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Venture Capital for Drone Startups Has Plummeted

By George Khoury, Esq. on October 24, 2016 | Last updated on March 21, 2019

Venture capital funding for new drone startups is no longer on the rise. Despite the fact that the new FAA regulations that went into effect this past August provide certainty for companies looking to utilize drones, since the regulations were announced, drone startups have received less and less funding. Shockingly, from the second to third quarter this year, drone funding plummeted by by half.

According to MarketWatch, funding for drone companies has fallen by 59 percent since last year. In the second quarter of this year, $106 million was invested in 13 different deals. However, in the third quarter of this year, there was only $55 million invested into 8 different deals. For the companies that make drones, especially ones that are just starting up, this news is frightening.

Why the VCs Aren't Investing

While the new regulations provide clear parameters on how drones can be commercially operated, the regulations are anything but cheap and easy to implement. Requiring licensed and trained operators to fly a drone is much more cost prohibitive than allowing drones to fly autonomously (which is not allowed). Additionally, one of the most desired uses for drones, package delivery, was essentially banned by the new regulations that prohibits flying a drone out the operator's line of site.

Despite the unfulfilled dreams of Amazon's drone delivery program, there are still countless commercial uses for drones that do work within the new regulatory framework. This begs the question: Why are VCs not investing? One of the more logical reasons for the lack of investment is due to the advances that have already been made.

At this point, the technology to build drones has apparently plateaued. Commercially viable drones are readily available, durable, reliable and appropriately costed. Analysts explain that the battle to develop the drone hardware has already been fought, and clear leaders have emerged. They further explain that the new battle is developing the best software for drones, which means the money that would have been invested in building drones, is now going to companies that are working on programming drones.

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