Leo Aerospace
Small launch vehicle Leo Aerospace, which was working on a balloon-borne launch system, is going into "hibernation" because of problems raising money. Credit: Leo Aerospace

WASHINGTON — A startup developing a balloon-borne small launch vehicle has gone into “hibernation” after struggling to raise money, a fate that may be facing many other companies in the sector.

In a March 13 letter to the company’s investors and other associates, Leo Aerospace said challenges raising funding and concerns about market timing led the startup to decide to suspend operations, with the understanding that it may never resume work.

“Yes, we have decided to shut things down for the time being,” Dane Rudy, co-founder and chief executive of Leo Aerospace, confirmed in a March 16 email. “Funding was a major component.”

In the letter, the California company said it struggled to raise money from outside investors. “Fundraising proves increasingly difficult as investors place greater emphasis on revenue-generating businesses with shorter time horizons,” the company stated. In addition, the company had yet to receive a decision on a U.S. Air Force Small Business Innovation Research (SBIR) grant it applied for last year. “After a four-month delay, we are at the end of our financial capacity.”

A second factor, the company said in the letter, was that its plans to offer dedicated launches of very small satellites might be too far ahead of market demand. “Although growing at an incredible rate, our customers are early-on in a nascent market that continues to mature. Looking objectively at our timing, we believe that our focus on servicing such a specific niche is early.”

Leo Aerospace was developing a small launch system designed to place up to 25 kilograms into a sun-synchronous orbit. The company’s launch vehicle would use solid-propellant motors for its first two stages and a storable liquid propellant upper stage. The company planned to commercially source those propulsion systems.

What set the company apart is that the rocket would launch from a balloon flying at an altitude of about 18,000 meters. That concept, called a “rockoon,” dates back to the early Space Age, but struggled because of the challenges of controlling the launch platform. Leo Aerospace said it had developed proprietary technology that provided a stable platform for the rocket, which after launch could descend back to Earth for reuse. The company also said the platform, known as Regulus, could also be used for supporting suborbital launches as well as high-altitude payloads.

In an October 2019 presentation at the TechCrunch Disrupt conference in San Francisco, Leo Aerospace said it would perform its first orbital launch in 2022. The company estimated that it would need to raise “low tens of millions” of dollars to get to that point. It hasn’t disclosed how much money it had raised, although records filed with the U.S. Securities and Exchange Commission state that, as of early 2019, the company had raised less than half a million dollars.

Leo Aerospace was one of many dozens of companies pursuing small launch vehicles. The number of companies far exceeded any projections of demand for their vehicles, leading to belief among both industry executives and investors that a shakeout was inevitable.

“If you invest in one of the 40 ventures that are trying to build a rocket, why would your one of the 40 be the one that’s going to win?” said Mark Rigolle, chief executive of satellite constellation startup KLEO Connect, during a panel discussion at the Satellite 2020 conference March 9.

Others on the panel said that venture capital firms may decide to stop supporting space startups in general that have limited prospects but still require significant additional funding. “I’ve been saying for the past year that we’re at a breakpoint for a lot of the startup companies,” said Chris Quilty, president of Quilty Analytics. “For those companies that have not been performing or hitting their expectations, I think there will be an opportunity where a lot of these VCs will just pull the plug.”

Leo Aerospace did not cite the ongoing coronavirus pandemic as a reason it was suspending operations. However, Sequoia Capital, a leading VC firm, called the outbreak the “black swan” of 2020, with unpredictable effects on the market. In a memo to its portfolio companies March 5, it warned that financing could be difficult if the pandemic causes a financial crisis.

“Private financings could soften significantly, as happened in 2001 and 2009. What would you do if fundraising on attractive terms proves difficult in 2020 and 2021?” the company stated in its memo. Since the publication of that memo, the Dow Jones Industrial Average, a leading barometer of the overall stock market, has dropped by more than 20%.

Jeff Foust writes about space policy, commercial space, and related topics for SpaceNews. He earned a Ph.D. in planetary sciences from the Massachusetts Institute of Technology and a bachelor’s degree with honors in geophysics and planetary science...