With supply chain woes still rampant, VCs hone in on drone startups

Institutional investors who have continued to grapple with a struggling global supply chain crisis are beginning to target companies that aim to alleviate commerce woes, chiefly among these investments are drone startups.

As of early this year, McKinsey estimated that more than 2,000 drone deliveries are occurring each day worldwide. They also project that the industry as a whole will be close to 1.5 million total deliveries by the end of this year. These statistics come without regulatory approval, however, leveraging exemptions for very specific applications and use cases are in existence.

Today, drone-deliveries cover a broad range of goods: from vaccines, to groceries, to blood transfusions. Amazon, Google and Domino’s Pizza have all pulled off carefully controlled demonstrations and pilot programs delivering goods.

The total amount of VC money flowing into drone startups is up in the air, but multiple databases have reported deal value is in the billions of dollars.

According to Forbes, VCs have poured $5 billion into drone startups, through nearly 130 different companies spanning the globe over the past two years. However, $4.6 billion of this funding has been funneled to just six companies in the U.S. and Europe: Joby Aviation, Lilium, Paragon, Archer Aviation, Beta Technologies, and Volocopter.

In the last five years, the largest VC-led round in the drone sector appears to be a $1 billion investment in China’s SZ DJI Technology Company. The round was led by the Shanghai Free Trade Zone Equity Fund, Mirae Asset Daewoo, Fong Capital Partners, BMY Group, and other investors according to PitchBook.

In 2020 alone, VCs made 164 investments into drone startups, totaling $2.34 billion, according to India-based Drone marketplace TropoGo. India has been a haven for both drone startups, TropoGo estimates that the global drone market will reach $125 billion by 2025, over $11 billion of which will be centered in India.

Other notable past deals include the $443.7 million buyout of Russian drone company VR Technologies by Abu Dhabi-based private equity firm Tawazun Economic Council in 2019; and the $375 million takeover of Fairfax, Va.-based MAG Aerospace, a provider of manned and unmanned intelligence and surveillance, by New Mountain Capital, according to PitchBook.

Governments have jumped into the pool of drone-backers, too. In 2020, the United States Air Force provided a $950 million grant to Edgybees, a Gaithersburg, Md.-based VC-backed company that provides first-response applications for drones and self-driving vehicles.

In terms of drone delivery systems, there are a couple of major players in the U.S. There is of course e-commerce behomoth Amazon, which has been experimenting with drone delivery for years. Aerospace and defense firms Boeing and Airbus are also active in the field.

Further, there’s Zipline, a Linqto portfolio company, that designs, manufactures, and operates drones to deliver vital medical products through operations in Africa, Asia, and North America.

To date the company has secured its US Federal Aviation Certifications, and has flown over 30 million miles, made over 432,000 commercial deliveries, and delivered more than 4M products. In addition to NASA, Zipline’s partners include Pfizer, Walmart, Toyota, Jumia, and the company has various government contracts globally. Zipline currently services healthcare, retail, and many other global markets.

As consumers continue to rely on e-commerce companies, and with global supply chain issues remaining constant, there’s reason to believe that VC involvement in the drone industry will continue to grow.

Daniel Shaposhnikov, a partner at Phystech Ventures, told Forbes he believes we’ll see a large-scale deployment of drones for cargo delivery within the next five years.

Shaposhnikov also said he expects heavy-payload drones to replace helicopters within the next six-ten years, principally because they are “up to ten times cheaper.”