Entrepreneurship

As Richard Branson And Jeff Bezos Ready For Liftoff, SPACs Flock To Space Startups

Read more at www.forbes.com

This is an excerpt from Deal Flow, Forbes’ daily newsletter about big buyouts, big mergers and the rest of Big Finance. Want a new edition in your inbox every afternoon? Subscribe here.


A couple hours after this email hits your inbox, Richard Branson will become the first billionaire to go into space—or at least something close to it.

The adventurous tycoon is scheduled to join the crew of Virgin Galactic’s Unity 22 mission when it lifts off this morning from the company’s spaceport in Truth or Consequences, N.M., venturing into the stratosphere a mere nine days before Jeff Bezos is scheduled to make his own foray into the upper echelons of our atmosphere. While Branson won’t pass the Kármán Line, a point 62 miles above the Earth that’s widely considered the official beginning of space, his voyage will still mark a milestone in this new era of billionaire-fueled spaceflight.

In the past several months, though, it isn’t only ambitious billionaires and optimistic venture capitalists who are pumping huge sums of money into company aiming to do business in space. The hundreds of SPACs that have raised hundreds of millions of dollars over the past year or so also flocking to the space industry, emerging as a popular new path to the public market for upstart companies in search of funding that may still be years away from the sort of financial maturity that would attract investors to a traditional IPO.

It’s little surprise that the trend began with Branson. In October 2019, Virgin Galactic went public by merging with a SPAC backed by Chamath Palihapitiya, giving the space tourism startup a valuation of about $1 billion. The stock has proven rather volatile in the nearly two years since, but the overall trend is up: Today, Virgin Galactic has a market cap of more than $12 billion.

This week brought blank-check mergers from two other companies with their eyes on the skies. Planet Labs, which sells proprietary data collected from its network of imaging satellites, agreed to go public at a $2.8 billion valuation. And Satellogic, another imaging company that offers “satellites-as-a-service” which clients can direct to observe areas of the Earth that are of particular interest, signed on for an $850 million SPAC transaction.

At least a half-dozen other high-profile space startups have also lined up SPAC mergers since last October, combining to raise billions of dollars. Small-satellite launch startup Rocket Lab landed a $4.1 billion valuation in its blank-check deal. Satellite data startup Spire Global raised $475 million to fuel its competition with companies like Planet Labs. And Branson might have another space SPAC in the works: Reports have swirled this year that satellite launch provider Virgin Orbit is in talks for a combination that could come at a $3 billion valuation.

All these deals have obvious benefits for the companies involved and their investors. But they could also be a good sign for the space community as a whole. A lack of substantial exits has been a longtime quandary for investors in space startups—even if you think a company could change the world, it can be tough for a venture fund to commit capital if there is little prospect for a timely exit. These blank-check mergers could help create a positive feedback loop.

Of course, the rapid rise of SPACs has already proven transitory. But the space industry has a history with SPACs that dates back even farther than Virgin Galactic’s deal in 2019. Way back in 2009, a satellite communications company called Iridium went public by combining with a SPAC sponsored by Greenhill & Co. And more recently, in 2017, Italian rocket-builder Avio completed a blank-check merger.

There are some ways in which the space industry and the blank-check deal are a perfect match. After all, SPACs allow companies to make the sort of forward-looking financial projections (for now, at least) that aren’t allowed in IPOs, and those forward-looking projections are often the only thing a company that wants to launch rockets into space will have to go on. Even if the past year or so of SPAC activity remains a historical outlier, it seems nearly certain that at least some blank-check vehicles will continue to emerge. Perhaps space startups will remain a long-term SPAC target.

But there have also been recent reminders of the risk that comes with investing in space. A planned SPAC merger for space transportation startup Momentus has been complicated by U.S. government worries about foreign ownership, leading to the resignation of Mikhail Kokorich, the company’s Russian CEO. Earlier this month, Momentus announced a revised deal agreement that knocked $500 million off its valuation.  

Then, there’s the saga of OneWeb, a British satellite internet provider aiming to compete with the likes of SpaceX and Amazon in the realm of ubiquitous connectivity. Despite having raised more than $4 billion in private funding, per PitchBook data, OneWeb was forced to file for bankruptcy last March. It emerged later last year with $1 billion in new backing from the U.K. government and India’s Bharti Enterprises.

As it turns out, the business of leaving our planet can be difficult.

Which makes it all the more impressive that companies like Virgin Galactic, SpaceX, Planet Labs and Rocket Lab are so far succeeding in their quests to explore the skies. And when you see footage of Branson and the rest of the Virgin crew taking off from the New Mexico desert today, remember: It wouldn’t have happened without SPACs.

Read more at www.forbes.com

Show More

Related Articles

Back to top button