Seven months after a Virgin Galactic craft achieved its maiden voyage to suborbital space, the company is setting its sights on another breakthrough: becoming the world’s first publicly traded commercial space travel company.
British billionaire Richard Branson’s Virgin Galactic said Tuesday that it will merge with public investment firm Social Capital Hedosophia. The transaction is expected to close later this year, creating a new, combined company known as Virgin Galactic Holdings Inc.
Branson’s spacecraft manufacturing company, Spaceship Co., will be part of the new company, which will be focused on space tourism — and later, hypersonic point-to-point travel on Earth. His satellite-launching venture, Long Beach-based Virgin Orbit, will continue to operate as a private company.
“By embarking on this new chapter, at this advanced point in Virgin Galactic’s development, we can open space to more investors and in doing so, open space to thousands of new astronauts,” Branson said in a statement.
But the path forward will not be easy, industry insiders say.
Virgin Galactic is still undergoing flight tests with its SpaceShipTwo space plane, which has reached suborbital space twice. In the last two years, the company has recovered from a 2014 accident in which an earlier version of its space plane broke apart in midair during a test flight, killing the spacecraft’s co-pilot and injuring the pilot.
The National Transportation Safety Board later concluded that the plane’s co-pilot prematurely opened the space plane’s movable tail, which helps slow the plane down as it reenters the Earth’s atmosphere. The NTSB faulted that plane’s builder, Scaled Composites, and Virgin Galactic subsequently brought its space plane manufacturing in-house.
So far, Virgin Galactic has collected $80 million of deposits from about 600 aspiring space tourists, who pay up to $250,000 each for a few minutes of weightlessness in suborbital space. The entire flight, from takeoff to landing, will last about 90 minutes. Virgin Galactic estimated it could start commercial service in early 2020, according to an investor presentation filed Tuesday with the Securities and Exchange Commission.
“They’re still building a product and a service,” said Chad Anderson, chief executive of Space Angels, an early-stage investment firm focused on the space industry. “It can be more difficult to do that as a public company. Time will tell how they’re able to manage a human spaceflight program on a quarterly time horizon.”
But that may have been one of the only options that made sense for the company. Virgin Galactic has already collected more than $1 billion in private funding from Branson and Abu Dhabi investment firm Aabar Investments. Last year, Branson suspended discussions with the Public Investment Fund of Saudi Arabia over a planned $1-billion investment in his three space companies after the killing of journalist Jamal Khashoggi, which the CIA and the United Nations have blamed on the Saudi government.
Branson said in a blog post Tuesday that the company had “an opportunity to rethink our investment plans” after declining the Saudi fund injection and making it to suborbital space twice and that opening the firm to “further external investment has been on the cards for a while.”
“I’m assuming they tried other private money sources and had decided this was their best choice,” said Greg Autry, director of the Southern California Commercial Spaceflight Initiative and an assistant professor of clinical entrepreneurship at USC.
He noted the company’s only competitor in the nascent suborbital space-tourism business — Blue Origin, which has been testing a capsule and rocket system to launch tourists to suborbital space — is backed by billionaire and Amazon.com Inc. founder Jeff Bezos. Bezos said he’s invested $1 billion a year in Blue Origin by selling some of his Amazon shares.
A well-funded competitor, and 15 years of pure development without commercial service, “isn’t the easiest situation I’ve ever seen for raising money,” Autry said. But regardless, he said he would probably buy the stock after seeing how the company has progressed since Branson first announced the company in 2004.
Social Capital Hedosophia is a partnership between two investment firms, including venture capital firm Social Capital, which has several prior investments in space start-ups, including 3-D-printed rocket company Relativity in Inglewood and small-satellite firm Swarm Technologies. Social Capital Hedosophia raised its funds two years ago to find a company and take it public, and its investors only now know where their cash is being deployed. The firm has until September to use a pile of cash raised in 2017 or return it to investors.
Social Capital Hedosophia will have a 49% stake in the combined business, according to a statement from the companies Tuesday. That will raise about $800 million for Virgin Galactic as it nears its first commercial flight, a spokesman for the space company said. Chamath Palihapitiya, its founder, will also contribute $100 million to the venture and become its chairman.
Social Capital Hedosophia’s principals, Palihapitiya and Adam Bain, approached Virgin Galactic and “really connected on the level of vision,” Virgin Galactic Chief Executive George Whitesides said in an interview Tuesday. Palihapitiya is a former Facebook senior executive and owns a stake in the Golden State Warriors NBA team. Bain is the former chief operating officer at Twitter.
“The fact that he [Palihapitiya] is putting $100 million of his own money … really impressed upon us that he was committed and passionate about the company and what it could do,” Whitesides said.
Virgin Galactic stopped taking reservation deposits for four years after the 2014 accident. The company’s two flights to suborbital space since then demonstrated what the company is capable of, Whitesides said.
By merging with a listed entity, Virgin will bypass the need for an initial public offering, avoiding a costly investor roadshow and the challenge of selling shares in such a speculative venture. Whether the company could have achieved a successful flotation by itself, convincing banks to underwrite an IPO and institutions and the public to buy shares, is unclear.
The share sale will help fund Virgin Galactic until its spaceships can operate and generate a profit. The company forecasts that it could take in $590 million in revenue by 2023 and expects the price of its trips to decrease over time.
“This is an access play,” said Anderson of Space Angels. “Space is really exciting to the general public. If everything goes well for them and their development program goes the way they think it’ll go, it could be a really big springboard for the company.”