During 2019 and 2020, a common trend began to emerge in the growing space sector. Many space companies were using SPACs to attract investors before going public. Space tech companies, such as Farmers Edge, Redwire, Astra Space, and many more experienced rapid, temporary growth using this method and attracted lots of speculation and attention.
However, for many companies, this early acceleration and hype around SPAC investments failed to translate into real growth once shares opened to the public. In fact, many space companies have seen stock prices plummet. Gathering evidence suggests that going public is not the final step to success for space companies.
Space companies, like Momentus, Farmers Edge, and Spire, among others, have been drawn to use SPACs because they are a rapid way to gain initial capital. SPACs refer to Special Purpose Acquisition Companies and are set up to purchase or merge with another company. This acquisition goal is not usually specified at the time of investment, but a merger or acquisition must take place within two years.
SPACs are seen as a quick and flexible method of investment because they bypass much of the due process required by other types of investment. This has made them popular with celebrity investors and companies that want to set up rapidly in new industries (like the space industry) where not much precedence exists. The IPO, or Initial Public Offering, refers to the process of opening the SPAC up to public investment once the company has been established.
Despite positive speculation about the space industry in 2019 and 2020, many space SPACs and IPOs witnessed a decline in 2021. This decline is usually noticeable after the initial SPAC formation and once the company is tested on a public market. There are several factors at play in this, but some common reasons include a lack of transparency with investors, lack of real public demand, and problems with technology. Here’s how poor performance has affected several major space tech companies.
Farmers Edge was initially perceived as having strong potential on the market. However, they witnessed more than an 80% drop in value after going public. Its capitalization fell from more than $600,000 to just over $110,000 during 2021. These drastic downturns led to investors beginning to pull out and sell their shares, causing the public perception of the company’s value to sour.
Several reasons are cited as likely culprits for this massive underperformance. For one thing, the CFO left the organization shortly after joining, leading to a decline in public confidence. There were also reports of unexplained cash flow issues. All this serves to dent public interest and probably contributed to the Farmers Edge stock decline.
Redwire similarly started out as a promising firm but saw its prices fall across 2021. New rules about SPAC reports seem to have caused an issue here. After these new rules were announced, Redwire allegedly found inconsistencies in their initial reports, which no longer held up to regulatory standards. Shareholders eventually filed litigation against Redwire after financial reporting issues were highlighted, leading to a collapse in investor confidence. Redwire’s price has now fallen by around 26% as of early 2022.
Astra Space also ran into problems after the technology it promised to deliver did not live up to investor expectations. The company failed to deliver reusable rockets (which are better for the environment) and could not compete with other rocket-building companies in terms of product. By late 2021, their share prices had fallen by around 19%.
These examples are just three in a long list of space SPACs that have failed to live up to market projections in 2021. This is not only caused by declining confidence in the market and disappointing public uptake but also issues with company transparency and reporting. Several SPACs, including Redwire, have faced lawsuits as a result of investors’ uncertainty about their prices and products. This trend highlights the fact that drumming up initial investment capital is not enough to succeed in the market. Companies must also have a solid product that generates real public demand to succeed.