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Startups fail as drone fever cools

by JACK PITCHER BLOOMBERG NEWS | August 31, 2019 at 1:39 a.m.

New commercial drone businesses flooded into the market at the start of the decade, flush with venture capital and giddy with visions of unmanned aircraft being used for everything from delivering packages to fertilizing farmland.

But for now, all that over-heated enthusiasm is getting a cold blast of reality.

Some of the biggest startups began closing their doors last year after burning through hundreds of millions in venture capital poured into a fledgling industry that, despite forecasts for explosive growth, is taking longer to mature than expected. Dozens of others are getting swept up in a consolidation wave as drone companies search for a profitable niche in a rapidly shifting marketplace.

"There was some irrationality around drones, a period of hype driven by the popularity of the hobby sector," said Kay Wackwitz, founder and chief executive officer of research group Drone Industry Insights. "We're getting past that and people are coming back to reality." Once well-funded startups are struggling as hordes of self-employed pilots drive down prices, Chinese technology races ahead and non-drone companies across industry pull their unmanned aerial operations in-house.

French manufacturer Parrot SA announced in July it would halt production of most of its drone lines. Software startup Airware Inc. raised $118 million from investors before shutting its doors and laying off 140 employees in late 2018. GoPro Inc. exited the drone business and laid off hundreds last year, citing an "extremely competitive" market.

But while some startups are testing investor patience, others are seeing an opportunity for growth. At least 67 drone startups have been sold since their inception, according to Crunchbase, which collects data on private companies. Buyers range from rival drone operators to companies in other industries, such as Verizon Communications Inc.

The industry has shifted from an emphasis on hardware and manufacturing in the early days, to one providing software and services, such as detailed inspection and data analysis.

PrecisionHawk Inc., an industry leader in drone services, said it acquired five startups in 2018. These include Uplift Data Partners, which performs construction and real estate inspections; Hazon Inc., specializing in energy; and, an online network of independent drone pilots.

Venture capitalists poured $2.6 billion into drones from the beginning of 2012 to June 2019, according to Teal Group, an industry researcher. The rapture began to evaporate last year as startups founded during peak hype in the commercial drone industry ran out of money before they could generate profit and couldn't secure additional funding, said Wackwitz.

At least 25 drone startups have shut their doors this decade, with the largest burning through a total of $183 million in funding, according to Crunchbase's online reports.

"The venture capitalists are less enthused now," said Dan Burton, chief executive officer of Dronebase, a drone pilot network that has held on through the turmoil.

Helen Greiner, known for developing the Roomba robot vacuum cleaner, founded CyPhy Works in 2008 to develop a drone tethered to a grounded power source that could fly for days at a time for observation and communication. But investors pressured her to begin commercial sales before she was ready, she said in an interview. She stepped down as CEO, then left the company in late 2018 to take a job advising the U.S. Army on drones.

In March, after plowing through $39 million of venture capital, the company shut down.

Business on 08/31/2019

Print Headline: Startups fail as drone fever cools


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