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,
with about a 7.6% stake, 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 investors are paying $186 per share for new stock in the latest funding round, this person said. That is up about 10% from the $169-per- share paid during an April fundraising, according to SpaceX data compiled by private-company analytics firm Lagniappe Labs.
Including this 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.
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. That is one of two multibillion-dollar projects at the company, including plans to develop the largest rocket system ever built, the Starship and its Super Heavy rocket booster. The company currently makes money by launching commercial and government satellites.
SpaceX is among several companies where Mr. Musk is the largest shareholder. Aside from Tesla, where he is CEO, he also is the founder of brain computer startup Neuralink and tunnel-digging venture Boring Co., which is partly owned by SpaceX and on Tuesday is scheduled to reveal a test tunnel.
The fundraising rounds out a volatile year for Mr. Musk. His electric car company, Tesla, experienced production problems earlier this year and was weeks away from financial failure, Mr. Musk has said. The 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 the auto maker 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 he relinquished his role as Tesla chairman in November. He remains Tesla’s chief executive.
Mr. Musk also drew criticism from some investors and analysts for appearing to smoke marijuana in a live online interview in September. His erratic behavior hasn’t seemed to shake 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 balloon 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 by The Wall Street Journal. On Tuesday, the company was scheduled to launch its 21st rocket but minutes before scheduled liftoff it was scrubbed for technical reasons and rescheduled for Wednesday.
Starlink is also behind the schedule laid out by SpaceX in other internal documents from fall 2015. Back then, SpaceX 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 is slated to blast into 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 its core rocket business revenue of around $5 billion.
SpaceX ultimately could need more than $10 billion in capital to reach its projected 11,000 satellite constellation, according to some industry estimates.
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 shutout 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 to see declines in launches of its workhorse Falcon 9 rocket for 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.