Venture capital propels flying taxis closer to the skies

Venture capitalists have slowed the pace of investments into air taxis this year following a record 2021, but the prospect of them being commercially airborne draws as close as 2024

Imagine whisking through traffic jams in flying taxis for point-to-point travel instead of slumped in a land vehicle moving at a snail's pace. This could become a reality as early as 2024. 

German electric vertical take-off and landing (eVTOL) aircraft developer Volocopter took its first unmanned flight last week with a human in conventional air space near Paris. The project aims to schedule the world’s first electric air taxi service by the 2024 Summer Olympic Games. Volocopter scored the second-largest venture funding in the same month this year. 

In 2021, venture capital funds poured a record $5.1bn into air taxis, more than doubling the amount seen in 2020, according to consultancy McKinsey. However, following this massive spike in funding last year, inflows into the air taxi industry fell to just over $1bn in the first half of 2022. 

But this blip may not necessarily reflect a waning interest in the industry, as the market for special purpose acquisition companies (SPACs), which powered 2021 inflows, dried up earlier this year. With 2021’s significant fundraising, many start-ups are sitting on reserves before beginning another big funding round. 

Here are the top five eVTOLs that received the most funding so far this year:

1. Beta Technologies: Founded in 2017, the Vermont-based electric aerospace startup secured $375mn in April this year, raising its total to about $800mn. The Series B round, led by TPG's Rise Climate fund and Fidelity Investments, boosts its valuation to $2.4bn. The proceeds will be used to develop cargo-delivery copters and charging networks for them to operate before developing passenger flights. Last year, the Amazon-backed start-up reached unicorn status ($1.3bn) after receiving its first $143mn Series A funding in March, joining an exclusive circle of eVTOL companies to have also achieved that at that time.

2. Volocopter: The German eVTOL manufacturer closed a $182mn Series E round on 1 November from Chinese Geely-backed automaker GLy Capital and Saudi Arabia's crown prince's flagship megaproject, NEOM, backed by the Kingdom's sovereign wealth fund. In a statement, newly appointed CEO Dirk Hoke (ex-Airbus defence chief) said attracting NEOM and GLy showcases its 'pole position in the commercial certification race – the key requirement to launching commercial operations and starting to generate revenue.' The venture round is the second signing of Series E this year, after raising $170mn in March from a consortium of investors, including WP Investment, Microsoft Corporation, and Honeywell International. The fresh capital will fund aircraft certification and its first commercial flying taxi fleet. Since being established in 2011, it’s raised over $720mn to date. The latest funding takes its valuation to over $2bn.

3. Overair: Founded in 2019, the California-based eVTOL start-up is a spin-off from military-focused VTOL Karem Aircraft. It secured $145mn Series B in June this year from Hanwha Aerospace and Hanwha Systems – the aircraft engine maker and the defense and technology arm of South Korean conglomerate Hanwha Group, respectively. Hanwha will provide electric motors and battery packs for Overair to produce prototypes by 2023. The proceeds will also expand its commercialization teams as they works toward a Federal Aviation Administration certification. Earlier this year, Hanwha Systems partnered with Korea Airports Corporation and SK Telecom to commercialize air taxis in the country by 2025.

4. SkyDrive: Founded in 2018, the Tokyo-based flying cars and drones developer raised $67mn (JPY 9.6bn) in Series C funding in September to a range of Japanese investors, comprising of mainly corporate venture capital. The Japanese start-up received the country's first type of certificate for flying cars in October 2021 from authorities. It plans to commercialize an air taxi service in the Osaka Bay area in time for the Osaka Expo in 2025. Like other eVOTL companies, SkyDrive is aiming to commercialize cargo drones first. In a statement, CEO Tomohiro Fukuzawa said: 'First, we will use cargo drones to support companies and individuals in their highly hazardous and heavy work, and then, through the launch of air mobility services in 2025, we will create a world in which goods and people can move freely in the sky.'

5. Joby Aviation: Founded in 2009, the California-based electric aerospace company is one of the early pioneers in eVTOL aircraft. In October, it received $60m in a private-investment-in-public-entity (PIPE) deal from new investor Delta Air Lines. The partnership targets the launch of air taxi services for passengers between airports in New York and Los Angeles. The move follows a trend of US airlines betting on eVTOL start-ups. In July alone, two airlines took stakes in eVTOL start-ups. American Airlines invested $25mn in UK-based Vertical Aerospace, while United Airlines invested $15mn in Eve Air Mobility. In August, United Airlines invested another $10mn in Archer Aviation for an order of 100 electric aircrafts. Joby initially targeted to launch its air taxi service in 2024 but has since pushed back the timeline to 2025 due to regulatory reasons.

Is eVTOL ready to take off?
The aviation industry has long come under fire as one of the most polluting means of transport. While the auto industry is radically transformed by electric vehicles, the aviation sector has started gearing up for a revolution of breakthrough technologies, backed by venture capitalists. Flying taxis, or eVTOLS, are emerging as one of the hottest areas in the advanced air mobility industry for curbing air pollution and tackling climate change. 

But with a cooling economy and a recession looming, it’s no surprise that venture funding for pre-revenue companies has taken a hit as cash flow remains a key metric for investors. Nevertheless, regulators are fast finalizing the safety standards and framework for eVTOL to take to the skies and operate commercially by 2024. With revenue streaming in, the global market for eVTOLs is forecast to balloon to $30.8bn from just $8.5bn in 2021, according to market research firm MarketsandMarkets.

Well-established and funded eVTOL start-ups will likely emerge as winners of regulatory-approved designs in the nascent sustainable aviation space. At the same time, hundreds of smaller players might see a shake-out as funding is channeled into the best performers.

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