UAVs Have Become a Means, Not a Target

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The drone industry has been shifting from hardware to the software, imagery and information fields.

$55 million were invested in eight high-risk deals in the drone industry in the third quarter of 2016, compared with almost $106 million invested in 13 deals in the second quarter.

Financing for drone companies fell 59% year-over-year in the third quarter, and 48% from the previous quarter.

These stats are according to the latest Venture Pulse report results published on marketwatch.com.

Alex Niehenke, an investor at Scale Venture Partners explained: “In 2015, everyone was super-hyped about drones. We’re now starting to see the leaders emerge.” This year has seen the drone industry establish winners and losers. 3D Robotics laid off more than 150 people and burned through almost $100 million in venture-capital funding, according to Forbes. Meanwhile, drone maker DJI is valued at $8 billion and controls 70% of the drone market, according to Forbes estimates.

Niehenke said that since leaders have been established in drone hardware, venture capitalists are now looking to the software space. With reliable hardware from companies like DJI in place, Nienhenke said that many venture capitalists are now more attracted to software companies because they require less capital (and, therefore, less funding) to accomplish their goals, along with other changes in the drone industry.

“The reason we are now deploying our dollars is because of the combination of off-the-shelf hardware, the vast improvement in quality of drones and the recent regulation,” he said. The FAA in August began regulating commercial drone use in the U.S. by allowing anyone who passes a written test to operate a drone for commercial use. Previously, commercial drone operation required businesses to go through a lengthy waiver process, with strict requirements including a manned aircraft license requirement.

Ron Stearns, Business Development Director for Robotics and Unmanned Systems at the Velocity Group, predicts that the companies that will be most successful in nabbing VC funding in the future won’t be focused solely on drones. “(Venture capitalists) want to see an established company that might not be wholly reliant on the drone for survival,” Stearns said. “The more patient money will likely look for established commercial providers of imagery and information who are making drones a part of their operation as opposed to saying, ’We have a drone and now we have to find a way for it to work.’”