The merger of in-space transportation company Momentus with a special-purpose acquisition corporation (SPAC) could encourage other space startups seeking large amounts of capital to follow its lead.
WASHINGTON — The merger of in-space transportation company Momentus with a special-purpose acquisition corporation (SPAC) could encourage other space startups seeking large amounts of capital to follow its lead.
Momentus announced Oct. 7 it would merge with Stable Road Acquisition Corp., a SPAC created by venture fund Stable Road Capital. The deal will value Momentus at $1.2 billion with about $310 million of cash on hand, the companies announced. The deal is expected to close by early next year.
A SPAC, or “blank check” company, goes public to raise money that is then used to acquire a privately held company. For startups, a SPAC can offer an alternative to a traditional initial public offering of stock that can be completed more quickly.
Momentus is not the first space company to go public through a SPAC deal. In July 2019, Virgin Galactic announced it was merging with Social Capital Hedosophia, a SPAC created by venture firm Social Capital. That deal closed last October, turning Virgin Galactic into a publicly traded company on the New York Stock Exchange.
The Virgin Galactic deal came in the early stages of a new wave of SPACs. According to data from SPAC Insider, 133 such companies have gone public so far this year, raising more than $50 billion. In 2019, there were 59 SPACs that raised $13.6 billion.
Some in the space industry see SPACs as a new source of capital for companies that want to move beyond venture capital firms. The Virgin Galactic deal “was one powerful data point that has excited other space companies about having access to different capital,” said Tess Hatch, vice president at Bessemer Venture Partners, during an Oct. 7 panel discussion at the Satellite Innovation 2020 conference.
SPACs could attract different investors to the industry, said Dara Panahy, a partner at Milbank LLP. “SPACs tend not to be industry players. They’re not strategic investors,” he said. “They tend to be first-time or second-time players in an industry, but they see something that works for them.”
By turning startups into publicly traded companies, SPACs also allow companies to tap into the interest of ordinary investors. “It was a way for consumers to invest in a space company,” Hatch said of the Virgin Galactic deal, “everyday people who are excited about the future of space.”
The rise of SPACs is not without their issues. “I do worry a bit about the number and the amount we are hearing about SPACs,” she said, noting potential parallels with the state of the financial market just before the 2008 economic crisis.
“SPACs are a function of risk,” said Mike Collett, founder and managing partner of Promus Ventures, with investors turning to them as interest rates remain at historically low levels. “I think SPACs will continue on until they start behaving horribly.”
For now, he said SPACs will be an attractive option for space and other companies that need to raise large amounts of funding. “I do think those capital-intensive companies, which includes space, may be very ripe examples to go out and do something like this.”