It's the economics don't make sense if you just can't
close the economic case, not not even by it's probably
off by three orders magnit.
Speaker 2: So I think the probably the biggest thing that.
Speaker 1: Can happen is if if we if we decide to
establish a base on the Moon or based on Mars,
and particularly if we if we attempt to make it
self sustaining, uh self sustaining based self sustaining.
Speaker 2: Civilization on on the moon of Mars. That that that
is enormous.
Speaker 1: Opportunity on probably the trillion dollar level, because then you
get basically interplanetary commerce going on.
Speaker 2: I think that that's pretty huge.
Speaker 1: But but it's it's it's you know, it's not going
to be space all power, it's not going to be
space mining. Think so let's see the government, you know,
who knows. Maybe we're being spied upon, I don't know,
but certainly.
Speaker 2: We are.
Speaker 1: There are some restrictions which are really annoying, such as
the fact we're only allowed to employ people who have
at least a green card or a citizen of the US.
We're not allowed to employ anyone who does not have
permanent residence in the US. Basically, if they can't throw
you in jail, they won't let you work work on
rocket stuff. And we have if we talk to any
foreign nationals, we need a technology transfer agreement or something
like that from the State Department. So our second launch
is actually a non US governmental launch, and it's taken
us six months to get the State upon approval just
to engage in a contract discussion with them, so that
that is problematic.
Speaker 2: We had several offers actually from a number of different.
Speaker 1: Entities for PayPal, and in fact, the closer we got
to IPO, the more more offers we got. But we
always felt that those undervalue the company. And subsequently, when
we were in public, I think the public markets kind
of indicated the value of the company. So I think
that's one of the good things about the public markets
is that they're an objective value of companies. When you're
a private company, it's very hard to say how much
you're worth because you have to basically think of some metric.
You know, are you going to go for a multiple
of future earnings. Are you going to go off some
something of revenue? What are your comparable is going to be?
There are all sorts of questions. It's it's really upwor
debate what sort of value your company is When you're public,
it's it's you know, it's whatever the market says you're
you're worth, that's what you're worth.
Speaker 2: So so yeah, so I think.
Speaker 1: eBay made a number of office prior to going public
that were substantially blow our the value once went post
public and that kind of cleared up the disagreement and
then we sold them.
Speaker 2: And what else it was? Actually you had a second
part of the question. Yeah, eBay had a.
Speaker 1: It was initially bill Point, and there was eBay Payments,
and and it was really a pretty tough, long running
battle of PayPal versus versus eBay's payment system.
Speaker 2: And it was certainly a very challenging.
Speaker 1: I mean, I think it was you know, there were
times where it felt like we were trying to win
the land war in Asia and you know, they kind
of set the ground rules or trying to beat Microsoft
in their own operating system.
Speaker 2: It's really really pretty hard.
Speaker 1: That took a lot of our effort to to actually
beat eBay on their own system, and one of the
long term risks, certainly for the company was that eBay
would one day prevail, and one way to retire that risk, obviously,
was to sell to eBay writing software during the summer
of ninety five, trying to make useful things happen on
the Internet, and I wrote something that allowed you to
get maps and directions on the Internet, and.
Speaker 2: Then something that allowed you to do.
Speaker 1: Online manipulation of content, kind of a really advanced blogging system.
And then we started talking two small newspapers and media
companies and so forth, and we started getting some interest.
I mean, have time to be like, what's the internet
un in Silicon Valley?
Speaker 2: But then occasionally somebody would.
Speaker 1: Buy it and they would get a little bit of
money from them.
Speaker 2: And then there was basically only about six of us.
Speaker 1: There were myself, my brother who I convinced to come
down from Canada, and a friend of my mom's so
and then and then three salespeople we hired on contingency
by putting an ad in the newspaper. But things were
pretty tough in the in the early going. I didn't
have any money in fact, I had negative money.
Speaker 2: I had huge student debts so.
Speaker 1: Well, in fact, I couldn't afford a place to stay
and an office, so I rented an office instead because
that was that was actually I got a cheaper office
than I could get a get a place to stay,
and then we I just sort of slept on the
futon and showered at the y m.
Speaker 2: C A on Pagemall and al Camino.
Speaker 1: That's in the best shape I've ever been, you know,
going to shower, workout.
Speaker 2: And you get to go.
Speaker 1: And then there wasn't There was an I s P
on the floor below us, just like a little tiny
I s P and which ruled hole through the floor
and connected a null modem cable that gave us our
Internet collectivity for like one hundred bucks a month.
Speaker 2: So, I mean, we had just an absurdly.
Speaker 1: Tiny bone rate, and we also had, you know, a
really tiny revenue stream. But we actually had more revenue
than we had expenses. So so when we went and
talked to VCS, we can actually well, like I said,
it's there's no silver bullet that I can point to
as to why the our vehicle is a lot cheaper.
We've really focused on reducing the cost across the board.
I mean, one thing, our overhead in a thirty person
company is, you know, an automaticitude less than it is,
and Lockheed're bowing just just for starters. So even if
we did everything the same and both the same launch vehicle,
we'd be conserveably cheaper. And then every decision we've made
has been with consideration to simplicity. And the reason simplicity
is because that both improves the reliability as well as
it reduces your cost. If you've got fewer components, that's
fewer components to go wrong and fewer components to buy.
I think there's there's I think a fairly significant innovation
in our airframe, which is a semi pressure stabilized monocoque
with variable skin thickness and a common bulkhead.
Speaker 2: If you know what that means, I need a diagram
to explain it all.
Speaker 1: But the net result is that it's very cheap, and
it's very mass efficient, and I think easy to test
and quite reliable. Our avionic system. To give you ann
example our avionic system, we use an ethernet on the
vehicle to communicate. They may that may not sound like
a great innovation, but it is an orange vehicles. Well,
the other orange vehicles communicate in the vehicle by these
cereal cables that.
Speaker 2: Run the entire length of the vehicle.
Speaker 1: And so you've got these these giant copper bundles as
thick as your arm running up and down the vehicle
makes it heavy, it makes it expensive.
Speaker 2: And there's just so this, there's things like that which
when you add them all up, it makes a huge difference. No,
that's that's a good question. That's a good question. No,
I would not. I think space X is not this
is advanced entrepreneur.
Speaker 1: And it may also I can't tell you how many
people have said that, you know, the fastest way to
turn uh you know, but the fast way to make
a small portune in the aerospace industries to start with
a large one.
Speaker 2: So you know, hopefully that doesn't doesn't work out.
Speaker 1: But I would definitely I think space is a tough
one for first time entrepreneurs. You're better off starting with
something that that requires low capital, and space is a
high capital effort.
Speaker 2: Sorry, last question,