Drone Company Investments Take the VC World by Storm

The recent announcement of Chinese drone industry leader DJI raising $75 million from Silicon Valley venture capital firm Accel, underlines a message the drone sector is clearly sending to Wall Street: UAV companies are poised to fly high in billion-dollar market skies.

DJI has become the poster child for drone industry success. Sources say the Accel partnership will value the firm at $8 billion (maybe even up to $10 million)and DJI officials told Reuters the company holds about 70 percent market share worldwide for commercial drones and even more in the consumer arena. “DJI is quickly establishing itself as the owner of the world’s most powerful robotics platforms,” said Sameer Gandhi, partner at Accel.

But is DJI’s success just a flash in the pan or a portent of greater things to come for the wider drone industry?

The numbers don’t lie. A recent report by analytics group CB Insights data shows that drone-industry investment in 2014 amounted to more than $108 million in 29 funding partnerships. “Year-over-year funding increased 104% as venture firms including Lightspeed Venture Partners, GGV Capital and Kleiner Perkins Caufield & Byers among others jumped into the drone space with sizable bets,” the report adds. Business Insider reports that, from 2012 to 2013, venture capital investment in drone companies doubled from $20 million to $41 million.

CB points out that from 2010 to 2012, only five UAV firms drew venture-capital investment. Today, around 19 drone companies, such as Ehang and Aerodron, have attracted Series A funding (initial round). Companies such as 3D Robotics and Airware have garnered even more lucrative Series B funding. In fact, 3DR recently announced Series C funding up to $64 million.

This past year saw drones really hit their VC stride. UAV firm Skycatch raised more than $16 million (and has since upped that amount to $24 million) while PrecisionHawk raised $10 million.

Other successes for 2014 include:

• Kespry, drone data capture system,  $10 million Series A;
• Ghost, drone hardware, $10 million;
• Cyberhawk, aerial inspection, $1.2 million;

In the third quarter of 2014 alone, venture-cap investments in drone startups hit $65 million with companies like Airware and PrecisionHawk leading the way. Analyst firm PrivCo estimates cumulative VC investments in UAV companies topped $412 million in 2014, an increase of 44% over 2013.

In 2014, Swiss UBS Bank announced the launch of the Robotics and Drone Index. The benchmark index, compiled for UBS by Solactive AG, track companies that develop automated robotics as well as the UAV solutions. Over the past year the index’s return on investment has grown by 50 percent. According to Bloomberg, “[The] companies listed on the Robotics & Drones Index saw the value of their businesses grow by at least 50 percent in [2013], bringing their total market capitalization to $64 billion.”

While 2014 may have launched drones into a new altitude, 2015 may make 2012-2014 look puny by comparison. InsideUnmannedSystems reports that “venture capitalists poured $166 million into unmanned aircraft companies from April 2014 through April 2015—a 176 percent increase over the same period the year before … there was more money invested in unmanned aircraft systems (UAS) during the first quarter of 2015 than in any quarter in the previous five years.”

By way of example, David Weekly, founder of the world’s largest hackerspace (Hacker Dojo), recently launched the Drone.VC Syndicate. Weekly seems to have a nose for emerging tech industries, having led successful startups for Plaxo, which was purchased by Comcast in 2008 for more than $150million, as well as Like.com — later purchased by Google for $100 million.

Last month, Skyward, an “information management platform for commercial drone operators,” garnered 4.1 million from Draper Associates, Founders Co-Op, Moment Ventures, Norwest Venture Partners, Techstars Ventures, Verizon Ventures, and Voyager Capital.

More recently, drone-inspection provider Sky-Futures secured $3.9 million in Series A funding from British VC firm MCC venture – the largest European investment to date.

This investment follows two significant seed rounds, which included prominent angel investors Nick Robertson (CEO of ASOS) and Jon Kamaluddin (former International Director of ASOS).

Market intelligence expert Marcelo Ballve believes the commercial drone industry will far outpace the growth of the military sector. Ballve thinks the drone industry will generating $2.3 billion in U.S. investment in 2016.

“Most growth in the drone industry is on the commercial/civilian side, as the shift away from the military market gains momentum,” said, adding, “The market for commercial/civilian drones will grow at a compound annual growth rate (CAGR) of 19% between 2015 and 2020, compared with 5% growth on the military side.”

Ballve also predicts that “e-commerce and package delivery will not be an early focus of the drone industry” and that “the commercial-drone industry is still young but has begun to see some consolidation and major investments from large industrial conglomerates, chip companies, and defense contractors.”

The tone set by the coming drone gold rush seems reminiscent of personal computer market growth of the 1980s-90s as well as the Web bubble of 2000 inasmuch as drone companies thrive best in a grass-roots, “office-in-a-garage” environment.

“It used to cost a ton of money before you could even see something move,” venture capitalist Bilal Zuberi told Inside Unmanned Systems. “And now two college students in their dorm room can order parts online and code the firmware, or download an open operating system, and have a drone fly.”