It’s All About The Money
This article first appeared in the September 2017 edition of our free newsletter, to subscribe click here
In the last months, I have spoken to 3 programs concerning investment and investor relations for the prototype phase of their aircraft program.
We have been involved with prototype development for startup companies since we formed Abbott Aerospace in the dim recesses of the last decade. It is in the nature of the programs we are involved in that we end up interacting with the investors.
An engineer sees the prototype as a POC – a proof of concept. It is a chance to put design ideas into practice, show that they work and reduce critical technical risks before the full development and certification program.
It is a chance to try out new materials, new manufacturing processes, maybe new simulation techniques and to validate as many assumptions as possible.
An engineer assumes that the investors have the same view of the prototype program. They may, but it depends on the investor.
From an engineering point of view, an investor’s view of a prototype program can be very confusing.
The investor is after a profit (at least that is the assumption).
Some investors are in the program for the long haul and share the vision of the project
Some investors invest in the prototype in the hope that the demonstration of viability that the prototype represents significantly increases the value of their equity stake.
Some investors don’t know what they really want out of prototype program. They want to see something fly that carries a person. They want to see and hear a real aircraft (not a scale model and definitely not boring wind tunnel testing). They want to see something that justifies their investment. They want to see a real aircraft.
Knowing the type of investor you are dealing with is very important and this is why frank and honest discussions at the early stages are critical.
Example No 1
An old friend of mine has been looking for funding for his program for a number of years. The projected cost of his prototype program is 8-10M USD. The investor he is talking to wants him to get something flying with a pilot on-board for $2M USD (he has already flown scale models).
My friend is having problems dealing with the fact that the prototype he could create for $2M USD would have no practical engineering value. It would look somewhat like the aircraft he is trying to develop but it would add no value to the project other than ‘keeping the investors happy’.
He has to make his mind up if the investor is in it for the long haul or whether he is going to waste the investors money and his time engineering and building a prototype that can fly but will have no engineering value.
Example No 2
Another contact of mine has invested a lot of his own money in a cargo container design that is light, easily repairable and multi-functional. He has been talking with a group of investors for 3 years.
He has been trying to find a way to get a go/no-go decision from the group and there has been a lack of cultural understanding on both sides with regard to a way to move forward and who should make the first move.
So a few pieces of advice.
Write everything down, put your thoughts in a formal letter format and share it with your potential investors.
Frame everything with deadlines. There is nothing more frustrating than having discussions with investors taking months or even years that eventually lead nowhere.
Do not be afraid to say no to a deal, or politely and professionally walk away from an investor.
Don’t be afraid to be clear on what you expect and require from the prototype program in order for the rest of the program to be a success.
Be clear on what the investor’s money is buying: For their investment in the prototype what are they getting? More valuable IP? Some production tooling? Risk reduction for the full development program? Something that looks cool that can fly to Oshkosh?
A project’s relationship with its investors is one of the four key relationships that have to be created and managed. The investors, the market, the development team and the certification agency.
A final note on this subject – It is a measure of the health of the relationship between the project management team and the investors when startup programs allow direct communication between the engineering team and the investors. When the investors are allowed unsupervised access to the engineering team you know that the investors are engaged and interested and the company management is being open and honest with the investors.
These are the projects that are most likely to succeed. If you are running a program and you keep the investors insulated from the development team I advise you to rethink. It is a great motivator for both the engineering team and the investors to let them discuss the program together.