Space SPACs struggle to lift off
The rocket went sideways, so the stock went down.
Astra Space made its third orbital launch attempt from Kodiak, Alaska, Aug. 28, using an upgraded version of its small launch vehicle known as Rocket 3.3. The launch was the first of two under a U.S. Space Force contract, carrying a test payload designed to monitor the loads and vibrations a satellite would experience.
That payload measured something very different than expected. Instead of rising off the launch pad, the rocket tipped, then righted itself and drifted away from the pad, hovering just above the ground in a maneuver some watching the live webcast dubbed a “power slide” or “driftoff.” It took more than 15 seconds for the rocket to stop drifting and start ascending.
While the rocket was able to start climbing towards space, it was already doomed. About two and a half minutes into the mission, the range issued commands to shut down the rocket’s engines because it was outside its licensed trajectory. The rocket reached a peak altitude of about 50 kilometers before splashing down in the ocean, out of harm’s way.
In a call with reporters about 90 minutes after the launch, Chris Kemp, chief executive of Astra, said that one of the rocket’s five first-stage engines shut down less than a second after liftoff for reasons not yet known. “The guidance system was able to maintain control and the rocket began flying horizontally for a few seconds until we burned off enough propellants to begin resuming with our liftoff,” he said.
The company tried to spin the failure as a learning experience (the press release it issued afterwards was titled simply, “Astra Conducts Test Launch.”) “We collected a tremendous amount of data from the flight,” Kemp said in the call. Astra’s next rocket is currently being built in its California factory, “where we’ll be able to incorporate everything we learned before sending it up to Kodiak and launching again.”
Rocket 3.3 failure was not Astra’s first failure, but it was the first since the company completed its merger with Holicity, a special-purpose acquisition company (SPAC). That deal raised about $500 million in cash and turned Astra into a publicly traded company on the Nasdaq.
The stock market acted predictably when the markets opened the following Monday, Aug. 30. Astra shares opened down nearly 25% from its close the previous Friday and gained little ground the rest of the day, closing down more than 18%. The stock has traded largely flat since then.
While the selloff after the failure was hardly unexpected, what was perhaps more telling was what happened the preceding Friday, Aug. 27, when Astra made its first attempt to launch Rocket 3.3. While the launch window opened after the markets closed, Astra shares rose in after-market trading as liftoff approached, spiking as the countdown neared zero.
However, Astra aborted the launch at T-0 seconds when the thrust from the main engines didn’t ramp up as fast as expected upon ignition, an issue Kemp said later didn’t appear related to the engine failure the next day.
Astra scrubbed the launch for the day, an incident not unlike those seen in many other, more mature launch vehicles. Astra shares, though, plummeted in the minutes after the abort, falling more than 10% before partially recovering at the end of the after-hours trading period, an apparent lack of confidence in the company by investors.
None of the companies that have recently completed their SPAC deals have seen a dramatic increase in share prices, getting at best only modest gains. By contrast, suborbital space tourism company Virgin Galactic, which went public in October 2019 through a SPAC merger, has gone through a rollercoaster of dramatic ups and downs, often with only tenuous links to company announcements.
Another sign of a lack of enthusiasm about SPACs is a growing rate of share redemptions. Shareholders of SPACs have the option, when a deal closes, to redeem their shares and effectively get their money back rather than hold them in the merged company. A higher rate of redemptions means less capital.
Redemption rates have been growing for SPAC deals in general, including for space companies. In-space transportation company Momentus, which finally closed its SPAC merger Aug. 12 after delays linked to U.S. government concerns about its original Russian ownership, had a redemption rate of 20%. Spire, which operates a constellation of cubesats that provide weather and tracking data, suffered a redemption rate of about 90% when it closed its deal Aug. 16.
Some space startups, particularly in the launch industry, show little interest in pursuing SPACs, either because of the perceptions associated with them or concerns about going public in general at an early stage.
“We really want to establish respectable earnings and revenue and get the business stood up” before going public, said Tom Markusic, chief executive of Firefly, in an Aug. 24 interview, a little more than a week before the inaugural launch of its Alpha rocket.
Private companies can act more quickly than public ones, he argued. “Moving fast is really important in this industry and going public too soon could hurt in that respect because it really shifts a lot of the focus from top to bottom in the company,” he said. “It shifts you more from technology to money.”
Firefly raised $75 million in a Series A round in May and Markusic said the company is looking to raise around $300 million in a Series B to support its future projects, including its medium-class Beta vehicle. “I think if we have a great success, we’ll have investors lining up,” he said of the upcoming Alpha launch. However, that launch failed Sept. 2 when the rocket tumbled and exploded two and a half minutes after liftoff.
A theory of Relativity’s
Relativity Space has raised two giant funding rounds: $500 million last November and $650 million in June. It’s using the funding to both complete development of its Terran 1 rocket, with a payload capacity similar to Firefly’s Alpha and scheduled to make its first launch in 2022, and the far larger Terran R.
Tim Ellis, chief executive of Relativity, said in a June interview that he’s never considered doing a SPAC deal to raise funding. “We didn’t need to because there was so much private capital available.”
“Honestly, I think it’s a bit of a funding path of last resort,” he added. “I certainly wish the companies that are doing that best of luck, but I think it’s going to be a tough road to go down.”
Like Markusic, Ellis said that staying private will keep the company focused and agile. “We’re more of a big vision, big mission company, so I think staying private was the right call for us,” he said. “We’re going to be able to put our heads down and execute extraordinarily quickly.”
The companies that have done SPAC deals say they’re satisfied with how things have turned out. That includes Rocket Lab, which completed its merger with Vector Acquisition Corporation and started trading on the Nasdaq Aug. 25, providing it with $777 million in capital. Its SPAC merger had a redemption rate of only 3%.
“It’s been a pretty good process,” Peter Beck, chief executive of Rocket Lab, said in an interview Aug. 25, hours after he virtually rang the opening bell to start the Nasdaq trading day from New Zealand rather than New York.
“We were always intending to be a public company,” he said, originally through the traditional initial public offering process, and had structured the company with various “checks and balances” with that goal in mind. The SPAC alternative, he said, provided Rocket Lab certainty about capital and valuation.
“Time will tell” about the effectiveness of SPACs, he said. “It will take a little bit of time, but we’ll see the market shake out.”
More space companies are pursuing SPAC deals. In July, Earth imaging companies Planet and Satellogic announced SPAC mergers on consecutive days. Satellogic said it will use the proceeds to build out its constellation, while Planet focuses on other aspects of its business.
Small launch vehicle company Virgin Orbit announced its own SPAC deal Aug. 23, merging with NextGen Acquisition Corp. II in a deal that would provide Virgin Orbit with up to $483 million at a valuation of $3.2 billion.
“Our success in launch has driven the business forward, and now we expect this investment will enable us to build on our R&D efforts and our incredible team,” Dan Hart, chief executive of Virgin Orbit, said in a statement about the deal. That includes potential upgrades to its LauncherOne air launch system as well as developing a “space solutions” business line by launching a constellation of smallsats that will provide imagery and internet-of-things connectivity.
Hart, appearing on a panel at the 36th Space Symposium in Colorado Springs Aug. 26, didn’t directly discuss his company’s SPAC deal, but argued that the industry in general was in better shape to avoid a boom-and-bust cycle like that seen two decades ago because of the larger number of companies and greater opportunities for “incremental investment, demonstration and execution.”
But, he admitted, it won’t necessarily be smooth sailing for companies like his. “It’s going to be an interesting dynamic,” he said. “It’s not going to be a crash, but I would suggest we fasten our seatbelts and put away our tray tables.”
This article originally appeared in the September 2021 issue of SpaceNews magazine.