The Game of Drones: Venture Equity Dollars and Deals are Taking Off

Alexander Paulus

The Drone Industry

Ten years ago, commercially available drones and unmanned aerial vehicles (UAVs) were futuristic concepts to most, but that is not the case anymore, especially after the FAA recently passed its first draft of a comprehensive plan allowing drones to share the air with commercial crafts.

What we are seeing today is the emergence of a rapidly growing industry of drones and UAVs with numerous applications, ranging from clean technology and military use to commercial and personal purposes.

Specifically within the cleantech theme, corporate and venture capital investment activity for drones and related technology has gained notable traction within the past five years. There is a clear upward trend in both the size and quantity of investments, and the trend does not appear to be slowing.

The Calm Before the StormDrone_Graph

Between 2011 and 2012, there were only four investments in the drone space with an aggregate value of $35.5 million; however, this proved to be the calm before the storm, as the year 2013 alone brought 10 VC investments amounting to more than $106 million.

This notable increase in venture activity was largely catalyzed by the investments in 3DRobotics, a manufacturer of multi-rotor copter drones with numerous applications, primarily in agriculture and environmental conservation, which raised $30 million during its Series B round – just half a million less than the combined total investments of 2011 and 2012. As shown in the graph, this threefold increase was by no means the end of the investment spree within the drone space.

Drones Take Off with VC Investors

Each year between 2012 and 2015 saw an increase in the number of corporate and venture capital investments from the previous year. In just four years, there were a total of 48 investment rounds totaling $332.1 million. Again leading in funding during this four-year period was 3DRobotics, who alone raised $99 million in four rounds and secured its spot as a leading player in the cleantech drone space.

The year of 2015 experienced the largest deployment of drone-related capital to date. There were a total of 21 deals – 6 more than 2014, and 11 more than 2013 – amassing $143.9 million in venture equity investments, more than 20x the investment value of 2012.

The Game of Drones Begins

There appears to be no signs of slowing the flow of investment capital into the drone and related-technology space. As Q2 of 2016 comes to a close, there are already 17 deals totaling $141.8 million, the second highest year in investment count and value. At this halfway point, 2016 is only trailing the investment benchmarks of 2015 by four deals and $2.2 million in venture equity. In June alone, five UAV companies raised $91 million in venture equity, further suggesting that 2016 is on track to surpass the investment activity of 2015.Drone_Table_Image

It should be noted that between 2014 and 2016 YTD, the average investment deal value increased each year, and is currently sitting at $8.3 million. This is an indication that corporates and VCs are growing more confident investing in the space, and that startups are showing promising indicators toward potential return on investment.

Clear Skies for Drones

Just this week, the FAA passed its first attempt at a comprehensive plan allowing drones to share the sky with commercial crafts, effectively removing one of the industry’s greatest barriers to entry. Before this plan, drones were heavily restricted because of safety concerns, and the only way to legally utilize a drone’s full potential meant enduring a costly, time-consuming administrative process.

This new plan strikes a balance between innovation and safety. Drones are now permitted to operate freely during daylight hours at altitudes below 400 feet, as long as the operator is at least 16 years old and has been screened by the TSA. There are other minor requirements, but what is important is that drones are now legal to fly within the United States.

The implications of the FAA’s new plan are greater than they appear. Now, manufacturers can further develop innovative drones and distribute them on a broader scale. Additionally, industries with potential drone applications, such as agriculture, conservation and energy, can collect new and informative data from drones unlike before.

The Sky is No Longer the Limitgameofdrones

With the large deployment of capital into the drone and related-technology space, drones have become a more realistic and promising piece of technology with countless applications.

Outside of the military, which recently allocated $4.6 billion of the proposed 2017 fiscal year budget for drones, companies like Amazon, Google and Walmart are working to develop programs to deliver packages via unmanned drones. Conservation groups are also using drones with thermal vision to track and prevent illegal poaching of endangered wildlife, and renewable energy companies are equipping drones to clean wind turbines and hard-to-reach solar panels. Even environmental organizations are using drones that are capable of planting 36,000 trees per day to fight deforestation. And that is just the start.

The technology is ready and the applications are seemingly endless. The current environment shows a significant upward trend in both early-stage and follow-on investments, indicating initial success that startups are experiencing. With the FAA’s new comprehensive drone plan, there are no signs suggesting that the drone industry will not take off and provide serious opportunities to capitalize on exits in the near future.