Beyond the abyss: Overcoming the Valley of Death in sustainable aviation ventures
The difference between success and failure comes down to one word: money.
In an Autumn 2022 keynote, Adam Goldstein, the CEO of Archer, the United Airlines-backed electric Vertical Takeoff and Landing (eVTOL) company, delivered a reality check for his industry sector. According to Goldstein, the difference between success and failure initially comes down to one word: money.
"Probably the best filter that knocks out most of these companies is capital," Goldstein remarked. That’s because building an entirely new aircraft, such as Archer's Midnight electric air taxi, demands a substantial investment.
Raising capital is crucial for navigating the prolonged process of design, production, and certification. Throughout this phase, companies spend heavily without the benefit of a certified product to generate revenue.
Goldstein emphasised the magnitude of this challenge for ambitious aviation projects, noting that at least $500 million is required, though $1 billion is a more accurate estimate. This substantial financial requirement is not just pertinent to eVTOLs but is also reflective of the broader financial needs of the next-generation aviation sector.
The research for our book, Sustainability in the Air, as well as conversations with startups for our podcast and blog, repeatedly surfaced the $1 billion figure as a cornerstone for developing new aircraft using alternative propulsion systems—electric or hydrogen—and for establishing large-scale sustainable aviation fuel (SAF) production facilities.
The question remains: How have a handful of companies raised adequate capital while the rest are still stuck in the so-called Valley of Death—the period when you are exhausting your seed money, but haven’t yet attracted large investors who can make your idea viable?
From the many interviews we’ve conducted, a few themes stand out:
1. A laser-focused business case
The paramount importance of a meticulously crafted business case emerged as a common theme from Goldstein's insights.
He often emphasises that "Archer isn't a science project."
Archer's journey towards developing the Midnight aircraft is not just technology-driven but business-led. The company's approach is underpinned by a commitment to creating solutions that align with customer needs rather than retrofitting a business case to fit a technological marvel.
For example, one part of Archer's strategy is the use of a proprietary tool named Prime Radiant.
This tool’s data-driven approach allows the company to understand how people navigate cities globally. Archer leverages this comprehensive information to estimate the overall market size and revenue potential in specific urban centres.
Eve Air Mobility, the eVTOL company spun out of Embraer, takes a similar approach. When you listen to Eve spokespeople, you won’t hear outlandish claims of thousands of eVTOLs crisscrossing the skies Jetsons-style. Instead, the talk is of a major urban area like Miami having a more researched, modest—and achievable—200 aircraft, serving a defined number of routes.
2. Customer-centric inception
Incorporating the end-user early in the development process has proven to be a key element in the success of companies focused on sustainable aviation.
A prime example of this strategy is Eve's use of customer advisory boards, a practice inherited from its parent company, Embraer. By involving both current and prospective customers, these boards provide valuable feedback that significantly influences the final design of the product.
Swedish Electric Aircraft company Heart Aerospace similarly engages in customer feedback through an industry advisory board that includes major airlines and airports. This feedback was instrumental in steering the development of Heart Aerospace's ES-30 aircraft, changing the original concept from a 19-seat all-electric aircraft to a 30-seat hybrid-electric model scheduled for service by the end of the decade.
3. A clear vision
Clarity of vision emerged as another common thread among successful aviation startups. In our book, Anders Forslund, co-founder and CEO of Heart Aerospace, stands out as a visionary leader who articulates a compelling vision and need for their aircraft.
Forslund's presentations are often accompanied by a map showcasing US communities that lost air services in the 1990s, underscoring the potential for aircraft like Heart's ES-30 to address the key barriers in regional aviation: noise, pollution, and high operating costs.
This clarity not only attracts investors but also draws in high-quality staff—an imperative for aviation startups navigating the complexities of certification processes to ensure the safety of their groundbreaking aircraft.
Heart Aerospace's executive technical advisor, Nigel Pippard, with decades of aerospace experience at companies like Saab, Leonardo, and British Aerospace, attests to the power of a compelling vision in attracting seasoned professionals.
When a LinkedIn contact sent him a picture of Heart’s aircraft, with a message along the lines of, “Would you give up your job at Saab to work on this?” he told us: “I replied instantly, yes.”
Despite the risks of working for a next-generation aircraft company and startup, he grabbed the vision Anders Forslund was selling.
4. An ideal leadership mix
The strategic assignment of roles for articulating the company's vision emerged as a key insight. In particular, the technical brains behind the operation may not always be the best people to do so.
In the case of Air Company, a startup focused on (among other things) SAF, the division of responsibilities between CEO Gregory Constantine and CTO Dr. Stafford Sheehan showcases a winning combination.
Constantine, with a background in spirits giant Diageo, serves as the visionary CEO, while Sheehan, a chemist with a PhD, focuses on developing a groundbreaking product.
The dynamic between the two founders has proven effective in conveying a compelling narrative to investors. Jim Lockheed from Air Company investor JetBlue Ventures emphasised the power of this leadership duo with disparate qualities.
“You look at Greg, and you can tell he's a great leader”, said Lockheed. “He’s got this great background having worked at Diageo. And then you look at Staff—he's a chemist, a PhD, who had the best chemistry dissertation for his year at Yale. He's got patents, he's got all these things.”
For JetBlue Ventures and others, those disparate qualities are a winning combination. “They are becoming a great story and team that you look for as a venture capitalist,” Lockheed said.
5. A real and tangible product
The importance of demonstrating technology in a real-world setting cannot be overstated. Air Company's unique approach to initially producing the world's first carbon-negative vodka instead of jet fuel exemplifies this strategy.
By leveraging the simplicity of vodka production—comprising only ethyl alcohol and water—Air Company demonstrated the viability of their technology.
Their carbon-negative vodka not only generates immediate cash flow but also serves as a tangible proof of concept.
Again, when it came to raising money, this proved to be crucial.
Jim Lockheed, reflecting on Air Company's approach, noted, "Most of these other companies that we had been talking to had only ever produced lab-scale quantities. Everything else was kind of hypothetical. What really stood out to me about Air Company was them telling me, 'Our facility has produced something like 10,000 litres of product.'"
Similarly, in the UK, Zero, a SAF company founded by Formula One racing veteran Paddy Lowe, has built a test facility in Oxfordshire.
When we visited it, we were impressed. To us, it looked a little bit like a microbrewery with various steel tanks dotted around the facility. But crucially, it made what Zero was doing real.
We believe Zero’s demonstration facility has been crucial to the company picking up contacts from companies like Boeing and UAE energy company Adnoc.
6. A big-name investor
Key to Archer Aviation's early success was the strategic involvement of anchor investor Marc Lore.
Lore is best known for co-founding online retailer Jet.com before selling it to Walmart for $3.3 billion, after which Lore became CEO of Walmart’s online arm. Though Lore normally doesn’t invest in things outside of his close friends and family, he decided to make an exception as he was a believer in the power of electric air taxis to change the world.
Lore managed to open many doors for Archer while still using his close-knit approach to fundraising and investing. “Marc has raised a lot of capital from family offices and wealthy people with an interest in tech,” Goldstein said—among them actress and singer Jennifer Lopez and baseball player Alex Rodriguez.
In total, Lore helped engineer a Series A round for Archer in July 2020 which resulted in $55.7 million in funding.
7. Leveraging public money where possible
Government support emerged as a crucial factor for startups, offering both opportunities and credibility.
Air Company, for instance, secured early opportunities and funding from public agencies such as the US Department of Defense and NASA. This not only injected much-needed capital into the company but also enhanced its credibility within the industry.
When we spoke to Eloa Guillotin, co-founder of Beyond Aero (which is developing hydrogen-powered aircraft), she said that countries like France are great for next-generation aerospace startups, because “aviation is one of the last industries where Europe is not late compared to the East Coast or West Coast of America, or China.”
There are a series of grants offered by individual European Governments as well as the European Union. This includes France’s 2030 plan to decarbonise a number of industries, including aviation. Beyond Aero was even cited by France’s President Emmanuel Macron as a French success story.
Similarly, Dutch-based Maeve Aerospace, which is building a hybrid-electric regional aircraft, received among other things a financial injection of €17.5 million from the European Union. That sum has been important in establishing Maeave as a serious player, instead of just another shoe-string startup.
8. At least €/$ 20 million in funding to cross the Valley of Death
Getting across the "Valley of Death" is a critical milestone for startups.
Here, we see a financial threshold of €/$20 million as the pivotal moment when startups transition from conceptual ideas on PowerPoint slides to serious contenders in the industry.
This amount not only demonstrates financial viability but also attracts credible hires, setting the stage for the startup to move beyond the initial boot-strap period.
Summing up
The success stories of the successful sustainable aviation startups we’ve interviewed and researched provide a comprehensive blueprint for navigating the complexities of the industry.
By aligning their strategies with the key principles outlined—laser-focused business cases, customer-centric inception, clear vision articulation, strategic division of roles, tangible product demonstrations, securing anchor investors, leveraging government support, and aiming for a substantial financial threshold—startups can enhance their chances of not only surviving but also thriving in the competitive landscape of sustainable aviation.
For further in-depth insights on building a winning startup in the aviation industry, explore the stories and insights shared in our new book, Sustainability in the Air.
These narratives, backed by real-world experiences and quotes from industry leaders, offer valuable lessons and inspiration for entrepreneurs embarking on the journey of sustainable aviation innovation.
As the industry evolves, the principles outlined here will continue to shape the trajectory of startups aspiring to redefine the future of aviation.
