Some Drone Startups Crash, While Others Take Off

For years we’ve been told that soon, flying drones will deliver packages, tend farmers’ fields and even secure borders.

But the only drones most of us see today are toys deployed by hobbyists at local soccer fields.

And lately it seems like the only drone startups making news are doing so for the wrong reasons.

Case in point, Lily Robotics. In early 2015, Lily racked up more than $34 million in pre-orders from consumers.

The key to the company’s successful campaign was a video showing off its prototype’s remarkable video-capturing aerobatics.

Unfortunately, that video was apparently a fraud. It was shot on a Chinese-made DJI drone with a GoPro camera, not Lily’s own build.

And just this week, Lily’s headquarters were raided by San Francisco law enforcement as part of a criminal investigation, as reported by the San Francisco Business Times.

Fortunately, customers were refunded for their Lily pre-orders. Venture capitalists who put $14 million into the company, however, were not so lucky.

Steering Clear of Drone Makers

Despite the demise of several prominent drone startups, the future is bright for flying robots.

However, the best investment opportunities won’t be in companies building mass market drones. For now that ship has sailed, and China’s DJI is the winner.

DJI sold around $1.4 billion worth of drones last year. Its product quality is extremely high, and it has the scale to price out even well-funded competitors like GoPro.

I’m not holding my breath for the next great drone maker investment to come along.

What I am looking for is companies building promising commercial drone solutions. Companies that will use drones in unique ways that increase efficiency and productivity.

Let’s take a look at an example.

Nightingale Security

One of the most promising applications of drone tech is security.

Today’s drones are fast, maneuverable and capable of taking high-resolution video from miles away.

One of the leading drone security startups is Nightingale Security.

Here’s a picture of its cutting-edge quadcopter.

This startup is building a drone-based security system for enterprises. The drones rest at charging stations positioned strategically on rooftops.

They can take off automatically to investigate disturbances and follow suspects when called for. Security personnel can also take manual control of them to conduct virtual patrols.

Equipped with thermal and infrared sensors, Nightingale’s impressive product can even see in the dark.

Nightingale says its drones can also tell the difference between humans and animals using built-in AI.

If all of that wasn’t cool enough, Nightingale’s security quadcopters share information among themselves. So if one drone is running low on battery, another is dispatched to continue investigating.

Now this is the type of drone business I can get excited about. There are countless enterprises that could use a service like this.

My advice? If you’re interested in investing in drones, you don’t have to limit yourself to manufacturers. In fact, you probably shouldn’t. Like I said, that market is largely dominated by a few large players who will be extremely difficult to disrupt.

The most promising opportunities out there today are in drone services.

We’ll keep an eye out for interesting opportunities in the space, and we’ll let you know if we find any that are raising money via equity crowdfunding.

Have a great weekend, everyone.

Adam Sharp
Founder, Early Investing