In recent times, investing in hardware startups used to be a no go for VCs and angels.
Their challenges are well known: they are intensive in capital, complex to run operationally, have lower margins than software, etc. And even if they succeed, hardware tends to be commoditized over the long run which breaks its defensibility.
And now, drones are one of the hottest niche segments for startup investment — putting it into perspective, drone startups raised 100m$ in Q2’15 while 140m$ were invested into bitcoin startups in the same period
Drones are attractive today because, basically, they can fly longer and better and are cheaper.
And they do that, not surprisingly, mostly because of the progress in technology.
On one side, the electric motors and processors are a lot more efficient in terms of energy consumption. On the other side, batteries generate more power per kilo which allows the drones to fly longer. Those processors are also a lot more powerful which allows engineers to do real-time computing to control the flight to make it more stable and easier to control. Additionally, the elements to build a drone are also cheaper and more available thanks to 3D printing and other prototyping tools.
That progress in technology means that today, for a couple of hundred $$ we have commercial (or even DIY drones) that fly 20min in ranges of up to 2km — which might sound short if compared with military drones who have 1000km ranges, but they cost +10m$ 😉
But technology only explains part of the changes. In addition to technology, these factors are also helping to increase adoption:
- So far, regulators haven’t been freakin’ out to control who uses a drone — although they just started working on it
- There’re enough people willing to play with those expensive toys — enough to bring 1bn$ in sales to DJI, that’s a lot of toys 😉
Drones are still in their infancy. Therefore, like the computer industry 40 years ago, most of the money is still being invested into the hardware companies that are manufacturing the devices.
But even at this early stage, we start to see the emergence of different areas of development:
- On the device side, there’s a clear differentiation between industrial-grade drones, professional and personal/consumer oriented products.
- There’s also an emerging industry of providers of components — cameras, motors, etc. — and software for the drone users and manufacturers — ie. operating systems, autopilots, visual recognition, etc.
- At the service level, we see the first horizontal platforms that allow the hiring of drones and drone operators — for footage, inspections, etc. and the first ones vertically focused on the needs of industries like agriculture, oil and gas, energy, etc.
Who is Who?
In terms of drone startups, the most relevant players are — so far, because the industry changes very fast
Drone Hardware Manufacturers
The military space requires heavy efforts in R&D. So far only CyPhy Works is a relevant startup in a space dominated by the large aircraft providers — more than 30m$ in funding announced probably helps as well 😉
In the commercial sector, the industries where drones are starting to be used are those where large areas need to be monitored or the access by humans might be complicated — infrastructure, construction, mining, agriculture and oil & gas among other examples. There, we see players who are horizontally focused like Airware (40m$), Precision Hawk (10m$) or others who focus vertically in different industries like Skycatch (40m$) and Kespry (10m$) in construction; Sky Futures in oil and gas; Avetics film and photography, etc.
But where larger amounts of drones are being sold is in the personal space. More than 2 million drones are been sold to recreational users per year — and this figure is growing fast. The three largest manufacturers are DJI(100m$), 3DRobotics (99m$) and Parrot (public company). Other manufacturers include Walkera, Yuneec (60m$) and Ehang (50m$).
In the software arena, the amounts of funding deployed are significantly smaller. The two most relevant players are Drone Deploy (10m$), who wants to become the OS to manage commercial drones and Skydio (3m$), who focuses on making drones’ navigation smarter. Drone Base (who raised an undisclosed amount from USV) and Airstoc (NA), who provide commercial services to hire for the above mentioned industries, are also very interesting marketplace plays.
Drone Startup Investors
Being in such an early stage as an investment area, most VCs have done none or a single investment in drone companies.
Drones at Point Nine Capital
The highlight of our last off-site was playing with Christoph’s drone.
We have been looking at several opportunities on that space. So far, we have done one investment in a drone company -still not announced- and we’re looking at other opportunities.
As a macro trend, we think that drones have great potential to make industries more efficient in several ways — they can work autonomously, they can access places where humans can’t or don’t want to go, they are very precise, etc. As a micro approach, we are focusing on opportunities where most of the value is created through software — you know, we love SaaS and marketplaces.
Horizontal platforms helping drones to get into more use cases, or vertically focused ones that help specific industries become more efficient through data collection or monitoring, operating and security systems, etc. All of those are areas where we think great companies can be built and we would like to be part of that.