This analysis was first published in SvD Näringsliv, in Swedish, on April 5th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Virgin Orbit is filing for bankruptcy. The story of how the company was listed on the stock market is part of a larger tale about a financial instrument that created enormous expectations — and has now largely collapsed.

Richard Branson said that he started an airline to fund his dream of building a space company. The airline was Virgin Atlantic; the space company, Virgin Galactic.

Between them came Virgin Orbit — a rocket company whose innovation was launching satellites from a converted jumbo jet. The idea was that a plane could carry a rocket to altitude and release it midair, reducing the cost and infrastructure needed for launch.

In January, that mission failed. A rocket launched from a modified Boeing 747 over the Atlantic failed to reach orbit. The company now has around 85 employees left after mass layoffs, and has filed for bankruptcy.

The fact that Virgin Orbit ran out of money is partly explained by the January failure. But the underlying story involves a type of financial structure that became extremely fashionable and is now — just as rapidly — falling out of favor.

Virgin Orbit went public through a so-called SPAC — a Special Purpose Acquisition Company. A SPAC is a listed shell company with no operations of its own; its purpose is to find a real company to merge with, thereby taking that company public without a traditional IPO process. Virgin Orbit merged with a SPAC called NextGen Acquisition Corp in 2021, at a valuation of $3.7 billion.

For some time, SPACs were seen as a smarter and faster path to the stock market. The SPAC raises capital first, then hunts for a target — effectively a blank check with a deadline. High-growth companies that might not yet meet the requirements for a traditional IPO could instead merge with a SPAC and arrive on the market with relatively little scrutiny.

If SPACs sound like a phenomenon from an era of cheap money, there’s a simple reason for that. Back in 2020 — when tech stocks were still sky-high — analyst Byrne Hobart called the entire category a “call option on hype.” In a low-interest-rate environment where everyone was chasing yield, SPACs — even without knowing which company they would eventually merge with — were exactly that: an option on an opportunity that would materialize somewhere down the line. In 2021, 791 SPAC vehicles were listed. In February this year, the equivalent number was 10.

The problem with SPACs, however, isn’t just the growth — it’s that the promised future arrives on a tight schedule. Most SPACs must find an acquisition target within 18 to 24 months of listing. If they fail, the vehicle can be liquidated and investors repaid. So far this year, 70 SPACs have been forced to do exactly that. That list will grow longer as the 24-month windows from 2021 come due.

Among the companies that did manage to find a partner and reach the stock market, the next blow came anyway. In 2022, tech stocks crashed across global markets, and many newly listed SPAC companies fell with them. News site BuzzFeed, for example, has dropped a full 80 percent in a year. It is far from alone. Electric vehicle company Faraday Future is down 93 percent.

In an era of both high inflation and high interest rates, SPACs are unlikely to make a comeback. Neither the structure itself nor the results of those that went through with it show much success to point to. The SPAC chapter can therefore be considered closed for this cycle.

But before it’s fully shut, there’s still some clearing up to do. The hundreds of companies that have already listed still need to either complete a deal or return the money to investors. One SPAC — unwilling to pay its bills — is now being sued by its law firm after the deal fell through. Expect a similar wave of claims from contractors, employees, and investors.

Listing quickly and easily sounded too good to be true. Perhaps it was. And perhaps there was a very simple reason why these companies weren’t publicly listed in the first place. They just weren’t ready for public markets. Not yet — and in some cases, not ever.