#002 – Drone Venture Capital with Kevin Spain

In Podcast by Ian SmithLeave a Comment

Ian sits down with Kevin Spain of Emergence Capital where they chat about venture capital trends in the drone space, the future of the commercial drone industry, and tips on what venture capitalists really look for in future (drone) portfolio companies.

Episode notes:

  • Kevin Spain of Emergence Capital Partners (http://www.emcap.com/)
  • Kevin also owns some drones himself
  • Most companies 3-4 years ago were focused more on hardware
    • At that time you didn’t really have a choice but to build your own hardware in order to build software
    • Notion of building a software-only company in the drone industry 3-4 years ago was a bit crazy
  • Was the plan always to find a drone company to invest in?
    • Drones were not a major theme at the time, they were intrigued, however
    • Realized this could be a major theme for the firm
    • Sometimes a personal hunch by a partner can transform into investments
  • Software companies in drone space are getting investment:
    • Ag analytics platform called Resson closed a $11MM series B led by Monsanto (http://resson.com/)
    • DroneBase, a commercial drone marketplace, closed a $6.8MM round (https://www.dronebase.com/)
  • VC investment in drone industry grew steadily starting in 2011/2012 to $500MM, over 74 deals, when it peaked in 2015
    • What are the reasons for this meteoric rise and the downward trend now?
      • Last year (2015) includes a huge round by DJI
      • Seen a lot of funding by hardware companies since they’re less capital-efficient than software companies
      • Venture market in general has plateaued a bit since 2015. Q1 2016 showed aggregate VC investment was down 2016 vs. 2015
    • Expect to see more VC firms excited about getting into drone companies
  • Advice to someone who wants to start a drone company:
    • Need a great team that builds great products
    • Try to solve a problem that is unique
    • Go after a part of the market that is big enough to create a business
    • If you want VC dollars, you need to go for the home run
    • You can also build a lifestyle company which provides a great living for yourself but is less attractive to Venture Capitalists
  • Part 107: what are your thoughts on the current state of the drone industry and what implications does Part 107 bring to the drone industry?
    • Part 107 was a big part in Emergence Capital’s thesis when making the DroneDeploy series A investment—at that time it was in a draft state
    • Data on 333 exemptions shows 4,000 to 5,000 issued and another 5,000 applications which have not been processed
      • Despite the difficult process and requirements, 10,000 companies said they’re interested in drones enough for the value they bring to their business to go through the 333 exemption process
    • Largest companies—enterprise class—agriculture, construction, etc. will be interested since these regulations have been finalized
    • Going to increase the market size dramatically in the U.S.
  • Security and Privacy issues: going to see a lot of big companies using drones and collecting data, privacy is a huge concern
    • If the ROI is there and proven, large companies will start jumping in like crazy
  • What other industry is similar to the current state of the drone industry?
    • SaaS/Cloud was being adopted by smaller companies as end users
    • Same issues exist now with large companies who are interested in drones
  • Thoughts and advice for large enterprise company end users who start to use the Cloud and drones?
    • You want a solution that delivers value quickly, first and foremost (time to value)
      • A benefit to using SaaS—it just works—takes out a lot of risk, not a huge money/time investment
    • You want a solution that is easy to use
      • If not, lots of training to come—lots of money and time investment
    • Data security
    • Confidence in choosing your vendor that they’ll be there to support you
      • Will be looking for a partner and not just a vendor
  • What will the next 3 years bring to the drone industry?
    • Going to be really exciting (in part due to Part 107)—characterized by broad usage and adoption of drones
    • Start to see innovation in areas like:
      • Sense and avoid
      • Battery technology (larger batteries or additional innovation)
      • Ton of software innovation
        • Even easier to solve problems, faster, easier
    • Going to see widespread adoption in autonomous vehicles
      • UGVs (unmanned ground vehicles)
      • UUVs Water vehicles
  • What gets Ian most excited about the drone industry:
    • Full blown automation, one button press, missions that repeat themselves for weeks, data delivered with solutions suggested automatically, reports delivered
    • Machine learning and computer vision will power the future of the industry
    • Drones getting smaller—fleets of tiny drones accomplishing collaborative mapping missions

Follow Kevin Spain on Twitter @KevinSpain, check out his website at KevinSpain.com, and listen to the Emergence Capital podcast here.

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