Organisers had hoped that the UP Aerospace SpaceLoft XL rocket would usher in a new era of cheap public access to space.
It took off on Monday from a remote desert launch site near the town of Truth or Consequences in New Mexico, but went off course 40,000 feet above ground due to a malfunction.
The Connecticut-based company behind the rocket aims to become the first offering public access to space at accessible prices, with prices starting at a few hundred dollars for small items of cargo.
The telephone pole-sized rocket had 50 items on board, including a bag of Cheerios, some cremated remains and several school science projects.
Before the launch, Eric Knight, the UP Aerospace chief executive, said: "This is the first time that a company has allowed direct access to space for the public.
"It's low cost, it can be regularly scheduled, [and] it's the way it's going to be done by the commercial sector in the future."
It cleared the launch site but then appeared to spiral, leaving a corkscrew of smoke a few seconds after lift off.
Mission directors said that the rocket appeared to have come back to Earth and that they hoped to salvage the items on board. They said: "We believe that the vehicle is safely on the ground."
UP Aerospace has nine flights booked over the next 12 months, taking items weighing up to 110 pounds to the edge of space on a solid fuel rocket that reaches speeds of 3,500 mph.