This article summarizes an episode of Sourcery with Molly O’Shea’s video series featuring Shaun Maguire, a partner at Sequoia Capital.
Shaun Maguire, a partner at Sequoia Capital/ Photo credit: Sequoia Capital
Shaun Maguire, a partner at Sequoia Capital, argues Elon Musk is underrated despite his fame. This view shows a special plan he uses and explains why the SpaceX IPO may be the best way to make money in history.
The market looked full
In 2019, investors saw SpaceX as overpriced for its market, which was not growing.
The reason to invest seemed wrong. The company’s value was significantly higher than the entire launch market, which made growth look impossible. This limit made the company a risky bet against popular opinion.
Maguire says, “SpaceX in 2019 was just a launch company… The total global launch market… is probably like a US$5 billion to US$6 billion market… You probably have like a billion [dollars] of profit if you capture 100% of the market. Then, the company’s valued at US$36 billion… [so you were] investing at 36 times the theoretical maximum earnings… People just thought it was insane or stupid.”
But this calculation missed a part of Musk’s plan
The mistake was thinking the market couldn’t grow. Once SpaceX figured out how to reuse its Falcon 9 rockets, it changed the cost of going to space. The company suddenly had a good problem: it could launch more rockets than the world needed.
Maguire says, “[Musk] intuitively understood, and the company understood, that after they passed through this giant, kind of challenging phase of getting the Falcon 9 to be reusable… it was finally time to start thinking about what to do with all this extra capacity, and that’s when they got really serious about Starlink.”
This ability was then used to launch Starlink, creating a new and larger market from scratch.
A different way to grow
This ability to create new markets is not an accident. It comes from a plan Musk uses in all his companies.
To others, the plan can look confusing or wasteful. For years, his companies have built big things, like giant factories or a fleet of reusable rockets, with no quick profit. Competitors who focus on short-term profits often see this as wasting money with no clear way to earn it back.
Maguire describes the model, “He builds, the way I describe it is, he builds up potential energy, and then he converts that potential energy into kinetic energy. Whereas a lot of other companies… whenever they have potential energy, they’re just immediately converting it into kinetic energy.”
“Elon builds gigafactories that are not producing any cars or revenue for five years, and then immediately start making a million cars,” Maguire notes, “with xAI, they’ve been building… the biggest coherent training clusters in the world, and they’re just not really focused on monetizing them right now.”
Musk’s focus on vertical integration
The usual way tech companies work is to outsource tasks to move quickly. Musk’s companies, however, are built on vertical integration, which Maguire sees as their main advantage.
Making money is a start, not an end
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