How space companies fail. Episode 1

exploding rocket

Executive Summary — so you don’t need to actually read it

• There is great importance in understanding how, why and when space companies fail
• Failure is economically and business-wise positive development, with adverse real-world consequences and a constrain on its impact on efficiency
• Ways of failure can be a direct announcement, bankruptcy filling, failure to deliver on a mission and a firesale
• Running out of money is a symptom, not a reason. About half of the companies can be somewhat rescued. Your corporate is the most certain way to kill a startup.
• Companies fail in four stages. Lift-off — issues with momentum and commitment. Maturing — issues with tech and funding gap. Transition — issues with debt, governance and new product lines. Plateau — failure to innovate.
• Failures in as few words as possible: Audacy — failed tech. Aerial & Maritime — funding, demand, momentum. Urthecast — debt. RapidEye — bad debt. Vector Launch — no comment. MoonExpress, PTS — Lunar X Prize. Deep Space Industries, Planetary Resources — too early. HeliosWire — failed tech. StarMesh — non-existent problem. Kosmokurs — licensing. XCOR — complicated.

Obsession with success; Information gap

I’m obsessed with success. As a venture capitalist, I’m trying to pick successful companies. As a consultant, I tell people what to do to be successful. As a writer, I think about good examples of strategy and in my wide Twitter presence, I cheer on others and amplify positive stories — well, you see the pattern.

The purpose of this article is the exact opposite, examining, when, how and why space companies fail. This industry has a serious gap in quality research coverage and this is my contribution to fixing it. It is critical to understand how companies fail — as much as how they succeed — which also provides a plethora of case studies to build mental models upon.

This article is a teamwork result. Great people came together in this Twitter Thread. I want to give a special shout-out to Erik Kulu, Pierre Lionnet, Matthew Gill and a dozens of good people contributing to the research. Needless to say, all mistakes and possible misinterpretations fall on my back. Inspiration for this article traces a year back to Petr Horky’s feedback on my report.

I want to make clear I don’t want this article to slide into ridiculing failures and calling out scammy businesses. I have a high degree of respect for entrepreneurs — both failed and successful ones. Ultimately, they are providing me and all of the readers of this article with a living.

Two auxiliary economic notes

From an economic standpoint, failure is essential for increasing the allocative efficiency of resources in society. Approaching the same concept from a business perspective, the failure of firms helps divert human capital, funding and assets to those with a higher chance of success.

However, those theoretical concepts meet two obvious real-life constraints. First, increased efficiency on paper has very negative impacts on individual lives — through means of lost investors’ capital, increased uncertainty for other businesses and most importantly people losing their jobs.

Secondly, as the digital economy consistently proves, pure allocative efficiency is commonly not the only decisive factor for failure/success — some businesses often prevail simply due to their monopolist power, often associated with government backing as opposed to the most “businessy” one to win.

What is a failure

While this is definitively an open question, for this article I have defined four substantial ways for a company to fail.

1. The clearest way is an announcement of a shutdown — when the CEO of the company writes on Linkedin they have failed and will not continue forwards.
2. Declaration of bankruptcy is a tricky one — we all can agree that responsible financial management does not include filing for bankruptcy. However, especially due to Chapter 11 regime, it became a not-an-uncommon playbook for the management, especially in the Satcom business.
3. Fire sell is also tricky to define — companies barely guess the true worth of a company and always tend to pay too little to too much. The most reliable way is to wait for a former employee to tell their company has been firesold.
4. The least quantifiable criterion in this article is “not delivering on the mission”. As opposed to A&D primes, space startups in the last twenty or so years have been funded to deliver on a mission. I argue that when you significantly divert from it and deliver, for example, propulsion modules as opposed to asteroid mining, you have failed. That indeed clashes with the lean startup mantra of fast pivots and I don’t have a good counterexample.

There is a group of failures I decided purposefully not to include. D-Orbit’s and Tommorow.io’s failed SPAC mergers can cause some troubles in the future. For Tommorow.io — I’m not sure what is happening with the space segment and ArQuit decided to halt it completely. That said, building a satellite is not for everyone and we should celebrate everyone who decides against it.

Some lessons

• Lack of funding, major investor pullback and exercising of debt agreement are most commonly cited in media press releases. It is really important to note that running out of money is most commonly a symptom of problems, but not the fundamental reason.
• About 50% of the businesses can be saved in some way, restructured, reborn or transformed into another entity. A real failure is when no assets are liquidated and the investor’s money goes completely to waste. A lesson for companies is to produce enough material assets — licenses, patents, IP in general — which actually can be priced and liquidated.
• This point is not data-backed, but I wish and try to actively support companies to fail faster. There is nothing more painful than to see people and companies wasting long years of their lives in businesses which will never blow off for unrealising the sung costs, I would especially emphasise three groups of those

1. A default dead business without the energy/skill to revive
2. Young entrepreneurs with no previous work experience. I’m young as well. But in the world of unlimited opportunities — get an internship, go work for ESA/Airbus/Goldman Sachs/Deloitte for a year and then start a company.
3. Folks too late to the party. I used to judge businesses by “is the market crowded” — Shanti Rao introduced me to a better question “When was the right time to start this business”. If the right time to start your business was in 2015, perhaps a good time to start thinking about a new idea.

• The most certain way to have your space business killed is to wait for a mother corporate to kill it. Think about it the next time you start a corporate spin-off believing “it is more certain this way”
• There is an interesting paradox of an elite group of people starting new and new companies while leaving the old ones on unfortunate trajectories. I would advise again them but there is a catch. I started a book-sharing business when I was 12. You have never heard of it and there is a good reason for it. But had I maybe had Greg Wyler on the team, it could have been a different story. Those people are good at creating momentum and ensuring — as elaborated later — the company survives the first two phases. That said, shall you try to build a viable business, don’t let Cantrell, Kokorich and Wyler anywhere nearby.
• These failures are just incredibly messy. I have now spent about five days digging through documents and press releases. The changing names, different holdings, reshuffles in ownership. Unnamed Chinese investors, Saudi princess… Sometimes, when politics get involved, this is a real game and you should consider getting personal security.
• As a startup, you have about 1.5 shots to fire. It is way too expensive to raise early equity rounds to fund more than one working prototype. There are ways to prolong that perhaps to a second satellite/whatever, but not much beyond that. One way is to try to avoid dumb mistakes and get your radiation testing properly done. On the other way, this is what we ultimately wanted with a NewSpace. Sometimes it sucks a good company goes away because of this unfortunate logic, but it has opened unforeseen options for the industry and that is a good thing.
• The last general note is that the space world is really small. I keep reading about those 20 people over and over again. Do your due diligence when investing/joining a new company and behave nice to people — this is not the last time you work together.

Phases

From a small statistical sample, I have identified four stages of a lifecycle when companies are prone to fail, together with the major causes at the respective stages.

1. Lift-off — most of the companies fail at this stage and you will never hear about them, as they don’t overcome the basic chicken-egg problem. Investors don’t come until you have customers, customers don’t come until you have tech, tech doesn’t come until you have a workforce and a workforce doesn’t come without money. You see the catch, right? Similarly, in the beginning, the incentives to invest (time, energy and capital) into a project aren’t high enough. Examples of failures at this stage may include Aerial & Maritime or EarthNow.
2. Maturing — the second phase occurs when the company captured some initial interest in funding and built real hardware (or software for that matter). That is an impressive achievement alone — and often includes launching a satellite a few months after starting from zero. When I outlined that venture-backed companies get one shot to demonstrate their tech — it means failing in this phase. Secondly, depending on the regional funding environment, there is often a gap between the early seed (angels, non-dilutive) and a bit later stage when investors look at at least for certain traction and tech maturity. Typical examples of failure at this stage include Audacy, HeliosWire or Hiber.
3. Transition — in the transition phase, companies have a functioning product, revenue streams and look to find long-term sustainment. That often means a change from equity to debt financing — which unfortunately bears its own problems. Often, leadership changes are a part of the process, as companies learn to not be dependent on the founders. Outside the space industry, successful companies produce more than one product line and getting there is also a common pitfall of space companies. Typical examples of companies failing in the transition phase include Urthecast, Deep Space industries or Masten Space Systems.
4. Plateau — To survive in a long term, mature companies need to reinvent themselves, keep track of market trends and adapt to a changing landscape. Aswath Damodaran would describe it via corporate lifecycle, HBR might use a technology adoption curve. An example could be SSL which didn’t manage to stay on the pulse of satellite building. In Europe, we will soon have a chance to observe it in real time. As the EU/ESA procurement policies will divert towards smaller satellites, it will be interesting to observe Thales Alenia, Airbus A&D and their reaction to it.

Companies & Playbook

This is where the real fun starts. I picked 13 companies, described their goal, history and tried to add a note to a more strategic playbook.

Aerial & Maritime

Aerial & Maritime was a spin-off of Danish small satellite builder GomSpace, focused on providing AIS and ADS-B connectivity for developing countries. The company has attracted 12.2M USD in aggregated investment, from GomSpace and the Danish Investment fund for Developing Countries. During that time, constellation architecture changed several times, but ultimately progress was being made in gaining orders, selecting a launcher and building the spacecraft.

GomSpace has shut down the company in 2020 in the early wave of the pandemic, citing a need for a substantially higher need for financial resources than realistically achievable. The aftermath affected GomSpace in two ways — firstly, the revenue backlog decreased as A&M was to pay to GomSpace for the satellites. Secondly, GomSpace also owned equity in the company. As the equity approached zero, that decreased the assets part of the balance sheet. Unused satellites have been transferred back to GomSpace for potential reuse, which to the best of my knowledge never occurred.

Playbook

I think that the reason for this failure has been a lack of commitment mixed with a corporate cut-off. There has been progress made in building the satellites and receiving capacity orders for the company to be able to raise further plans for development. In this case, a corporate spin-off may have not been sufficiently incentivising to materialize the project and as commonly the startup became a victim of its creator. Two additional factors have to be considered — the Nordic markets aren’t sadly very strong in fundraising for high-tech projects. Secondly, the competitive positioning of A&M doesn’t seem exactly thought-through given the competition in the mobility narrowband sector from traditional Satcom, Iridium and the likes and low-cost IoT constellations.

Urthecast

Has been a Canada-based earth observation company, founded by two former MDA employees with a core focus on agriculture. Even without deploying its constellation, the company has been quite creative both operationally and financially — buying two satellites as a part of a reorganisation of Deimos and a Geospatial intelligence firm GeoSys. For its customers, the company has also used satellite imagery of partner providers, essentially aiming to create a full-stack solution.

The ultimate game has been a constellation of 2x8 satellites, for optical and SAR. During the lifetime and for the purpose, the company raised about 52M in equity and over 150M in debt (in big part to announce two acquisitions mentioned above).

The high level of indebtedness resulted in a failure to meet payments in 2019 and a very downward trajectory from there, involving stock delisting and creditor protection. In 2021, PE firm Antarctica Capital purchased the assets of the group as for optical satellites and formed EarthDaily Analytics, while the SAR assets have been bought by Alpha Insights (backed by Prime Movers Labs). Interestingly, Antarctica Capital seems to leave Urthecast relatively free, without installing new leadership or enforcing further integration with its other portfolio companies.

Playbook

The original Urthecast remained relatively unchanged after a financially savvy Antarctica capital decided to overtake it. That suggests a business with fairly healthy fundamentals, qualified leadership and existing revenue streams. The major problem occurred when Urthcast took on too much debt to manage — at a certain point in a company’s lifetime that can become a convenient and cheap way to raise capital but can backfire unpleasantly.

Moon Express

Moon Express started with a team of software millionaires in 2010 to compete in the Google Lunar X Prize. The company has raised money through several different instruments, however — neither they nor other companies managed to master the challenge within the timeline and so the prize went unclaimed. Moon Express reoriented its focus towards NASA’s CLPS programme but did not manage to extract any value. While one article extensively describes the trouble with Space Florida — the ultimate issue occurred when a major unnamed investor pulled out, as well as when the company couldn’t claim the prize. After both problems, the company ultimately run out of money and is basically in a coma since.

There is a very telling note in the Linkedin Experience section of the Moon Express CEO Bob Richards.

Playbook

To add to the many obvious reasons for the company to fail, Jim Cantrell adds one more important reason. Known for a brief stint at SpaceX, Cantrell is quoted in the Florida Times article as a Moon Express’s codesigner and raises a good point that Richards should have had a stronger number two (possibly COO) to manage practical and operational aspects of the business on behalf of the vision-oriented CEO.

When evaluating startup opportunities — the structure of the leadership team is one of the key aspects. I like to ask “why are you of all of the team the CEO” and how are different responsibilities split in the team? A model with a more visionary CEO backed by a hands-on COO with a focus on detail seems to work pretty well. There is much more for me to learn about leadership structures in the future, but though-through governance decreases the odds of a company failing.

Planetary Transportations Systems

Not a too different story is offered from Germany, where PTS became the first team to compete in Lunar X Prize. Starting in 2009, the company claimed some auxiliary prizes but failed to gain further financing in 2019. The company then filed for bankruptcy but was saved by logistic giant Zeitfracht which allowed both for synergies and a time for reorganisation. Following reorganisation and leadership change, the company continues to cooperate with Zeitfracht, holds several institutional grants and its Linkedin page lists healthy 25 employees.

Playbook

I have mixed feelings about the Lunar X Prize. It has led to the success of companies such as iSpace or Astrobotic and the success of Beresheet and the likes. It has surely brought fresh capital to the space industry (as has always been the goal). 15 years later, the first companies are slowly approaching the original goal, and a lot of chaos, lost funds and bad PR consequences have been delivered. The lessons are that development can be sped up, but only as much. That the incentive setting matters and a commercially sustainable business model (as iSpace promotes) is much healthier in the long-term.

Deep Space Industries

Deep Space Industries has been formally incorporated in 2013 aiming to conduct asteroid mining. In 2015, the company raised 10M from Czech-based VC Metatron Global. I don’t suspect that was a reason for the troubles the company ran into — but coming from Czechia myself, I wouldn’t be quite sure this money was really clean.

At some point, the company shifted the focus towards building a constellation first and the company has been decently successful in selling the propulsion units it has developed for its small satellites. SpaceQ reported sales of around 10M totalling 34 units in 2016. On January 1st 2019, the company has been acquired by Bradford space, a firm which transformed from a component manufacturer into an entity close to vertically integrated holding rooted in many supplier structures. The “comet” propulsion unit from DSI works in tandem with the one, developed by another company of Bradford, ECAPS.

DSI is classified here as a failure as it did not deliver on its founding promise — to enable asteroid mining. That said, the company has pivoted and created a product with revenues and customers. The details of the Bradford acquisition have not been published — my best guess would be the investors were not quite happy as propulsion valuations don’t reach those of asteroid mining companies. But that is not for me to answer.

Playbook

While investors may not have been happy and the company failed on its promise, the pivot is somewhat instrumental. The company began to solve a problem with in-house engineering problems it faced. It offered its solution — which has been appreciated on the market. This is a good example of a successful pivot, product-market fit and without other financial problems could have been a case of how to prolong the runaway to achieve a mission.

Vector Launch

In 2016, Jim Cantrell established a small launcher startup, based in Arizona, following his brief stint at SpaceX. Over time, the company has raised 100M from VC companies including prestigious Sequoia (fwiw) or Lightspeed and grew to up to 180 people, according to Cantrell’s Linkedin.

As the company has been running low on cash, Sequoia decided not to participate in a support funding round, which sent the company into bankruptcy, before which Cantrell left the company to start another scammy business. It has to be said the team produces some activity again as of the end of 2021, but little is there to anticipate.

If the figures are to be believed, the effort took 100M of investor capital in total — while some assets have been liquidated during the bankruptcy process, it highly likely doesn’t reach anywhere close to the consumed capital. Currently, there is a lawsuit where the former creditors accuse Cantrell of misappropriating the funds to fuel his passion for race cars.

Playbook

The efficient starters are really important — they manage to get ideas from zero to one, fundraise and sprout a passion around projects. Covering the truth is a tool on the edge of that skill and sometimes can have a net positive effect on the industry and early investors looking for a return.

Lies, investor misleading, criminal action and misappropriation of resources are where the industry must draw a line — and there is still a long way to go for the industry as a whole.

HeliosWire

No startup can survive more than two failed satellites and this fate met also HeliosWire. Founded in 2016 to build an M2M tracking constellation, it took the team just 15 months to build and launch the first satellite. It sadly didn’t work and neither did the second one. Unsurprisingly, that paved a way for the future of the company. HeliosWire however held rights for a priority spectrum via its Australian Subsidiary, which was something of value for global Satcom operator EchoStar — which decided to acquire both companies. As Space Intel Report notes, even the big company faced troubles in occupying the spectrum later on.

Some people circulate in the space industry — Mikhail Kokorich is a cofounder and his company Astro Digital has been selected to build the satellites. Interestingly, the other co-founder and CEO Scott Larson now owns Alpha Insight — an entity created to acquire Urthecast’s SAR assets.

HeliosWire is a failure in the sense its two satellites both failed and the company on its own has not delivered on the global IoT constellation it promised. As for the exit, 26M from EchoStar given moderate spending habits suggest all commitments could have been paid off.

Playbook

When the first two satellites fail, there is not much a startup can do. Skilful sale can be regarded as a positive outcome. The CEO Scott Larson showed an important lesson during the liquidation. the reputation for making sure investors were made whole travels a long way (including now you reading this).

Plus Ultra Space Outpost

PUSO has been a European ticket to the game — a Spanish-German startup targeted to provide a complex suite of communication services on the Moon, including data relay, navigation and communication. The company has started producing some activity to culminate in mid-2023 booking manufacturing and a launch slot for its first relay satellite.

In Early 2022, Payload mistakenly reported the company has successfully closed a 6.2M round. My best guess is the round has not been completed and the CEO has announced a shutdown and moved to a new position since. In this article, PUSO is the first to be a victim of the 2022 capital market crash — tho that alone didn’t cause the company to fail. I hope I will get a chance to speak with the CEO after the new year and understand better what exactly happened.

Starmesh

To put in a lighter example — Starmesh is what happens when you spend too much time repeating crypto buzzwords (layer, ledger, distribution, NFT, decentralized, DEO) and too little thinking about actual problems. Not that the company has left any mark on the industry, but the announcement was nice and the team moved to power monkey jpegs somewhere in the current crypto hub of Europe in Croatia.

Sky and Space Global

Starting in 2015, Sky and Space Global was an Australian company established to operate a global constellation for IoT connectivity. It entered the public market a year later, debuting at the Australian Stock Exchange via reverse merger and thus by jumping on the SPAC wave four years before it became popular.

The story is very similar to A&M from there on, including having GomSpace as a manufacturer — the company gained some funding from first and secondary stock issuance to initiate some contracts on the satellite building and launching side, but never enough to take the business of the ground — both literary and figuratively.

While the IoT landscape has not been so crowded in 2015, the exact edge of SAS remains a bit of a mystery to me — by having satellites built by an external company (as opposed to how Swarm or Astrocast for example operate today), it became a mix of a fundraising machine and a reseller — a not very successful one. In 2019, the company failed to raise the necessary funds and went on lay-offs, declining share price, voluntary administration, and a delisting path.

In 2020, Virgin Orbit bought 17.5% largely to resuscitate the company to eventually purchase the cancelled launch contracts again. Currently, the company continues with the installed emergency management as a delisted public company. Some obvious rumours circulate whether the CEO Brett Mitchell misappropriated the resources or was just terrible at running the business. Unlike the majority of companies mentioned above, SAS has been special and more problematic in spending a larger proportion of its time as a public company having the risk faced by retail investors is more hurtful than institutional players in defunct startup ventures.

Playbook

An important business lesson this example again stresses related to the quality of the pipeline. The newspace economy is an important concept — but a lack of customers from larger institutional/defence/traditional telco/well-financed commercial players will never build a robust enough financial pipeline to attract investors. As a startup, think about the solvency of your LoI and MoU partners as much as about their demand. As an investor, I take it as a late lesson to dig deeper into the quality of the revenue backlog and suggest my friends from GomSpace and Virgin Orbit do the same.

The concept of investing in future revenue is not new in the space industry — GomSpace, VORB, and OHB seem to practise it but with different results. More to uncover here.

EarthNow

Within the prestigious group of companies in this article, EarthNow has probably managed to get the most publicity for the least amount of output. The timeline is following: 2017 — the company starts in a stealth mode to provide continuous high-res video coverage of the Earth, with a need to use only staggering 500 satellites for that. 2018 — the company raises 6.6M from a high-end group of investors which I’m too annoyed to list. 2019 — the company emerges from stealth, publishing a GeekWire article citing Series A round to come soon.

That was in February and as per Linkedin, the founder and CEO Russell Hannigan (formerly also at Teledesic) left the company in March. I couldn’t find a single article or document outlining what exactly happened. The CEO has formerly worked at Intellectual Ventures — a research/venture studio sponsored by Bill Gates.

Interestingly, another IV’s alumni with Gates’s investment has met a similar fate. Kymeta started with great expectations but was met with a struggle due to early technological architecture choices. Yet, Bill Gates continued to further pump more money into the company and gradually forced other investors out. That doesn’t create an incentive for efficiency and Kymeta has not shown much to date. To the best of my intel, there has been a change in a tech stack and we will hear something from Kymeta in 2023.

Coming back to EarthNow’s concept, in the aftermath, the idea for video from space is alive and SEN (in no way related to EarthNow) seems to make much more meaningful progress than EarthNow ever did. Russell Hannigan has been an advisor at Stoke Space and now resides in Xplore — a company with an unclear offering but a great fundraising ability.

Kosmokurs

Has reportedly been the only Russian private company to engage in space tourism. Started in 2014, its financing is not clear — but likely has been funded continuously by a Russian oligarch close to the majority shareholder Alexander Tukatsinsky. That said, there have been only two public shareholders of the company. Lack of funding seems to not be an issue in this case. Yet, in 2021 Kosmokurs filed for bankruptcy due to its inability to obtain the right licenses from Russian MoD.

This was the end of part one. Thank you for reading until here. There are many more space failures to examine — Swiss Space Systems, Masten Space Systems, Hiber, Audacy, SpaceLink, LeoSat, Planetary Resources and many more. I look forward to engaging in a discussion — send me an email at me@filipkocian.com and stay tuned for the next part.

If you liked this article, you may enjoy texts on Medium — this one and this one are good.