Richard Branson was long a force to be reckoned with in the booming private space business.
The British serial entrepreneur beat fellow billionaire Jeff Bezos to the first cosmic tourist trip with his Virgin Galactic venture. Branson’s second space foray, Virgin Orbit, strapped rockets under the wing of a jumbo jet to launch satellites on their flight path, complete with mission monikers like “Start Me Up” that reflect his distinctive blend of business and bravado.
But following a serious misstep in January, when Virgin Orbit’s quest for the first-ever launch from the U.K. failed because of a technical malfunction, the once high-flying enterprise is on the brink.
With cash running out and the next launch attempt unclear, management placed workers at the Long Beach, Calif., headquarters on furlough. As the company seeks rescue financing or bankruptcy, the financial risk for employees, suppliers and other investors is sizable. And yet one major stakeholder has distanced himself from the struggling venture: Branson himself.
The billionaire, 72, whose Virgin Group has pumped more than $1 billion into Virgin Orbit – including $60 million in the past six months—hasn’t recently put in the money now needed to prop up the venture. That’s forcing the company to speak to external investors such as little-known Texas-based venture capital funder Matthew Brown, who has been touting himself as a possible savior of a business that was worth billions just a year ago.
Branson’s reserve coincides with growing caution among investors in an industry in which the technical risks are as high as the costs to surmount them. It marks a reversal for the businessman, a pioneer of the Covid-era SPAC boom for space companies that used the special-purpose-acquisition-company approach to provide startups with a rapid route to the public markets—potentially before they were ready for the scrutiny that comes with it.
After Virgin Galactic in 2019, Virgin Orbit followed with its market debut in late 2021—commanding a value in excess of $3.5 billion—after completing just two successful flights. Unlike competitors that use ground-based launch systems, Virgin Orbit sends small satellites to space on its LauncherOne rocket blasted from beneath the wing of a Boeing 747. It’s a very specific market, and one that experts warn may not support many players.
“Virgin is the first domino to fall,” said Caleb Henry, director of research at space advisory firm Quilty Analytics. “There will be more hard times for SPAC companies going forward.”
Virgin Orbit declined to comment, as did Branson’s Virgin Group.
There were warning signs from the outset. Virgin Orbit had sought to raise almost $500 million by going public, but the blank-check merger generated gross proceeds of less than half that, at $228 million. Then two successful launches in the U.S. appeared to put doubters at ease, before the high-profile failure in January.
When a company-wide meeting was scheduled earlier this month, employees began bracing for bad news. They soon learned on a video conference with Chief Executive Officer Dan Hart and the head of human resources that most of the employees would be on furlough while the company temporarily shut down.
It may still find a way out. Brown said on CNBC that he’s in talks “to inject enough capital to make them cash flow positive.” But even as Virgin Orbit begins bringing back employees and pledges to stay focused on its next launch, its troubles are giving the space industry a jolt.
After years of growth fueled by easy SPAC cash and stargazing billionaires, startups vying for a SpaceX-like trajectory are now finding a more hostile environment. Blank-check deals for launch providers, satellite makers and space-tech specialists have slowed, while private investment in the industry tumbled 58% last year, according to venture firm Space Capital. The financial turmoil sparked by Silicon Valley Bank’s collapse is expected to add more challenges.
“The world we’re in has changed,” said Carissa Christensen, founder and CEO of advisory firm Bryce Space and Technology. “It’s changed in terms of available capital, it’s changed in terms of risk tolerance, and just generally the appeal of venture-funded startups.”
The risk of missteps is particularly acute in the highly technical, capital-intensive space business. That makes it even harder to recover from a failure like Virgin Orbit’s.
“The market’s tough; getting to orbit is tough,” said Chad Anderson, managing partner at Space Capital. “It just makes it even more difficult when you are a public company trying to get to orbit and failing in public.”
SPAC Rise
The commercial space industry had been fueled in no small part by the brief SPAC boom. Virgin Galactic was taken public by “SPAC King” Chamath Palihapitiya’s Social Capital Hedosophia. The lengthy list of space companies taking a similar route includes Astra Space Inc., Rocket Lab USA Inc., Planet Labs, Spire Global Inc., AST SpaceMobile Inc., Momentus Inc. and more. Even a maker of lunar landers got in on the action.
“If you were a space company that participated in the SPAC boom, and you were healthy with revenues, it was a godsend, because it was an exit for your investors,” Henry said. “If you were pre-revenue, with the likely need to raise additional revenue, it was practically a death sentence.”
In its first earnings report as a public company, Virgin Orbit revealed cash and equivalents of $194.2 million at the end of 2021. It proceeded to burn in excess of $40 million in each quarter, dragging its cash total to $71.2 million by the end of September 2022. It hasn’t reported earnings for more-recent periods.
Revenue during that stretch was slim. Virgin Orbit launched twice last year, and its LauncherOne flights are priced at roughly $12 million apiece.
The company was set for its highest-profile mission yet, with the January 2023 flight that would have been the first orbital launch to take off from British soil. While Virgin Orbit is based California, its name and ties to Branson made it a logical choice to usher Britain into the ranks of space nations.
The mission started as planned, with the 747 taking off from Spaceport Cornwall in southwest England and successfully deploying the LauncherOne rocket. The company even mistakenly tweeted that the vehicle had reached orbit, before clarifying that it had suffered a mid-flight malfunction, destroying the nine customer satellites onboard.
The failure sent Virgin Orbit’s stock plunging and upended its plans to increase its launch rate this year. As the company’s CEO told employees returning from furlough, being able to launch successfully is a must for the company to remain viable.
Satellite Revolution
Virgin Orbit isn’t the only company to go public at an early stage. Astra Space announced its plans before launching a rocket to orbit, while a number of satellite makers began trading before sending many up. Rocket Lab was an exception, having deployed its small satellite launcher, Electron, nearly two dozen times.
Virgin Orbit and Astra Space—along with privately held firms such as Relativity Space Inc. and Firefly Aerospace Inc.—are among the many companies seeking to capitalize on the so-called small satellite revolution. With smaller rockets, the businesses aim to offer less-expensive, more customized launches for customers.
But that market is already under threat from larger launch providers, like Elon Musk’s Space Exploration Technologies Corp., which have started offering ride shares—flights that pack multiple small satellites onto one larger rocket and send the payloads to orbit in batches. That can save customers money even though the overall launch cost is higher.
The small launch market “has room for one or two” companies, Tory Bruno, CEO of United Launch Alliance, said during a panel at a satellite industry conference in Washington on March 15. “So Rocket Lab, perhaps, and one other, at most.”
Success for launch companies may mean doing more than just launches. SpaceX builds satellites and offers broadband internet through its Starlink business, while Rocket Lab also has its own satellite manufacturing arm.
“Launch alone doesn’t make a business,” Anderson said. “All of the launch companies that have successfully made it to orbit, starting with SpaceX, will tell you that the launch market isn’t enough to support a business. They’re all doing other things.”
This article was provided by Bloomberg News.
