Google Is Funding a Space Startup -- But I Wouldn't Even Think About Investing In It

It was a story good enough for a Hallmark movie, and it came just in time for Christmas.

Last week, space news site Payload Space told the heartwarming tale of a small Ukrainian company, "Promin," and its quixotic quest to build a new rocket by joining some of the best Soviet-era rocket scientists with American corporate know-how.

Based in Dnipro, not far from the front lines in war-ravaged southeastern Ukraine, Promin was working toward its first rocket launch when Russia invaded in 2022. Putting those plans on hold, the company decided to try to set up shop in the United States instead, and finally opened its doors in Brunswick, Maine in December.

There, the Maine Space Corporation has helped the Ukrainian start-up find U.S. partners -- including tech giant Alphabet (GOOG 1.72%) (GOOGL 1.54%) -- and establish a development and testing site at a former Naval Air Station. As Payload tells it, Promin plans to run project management and research and development out of Dnipro, while a team of U.S. engineers builds the company's first "Promin 1" rocket and conducts tests in Maine.

There's just one problem: I think this project looks doomed from the start.

Light that candle

It's not (necessarily) technical issues that I see causing Promin to fail, although the company's plan is a bit on the esoteric side. Utilizing "autophagic technology," Promin plans to build a solid fuel rocket in which both fuel and fuel tank are made of the same combustible stuff. Thus, both tank and core will burn -- like a candle that consumes wick, wax, and holder all together.

Disposing of the tank's weight in this manner should result in a lighter-than-usual rocket, enabling Promin to lift picosat and nanosat payloads of 3 kilograms into Low Earth Orbit for as little as $100,000 per launch.

But dedicated space fans will spot the first problem right here: Even within the smallsat launch market, there's a clear trend of "small" satellites getting larger, as companies like Rocket Lab and Firefly Aerospace build more efficient launchers, with more boost to orbit. Promin's decision to go ultra-small on its own payloads appears to go against the grain of where the rest of the space launch market is moving.

And from where I see it, that's not even Promin's biggest problem.

Uncle Sam wants you ... to stay out of his business

The biggest problem I fear Promin will encounter, as it attempts to build a business in the U.S., is that the U.S. government acts downright hostile to foreign rocket firms trying to do U.S. space work.

In When the Heavens Went on Sale, space journalist Ashlee Vance described the skepticism with which the U.S. government viewed both Rocket Lab's and Firefly's initial attempts to marry foreign tech to U.S. rocket launches. Against all logic, the U.S. government worried that what these companies' New Zealand and Ukrainian (respectively) backers really wanted to do was steal U.S. rocket technology to sell it to terrorists.

Rocket Lab ultimately won over its U.S. customers by signing contracts with NASA and the U.S. military, setting up multiple research, production, and launch locations across the U.S., and demonstrating strict adherence to U.S. export control regulations. But Firefly Aerospace failed -- spectacularly -- to allay U.S. concerns.

As Vance describes it, the U.S. government repeatedly "passed over" Firefly for NASA and military launch contracts. Firefly wasn't just lagging established U.S. space firms like SpaceX and United Launch Alliance. Firefly was losing out to "mom-and-pop" start-ups, which received "tens of millions of dollars" of government support, while Firefly got zilch.

Adding insult to financial injury, on visits to Vandenberg Air Force Base in late 2020, where Firefly was building a launch pad, its Ukrainian financier Max Polyakov was assigned "escort only" status -- only allowed on base with an Air Force minder. To ratchet up the pressure, the government then informed Firefly that unless its Ukrainian backer gave up his board seat and sold his controlling interest in Firefly to a "more acceptable" investor, the FAA would not grant Firefly a license to launch its Alpha rocket.

(By this point, Polyakov had invested $200 million in funding Firefly's development.)

Ultimately, Firefly had to bow to the government's demands. First, Polyakov sold his majority stake in the company to win a launch license in 2021. (The rocket launched, but did not reach orbit.) Then, Firefly was informed that it would not receive any further launch licenses, and would lose access to Vandenberg until its Ukrainian connection was completely severed. Polyakov sold his entire stake in the company and left Firefly completely in 2022.

The lesson for investors

Today, Firefly is doing just fine. Now under new management, it's actually gearing up for its sixth rocket launch, and preparing to send a spacecraft to the moon.

But that's small consolation to the Ukrainian investor who got the company off the ground in the first place. I worry that investors in Ukrainian Promin will eventually face the same challenges that convinced Polyakov to divest his holdings in Firefly.

Should this company undertake an IPO, or even simply attempt to attract private market investment among small investors thinking "if Google invests in it, it must be safe," think again. I wouldn't see it as a safe investment at all.