The space investment crunch
by Jeff Foust
|“The majority of SPACs that did go out that way have not done well and probably should not have been out there,” said Collett.|
Astra, a company best known for small launch vehicle development, announced that it received a delisting notice from the Nasdaq exchange, where the company’s stock had been traded since going public through a merger with a special purpose acquisition company (SPAC) in mid-2021. Astra’s stock had closed below $1 per share for 30 consecutive business days, triggering the notice. The company now has six months to get the stock up above that $1 threshold for at least ten straight days or be taken off the exchange.
It's a dramatic fall for Astra, whose stock closed as high as $15.47 shortly after the SPAC merger closed. On October 24, Astra’s stock closed at 51.75 cents, down 1% for the day and more than 96% from that peak in July 2021. The company said in a SEC filing that it will monitor the price of the stock and “consider available options” if it appears unlikely to trade above by next April’s deadline.
Astra faces some unique extenuating circumstances: last August it announced it was retiring its Rocket 3.3 vehicle after its latest launch failure in June and would focus on developing the larger Rocket 4, while cautioning the new vehicle might not be ready before the end of 2023 (see “Small launchers struggle to reach orbit”, The Space Review, August 15, 2022). Astra has turned its attention to selling spacecraft electric propulsion systems, called Astra Spacecraft Engines, announcing in recent weeks several deals with companies like Astroscale and Maxar. That’s done nothing to help the stock price, though, which continues to decline.
However, Astra is not along in facing a potential delisting threat. Other companies that went public since last year through SPAC deals are also approaching that $1 threshold, including Momentus ($1.15 at the close of trading October 24), Spire ($1.21), and BlackSky ($1.53), with no signs of a near-term turnaround.
Other space companies that went public through SPACs are also suffering dropping share prices. None of the space companies that went public through SPACs are trading at above $10, the traditional price shares of SPACs are sold for when formed. SPACs usually trade around that $10 mark until they announce a merger deal, at which point they’re tied to the market’s perception of the company they’re trading with even before the deal closes.
Those declines have affected both “pre-revenue” companies that went public before having a product or service to sell as well as those that already had some revenue but promised significant growth in the next several years. But, many other tech companies that went public through SPACs have also suffered sharp declines.
“You’ve definitely seen a big downdraft, and the space sector has not differentiated itself in terms of share price performance from the overall tech sector or other companies that have de-SPACed,” said Noel Rimalovski, managing director of GH Partners LLC, during a webinar by the industry group GVF last week.
“The majority of SPACs that did go out that way have not done well and probably should not have been out there,” said Mike Collett, founder and managing partner of Promus Ventures, which invested in Rocket Lab and Spire prior to their SPAC deals.
He suggested the perception of SPACs has dragged down some companies with better fundamentals, such as Earth observation companies. “The better companies are still trading down more than 50%,” he said. “In our minds it’s really a macro issue. People are no longer looking at specifics.”
|“Now, with going public, we have access to the capital we need to essentially fund our business plan moving forward and continue our growth,” Altemus said of Intuitive Machine’s SPAC deal.|
The market for new SPAC deals has mostly dried up, in space and elsewhere, but has not completely disappeared. In September, lunar lander developer Intuitive Machines announced it would go public through a merger with a SPAC, Inflection Point Acquisition Corp. The SPAC has $330 million in trust, although redemptions—where SPAC shareholders ask for their money back rather than participate in the merged company—could significantly reduce it, as it has for other SPAC deals. The agreement also includes $105 million other capital independent of the SPAC’s proceeds.
“A SPAC is simply a mechanism to get into the public markets and we have a fantastic opportunity for retail investors, for the first time in history, to invest in space exploration,” argued Steve Altemus, chief executive of Intuitive Machines, during webinar by IPO-Edge earlier this month.
The capital from the SPAC deal would fund the company’s future plans, which include larger lunar landers and a lunar satellite communications network. “Now, with going public, we have access to the capital we need to essentially fund our business plan moving forward and continue our growth,” Altemus said.
Another participant in that webinar also suggested there’s still an opening for additional SPAC deals, but in a market far more discerning than it was 18 months ago. “SPACs are still very much an option, but we have to recognize that the complexion of SPAC deals and the SPAC market has changed,” said Nick S. Dhesi, a partner at Latham & Watkins LLP. “There’s a focus on real revenues and contracts, fully funded business models, and paths to profitability.”
Some companies that went public through SPACs try to avoid being associated with them. “We were different from a lot in SPACs in terms of having near-term revenue,” said Peter Cannito, CEO of Redwire, at World Satellite Business Week last month. Redwire is a combination of several space companies that went public through a SPAC last fall to create a “middle market” company.
“I’m not aware of any asterisk next to our ticker,” he said of the company. “Once you’re public, you’re public. Certainly that’s the way it is in the minds of the SEC.”
Collett thinks SPACs in general got a bad rap. “It is unfortunate that, for some reason, the mode that people floated is now somehow an umbrella for everything that is horrifically bad,” he said. Many companies that went public through SPACs made projections they have failed to meet, but, he noted, “it’s really no different than anybody else who is a public company. If you put out projections where there’s no way you’re going to meet them, the market will handle that accordingly and crush you in many ways.”
“SPACs have democratized access to space companies to the general public,” said Xiaoming Yin, senior investment manager at Lockheed Martin Ventures, during a panel last week at the Global Satellite Servicing Forum. “I think that, in many ways, that’s a pretty good movement.”
While companies that went public through SPACs face problems, those that remain private also have challenges. Rising interest rates and fears of a recession have cooled private investment in general, including for space companies. Space Capital, in its third quarter 2022 report on the state of space investment, found that overall investment year to date has dropped 47% from last year to $17.2 billion.
Many investors and other observers expect a tightening market for companies seeking to raise new rounds. “We’ve just come off 15 years of a near-zero interest rate environment that encouraged risk taking,” said Jared Isaacman during a Washington Post webinar October 3. Isaacman, the billionaire founder of payments company Shift4, has not publicly invested in space companies but paid for the Inspiration4 private astronaut mission flown by SpaceX last year and is funding the new Polaris Program of Crew Dragon and Starship test flights.
“A lot of industries and a lot of companies were formed that, in more challenging times, would never have been able to survive. That’s not exclusive to space,” he said. “The space industry received a lot of capital, and I am definitely concerned they won’t continue to receive it.”
|Christensen said it should not be “shocking” to see many venture-backed space companies fail. “I think we’re going to see some very interesting transactions over the next few years.”|
Collett said at the GVF event that many companies will find it difficult to raise money at the valuations they got in earlier rounds. “Private companies will realize that whatever they raised at in their last round was wildly optimistic, and they end up doing recaps or down rounds.” A down round is where a company raises money at a lower valuation than the previous round.
“We’re now seeing the down rounds come,” he said later in the webinar. “You have to stomach what it is.”
That’s led to speculation there will be consolidation in the industry as stronger companies snap up the assets of failing companies, or weak companies join forces to bolster their bottom line. Exactly when and how any consolidation wave will take shape, though, is uncertain.
“I’m anticipating we’re going to see a good deal of financial sponsors, private equity firms, who see value stepping in to facilitate consolidation,” said Rimalovski. “With share prices down at a dollar, companies at the risk of being delisted because their share price is so low, you’re not going to be able to see stock-for-stock consolidation, and there’s not enough cash on balance sheets to support companies doing that.”
That investment crunch, though, comes as many space startups are just now entering service, from satellite constellations to launch vehicles. “We’re at the point of proving the business case for many of the startups that investment has funded,” said Carissa Christensen, CEO of BryceTech, during a panel at the AIAA ASCEND conference October 24. “We’re at a very interesting point where many companies seek to demonstrate the success of their business case.
She added later in the panel that it should not be “shocking” to see many of those companies fail, given the nature of venture-backed companies in general. “I think we’re going to see some very interesting transactions over the next few years.”
Cannito said at World Satellite Business Week that he was taking the long view for his company and the industry. “We’re in the first inning of spring training,” he quipped. But, as anyone who follows baseball’s preseason training camps knows, many who show up for the first day of spring training don’t make the opening day roster. They get delisted.
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