During the special purpose acquisition company (SPAC) boom in 2020 and 2021, a record number of startups making rockets or spaceplanes went public through reverse mergers with so-called blank check companies. Since last year, however, many of these companies have faced growing financial difficulties as a bear market took hold and their product development stalled.
Virgin Orbit, Richard Branson’s satellite launch company, is teetering on the brink of bankruptcy little more than a year after going public in a SPAC deal. Facing a funding crunch, the company on March 15 paused operations and is scrambling to find a buyer. Branson’s other space venture, Virgin Galactic, has lost half of its market value since going public in 2018 and its stock is down more than 90 percent from its peak in June 2021. Shares of Astra Space, a California rocket maker that debuted on Nasdaq in July 2021, have fallen so far that the company recently received a delisting warning from the exchange. Even Rocket Lab, a small rocket maker with an impressive launch record, has seen its market cap shrink 60 percent since going public in late 2020.
Stock performances seem to suggest these companies went public too early and their fragile financial conditions failed to give investors confidence. Since few of these space startups are building viable businesses, it also raises the question of whether there is actually a demand for their products and services.
Do space startups have a real market?
Currently, the global commercial space-launch market is dominated by SpaceX, the United Launch Alliance (ULA)—a joint venture between Lockheed Martin and Boeing—and a handful of European companies. Russia’s Soyuz rocket, a major player in the space industry before 2022, hasn’t worked with any Western clients since the start of the war in Ukraine.
There is still room for new launch providers, industry insiders say. A record number of companies are producing satellites for various uses and there are not enough rockets to launch them. At the Satellite 2023 conference this month in Washington, D.C., ULA CEO Tory Bruno said the space industry is dealing with a global shortage of launch services for the first time in 30 years.
The unfulfilled demand encouraged many rocket startups to go public before they were financially viable, said Andrew Chanin, the founder and CEO of Procure Holdings, the investment firm behind the Procure Space ETF, an exchange-traded fund focusing on the space industry. The expectations of potential clients may have influenced them as well.
“When government or military clients are looking to contract a space company, they are viewing a publicly traded company as potentially having a more stable footing and more long-term viability,” Chanin said.
From conversations he’s had within the industry, “it does appear that there have been some benefits of them being public companies, maybe not reflected in their share prices yet,” Chanin added. “It’s possible that them being public alone helped bring more contracts than they would have otherwise.”
Chanin’s ETF owns shares in Astra Space, Rocket Lab, Virgin Galactic, and dozens of satellite companies. It used to be a shareholder of Virgin Orbit but liquidated that stake recently.
Chanin said he’s not surprised at Virgin Orbit’s financial difficulties resulting in a possible sale of the company. In fact, he said there are likely to see more consolidations across the space industry.
“Many space startups have technologies that are really close to being successful products. But they may end up not making enough money and get acquired by larger companies,” he said.
But he doesn’t expect Virgin Orbit’s turmoil to spread to other early-stage space companies—a fear many investors have after witnessing the recent upheaval in the banking sector.
“Not all crises are the same. Virgin Orbit has been known to have had numerous struggles since the beginning,” Chanin said. “We are talking about the space industry, where nothing is taken as a guarantee. There’s constant testing, constant failure, constant fixing. For a company to get off the ground is one thing. For it to be successful and continuously successful is another.”