Space: Building a digital infrastructure above the sky

Venture capitalist Mark Boggett offers an investor’s view of the strides being made in space technology, its practical applications, and its potential impact.

More than ten thousand satellites have launched since the beginning of the space age in 1957. It’s expected that tens of thousands will blast off in just the next few years. Space technology is here and growing fast. One of the most prolific investors in the vast region above the sky is Mark Boggett, managing director of venture capital firm Seraphim Capital. In this episode of the At the Edge podcast, he joins host and McKinsey partner Mina Alaghband to help spur ideas about how organizations can tap into the next frontier.

An edited transcript of the discussion follows. For more conversations on cutting-edge technology, follow the series on your preferred podcast platform.

This digital platform in the sky is really going to disrupt virtually every industry. What we are now seeing is a wave of interest from companies and corporates that traditionally would have no interest in space.

Mark Boggett
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Audio

Mina Alaghband: That’s Mark Boggett, managing director of Seraphim Capital, a VC [venture capital] firm with a special focus on space technology. He’s here to give us a primer on the economic opportunities in the sky. Welcome to At the Edge, a production of the McKinsey Technology Council. I’m Mina Alaghband.

Mark, thank you so much for joining us today. You were the first space fund and one of the most prolific investors in space. Could you start by painting us a picture of what people mean when they say the space ecosystem or the space economy?

Mark Boggett: There are three big trends that are driving the space ecosystem. We’re all familiar with SpaceX and how they’ve driven the cost of launch down to less than a $1,000 per kilo today. And behind SpaceX, there are 150 other rocket-launch companies that are all using reusability and 3-D–printed components. That’s set to drive down the cost of sending a kilo to space even further. So that’s one side of the equation.

The other side is a revolution in the satellite industry. Typically, satellites in the past have cost $500 million to $1 billion and been the size of a car or a bus. What’s happened in recent years is that entrepreneurs have been taking technology components from other adjacent sectors—such as consumer electronics, oil and gas—and creating satellites that are smaller, faster, cheaper. These satellites are the size of a microwave or a shoebox or something that fits in the palm of your hand, but they’ve got much of the functionality of the satellites that cost hundreds of millions of dollars.

Bringing these two things together—low-cost launch, low-cost miniaturized satellites—means we’re now in an era where we’re capable of launching hundreds or even thousands of satellites in a single constellation. And this, we believe, is building a digital infrastructure in the sky. Climate and sustainability, connectivity, autonomous mobility, IOC [initial operating capability], smart cities, defense—these are trillion-dollar market opportunities that are now being addressed from this digital infrastructure in the sky.

Mina Alaghband: It sounds like the rate of growth and innovation in space has accelerated. What does this mean in terms of the kinds of businesses you’re investing in and seeing being developed?

Mark Boggett: We’re still only in the foothills of growth of this market. There have actually been only 13,000 satellites launched since the history of the space age. Today, 3,500 satellites are operational in space, and more than 75 percent of those were launched in the past three years. Over the next few years, there are going to be tens of thousands or even hundreds of thousands of satellites that are going to be launched. This is where the opportunity is right now: investing into the companies that are creating these new opportunities in these very broad markets from climate, connectivity, and mobility.

Mina Alaghband: You’ve described the opportunity in terms of the implications for the Earth economy. Maybe we could start there—what are the most exciting examples of use cases that are going to be enabled by this new sort of digital ecosystem between near space and Earth?

Mark Boggett: One of our portfolio companies, for example, has developed cell towers in space, where they are able to communicate with any mobile phone without any hardware or software adjustment to that phone. This company engages with the customer base through relationships with mobile network operators. They’ve signed up seven operators and have 1.8 billion customers through those relationships right now, and they’re building up their infrastructure to focus on the equatorial region. Once they’re able to start providing that service, it’s going to enable the unconnected to get connected.

Half the world today is 5G. The other half of the world is 0G. At a point when anybody can use a low-cost smartphone to get online, it’s going to drive health, it’s going to drive education, it’s going to improve standards of living around the world. So that’s one example of big impact on Earth from deploying technology in space.

Let me give another example. This company has developed the world’s largest constellation of radar satellites. A radar satellite enables you to see the ground in 50-centimeter resolution in all conditions—regardless of whether it’s day or night, what the weather is, or what the cloud cover is. By building a large constellation, they’re able to revisit the same square meter of Earth every three hours. At 50-centimeter resolution, they’re able to determine change detection for that square meter of Earth. So they are building up a database of what happened around the world an hour ago, a day ago, a week ago, a month ago, a year ago, and you can use that data to infer what might happen looking forward. This data set is applicable to every single vertical you can think of—in particular, defense, climate, and many applications around the insurance market.

Mina Alaghband: The examples you gave take existing industries and say, “How can I apply a significant amount of satellite and imaging data about what’s happening on Earth and accelerate or monetize my business model better?” Are there businesses you’re seeing that create new categories of industry or will really shift the way in which the Earth economy operates more broadly?

Mark Boggett: I think that, in the first stage, we’re going to see significant disruptions to existing categories. Insurance is a great example. What’s insurance about? It’s about evaluating an asset, monitoring an asset while it’s being insured, and then evaluating any claims. All of that can be done automated from space. So that’s going to be able to take a huge amount of cost and time out of the system for the insurance market, and it’s going to open a whole range of new market opportunities.

The next stage we believe space is going to be heading in the next five years or so is around lifting industries, particularly dirty industries, from Earth into space. The example I like to give here is around data centers. What’s required for a data center? A large amount of land, a large amount of cooling, and a large amount of energy. All those things are available in abundance in space—in particular, by being able to draw upon the sun for the power. We’ve talked about how there are going to be tens and hundreds of thousands of satellites in space, all generating data in real time and connectivity. There’s no reason to bring that data back down to Earth. It’s only the insights that we want.

And then looking a little bit further out, I believe there are some huge new opportunities that are going to be presented by space: things like solar energy from space—so space energy, solar farms from space, being able to provide clean energy to our planet—[and] space agriculture.

Mina Alaghband: I have this vision in my head of looking up from Earth and seeing a constellation of data centers and satellites, floating vertical farms. I think some of these things, especially as we start to get into the outer reaches, become almost hard to imagine. It’s hard to visualize what that’s going to look like without dipping into the realms of science fiction. How should we categorize the opportunities in space?

Mark Boggett: I’ve got quite a simple answer to that question. We are very much focused on space looking down at Earth at the moment, because that’s where we believe the largest opportunity is—taking this digital infrastructure and applying all of the data and connectivity to address many of the problems that we face on Earth, creating a huge amount of opportunity and a market, which we believe is a trillion-dollar market opportunity. It’s over the next few years that it’s going to be a big difference.

GPS is something that we take for granted. It’s in our pocket and drives our everyday life. I feel that there are going to be four or five other GPS-like services. They’ll become a routine part of our life and the data that drives our existence. And all that’s going to happen within a handful of years.

Mina Alaghband: I’m imagining what those applications will be in my everyday life and how, as a consumer, this will change my experience and options.

Mark Boggett: If you take yourself back to the year 2000 and you said, “How is the internet going to affect my life?” you wouldn’t have thought about things like the total disruption of the taxi industry by Uber or the disruption of the hotel industry by Airbnb. So all these huge impacts that are going to be delivered as a result of this new data—that’s really difficult to get your head around.

One thing that I do know is going to be the most impactful is when you start to marry different data sets. These are some of the big things that have really driven GPS forward—using that data in conjunction with other terrestrial data. There are so many different forms of new data sets that are going to come from space. Simple things like finding parking spaces are going to be very straightforward over the next few years, and we’ll forget how we had to drive around, trying to avoid yellow lines and things like that. All these things, I believe, are going to incrementally come in and then really impact us.

Mina Alaghband: For those of us not involved day to day in the space industry, there’s a question in our minds of how is this time different? Is this really the inflection point? Or is this a moment of hype like 2000, and we might see some receding excitement from the market?

Mark Boggett: We believe it is different this time around because we are right now at the inflection point across key areas. One is global security: we’re in an environment where defense budgets are increasing at a rate that we’ve never seen before, certainly not for decades.

We’ve then got issues around food security. This platform from space is going to be an enabler to ensure governments have sovereign security over food.

And then, of course, we’ve got climate and sustainability. Space holds the answer to many of the issues that are faced by the planet: improving our ability to use our resources more efficiently, improving our ability to monitor the actions of bad actors. Those that are chopping down rain forests, those that are dumping effluent into rivers—through this digital infrastructure, there is no place for them to hide. They will be caught. They will be held to account.

Mina Alaghband: One of the big technology shifts that you just described is reducing the cost per kilo of taking things into space. Do you see any technological advancements on the horizon that give you confidence that it might happen in the next five, ten, 15 years?

Mark Boggett: Yes, I do. We’re about to make a huge step change during the next year when companies like SpaceX bring out their next-generation rocket, Starship, that has significantly more capacity than any other rockets previously and, as a consequence, further significantly reduces the cost of sending a kilo into space.

Then there are new technologies that are being developed. Some companies are literally throwing objects into space. If you think about getting raw materials into space, that will enable us to be able to start building out this new level of infrastructure that we’re talking about.

Mina Alaghband: Is there an international coalition or governing body that thinks about things like space debris?

Mark Boggett: Yes, the closest to that is the United Nations, and they are very focused on this issue. There is complete agreement globally about what needs to be done. And there are really several things that need to be done. One is that satellites that are being launched need to have their own independent propulsion capability so that when the satellite is broken down or has reached the end of its life, that propulsion can send it back down toward Earth, where it burns up in the atmosphere. Number two is where they have a contract with a company who will remove a broken satellite or a satellite that has reached the end of its life. And then number three is to have insurance, and that insurance will then have contractual relationships with the companies that can move those technologies out of space.

Space companies are very concerned about leaving anything behind in space. It’s really the governments that need to moderate their own behavior. We’ve seen governments that are doing ASAT [anti-satellite weapons] tests, where they shoot down their own satellites to demonstrate their capability. We’ve got examples of governments around the world still leaving behind fairings from large rockets when they launch into space. So there really is this need for a greater level of regulation.

And it is slowly coming. The companies are in place that will enable this—are already here today. But I fear that it’s going to take a world event to make agencies coordinate and regulate collectively.

Mina Alaghband: How do you drive governance in space?

Mark Boggett: That remains a key challenge. On a per-country level, we see the methods that the different governments are using to try and provide some governance. But the issue is that, while the US can provide restrictions from using radar data in the US, they’re not capable of stopping that data from being used in other countries, so it’s possible to just move to a different country and continue to sell that data.

The regulation is meaningfully behind where the operators in the market are today. That’s creating an opportunity for the companies that we’re investing in who are behaving responsibly. There’s also a huge amount of catch-up that’s required by the regulators to ensure that appropriate governance is in place.

Mina Alaghband: How do we think about the relationship between countries on Earth and how they may interact in space?

Mark Boggett: If you look at the International Space Station, this was a great example of harmony between different nations. I think recent events are creating a new space race. I think that space is going to be a new area where competition is really going to start driving change.

Mina Alaghband: Are there things that companies and business leaders need to be thinking about to navigate that complexity?

Mark Boggett: Sadly, I think that the time of globalization is behind us. Companies are now thinking about bringing the supply chain closer to home because of the issues that we’ve suffered during COVID and that have now been subject to the political and war issues that we’re seeing around the globe. All companies are thinking about that right now. So we’re going to see a lot more manufacturing capability coming back to Europe, back to the US.

Mina Alaghband: You described an interesting set of opportunities for entrepreneurs in the space industry. But how are corporations starting to think about the opportunities in space?

Mark Boggett: We’ve talked about how this digital platform in the sky is going to disrupt virtually every industry. What we are now seeing is a wave of interest from companies and corporates that traditionally would have no interest in space.

For example, many of the big car manufacturers are now making sizable investments into space to enhance the capability of GPS infrastructure so that their autonomous vehicles are secure and safe. Increasingly, we’re seeing pharmaceutical companies that are looking to space to be able to take their experimentation to the next level. For example, billions of dollars have been invested in pharmaceutical drugs that haven’t successfully made it all the way through the clinical-trial process. We’re now entering an era where those drugs are being taken into space and experiments undertaken in zero gravity, where all the molecules are formed in a completely different way. And there’s an expectation that there’s going to be some fundamental breakthroughs that couldn’t have been done in a gravity environment.

Mina Alaghband: If you don’t mind, I’m going to ask you a few quick-fire questions. Among all the companies you’ve seen innovating in space, which one gets you the most excited?

Mark Boggett: One of our portfolio companies is truly exciting. This company already has 150 satellites in orbit. They’re all the size of a shoebox. And what they do from those satellites is they monitor the weather, they track every boat on every ocean, and they track every plane in the sky. That is a very significant amount of very valuable data that’s being collected from this very low-cost infrastructure.

Mina Alaghband: What is your biggest concern when it comes to the space economy?

Mark Boggett: The militarization of space is my main concern. We’ve seen a significant increase in government budgets, and I believe that much of that is going to be directed into the space domain.

Mina Alaghband: What is the most inspirational or guiding science fiction that you’ve read or watched?

Mark Boggett: I’m a big fan of the book Ulysses by James Joyce. That has always been a fascination for me.

Mina Alaghband: Mark, you’re the first person I’ve heard who describes Ulysses as sci-fi. So I think that’s already quite novel.

Mark Boggett: It’s just my view of the book and the way I believe that it sort of underpins science.

Mina Alaghband: Do you think you’ll make it into space, or do you think you’ll have to wait for your daughter’s generation to make it up there?

Mark Boggett: I think that I will make it into space, but I’m going to wait until such a time as there’s somewhere to go to. Going up in a space rocket and coming down after a few minutes of weightlessness is not something I’m prepared to do. But if I can go and spend a little bit of time on a space station, in a space hotel, or even stay in a building on the moon, I could certainly be encouraged to do that.

Mina Alaghband: Mark, thank you so much for coming on.

Mark Boggett: Thank you very much.


At the Edge is a production of the McKinsey Technology Council. It is hosted by Mina Alaghband. Contact us at McKinsey_Technology_Council@mckinsey.com.

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