Virgin Orbit (NASDAQ: VORB) has just cashed and burned as it has seemed obvious it would for some time now. One of the points we might take from this is what a good job Elon Musk has been doing at SpaceX. For both businesses have faced, over the years, much the same problems. One is still with us and going great guns, the other is now permanently earthbound.
The specific issue doesn't seem to be anything that was done wrong. In the sense of having had the wrong plan, or of not knowing what was to be done and all that. Rather, going into space is risky, new designs for going into space are risky. That's just the way this sector of the economy works. After which there's a certain amount of happenstance. The problem that Virgin Orbit really faced was that the January launch was a test bed. OK, that's fine, we should understand what that means though. For when that test failed then that was pretty much when VORB was near inevitably going to crash.
Virgin Orbit from NASDAQ
In trying to get one of these new businesses off the ground there are various valuation points. Get the technology to this stage, demonstrate that this other thing works, or is possible. Sign up the first major customer - or here, launch the rocket successfully. But there's always a calculation to be made about such valuation points.
Sure, everyone understands that more capital is going to be needed for the next stage. So there might be a desire to raise money beforehand in order to know that it is possible to go on to that next stage. Or, success at this valuation point would mean that the market capitalisation is much higher. Then any capital raising will be much less dilutive. Companies face this sort of question all the time in a development process.
Running the company capital light has its attractions - precisely because that event - launching the rocket - which proves the concept leads to less dilution in raising more money. Except that plan runs into the problem of what happens when the rocket doesn't launch? Which is exactly what just happened to Virgin Orbit - Chapter 11.
It's not just rockets that are a risky business, it's that different business plans also carry their own risks. Well, ooops!
