This week Virgin Orbit officially informed investors that it has raised an additional $10 million from Virgin Investments Limited, an investment firm owned by Sir Richard Branson.
Exactly what this filing means for the company’s future probably won’t be clear until Virgin Orbit releases financial details on its 2022 fourth-quarter results, and that may not happen until late March. But there are a few things in the filing that raise concerns about the US-based small startup’s solvency.
Virgin Orbit was founded by Branson in 2017 as a small satellite company. It was then split from Virgin Galactic, a suborbital space tourism company aiming to fly paying customers on short 50-mile forays. Virgin Orbit launches its LauncherOne rocket from a modified Boeing 747-400 named Cosmic Girl.
The company spent most of the last decade developing LauncherOne and integrating its operations with the aircraft at a cost of about $1 billion. During that time it was funded by the Virgin Group, the multinational company that owns and operates Branson’s various businesses, and an Emirates state holding company, the Mubadala Investment Company.
To move from development to operations, Virgin Orbit went public two years ago through a merger with a special purpose vehicle. The financial returns in 2021 and 2022 announced as a result of the IPO weren’t great. For 2022 through September 30, the company has reported a net loss of $139.5 million.
However, Virgin Orbit had achieved technical successes with its rocket. After a failure in its first test flight in May 2020, the company had four consecutive successes as of January 2021. However, on Jan. 9, during the company’s sixth launch, the rocket’s upper stage suffered a failure and its payloads failed to reach orbit.
In the run-up to this mission, Branson had shored up Virgin Orbit’s finances. In November 2022, he invested $25 million in an unsecured convertible bond. A month later, Branson invested $20 million. It is important that this one secured Note that Branson has priority as the creditor for the company’s assets, including “all aircraft, aircraft engines (including aircraft spare parts) and related assets.” As Ars reported earlier this month, it appears that after Virgin Orbit failed to raise equity and exhausted its other fundraising opportunities in November, the company pledged all of its assets to Branson in December.
This week’s financial disclosure is worrying for a number of reasons. The figure of $10 million is very low and provides only a few weeks of funding for the company given its high overheads and high labor costs. In addition, the note has an interest rate of 12 percent, which is double the interest rate of the November and December notes, which had an interest rate of 6 percent. Finally, the new filing includes a separate security agreement that explicitly converts November Branson’s unsecured note into a secured obligation.
Based on the cash available to Virgin Orbit last October, Branson’s investments are likely to extend the company’s financial runway until at least April 2023. As such, it is possible that the company may make some kind of… von announces “review” of its strategic options to remain financially solvent.