A Space Startup Worth $4 Billion Swears Off Fizzling SPAC Craze
(Bloomberg) -- One of the most valuable private space startups after Elon Musk’s SpaceX is the type of company that sponsors of special purpose acquisition companies would love to target for a deal.
But Tim Ellis, co-founder and chief executive officer of Relativity Space Inc., just isn’t interested.
Ellis, 31, didn’t actively pursue SPACs that approached the company, even during the height of their popularity last year among startups in the fast-growing space economy. Relativity, which makes 3D-printed and reusable rockets, has instead raised $1.3 billion through private rounds and was valued at $4.2 billion in June after backing from investors including Fidelity Management & Research Company LLC, Mark Cuban and Jared Leto.
The next step in the San Carlos, California-based company’s fundraising plans: “Not SPACs,” Ellis said.
“Some others tried SPACs when they were hot, but we were able to get private rounds done by high-quality investors,” he said in an interview. “We’re focused on staying private as long as we can, and capital availability is high.”
SPACs and other speculative investments have come under increasing pressure this year as markets brace for the end of ultra-accommodative monetary policy. SPACs became the preferred way to go public for companies in the space industry, where some firms have yet to make profits or even finished products.
British billionaire Richard Branson’s space-tourism venture, Virgin Galactic Holdings Inc., started the trend in 2019 with its own SPAC, followed by launch firms Rocket Lab USA Inc. and Astra Space Inc., satellite imagery company Planet Labs PBC and makers of electric vertical-takeoff-and-landing vehicles, or eVTOLs.
Investors have since soured on the SPACs of many space startups. Virgin Galactic, which jumped from the typical starting price of $10 to as high as $62.80 in February 2021, has since tumbled 85% to less than $9.50. Some eVTOL makers including Archer Aviation Inc. and Joby Aviation Inc. are down more than 60% from a year ago.
Ellis echoed a popular critique of SPACs: Sponsors gain from completing a transaction regardless of the company’s quality. That means startups focused on high-tech products and long-term missions might face the spotlight of public markets before they’re ready.
“Incentive alignment is not very good,” Ellis said. “It’s really just a way to raise money, but if you can do it privately, why would you choose to do that?”
Relatively is planning its first launch of a 3D-printed rocket early this year at Cape Canaveral in Florida. Ellis said it plans to expand beyond rocket launches to become a large aerospace company, with ambitions of using 3D-printing technology to set up an industrial base on Mars. It aims to launch its first fully reusable 3D-printed rocket in 2024.
Ellis started his space career doing 3D printing at Jeff Bezos’s Blue Origin. The Amazon.com Inc. founder’s company is likely worth more than his, Ellis said, though it hasn’t raised any outside funding, through a SPAC or otherwise.
“There are companies that have done SPACs that are trying to build something great,” Ellis said. “It just doesn’t set up a great environment.”
Still, giving away all that equity in funding rounds can come with its downsides too, he said.
“If you’re getting at whether I’m a billionaire,” Ellis said, “I’d say ‘no.’ Not yet.”
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