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Firefly Space Systems furloughs staff after investor backs out

In September, Firefly announced the first successful ground test of its rocket engine at its testing facility in Briggs, Texas. Credit: Firefly Space Systems

WASHINGTON — Firefly Space Systems, a Texas company developing a small launch vehicle, has furloughed its entire staff after an investor backed out, forcing the firm to consider alternative vehicle concepts or even a sale of the company.

In a brief statement posted to its Twitter account Sept. 29, Firefly Space Systems said a recent “setback in funding” forced the company to “take necessary action to maintain cash-flow equilibrium and position our company for future success.” Firefly did not elaborate on its situation other than tweeting a photo of company employees Sept. 30 with the caption, “Owners and management are so honored to have such a dedicated and committed team.”

In an interview Oct. 2, company co-founder and chief executive Thomas Markusic said the announcement came after a setback in fundraising. Firefly was in the middle of a Series A funding round, and had already signed up one of two planned major investors in the round.

“The second large investor, which we had been working with for a year and had everything finalized, dropped out at really absolutely the last minute,” he said. “Suddenly we were left with half of our Series A funding unaccounted for.”

Markusic declined to identify the investor, other than to say the investor was based in Europe. “Brexit had something to do with it,” he said, referring to the decision by voters in a June referendum in the United Kingdom to exit the European Union. “All the messaging that we got was that it wasn’t us. They were going to go in a different strategic direction.”

He did not disclose the amount that the investor planned to put into Firefly. In June, the company filed with the U.S. Securities and Exchange Commission that it had raised nearly $19.1 million of a planned round of $38.2 million. The filing did not disclose who invested in that round, and Markusic would only say that the other large investor was based in the United States, citing confidentiality agreements. That investor was also not willing to fund the rest of the Series A round after the European investor dropped out.

Thomas Markusic
Thomas Markusic, Firefly chief executive. Credit: Firefly Space Systems

The sudden decision of the European investor to pull out caused problems because of the company’s high rate of spending. “The way we’ve been able to go so fast is kind of a hand-to-mouth existence, so having a surprise like that did not give us a lot of runway,” he said. “We’ve been trying to recover from that for the last couple months, and we’ve been unable to do that.”

Markusic said Firefly implemented “really aggressive pay reductions” a few weeks ago. All but two of the company’s 159 employees stayed on the job, he said, but those pay cuts were not enough. “We decided to basically furlough everybody last week,” he said. That decision, he added, precipitated the public statement about the funding setback.

The company is currently working to raise a limited amount of capital to bring back some of its employees. Markusic said that the company’s founders plan to inject additional money into the company, and other existing investors have provided “preliminary commitments” to provide funding in the next week. “It would allow us to at least maintain the core team,” he said.

He said he hopes to raise enough near-term capital to support the company for four months. “We’re trying to figure out the future of Firefly in the next four months,” he said.

Firefly has been working on a small launch vehicle called Alpha. That two-stage vehicle, featuring new engines also being developed by Firefly, is designed to place payloads weighing up to 200 kilograms into a sun-synchronous orbit. One option for the company, Markusic said, is to continue the development of Alpha.

However, the company is considering alternatives. Markusic said Firefly found out last week it won a contract from a “major [Department of Defense] organization to utilize our technology on another platform” that he said was valued at tens of millions of dollars.

He declined to provide additional details, as the contract is still being negotiated and has not yet been formally announced, but he said an option for Firefly is to concentrate on that work, which would involve the development of a stage for another launch platform. “By concentrating on just the stage, it would dramatically lower our capital raise requirements, it would leverage everything we’ve done on Alpha, or almost all of it, and still get to space in the same timeframe we’ve been talking about and perhaps even honor our existing launch contract,” he said.

Firefly’s one launch contract it has announced to date is from NASA’s Venture Class Launch Services program, awarded one year ago, for a single launch of the Alpha the company planned to carry out in early 2018. Earlier this year, NASA quietly issued a contract modification for that contract “to change the configuration from a land launch to an air launch and to revise the mission success criteria,” according to a NASA procurement filing. The agency subsequently reduced the value of the contract, originally $5.5 million, by $2.4 million, without further explanation.

A third option, Markusic said, is to focus on technology development contracts the company has won from the Defense Advanced Research Projects Agency. Those contracts are valued at about $3 million, he said, for work on an aerospike engine and composite propellant tank. “That might be a last resort,” he said. “It’s a path, but we haven’t looked at hard enough to see if it is a path that would be worthwhile.”

He also did not rule out a sale of the company. “We already have interested parties lined up,” he said. “That’s a strong possibility.” If that happened, he said it would be up to the new owner to decide what to do with the company’s technology and vehicle plans.

Besides the financial problems, the company has been dealing with litigation from Virgin Galactic, Markusic’s former employer. In a suit filed in Los Angeles Superior Court in California, Virgin Galactic alleged that Markusic developed some of the key technology for Firefly while working at Virgin, and took that with him when he left to found Firefly.

In August, an independent arbitrator concluded that Markusic deliberately destroyed evidence, in the form of computers and storage devices, that Virgin Galactic claims contained proprietary data used by Firefly. “Because of the destruction they have already accomplished, it is impossible to reconstruct the facts necessary to prove Claimant’s case directly,” the arbitrator concluded in an Aug. 16 report filed with the court. “As a result of the destruction of evidence, including emails, the essential links between Virgin Galactic’s property and the development of Firefly’s technology in this critical early period of Firefly’s existence have been broken.”

Markusic said the case, which is ongoing, did not play a factor in the European investor’s decision to back out. He said “reputable independent evaluations” of the company’s technology have traced it back to NASA, open source and other commercial technologies.

“Of course, when there’s an accusation everyone looks into it,” he said, “but given the independent auditing, everyone’s been comfortable with the provenance of our technology.”

Markusic said he’s had “very frank and open conversations” with other entrepreneurial space companies about Firefly’s current situation. “They’re quite concerned, because our successes and our failures are going to be very influential to all the companies,” he said. “We really need to be successful.”

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Firefly Space Systems furloughs staff after investor backs out

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