SpaceX Is Raising $500 Million in Funding
Elon Musk’s rocket company, Space Exploration Technologies Corp., is set to raise $500 million at a $30.5 billion valuation, in a bid to help get its internet-service business off the ground, according to people familiar with the fundraising.
The Hawthorne, Calif., company, known as SpaceX, is raising the capital from existing shareholders and new investor Baillie Gifford & Co., one of the people said. The Scottish money-management firm is one of the largest investors in another Musk-led company, Tesla Inc.,with about a 7.6% stake in the electric-car maker, according to S&P Global Market Intelligence.
SpaceX and the investors have agreed on the financing terms, but the money hasn’t been sent to the company yet, this person said. SpaceX could announce the deal by year-end.
SpaceX was last valued by investors at about $28 billion in a funding round in April. The investors are paying $186 a share for new stock in the latest funding round, this person said. That is up about 10% from the $169 paid during the April fundraising, according to SpaceX data compiled by Lagniappe Labs, a private-company analytics firm.
Including the current round, SpaceX has raised about $2.5 billion of equity funding, according to Dow Jones VentureSource. Last month it raised $250 million via its first high-yield loan sale.
SpaceX and Baillie Gifford both declined to comment.
The SpaceX Dragon cargo spacecraft approaches a robotic arm for docking to the International Space Station on Dec. 8, three days after launching from Florida. PHOTO: NASA TV/ASSOCIATED PRESS
SpaceX plans to invest in the company’s nascent satellite internet service, known as Starlink, one of the people said. Initial designs call for it to be powered by a constellation of more than 4,000 satellites orbiting the earth at low altitudes. Starlink is one of two multibillion-dollar projects at the company, the other involving plans to develop the largest rocket system ever built, the Starship and its Super Heavy rocket booster. SpaceX currently makes money by launching commercial and government satellites.
SpaceX is among several companies whose largest shareholder is Mr. Musk. Aside from Tesla, where he is CEO, Mr. Musk is the founder of brain-computer startup Neuralink and Boring Co., a tunnel-digging venture partly owned by SpaceX that was scheduled to reveal a test tunnel late Tuesday.
The SpaceX fundraising winds up a volatile year for Mr. Musk. Tesla experienced production problems earlier this year and was weeks away from financial failure, Mr. Musk has said. The electric-car company has since overcome some of those issues and in October reported a record quarterly profit.
Mr. Musk was also accused of securities fraud by the Securities and Exchange Commission after tweeting in August that he was considering taking Tesla private and had secured funding for such a deal, though none materialized. He settled with the SEC in September, and as part of that deal relinquished his role as Tesla chairman in November. He remains chief executive of the auto maker.
Mr. Musk also drew criticism from some investors and analysts for appearing to smoke marijuana in a live online interview in September. But his erratic behavior apparently hasn’t shaken the confidence of some private market investors.
SpaceX investors are optimistic about the potential of Starlink, according to a person familiar with their thinking. SpaceX projects the constellation could grow to more than 11,000 satellites. The largest current telecommunications constellation has 65 satellites.
However, as at Tesla, Mr. Musk has a history of missing projections at SpaceX. In early 2016 SpaceX projected that it would launch 44 rockets this year, according to internal documents previously reported on by The Wall Street Journal. On Tuesday, the company was scheduled to launch its 21st rocket but minutes before scheduled liftoff the launch was scrubbed for technical reasons and rescheduled for Wednesday.
Starlink is also behind the schedule laid out by SpaceX in internal documents from fall 2015. Back then, the company projected it would have 400 satellites in orbit by the end of this year. SpaceX has launched two prototype satellites, and company officials have said the first batch of operational satellites could be put in orbit as soon as next year.
In 2015, SpaceX projected the internet business would require $3.5 billion of investment capital to launch the first 800 satellites and hire approximately 1,200 employees, among other costs. It projected the business would generate more than $30 billion in revenue by 2025, dwarfing revenue of about $5 billion from its core rocket business.
SpaceX ultimately could require more than $10 billion in capital to reach its projected 11,000 satellite constellation, according to some industry estimates, while developing its heavy-lift rocket and capsule is anticipated to cost many more billions of dollars.
The company’s rocket business has been growing steadily. It has executed 38 consecutive successful launches since a launchpad explosion in September 2016. Meantime it became the first company to return rocket boosters to earth safely and then routinely re-use them to launch subsequent payloads.
Development of the mammoth rocket and associated hardware remains an open question. Reasons range from changing designs to SpaceX’s being shut out earlier this year from a U.S. Air Force competition that awarded more than $2 billion in contracts to three other rocket makers to develop various smaller boosters.
SpaceX’s existing business faces headwinds. It expects launches of its workhorse Falcon 9 rocket will decline in 2019 and perhaps 2020. Global demand for launching commercial satellites, its core business, is stagnant, with some satellite manufacturers and customers looking to permanently exit the market segment.
In the U.S. government arena, SpaceX is just beginning to see its Pentagon and NASA business ramp up. But it will likely take several years to gain substantial revenue from the deals.
Originally published in WSJ
By Rolfe Winkler, Andy Pasztor and Rob Copeland
