How to raise capital for Advanced Air Mobility (AMM)
How to raise capital for Advanced Air Mobility (AMM)
Adam Forsyth, Head of Longspur Capital Markets, on the complexities of securing funding and raising capital.
A panel session at the Revolution Aero Conference in London highlighted the challenges companies face in securing funding in the Advanced Air Mobility (AAM) sector.
In an interview, Adam Forsyth, Head of Longspur Capital Markets, spoke to Alan Lim from Alton Aviation and delved into the complexities of raising capital in this rapidly evolving industry.
One of the key takeaways from the discussion was the importance of distinguishing between non-binding agreements and hard demand. Forsyth humorously remarked:
"For many of the investors I speak to, LOI means letter of imagination, and MOU means murmuring of unicorns."
Our research at Sustainability in the Air has suggested something along the same lines, with these instruments often leveraged for PR purposes.
Forsyth said that while LOIs (Letters of Intent) and MOUs (Memorandums of Understanding) are important milestones for AAM companies, they do not necessarily translate to concrete sales. This is one of the key challenges OEMs face in convincing investors of the viability of their projects.
Moreover, the substantial capital required to develop and certify new aircraft was another topic of discussion.
When researching our book, we were told that $1 billion was the generally accepted minimum for bringing a clean-sheet aircraft to market. Since then, even higher figures of up to $5 billion have been mentioned.
Forsyth further emphasised:
“Cash runways are critical for OEMs in the advanced air mobility industry, as high capital costs are required to reach cash break-even."
He underscored the importance of having a well-defined strategy to raise funds and bridge financial gaps, especially given the recent downturn in public equity finance.
Despite these hurdles, Forsyth pointed out that companies are still successfully raising money, often through strategic and corporate investors who are taking minority stakes in promising ventures.
Showcase strengths without knocking the competition
The role of competition within the AAM sector was also discussed during the interview. Forsyth advocated for a sensible approach to rivalry, sharing another amusing anecdote:
"We have a little bit of a joke that, in a conversation with a hydrogen company, we record the time in minutes before they say something horrible about another hydrogen company," he quipped.
Instead of engaging in negative rhetoric, Forsyth recommends that companies focus on showcasing their own strengths.
"Competitive rivalry in the industry should be sensible – a rising tide raises all boats. Companies should focus on communicating their own strengths rather than speaking negatively about competitors."
Manage expectations, the rest will follow
Perhaps the most crucial insight was the significance of setting and managing expectations around timing, particularly regarding regulatory changes and fundraising.
Forsyth cautioned that even seemingly beneficial changes can be detrimental if they delay progress beyond what companies have communicated to investors.
"If you get further changes — even if they're great changes — and it sets things back beyond the expectations that have been set, that's going to be damaging. Expectations are everything.”