Nearly two years after 500 Startups acquired his seed stage program, Mexican.VC, angel investor and current Facebook Product Manager David Weekly is once again betting on a tightly targeted fund. This time, he’s going after the nascent commercial drone market. Drone.VC, a new investment syndicate organized via AngelList, has already generated real interest: At the time of publishing, Drone.VC had $55,000 from 21 backers including AngelList Co-Founder Naval Ravikant.
Despite the rush of support, commercial drones are an especially risky gamble considering that they’re currently banned in the United States, and new rules from the Federal Aviation Administration aren’t due to arrive until at least 2015. It was only this Tuesday that the FAA granted the very first (and very limited) permission for a commercial drone to fly over U.S. land. So why is Weekly so confident? Mattermark found out this week in an interview with him, and today we’re presenting his thoughts as well as select Mattermark.com data revealing the growth of current drone startups. (Log in to Mattermark now to follow along and play with the data yourself.)
Before we drilled Weekly on his choice of market, we asked him to defend his targeted approach to syndicates. Quoting the Kaufmann Foundation’s 2012 report on venture capital fund performance, “We Have Met the Enemy… And He Is Us,” Weekly said 80% of unfocused venture funds fail to beat a public-market equivalent. He also pointed to his anecdotal experience with his previous fund Mexican.VC: the portfolio has seen a 3x rise in value in just a few years. Weekly said the AngelList Syndicate model has the potential to turn out impressive results despite him treating it as a side project. “I could put in five hundred thousand [dollars] per deal, five per year over ten years,” he said. “It’s like I raised a twenty-five million dollar fund with zero management fees… That’s something I put together part-time in a couple weeks.”
Weekly made no statement about future plans to go full-time on Drone.VC or leave Facebook, where – according to his Linkedin profile – part of his past work involved “helping map the disconnected, and developing the vision for Facebook’s Connectivity Labs ([its] plans to use drones, satellites, and lasers to connect the world).” Weekly said he no longer works on Connectivity Labs; he’s now focused on information tools at Facebook.
Why – of all things – drones? In determining what niche market to tackle, Weekly looked for three qualifiers: 1) Does the potential market have the capacity to generate multiple billion dollar companies? 2) Is the market small enough to get in early, but growing enough to be interesting? 3) How many other investors have reached the same conclusion and are already moving in on the niche? Weekly said he hoped to replicate the success of Mexican.VC with these qualifying questions.
By targeting a growing – but somewhat hidden – market before other investors, a fund could get first choice among the “cream of the crop,” Weekly said. Although admittedly subjective, Weekly said he considered another factor: An increasing number of entrepreneurs he knew from the Web 2.0 days were starting to tinker with drones. (Among Web 2.0 influencers whose interests moved on to drones, former Wired Editor in Chief Chris Anderson, now the founder and CEO of 3D Robotics [See 3D Robotics’ Mattermark Profile], should certainly be mentioned.)
Weekly also noticed that core components for drones such as gyroscopes and GPS trackers were improving and becoming more accessible. The economic environment has changed considerably for UAV hobbyists and businesses alike in recent years. According to a March 2013 report from the Association for Unmanned Vehicle Systems International, the total economic impact of commercial drones into the U.S. market could reach $82.1 billion by 2025 and could create 103,776 new jobs. But could a startup build a billion dollar company based on drones? Weekly thinks so.
Consider the potential consumer interest in a couple hundred dollar drone made to work with GoPro (See GoPro’s Mattermark Profile), a company that’s already filed for an IPO. Personal videography could grow to an even larger market with the sudden ability (through use of drones) to quickly and inexpensively create beautiful moving stories with artistically interesting positions. UAV companies such as DJI Innovations already have a headstart on this concept with its Phantom product line.
Other popular companies in the space such as 3D Robotics and Parrot (See Parrot’s Mattermark Profile) are branching out in similar ways, but opportunities beyond personal video abound. Drone.VC’s notes say that “applications are expected to cover a very wide range of geographies and industries, including farming, oil and gas, real estate, retail/delivery, and security/surveillance.” However, Weekly said the fund would not support military-focused or weaponized platforms. He also said he isn’t particularly concerned about current government contractors competing with drone startups in the commercial space. “I don’t think Lockheed Martin is going to produce anything you put under the Christmas tree for the kids,” Weekly said.
While the legality of a commercial drone market in the U.S. remains up in the air, Weekly said he’s examining the business opportunities for drones abroad, a strategy current drone-focused businesses already pursue. As an example of the potential, Weekly pointed to traffic congestion in Jakarta, Indonesia. “It’ll take you two hours to go two kilometers,” Weekly said. But what if drones were introduced as a package delivery system? Or what about in countries where remote towns can’t easily access basic supplies? The murkiness of U.S. legality, however, is still cause for investor concern, Weekly said. “Frankly it’s an enormous risk,” he said. “[But] it’s called venture capital for a reason.”
The next year and a half represents a “legislative danger window” while the market tries to prove itself and as the FAA considers its official rules, Weekly said. If a startup or hobbyist experimenting with drones causes great damage, for instance, stifling legislation could be passed and could crush the industry’s future in the U.S. Drone makers will need to focus during this time on building core safety technology and consider how it will approach privacy issues, he said. The nascent commercial drone market already has a long list of risks. Will the potential rewards be enough to attract serious capital in the future? Tell @Mattermark on Twitter what you think by using hashtag #dronevc.
The Data on Drones According to Mattermark
What does the current landscape look like for commercial drone-focused startups? Mattermark compiled a short list of these companies ranked by their Mattermark Score as a quick sample of the market. We’ve also included their current funding. Log in now to check out full company profiles and side by side comparisons.
- 3D Robotics | Mattermark Score: 897 | The Company Line: “3D Robotics is an open-source UAV technology company manufacturing electronics and aerial vehicles.” | Funding: $35,000,000 | Location: Berkeley, CA
- Skycatch | Mattermark Score: 355 | The Company Line: “Intelligent & Scalable Aerial Robotics Platform.” | Funding: $16,400,000 | Location: Bay Area, CA
- Airware | Mattermark Score: 339 | The Company Line: “Airware is the Aerial Information Platform for developing and operating commercial drones.” | Funding: $13,700,000 | Location: San Francisco, CA
- Garuda Robotics | Mattermark Score: 235 | The Company Line: “At Garuda Robotics, we are building integrated hardware and software systems to enable the coming wave of UAV applications and services.” | Funding: Undisclosed | Location: Singapore
- DroneDeploy | Mattermark Score: 209 | The Company Line: “DroneDeploy.com is a smart drone management platform that helps users get tasks done using drones.” | Funding: Undisclosed | Location: San Francisco, CA
- Flirtey | Mattermark Score: 163 | The Company Line: “The world’s first autonomous aerial delivery company.” | Funding: Undisclosed | Location: Australia
- Matternet | Mattermark Score: 148 | The Company Line: “Matternet develops an automated delivery network for the transportation of goods.” | Funding: $500,000 | Location: Bay Area, CA
- Precision Hawk | Mattermark Score: 135 | The Company Line: “Precision Hawk offers a fully autonomous UAV performing low altitude aerial data collection and subsequent data management and analysis.” | Funding: $1,000,000 | Location: Noblesville, IN
- TerrAvion | Mattermark Score: 119 | The Company Line: “Getting an aerial imagery subscription to manage your farm’s operations is easy!” | Funding: Undisclosed | Location: Dublin, CA
- Iron Drone | Mattermark Score: 90 | The Company Line: “Iron Drone is a visionary company developing and selling technology for UAV products for the professional and industrial markets.” | Funding: Undisclosed | Location: Tijuana, Mexico
- CyPhy Works | Mattermark Score: 51 | The Company Line: “CyPhy works develops unmanned air vehicles for search and rescue missions and bridge inspections.” | Funding: $9,950,002 | Location: Boston, MA
- SkySpecs | Mattermark Score: 47 | The Company Line: “SkySpecs provides autonomous aerial vehicles that are capable of inspecting hard-to-reach structures such as bridges and wind turbines.” | Funding: $305,000 | Location: Ann Arbor, MI
Photo Credit: Lima Pix – 1 & 2, Don McCullough – 3