The Drone Market Bubble Burst: Ventures Have Closed, And Venture Capital Has Been Hit Hard

- Oct 30, 2019-

According to Crunchbase, which collects private company data, at least 67 drone startups have been sold since its inception.

According to foreign media reports, starting from around 2010, new commercial drone companies flooded into the market, with abundant venture capital, and dazzling use of drones for various visions. From the delivery of packages to the fertilization of farmland, there are endless streams.

Drones are still seen as the backbone of the future. But for now, all the overheated hype is facing a cruel reality. Although hundreds of millions of dollars of venture capital have flooded into this emerging industry before, although it is predicted to explode, the time required for market maturity is clearly longer than expected. Last year, a number of large drone start-ups closed.

As drone companies look for lucrative niche markets in a rapidly changing market, dozens of other companies are being swept by the wave of consolidation.

Kay Wackwitz, founder and CEO of market research firm Done Industry Insights, said: "There are many irrational things around the drone, which is a period of hype driven by the popularity of the industry. We are working Through this period, people are also returning to reality."

Once the well-funded start-ups are struggling, many pilots are pushing down prices, and China is leading the way in technology competitions, and non-UAV companies across the industry will spin off their unmanned aviation business. In addition, government agencies are always in the process of catching up with aircraft, which has hindered the expansion of many companies.

French manufacturer Parrot SA announced in July that it will stop most of its drone production lines. Software startup Airware raised $118 million from investors, but closed and dismissed 140 employees by the end of 2018. GoPro withdrew from the drone business last year and fired hundreds of people on the grounds that the market was "very competitive."

But while some start-ups are testing the patience of investors, other start-ups see opportunities for growth. According to Crunchbase, which collects private company data, at least 67 drone startups have been sold since its inception. Buyers include competitor drone operators and other industry companies such as wireless carrier Verizon.

New frontier

This dramatic change is changing the landscape of the US drone industry, quickly shifting from early emphasis on hardware and manufacturing to providing software and services, such as detailed inspections and data analysis. Today, larger service companies offer a menu of use cases that are best suited for the future, providing drones, performing missions, and analyzing data for customers.

PrecisionHawk, an industry leader in drone services such as inspection and data analysis, said the company acquired five startups in 2018, including Uplift Data Partners for construction and real estate inspections, HAZON for energy and independent drones. Pilot online network

According to data from industry research firm Teal Group, from the beginning of 2012 to June 2019, venture capitalists invested $2.6 billion in drone companies. Wokwitz said that this enthusiasm began to cool down last year, because the startups created during the “hype peak” period of the commercial drone industry had run out of funds before they could make a profit, and could not get additional funds.

According to Crunchbase's online report, at least 25 drone startups have closed for the past decade, with the largest one spending a total of $183 million. Dan Burton, chief executive of Dronebase, a drone pilot network, said: "The venture capitalists are not so enthusiastic now!"

Last year, a drone project supported by Kleiner Perkins and Google GV was closed. In a smaller case, the company called Cyphy Works provided another warning story.

Helen Greiner is known for developing the Roomba robotic vacuum cleaner. She founded CyPhy in 2008 to develop a drone that is tied to a grounded power source that can support missions that fly for several days. For observation and communication.

But in an interview, she said that investors put pressure on her to start commercial sales before the preparations were completed. She resigned as CEO and then left the company in late 2018 to receive a job of providing drone advice to the US military.

Earlier this year, CyPhy announced that it will change its name to Aria Insights and transition from developing hardware to developing drone data analysis software. In March of this year, after spending $39 million in venture capital, the company closed down.

Greiner said: "No matter whether it is a supply chain problem or a regulatory issue, it will hinder the rapid development of start-ups. It is very important to find a venture capital company that is friendly to founders. They know that they are betting on you and will stick to it."

As the industry begins to screen the most profitable business plans, the survival strategy for drone startups includes shifting the company's focus, including target customers.

Airware was the most funded drone startup, initially developing cloud-based software and autopilot systems for drones. Early use cases were flying over farmland to collect data on crop conditions, from the water levels in the field to the extent to which crops were affected by pests and the chemicals used to control them.

But Wokwitz said that most farmers are not ready to use this information. Early interest in precision agriculture weakened, forcing Airware to switch to other applications, such as the use of drones, and then shut down in September.

Rapid elimination

Rapidly evolving technology is both a curse and a godsend. While it is expanding business opportunities, drones are not designed to capture video, but other companies have been eliminated by improving navigation and flight software. At the same time, companies such as Intel and AT&T have begun their own drone operations, eliminating middlemen.

Drone Industry Insights A 2019 survey showed that executives at drone startups reported a decline in their enthusiasm for the industry compared to a year ago. But even those who have experienced the pain of shuffling see a lot of benefits, because the company has honed their business model, regulation provides more flexibility, and advanced technology gives the drone more power.

Investors' funds are still flowing into commercial drone companies, but more and more money is flowing to a few winners in the industry. PrecisionHawk received an additional $75 million in funding last year from supporters such as Comcast, DuPont Ventures and Verizon Ventures.

Grena, the former founder of CyPhy, pointed out: "Start-ups need time, innovation, long-term founders and long-term investors to succeed. To be honest, I believe that our exploration of drone applications is still in its infancy."