Momentus, an in-space navigation firm, is combining with a public corporation to obtain more capital for growth. This move will motivate other startups struggling with capital problems to follow the same strategy.
Momentus revealed early this month that it would be joining Stable Road Acquisition Corp. Increase its capital base. This contract will raise Momentus’s value to $1.2 billion while giving it financial liquidity of approximately $300 million. The two companies will be finalizing this contract in January 2021.
SPAC or special public acquisition company is one that agrees to air its financial records on the stock market in order to attract a private company and procure it. The acquisition process gives the private company a heads up on its capital or financial position.
Momentus joins other companies like Virgin Galactic in a SPAC contract. Last year Virgin Galactic expressed a similar strategy with Social Capital Hedosophia making it enter the New York Stock Exchange to trade its shares and raise more capital for running its programs.
Statistics reveal that over 100 companies have followed the same channel to raise over $50 billion of capital boosting their financial confidence to be a going concern. This strategy took shape last year after the emergence of numerous startups that are competing the giant companies.
Experts see the collaboration by small companies with SPACs to evade venture capital firms that have expensive and rigid financial contracts. Capital ventures analyst, Tess Hatch, revealed that the move by Virgin Galactic inspired other companies to follow the same path.
Dara Panahy of Milbank LLP stated that SPACs are investors that don’t play by the investment rules. Dara added that they evaluate the company’s potential before they invest and acquire it, risking the possibility of profiting if the company realizes its potential. SPACs create an enormous financial base for the company to enable it to have ordinary shareholders. Consumers who have concerns about space can channel their support into such companies through investment.
Nevertheless, the SPACs have their limitations the same way they offer financial support. For instance, the economic crisis created twelve years ago was because they became extreme. Mike Collett of Promus Ventures noted that SPACs functions as a cushion for investors who avoid the low-interest rate periods hoping to buy their way out of losses. He retorted that they interfere with the dynamics of the market.
To sum up, Collett explained that they are now functioning as financial boosters for space companies that require massive funding. He retorted that these companies are a risk that SPACs are investing in blindly.