Professional article
Lilium - wanted too much too soon. And now?
How the premature IPO became a (hopefully only temporary) disaster
The controversial discussion about state loans for Lilium, the German air cab start-up, will echo for a long time with the question: Why did Lilium actually fail - hopefully only for the time being? Some say because of the lack of state loans, others say because of the German system problems for disruptive deep tech innovation. We believe that Lilium failed primarily because of itself, because of too many challenges and risks at the same time, fueled by an early IPO and the excessive ambitions that resulted: Instead of focusing on the new technology that promises a unique position in the market, the company fought on too many fronts at the same time. Government aid could have been used for this purpose, as was the case with Black Semiconductor, for example, instead of for a company that had become increasingly bloated and now over-indebted after its IPO. The opportunity for a successful new start from self-administered insolvency lies in refocusing on technological development progress and the gradual expansion of the company based on this.
Why has Lilium failed for the time being?
Lilium had ambitious plans to develop electric vertical take-off and landing aircraft (eVTOLs) to revolutionize urban and regional air transport. In doing so, Lilium was confronted with considerable challenges, which may have been the cause of the company's failure or at least led to serious problems:
- Technical challenges:
Lilium takes a technically complex approach with a wing-based eVTOL design that uses multiple electric turbines instead of propellers. This approach is difficult to develop and certify, leading to delays and high development costs. While other eVTOL providers such as Joby and Archer rely on proven designs, Lilium is taking a high risk with a less proven model. - Costs and financing:
The development and certification of aircraft is extremely expensive. Although Lilium was able to raise significant funding through investments and a SPAC IPO, this was not enough to cover the costs of development, construction and certification. The ongoing capital intensity of the project meant that Lilium required repeated rounds of financing, which undermined investor confidence. - Competition and time pressure:
The eVTOL market is competitive, and Lilium is in direct competition with companies such as Joby Aviation, Volocopter and Archer, some of which are more advanced in their development. While other providers are bringing their aircraft to market faster and completing test flights, Lilium is lagging behind due to technical problems. Increasing time pressure and the progress made by competitors are further limiting Lilium's market opportunities. - Regulatory hurdles:
The aviation industry is highly regulated, and the certification of new types of aircraft requires close cooperation with aviation authorities such as EASA in Europe and the FAA in the USA. As Lilium was based on a relatively untested design, certification is particularly challenging and requires a lot of time and resources. - Overambitious vision and lack of focus:
Lilium's long-term vision of building a global network of air cabs for regional routes meant that the company was active on many fronts without initially focusing on the technical feasibility of a mature aircraft. - Macroeconomic factors:
The current market situation, including higher interest rates and scarce financing, makes it difficult for capital-intensive companies such as Lilium to continue to raise sufficient capital. Investors have become more risk-aware and prefer companies with near-term market maturity and proven product-market fit.
In summary, Lilium is suffering from a combination of technical, financial and strategic problems. In particular, the challenges of developing and certifying a new type of aircraft, coupled with overambitious targets and a capital-intensive business model, have caused the company to increasingly stumble.
The financing and company development of Lilium did not take place step by step in line with technological progress, but rather as a major step with the premature IPO.
| Technical Readiness Level acc. to NASA | Ideal typical company development focus | Ideal-typical source of financing | Lilium status | |
|---|---|---|---|---|
| 9 | Actual system "flight proven" through successful mission operations | Full commercial market entry and scaling | 2026 – 2027? | |
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| 8 | Actual system completed and "flight qualified" through test and demonstration (ground or space) | Market entry preparation, demonstrators and pilot projects | 2023 – 2025? | |
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| 7 | System prototype demonstration in a space environment | |||
| 6 | System/subsystem model or prototype demonstration in a relevant environment (ground or space) | Prototyping and validation | 2021 (IPO) – 2023 | |
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| 5 | Component and/or breadboard validation in relevant environment | |||
| 4 | Component and/or breadboard validation in laboratory environment | 2019 – 2020 | ||
| 3 | Analytical and experimental critical function and/or characteristic proof-of concept | Basic research and concepts, feasibility studies | 2015 (Foundation) – 2018 | |
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| 2 | Technology concept and/or application formulated | |||
| 1 | Basic principles observed and reported | |||
The ideal structure of the various corporate functions along the Technical Readiness Level (TRL) stages is based on the specific requirements of technology development and market maturity:
TRL 1-3: Basic research and concept phasee
In these early phases, the focus is on researching and validating the technology.
- Research and Development (R&D):
A team focused on scientific research and the exploration of new technologies. - Technology and innovation management:
Management for monitoring and prioritizing ideas and developing intellectual property (IP). - Funding and grants management:
Functions that focus on the acquisition of public funding and grants, often in partnership with universities and research institutions.
TRL 4-6: Prototyping and validation
The focus here is on the development and initial testing of prototypes.
- Product development and prototyping:
A design and manufacturing team that translates technology into tangible prototypes. - Quality management:
Implementation of standards to ensure that the prototypes are tested reliably. - Project management:
To ensure that schedules and budgets are adhered to and project goals are achieved. - Finance and Investor Relations:
Establishment of a team for the development of investor relations and financing via venture capital.
TRL 7-8: Market entry preparation and pilot projects
This phase focuses on preparing for market entry and establishing operational structures.
- Sales and marketing:
Development of a strategy for approaching pilot customers and for the market launch. - Regulatory Affairs and Compliance:
Ensuring compliance with legal regulations and certifications. - Production and operations management:
Development of capacities for the production of small series and for scaling. - Customer service and technical support:
Establishment of support and service teams to accompany first customers.
TRL 9: Market entry and scaling
In this phase, the product is commercialized and scaled up.
- Sales, marketing and business development:
Expansion of sales activities and development of long-term partnerships. - Supply chain management and production:
Optimization of production capacities to support larger quantities and scaling. - Customer service and support management:
Expansion of customer service to support a growing customer base. - Finance and reporting:
Establishment of a robust financial and reporting system for scaling requirements and, if necessary, an IPO.
This structured development of corporate functions helps to expand the necessary skills and resources in a targeted manner at all times in order to support the progress of the technology to market maturity.
The various sources of financing can also be ideally assigned to the different technical readiness levels (TRL):
TRL 1-3: Basic research and feasibility studies
The early development phases are often about validating an idea or researching fundamental technologies. These phases do not yet offer any immediate prospect of market entry. The following sources of funding are therefore suitable:
- Public research funding:
Research grants and subsidies from government institutions (e.g. EU research programs, National Science Foundation). - Academic partnerships:
Colleges and universities are often sources of resources and expertise. - Angel investors:
In rare cases, especially for highly innovative projects, angel investors may get involved at an early stage if the concept is promising.
TRL 4-6: Validation and prototype development
In these phases, laboratory tests and prototype developments are carried out to check feasibility and functionality in relevant environments. The following forms of financing are particularly suitable for this:
- Seed financing and venture capital (VC):
VC firms are interested in companies with prototypes that have potential for market value, even though there are still technological risks. - Corporate Venture Capital (CVC):
Large companies could participate if the technology is useful for their own value chain. - Funding programs for prototypes:
Governments often offer programs to support the development of prototypes, such as EU Horizon programs.
TRL 7-8: Pilot projects and demonstrations
With a working technology that has been tested in realistic environments, major investments are required for further growth. This phase includes the following types of financing:
- Growth financing through private equity:
Private equity firms often invest in companies with a clear market strategy but a need for capital for production and market entry costs. - Joint ventures and partnerships:
Partnerships with established companies can provide funding, production capacity and market access. - Venture debt and mezzanine capital:
For companies that are already generating sales or pilot orders, such forms offer debt capital without direct company shares.
TRL 9: Market maturity and scaling
The technology is mature and the market launch is imminent. This phase requires forms of financing aimed at rapid growth and scaling:
- Initial public offerings (IPO):
Companies with a mature technology that is ready for the market often consider an IPO. - Strategic acquisitions:
Established companies in the industry buy companies in order to gain a competitive advantage. - Bank loans and bonds:
Companies with stable revenues and low risk can use conventional loans or corporate bonds.
The choice of financing form therefore depends on the stage of development of the technology and the financing requirements for the further development of the company and preparations for market entry.
Lilium had a TRL of 5-6 when it went public in 2021, today it is 7-8; a TRL of 8-9 is optimal for an IPO and the associated growth expectations. If a company is built up with IPO money as if it already has a TRL of 8-9, but in fact only has a TRL of 5-6, the right management and development focus is missing. A lot of money is spent too early and incorrectly, “the horse is being put before the cart.”
What can Lilium do better now?
If Lilium succeeds in obtaining sufficient financing during its self-administered insolvency, we believe that the strategic and operational turnaround management must be refocused on technological progress and the further development of the company must be adapted accordingly in order to improve the chances of success and minimize risks as predictably as possible:
- Focusing on the unique technical features:
Lilium's electric battery and turbine technology is the key differentiation from competitors such as Volocopter and Joby with rotor technology. Volocopter and Joby with rotor technology, which reduces technical risks and facilitates certification, but comes with many compromises: higher noise pollution during take-off and landing, limited flexibility and maneuverability, lower maximum speed, lower efficiency at high speed, thus shorter range for fewer passengers, overall only suitable for metropolitan but not regional mobility, overall less broad range of use cases than Lilium. The refocusing on the technical readiness of Lilium's technology is the basis for its greater market potential and stronger competitive position. For a transitional phase, the use of a hybrid model may also be an option, which utilizes short-term advantages and secures the long-term unique position. - Gradual market launch instead of a long-term vision:
Instead of immediately building a global network of air cabs, Lilium should be able to focus on a gradual market launch. Focusing on a few, strategically selected cities and regions with the support of local partners can enable Lilium to generate initial revenue and develop the product iteratively. - Partnerships to reduce risk:
Lilium should specifically seek further strategic partnerships in areas such as technology, manufacturing and infrastructure in order to reduce risks and draw on external expertise. Collaborations with established aviation companies or technology providers can also secure additional resources and market access. - Focus on certification processes and market access:
In addition to refocusing on technological progress, Lilium should invest more resources and expertise in the regulatory process. More intensive cooperation with the regulatory authorities and their involvement in the development process can reduce regulatory risks and speed up the certification process. - More efficient financial management:
Lilium can manage capital costs and the use of funds more efficiently with a step-by-step company structure based on technological progress. This includes a clear prioritization and reduction of unnecessary sub-projects. - Focus on early product-market fit:
Lilium should plan and prepare initial pilot projects even more consistently in order to better understand the specific needs and willingness to pay of potential customers. A clear product-market fit strengthens investor confidence and provides more certainty about the economic feasibility of the business model.
Overall, we believe Lilium can benefit from a more focused and pragmatic strategy. A clear focus on technical feasibility, regulatory requirements and a gradual market launch can significantly improve Lilium's chances of survival and success in the highly competitive eVTOL market.
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