Toronto Law firm Aird & Berlis LLP has created a new space-focused task force. The Toronto corporate law firm has been practicing for over a hundred years, developing a strong reputation in the corporate finance space. It has even recently seen a senior partner, Angela Swan, receive the Order of Canada.
Yet many of the firm’s lawyers are looking as much to the future as to the past. A group of lawyers at the firm looked at the growth of the Canadian space sector, and decided it warranted the formation of what they said was the first dedicated Space Technology Group at a Canadian law firm. It’s been in operation for a little over a month, and is already busy.
We talked with the group’s Founding Chair, Marek Lorenc, about why they decided to form the group, what services it provides, and what they see in the current space industry landscape. We also talked a bit about their new partnership with the Creative Destruction Lab.
Drawn to Space
Lorenc said that he and his fellow Space Group members were drawn to space long before they started practicing law. He said he “wanted to be an astronaut as a kid, desperately and obsessively, and it’s just always been there.” While his career path led him to become a partner at Aird & Berlis, where he focuses on helping companies and investors with corporate and finance transactions, he retained that interest in space. He continued to watch the growing private space sector in Canada and elsewhere.
Five years ago, he noticed things shifting. “From a professional perspective I started to really focus on and follow the industry, and I was seeing a lot of interesting work and a lot of sophisticated financing.” Over the last 12-18 months, they saw a particularly sharp rise in the number of space-focused companies among their client base, and realized that there was “an opportunity to focus our skill sets and provide a full service team” aimed at helping space companies. So, a few months ago, they formed the Space Group.
He said that “it all came together at the right time… [creating] a unique opportunity to combine passion with profession which doesn’t come around often.” He added that “it’s really quite exciting” to be using their legal skills to play a role in facilitating the growth of the space ecosystem.
Space Law Services
The Space Technology Group is composed of 14 lawyers: including “practitioners, partners and associates from a variety of different practice groups.” The Space Tech Group’s website provides a long list of potential services: everything from the usual government contracts and regulatory affairs, to “industrial and technological benefits,” as well as “mergers and acquisitions, including competition law,” and “litigation and dispute resolution,” among others. Lorenc said that the current work of the Group can be varied, but is currently focused primarily on “helping grow nascent space issuer clients.”
As these are usually early stage companies, much of the existing work revolves around helping firms with raising money. Lorenc said that “a lot of our work comes in from the corporate finance side, where companies are actively raising money to grow their businesses.” The space group also sees significant work in IP, helping companies with “drafting, filing and securing patents and protecting non-registrable IP,” as well as handling corporate tax and corporate structuring issues, and working with American law firms to handle ITAR-related regulatory compliance work.
They’ve also helped firms take advantage of CCAA (corporate insolvency) proceedings to acquire valuable space technology assets, and Lorenc said that one of their most significant space-sector achievements so far was helping a client with a “fairly sophisticated and challenging transaction” involving CCAA proceedings early in 2021. Not only did they have to work quickly in a “challenging environment,” but they also needed to work around COVID restrictions. Nevertheless, they got it done, and Lorenc was proud of how their client got “some really incredible assets”.
A Shifting Fundraising Landscape
Since so much of their work—and Lorenc’s work in particular—is on corporate financing, the question came up of how space company financing is doing in a challenging market. Lorenc is aware, but optimistic. He grants that there are macroeconomic headwinds, and that “financing fundraising for space technology companies has become more challenging just like any other industry.” But, despite that, he sees that “the solid companies, with good technology with real possibility of commercialization, will get funded and are getting funded.”
An example he gave of the enduring interest in space companies was the TSX’s recent Space Technology Investor Day. They partnered with the TSX on the event, and Lorenc said the turnout was “fantastic,” with investor interest “exceeding what we had expected.” The presenters at the event included MDA, an established Canadian space company, but also included up-and coming companies like SpaceRyde and Reaction Dynamics. In at least a few cases, the presentations created the possibility of new investments and new commercial opportunities, and though Lorenc couldn’t go into details, he was proud of the new relationships that their event had helped to generate.
One significant shift he did see in the Canadian market, however, was away from Special Purpose Acquisition Companies (SPAC) towards a uniquely Canadian venture: Capital Pool Companies (CPC).
Both SPAC and CPC perform a similar task: taking a firm public without a traditional IPO by having another firm be created first in order to acquire it as a kind of reverse takeover. While there are a lot of technicalities involved, the essential difference between the two is that CPCs tend to involve much smaller sums, raising hundreds of thousands of dollars instead of the hundreds of millions often raised by a SPAC.
While a SPAC can raise far more money, the actual amount of money a company raises is often in question. SPACs allow investors to “cash out” through a fixed-price redemption right after the acquisition takes place. People taking these cash-out redemptions can reach up to 90% of a SPAC’s “investors,” having huge effects on the actual amount of money raised and the stock’s subsequent valuation. As there’s no cash redemption in a CPC, founders need not be concerned about these mass redemptions, and often enjoy hands-on assistance from CPC investors in building their newly-public company. As the amount of smaller is lower, it’s also more appropriate for earlier growth-stage companies.
(Many SPACs also issue “warrants” to early investors—much like stock options, they give you the opportunity to buy stock at a discount price after the company goes public—which can create additional issues if there’s too much “warrant overhang” that could dilute the value of existing investors’ shares. CPCs, again, don’t have this problem.)
Lorenc said that SPACs definitely have their applications, and that his firm helps companies use them effectively. But since these smaller and more reliable funding events may be more appropriate for a lot of these growth-stage space companies, he’s seeing a “palpable shift” towards CPCs, and growing interest in them as listing vehicles.
In total, though, he still sees a lot of interest in investment in space companies on the Canadian scene. While the United States is still more advanced on the financing side, especially in venture capital, it’s growing in Canada. He believes it will continue to grow as investors see more public liquidity events in Canada and start exploring private funding opportunities.
Legal Partners with the Creative Destruction Lab
Finally, the conversation turned to their new partner: The Space Stream at the Rotman School’s Creative Destruction Lab (CDL).
The CDL’s Space Stream has become a fixture in the Canadian startup scene since 2018; two of the companies mentioned earlier (SpaceRyde and Reaction Dynamics) are graduates of CDL, as are a host of other companies that have been profiled in SpaceQ’s space sector coverage. Lorenc pointed to them as an invaluable “ecosystem builder,” and said that what they’re doing is “absolutely fantastic.” He thinks that “the exposure, the growth to the ecosystem, the networks that they’re facilitating and building between finance, operation and technical expertise is really just fantastic.”
Lorenc said that “we reached out the summer just to understand what the opportunities were,” and after a conversation with the CDL, discovered that the CDL didn’t yet have a legal partner for the Space Stream. Lorenc said that “we thought it would be a great opportunity to work with some of the Canadian companies coming through there and offer our assistance and resources.”
Now, they have finished finalizing a partnership with CDL to be a Canadian legal partner to their global Space Stream, and Lorenc said “we’re really excited about it.”
The details are still being sorted out. There will be both cash and in-kind components to the partnership, and Lorenc said that they’ll likely be “facilitating a variety of in-kind services to their companies.” They expect that they’ll likely be helping the companies with basic legal work and financing work, but they also expect that the specific details of their contribution will shift from year to year.
Marek Lorenc said that, for the Aird & Berlis Space Tech Group, their approach to the CDL will be simple: “where we can assist, we will.”