The race to orbit: The new SPAC rush for space startups

Shutterstock/JP Chatt

A new funding gold rush underscores the current narrative of space companies pursuing orbital and suborbital exploits. As a result, a growing number of investors are pouring capital into space technology. At its epicenter is a relationship between space startups and SPACs, also known as blank check companies.

Chad Anderson, managing partner of Space Capital, a seed stage venture capital firm investing in the space economy, explained: “In the same way that every company today is a technology company, every company of tomorrow will be a space company.”

So, what exactly are SPACs?

A SPAC, or special-purpose acquisition corporation, is a shell corporation or a company that only exists on paper with no active business operations or assets. SPACs are used as a financial instrument to raise capital from investors through the channels of an initial public offering (IPO). The funds raised from the IPO is then used within a one-to-two-year period to finance ventures, such as acquiring private firms and taking them public, or merging with startups to provide them access to long-term capital to finance infrastructure development and expansion.

SPACs are not new to financial markets and their use can be traced back to the 90s. In recent years, they have initiated a boom in the space startup sector, placing startups within reach of additional funding as well as enabling a smoother trajectory to public listing through mergers or SPAC deals.

Today, capital allocated for space investments can be divided into three main technology categories, which include infrastructure (firms that manufacture satellites and rockets), applications (firms that develop space-reliant systems such as navigation satellite systems) and distribution (firms that develop technology that integrates with orbital-based networks).

Let’s take a look at Redwire, a company established in June 2020 by private equity firm AE Industrial Partners by combining two space technology firms, Adcole Space and Deep Space Systems. Since its creation, the company has acquired several space companies, including Made In Space, LoadPath, Roccor and Oakman Aerospace. Amerigint and Voyager space holdings are also space firms that acquired multiple small to medium-sized space companies from March 2020 to March 2021. However, in late March 2021, Redwire announced that it was intending to go public through a merger with Genesis Park Acquisition Corp, a SPAC that listed in November 2020. The merger, which is expected to be finalized in the second quarter of 2021, will list Redwire as a publicly traded company on the New York Stock Exchange (NYSE), giving the company access to $170 million in available capital and a market valuation of $615 million.

Similarly, in October 2019, Virgin Galactic raised $720 million through an IPO following a merger with SPAC Social Capital Hedosophia Holdings Corp. This valued the Richard Brandson-backed company at $2.3 billion. Another merger expected to close in the second quarter of 2021 is between Holicity, a SPAC established in 2020, and space firm Astra, a small launch vehicle developer. Astra announced the merger in early February 2021 and expects to raise approximately $500 million in capital, together with a market capitalization of over $2 billion.

According to a report by Space Capital a New York-based firm, space infrastructure companies posted a record investment year with $9.1 billion poured into Equity investments in 2020. Morgan Stanley forecasts that new trends in the satellite broadband and commercial human space travel sectors could likely boost revenue from the space economy from $350 billion in 2020, to over $1 trilllion by 2040.

Today, space infrastructure investments record $2 billion in equity investments with the likes of Space X and OneWeb receiving $850 million and $400 million respectively in market funding rounds in the first quarter of 2021. Seraphim Capital state that funding for space startups is expected to double in the first half of 2021 as compared to the same period in 2020. Following the 12 months leading to March 2021, 11 SPAC deals have been announced and space investments are expected to rake in approximately $10 billion in 2021. The deals announced include mergers with SPACs for space companies such as Spire Global, Blade Urban Air Mobility, Redwire, Momentus, Rocket Lab, Astra and BlackSky.

Although the SPAC-merger model has proven attractive to investors looking for quick returns on their investments, and space companies seeking access to capital to finance their long-term development, financial regulators are paying close attention and implementing changes. New regulations issued by US Securities and the Exchange Commission (SEC) in recent months have added complexities that market players see as an added risk to the model. This has sparked uncertainty, resulting in delays and additional paperwork for unions between private space firms and SPACs.

Where is the rest of the world?

In the Far East, a similar space industry boom is on the rise. China is preparing to establish its fifth commercial spaceport to expand its launch capacity in preparation for the surge of activity in its private space sector. China also expects to double its total number of annual launches in the coming years. Today, China-based space startup firms such as iSpace, OneSpace, Landspace, CAS Space, Deep Blue Aerospace, Linkspace, Spacetrek and Galactic Energy have all attempted launches and are preparing for more in 2021 and 2022. China aims to establish a modern space infrastructure system that taps into integrating and augmenting communication, navigation and satellite systems. This is all part of a five-year plan called ‘building a modern infrastructure system’ and a 2035 vision that hopes to extensively develop the use and application of reusable launch vehicles.

The race to occupy low Earth orbit by deploying networks of thousands of satellites is primarily led by the reusable rockets of Elon Musk’s SpaceX and Jeff Bezos’s Blue Origin. Despite harboring ambitions to join the ranks, Europe continues to lag behind the global interest in space exploration. Red tape and fractured inter-organizational relations between the European Space Agency (ESA) and the European Union has hampered possibilities for healthy competition and smooth incremental development of space firms.

As a result, this has compelled younger European startups to relocate further East to seek out environments with more open strategies for space expansion such as China and Japan. In 2019, European private space startups raised €188 million in funding, a fraction of its US counterparts, which brought in €5 billion in private funding.

However, in the hands of Josef Aschbacher, the new director-general of the ESA (since March 2021), Europe’s space industry might receive a makeover. Aschbacher aims to spark competition in the industry by reducing restrictions from red tape barriers to allow faster technology development and restructuring the agency to open up room for orbit launches by competitors with lower-priced technology.

Predictably, there will be some resistance to the reform. But, considering the fast-paced models in both the East and the West, these are necessary changes for leveling the playing field.

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