UP.Partners: Upheaval in the moving world

Deep Dive

The idiom ‘it’s darkest before the dawn’ comes to mind when thinking about the future flight sector in 2023. 

By no means does the phrase describe the position of every stakeholder vying for a market share of this nascent industry (quite a few look to be in a great position). But, unfortunately for some, a reduction in companies is likely, according to Cyrus Sigari, co-founder & MD, at early stage VC firm, UP.Partners.

Last week, UP.Partners published its The Moving World Report taking in macro and micro trends across mobility in 2023. Inhibitors and accelerators such as battery technology, raw materials, energy infrastructure, pilot shortages and sustainable fuels all feature.

According to the report, the past year has been characterised by a paradigm shift in the macroeconomic environment. The decade leading up to 2022 was characterised by low interest rates and “cheap money supply”, which helped fuel an unprecedented surge in growth stocks. But rising inflation and the reaction of central banks in raising interest rates have resulted in a stock market crash. As a result of these forces, mobility technology firms were affected by this market correction too.

Despite positive momentum in terms of prototype development and a rising number of test flights, it’s not all rosy for aspiring air-taxi contenders. “Besides the engineering complexity that comes with creating commercially viable air-taxi services, today’s leading eVTOL companies are faced with waning investor confidence,” states the report. Massive capital injections play a vital role in advancing development to reach certification and market launch. Therefore, positive sentiment from capital markets is key for these firms’ survival and success. Last year, however, brought with it a souring macro environment that has caused the valuations of public companies (especially those that went public through SPACs in 2021) to drop significantly.

“Unfortunately, by this time next year, there is likely to be a natural culling of the herd for the less developed companies that aren’t showing clear market differentiation and pathway to certification,” Sigari tells Revolution.Aero.

To attract further funding, investors need to see a clear line of sight to commercial viability. [That is] commercial viability in a timeline that is commensurate with typical investor expectations post the SPAC and VC craze of 2021/2022. If companies are not well capitalised, it is likely they will need to accept down rounds to garner enough investor interest – or risk going out of business,” says Sigari. It is fair to assume that responsibility will fall to strategic and corporate investors to catch interesting projects as times get more challenging from a fundraising perspective.

Greater clarity is needed from regulatory bodies in relation to means of compliance and certification writ large. Sigari points out, it took Boeing two years to re-certify one system on the 737. “We’re talking about certifying brand new everything. Thankfully, it appears that the FAA and EASA are keen to see this sector takeoff – however, a lot of challenges remain.”

Public confidence is one of those challenges. Sigari believes it to be “incredibly important” – both in pushing regulators to move faster and for investors to feel that a product market fit exists at steady state. “Increased public demonstrations can bring further excitement to the general public as to why and how this new segment is good for the broader population,” he says.

But really it comes down to how affordable all of this is to consumers. Can OEMs and operators offer services that are significantly cheaper than helicopters with equal or better safety and ease of operation. “All whilst making a profit – this is not trivial,” says Sigari.

The path does not have to forged alone though. Lessons will be learned from the burgeoning autonomous air cargo industry. Remember, it was air cargo that took off first at the beginning of the aviation industry in the early 1900s with air mail as the primary cargo. “Once we got to a level of predictability and reliability of our mail getting to the destination safely, there was a natural matriculation to moving people,” says Sigari. UP.Partners believes the cargo market is potentially much larger and the barrier to entry at scale operations significantly lower with unit economics that are quite attractive.

Although mobility has become the most important climate segment of all, attracting 38% of global VC funding dollars invested into Climate Tech in 2021, it’s not clear yet which technologies provide the best path forward. It is also not clear which stakeholders in each field will emerge with a market share. What is clear is that thanks to the alarm clock of certification we will soon wake up to the dawn. Who will be there remains to be seen.

Subscribe to our free newsletter

For more deep dives from SAF Investor, subscribe to our email newsletter.


Leave a Reply

Your email address will not be published. Required fields are marked *