LauncherOne drop test
Virgin Orbit is investing in Arqit. It's LauncherOne rockets will launch two satellites for the startup. Credit: Virgin Orbit

TAMPA, Fla. — British quantum technology encryption startup Arqit is raising $400 million in the space industry’s latest SPAC deal, supporting the launch and construction of two satellites in 2023 to protect against growing hacking threats.

The fundraising comes as the FBI investigates a ransomware attack that closed a U.S. pipeline providing a significant portion of gasoline and jet fuel to the East Coast, highlighting a need to bolster cyberdefenses.

Arqit’s merger with Centricus Acquisition Corp., a publicly traded SPAC (special purpose acquisition company), values the combined group at $1.4 billion.

That makes Arqit the first space company unicorn — a startup valued more than $1 billion — to emerge from the U.K., according to Mark Boggett, CEO of venture capital firm Seraphim Capital that invested in Arqit before the transaction.

It is the “first of many new ones to come,” Boggett added.

The corporate entity for the combined company will be called Arqit Quantum Inc, headquartered in the Cayman Islands and listed on the Nasdaq stock exchange, if the deal closes as expected by the end of the third quarter of 2021. Arqit will remain a U.K. operating and tax-paying company.

U.S.-based launch startup Virgin Orbit, which is developing an air-launched rocket, injected $5 million into Arqit’s SPAC deal.

Virgin Orbit will conduct two launches for the company to low Earth orbit (LEO) beginning in 2023. It has a history of investing in startups that buy its launch services.

Investment firms Sumitomo Corporation of Japan and Heritage Group of the U.S. also participated in Arqit’s PIPE, or private investments in public equity — a mechanism for companies to raise money from a select group of investors outside the market. The PIPE secured $70 million in total.

Arqit is not disclosing who is building its satellites, which will support quantum encryption technology it calls QuantumCloud. The startup says its technology will secure communications links of any networked device against hacking, including attacks from a quantum computer.

“This transaction will give Arqit the ability to establish itself as a leader in the encryption space – the prospect of the threat from quantum computing will serve to accelerate the broad adoption of Arqit technology,” Centricus CEO Garth Ritchie said in a statement. 

“This is a deep tech company which is many years ahead of the market. Arqit has protected its IP by remaining in stealth mode whilst filing over 1,000 claims on more than a dozen patent applications.”

David Williams, previously a CEO for British satellite operator Avanti Communications, heads Arqit.

U.K. space unicorn

The startup has received funding from the British government in addition to venture capital investments while it was under stealth mode. 

“Arqit’s business combination transaction represents a huge moment for the UK spacetech ecosystem,” Boggett told SpaceNews in an email.

He said five-year old Arqit will be the first U.K-based space technology company to merge with a U.S. publicly listed SPAC.

Seraphim first backed Arqit in its seed round in 2018, and Boggett said it has invested in every funding round since.

Arqit’s QuantumCloud software generates an unlimited number of encryption keys at the end point of customer devices to protect against hacks. 

The system currently relies on terrestrial communications infrastructure to deliver this capability from source keys that originate in data centers. 

However, Arqit plans to use satellites to create a backbone of secure keys within data centers around the world.

QuantumCloud uses symmetric encryption that Arqit says is better suited for an increasingly connected world, compared with public key infrastructure (PKI) that is used to encrypt most of the world’s communications.

Its current customers include the U.K. government, European Space Agency, British telecoms company BT and Sumitomo.

Arqit said satellite operator Iridium Communications and aerospace and defense giant Northrop Grumman are among those testing its technology.

Virgin Orbit will launch the first two satellites with its LauncherOne system, set to carry a mix of defense and commercial cubesats in its next mission in June. 

The LauncherOne rocket reached orbit on its second flight Jan. 17.

Virgin Orbit said it is in talks about a further set of launches after the initial program, potentially out from Spaceport Cornwall in the U.K. where it will start operations in 2022.

Arqit’s deal comes during a challenging time for the SPAC investment vehicle, which had seen a flurry of space deals before slowing down amid increasing regulatory scrutiny.

On April 12, the U.S. Securities and Exchange Commission (SEC) released guidance on SPAC accounting practices. Specifically, these concern the treatment of warrants, which give investors the option to buy shares at specific prices in the future, in a company’s accounting books.

The move has been adding complexity and delays for many space companies looking to use SPACs for a relatively quick cash boost to support their typical sky-high project costs.

The number of new SPACs has significantly slowed down across all industries in recent weeks as businesses and investors wait to see how the changes shake out.

Virgin Orbit had reportedly been considering joining the SPAC trend before the SEC released its guidance.

Virgin Galactic, the space tourism venture that used to be its sister company, had to delay its financial results following the new guidelines. Even though Virgin Galactic completed its SPAC deal in 2019, sparking the current trend, it still has outstanding warrants in the market.

Eight space SPACs have now announced mergers since Virgin Galactic’s 2019 deal. Of these, seven aim to close this year.

Jason Rainbow writes about satellite telecom, space finance and commercial markets for SpaceNews. He has spent more than a decade covering the global space industry as a business journalist. Previously, he was Group Editor-in-Chief for Finance Information...