Drone Bubble Implodes, Wipes Out Startups And Hammers VC Firms

It's not surprising whatsoever that the commercial drone bubble has imploded, wiping out startups, and punishing venture capital firms along the way, reported Bloomberg.

Since 2012, venture capital firms poured billions of dollars into drone startups that promised to revolutionize transportation or some other activity that would have tremendous economic impacts, but more importantly, return vasts amounts of money to investors. For now, "all that over-heated enthusiasm is getting a cold blast of reality," said Bloomberg. 

Some of the industry's top drone startups imploded last year. Many had to liquidate their assets and close up shop, after burning through hundreds of millions in venture capital, expecting to take advantage of a new economy that was supposed to boom into 2020. The growth never materialized, and dozens of drone companies were left unprofitable, some were even swept up in a consolidation wave.

"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."

In particular, Bloomberg mentions how French manufacturer Parrot SA halted most of its drone production in July. Software startup Airware Inc. raised $118 million from private investors before closing its doors and laying off 140 employees last year. GoPro's Karma drone was one of the biggest flops in the hobby drone space, has since exited the drone business and fired hundreds of employees in late 2018, citing an "extremely competitive" market.

The rapidly changing environment in the drone industry, as well as a slow-moving regulatory process with local, state, and the federal government, prevented many companies from debuting their drones or aerial services. 

"At least 67 drone startups have been sold since their inception, according to Crunchbase, which collects data on private companies.

PrecisionHawk Inc., an industry leader in drone services such as inspection and data analysis, said it acquired five startups in 2018.

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.

Federal regulation of the aircraft has been slow to catch up, and is holding back many businesses from expanding," Bloomberg said. 

Dan Burton, CEO of Dronebase, a drone pilot network, said venture capitalists are holding the bag after plowing billions of dollars into the drone space.

With the consumer drone market in free fall, the commercial or enterprise markets might take several years or longer for rapid adoption in the field.

As for the next several years, the drone bubble will continue to implode as the industry consolidates. The bust phase is entirely normal, will eventually lead to a stronger industry. 

Clearing of excess only happens at the end of an economic cycle.