# Analysis-Rocket startups face adapt-or-die moment amid investment drought
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-04-17
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: Rocket Startups Face Investment Drought
Meta Description: Analysis of the struggles faced by U.S. rocket startups amidst a 50% drop in venture investment, bankruptcy fears, and the need to adapt to survive.
URL: https://financedigest.com/analysis-rocket-startups-face-adapt-or-die-moment-amid-investment-droughthtml

![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-04-17t102039z2lynxmpej3g09wrtroptp4space-startups-investment-1736814136491-compressed.jpg)

# Analysis-Rocket startups face adapt-or-die moment amid investment drought

By Joey Roulette

WASHINGTON (Reuters) – Demand for sending satellites into space remains strong, but U.S. rocket [startups are taking drastic measures to survive a tight funding environment where fears have been exacerbated by the bankruptcy of Virgin Orbit](https://www.financedigest.com/virgin-orbit-says-space-startup-in-talks-with-potential-investors.html "Virgin Orbit says space startup in talks with potential investors").

The [industry faces](https://www.financedigest.com/embattled-insurance-industry-faces-extreme-challenge-according-to-extensive-global-report-on-ifrs-17-readiness.html "Embattled Insurance Industry Faces Extreme Challenge According To Extensive Global Report On Ifrs 17 Readiness") an interesting dichotomy. [Demand has surged from launching](https://www.financedigest.com/token-inc-launches-london-office-to-answer-demand-from-european-banks.html "Token, Inc. Launches London Office to Answer Demand from European Banks") a few satellites on small rockets to launching swarms of satellites at once using bigger rockets, even as investors shy away from the sector in search of safer bets.

[Venture investment](https://www.financedigest.com/governments-intervene-almost-half-european-venture-capital-investments.html "Governments intervene in almost half of all European venture capital investments") in space startups has dropped 50% year-over-year in 2022 to $21.9 billion, according to VC firm Space Capital.

As the cost of capital rises with the Federal Reserve’s interest rate hikes, investors are less incentivized to fund capital intensive projects that do not have a clear revenue stream or path to profitability, leaving many space [startups scrambling for funds](https://www.financedigest.com/british-ev-startup-arrival-gets-300-million-funding-aims-to-slow-cash-burn.html "British EV startup Arrival gets 0 million funding, aims to slow cash-burn").

I’ve never [raised capital](https://www.financedigest.com/shares-in-monte-dei-paschi-plunge-14-after-capital-raise.html "Shares in Monte dei Paschi plunge 14% after capital raise") in a harder market than the one we’re in right now,” Firefly Aerospace CEO Bill Weber said. The I word and the R word – recession and inflation – make the [investment market](https://www.financedigest.com/hsbc-appoints-new-markets-head-amid-wider-investment-bank-reshuffle.html "HSBC appoints new markets head amid wider investment bank reshuffle") conservative and a little more cautious.

The failure of billionaire Richard Branson’s Virgin Orbit, which filed for bankruptcy this month, has only ratcheted up pressure on rivals trying to keep up with [Elon Musk’s](https://www.financedigest.com/elon-musk-and-others-urge-ai-pause-citing-risks-to-society.html "Elon Musk and others urge AI pause, citing ‘risks to society’") SpaceX, Rocket Lab and the Boeing-Lockheed Martin joint venture, United Launch Alliance.

Texas-based Firefly is trying to mass-produce its medium-sized rocket, while developing a larger launcher under a new partnership with Northrop Grumman.

Fresh off celebrating its Alpha rocket’s orbital debut last October, Firefly tried to [raise $300 million](https://www.financedigest.com/ride-hailing-app-cabify-raises-110-million-for-expansion-in-latam-spain.html "Ride-hailing app Cabify raises 0 million for expansion in LatAm, Spain") by year-end to become cash-flow positive. By mid-February, it had only raised $30 million according to regulatory filings, although Weber said since then the [company had reached about 75% of target](https://www.financedigest.com/britain-toughens-up-diversity-targets-for-uk-companies.html "Britain toughens up diversity targets for UK companies").

Firefly expects to hold another [funding round](https://www.financedigest.com/martin-fincham-joins-immersive-tech-company-as-it-gears-up-for-next-funding-round.html "Martin Fincham joins immersive tech company as it gears up for next funding round") in mid-2024, Weber said.

Relativity Space said last week it was ditching its centerpiece small rocket, Terran 1, for a larger planned rocket, Terran R, a decision roughly a year in the making as [demand for small rockets faded](https://www.financedigest.com/oil-prices-slide-as-hopes-for-china-demand-rebound-fade.html "Oil prices slide as hopes for China demand rebound fade"), CEO Tim Ellis said in an interview. The Long beach, California company to date has raised $1.3 billion, compared to Firefly’s total $390 [million which includes some funds](https://www.financedigest.com/collegiate-ac-and-shuman-capital-launch-e300-million-european-student-living-fund.html "Collegiate AC and Shuman Capital launch €300 million European Student Living Fund") from the ongoing fund-raising effort.

It was a lot better to just put those resources into Terran R because that’s going to be a way-more-profitable [way to allocate the team](https://www.financedigest.com/top-5-ways-your-business-could-benefit-from-a-team-breakfast.html "Top 5 Ways Your Business Could Benefit from a Team Breakfast") that we have,” Ellis said.

The bigger [rocket’s planned debut in 2026 will leave the company without any missions](https://www.financedigest.com/bezos-blue-origin-suffers-rocket-failure-during-uncrewed-mission.html "Bezos’ Blue Origin suffers rocket failure during uncrewed mission") for roughly three years, but Ellis said he is not worried about future funding and declined to say when the company would do another funding round.

Astra Space, which ditched its small Rocket 3.3 for a planned, larger Rocket 4 in the [next few years](https://www.financedigest.com/cepsa-to-nearly-double-investments-over-next-3-years-as-profit-soars.html "Cepsa to nearly double investments over next 3 years as profit soars"), has struggled to bring its stock price above $1, facing delisting threats from Nasdaq. Astra declined to comment on its [financial struggles](https://www.financedigest.com/why-the-financial-services-industry-is-struggling-with-digital-transformation.html "Why the Financial Services industry is struggling with digital transformation").

Firefly and Astra have added other business lines to make up for lost revenue, while Relativity has said its 3D printers used in rocket construction will be eventually employed for other products.

Firefly, which was forced by U.S. [officials in 2021 to sever its Ukrainian ties through Noosphere Ventures over national](https://www.financedigest.com/quebecs-elected-officials-must-swear-oath-to-king-charles-to-sit-in-national-assembly.html "Quebec’s elected officials must swear oath to King Charles to sit in National Assembly") security concerns, counts a lunar lander named Blue Ghost as a “very profitable” line of revenue, Weber said.

I know Firefly’s [management is very proud and vocal about Blue](https://www.financedigest.com/blue-prism-delivers-55x-return-on-investment-for-mercias-managed-funds.html "Blue Prism delivers 55x return on investment for Mercia’s managed funds") Ghost, but let’s hope they can walk the walk without the Ukrainians,” Noosphere founder Max Polyakov told Reuters.

Despite the startups’ struggles, launch demand has soared after sanctions following Russia’s invasion of [Ukraine cut](https://www.financedigest.com/traders-cut-ukraine-2022-combined-grain-and-oilseeds-crop-forecast.html "Traders cut Ukraine 2022 combined grain and oilseeds crop forecast") off access to Russian rockets. Recent failures with Europe’s Arianespace’s Vega-C rocket have added to demand in the U.S., outstripping the number of available rockets.

Shared [missions to space on SpaceX’s Falcon 9 rockets](https://www.financedigest.com/spacex-rocket-sends-first-global-water-survey-mission-into-orbit.html "SpaceX rocket sends first global water survey mission into orbit"), a cheaper, so-called rideshare option for satellite companies that helped kill the business case for small rockets, have taken some of that demand, but much of it remains.

Private plans to deploy mega-constellations, vast swarms of [satellites in low-Earth orbit](https://www.financedigest.com/russia-puts-iranian-satellite-into-orbit.html "Russia puts Iranian satellite into orbit"), have also given launch startups hope for future demand.

The industry is now behaving as a more rational, capitalistic industry,” Erich Fischer, a senior [partner at Bain and Co who advises space companies](https://www.financedigest.com/mercia-partners-with-augmentor-to-support-the-next-generation-of-vr-and-ar-companies.html "Mercia partners with Augmentor to support the next generation of VR and AR companies"), said. “It’s never behaved that way before, ever.”

(Reporting by Joey Roulette, additional reporting by Krystal Hu in [San Francisco](https://www.financedigest.com/paul-jasper-joins-rimon-laws-san-francisco-office-as-partner.html "Paul Jasper joins Rimon Law’s San Francisco Office as Partner") and Joanna Plucinska in London, editing by Ben Klayman and Chris Reese)


---
This blog is powered by Superblog. Visit https://superblog.ai to know more.
---