Why is Vertical’s CEO investing $50m?

Deep Dive

Stephen Fitzpatrick, the founder and CEO of Vertical Aerospace made headlines with a $50m bet on recent flight test progress. But why did he invest?

Vertical’s heavily depleted share price is there for all to see. Since it floated at $10.00 in October 2022 it has been in almost permanent decline. It is currently trading at $0.67 after reaching a January high of $0.73 earlier this week.

Even though the stock wasn’t faring better before, Vertical’s announcement in May 2023 that its certification process will be dragged until end of 2026 took the wind further out its sails.

The $50m investment is probably being made for two reasons. First, to make the company more attractive to potential investors and second because no one else is ready to invest in Vertical at present at a value that is acceptable for Fitzpatrick,  the majority shareholder.

Making Vertical a more attractive investment is a key priority. The firm was on the smaller end of the SPAC raise versus Joby or Archer. So even if Vertical can certify for less due to minimising vertical integration, the firm needs to raise more cash to get to certification. Vertical has made no secret of this and has been publicly voicing its desire to raise for the past six months at least.

It is certain that there are investors happy to put cash into Vertical, but they may want to do this at a lower valuation than Fitzpatrick is prepared to accept. So it makes more sense for the founder to front the $50m himself. Especially if it is looking for a strategic investor.

The cash injection will help the company get closer to certification, which should immediately make it more attractive to investors. If you don’t spend any money it is hard to build aircraft. Vertical might be able to do it more cheaply than its competitors (because it is relying on key suppliers rather than building key components in-house), but chasing certification still has the potential to develop into a chicken and egg problem. If you don’t have money it is harder to make progress as quickly. But at the same time you need to make progress quickly to raise money.

So what might the end game be? In our forecast for 2024, Revolution.Aero predicted industry consolidation, potentially strategic. This could be the case for Vertical, according to industry sources. It could be positive too, as long as any purchase is a strategic acquisition rather than a consolidation of attrition.

Guesses for who might buy Vertical should consolidation occur are welcome. One company it won’t be is Rolls-Royce. The engine giant had signed a deal with Vertical to power its eVTOL, the VX4, back in 2021, but late last year announced its electrical division – due to build the motors for the VX4 – was for sale. Although a buyer has now reportedly been found, how the sale will affect Vertical’s plans to power its eVTOL is not clear. Even if there is no impact, it still is not a good look for Vertical from a PR perspective.

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