What happened

Shares of Sir Richard Branson-founded Virgin Galactic Holdings (SPCE 6.74%), and Sir Richard Branson-controlled VG Acquisition Corp. (VGAC.U) are both slipping today, one day after the latter -- Branson's latest special purpose acquisition company -- announced it will acquire popular gene-testing company 23 & Me.

As of 10:45 a.m. EST, Virgin Galactic stock is down 2.3%, and VG Acquisition is off 6%.

3 red airplanes leaving contrails pointing down

Image source: Getty Images.

So what

News that Branson's SPAC will acquire 23 & Me -- and not, as had been surmised, Branson-founded private rocket-launch company Virgin Orbit -- was met with acclaim by (some) investors yesterday. Investors bid up VG Acquisition stock 31% by day's end. The reason we are seeing VG Acquisition stock subside a bit today is probably a function of investors cashing in some of those windfall profits.

Yet while VG Acquisition stock soared yesterday, Virgin Galactic shares fell 4.2%. Why was that?

My hunch is that it's because Branson decided to throw his SPAC money at a genetic testing company rather than at a space company. If investors infer from this decision that Branson is not all-in on space, then they may be thinking that they shouldn't get quite so excited about space investing, either.

Now what

And of course, there's the other factor at play: Valuation.

In its press release announcing the acquisition, VG Acquisition predicted that 23 & Me will come public (under ticker symbol "ME") at a valuation of $3.5 billion. That seems rather a high price to pay for a company with unknown revenue and unknown profits. Moreover, a handful of law firms have already filed lawsuits pointing out that VG Acquisition shareholders will only own about 11% of the combined company ($385 million), despite contributing more than $500 million in cash to the transaction.    

This makes the deal seem even less attractive to VG Acquisition shareholders -- and it may be the even bigger reason they're selling today.