Emailed on July 12th, 2019 in The Friday Forward

In September of 2017, Chamath Palihapitiya, the early Facebook executive who left the company to found venture firm Social Capital, founded Social Capital Hedosophia as a special-purpose acquisition company (SPAC).

At the time, he told Techcrunch he believed the traditional IPO model for tech startups was broken and wanted to offer an alternative.

Since then, the "blank check company" has largely remained idle (with recent closing prices being at $10.69 from its original price of $10, and making no investments). Well, that all changed this week.

This week Chamath announced he's teaming up with Richard Branson, taking a 49% stake in Virgin Galactic with an additional $100M of his own money. The new space race is now at full throttle.

Check out this insightful thread from ArkInvest's Sam Korus for the full breakdown, but here are a few highlights on the economics:

• The vision for Virgin Galactic is space tourism in the near term and point-to-point hypersonic travel in the future. Something Musk and SpaceX have plans for as well. (Imagine going from LA to Tokyo in 2 hours)

• The company is valued at ~$1.5 billion and they have spent ~$1.5 billion on R&D over 15 years. So it’s basically an acquisition of derisked R&D efforts.

• Galactic is positioning itself as a head to head competitor with Blue Origin, highlighting that it thinks it can be first to market in Q1 2020

• $250k will be the starting price for flights (baked into a 4-day experience)

• They expect to fly 66 people in the first year. Only 571 people have ever been to space & they plan to do 10% of that in year one and dwarf it by year two.

• A look at the unit economics. Costs are ~$420,000. At $250,000 a ticket and 5 passengers, revenue is ~$1.3M.

• Projecting a 73% gross margin. This is why Chamath thinks it looks like a SaaS company under the hood. Though no recurring revenue

Turns out, space travel for the ultra-wealthy could be a pretty lucrative business.