Deal To Watch: The Airbnb of Drone Flight

Key Stats:

Summary

UpSonder has been selected as a “Deal To Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10%-20 of our deal diligence funnel. If you have questions regarding our deal diligence and selection methodology please reach out to hello@kingscrowd.com.

To read our Founder Profile with the CEO, Derek Waleko, which was performed as part of our due diligence, please read HERE.

Problem

Whether it be for corporate surveillance, insurance inspections, crop management, or food delivery, drone use adoption across corporate America is growing rapidly. The commercial drone market is estimated to approach $13B by 2020 according to Goldman Sachs.

Industrial drone fleets in Europe and the US are estimated by BCG to hit $50B by 2050 with over 1 million drones flying over our heads with the vast majority of spend (about $41B) being generated from drone services and data collection.

Unsurprisingly, the majority of $3B in investment that has recently gone into this market has come from operations and services companies in the space. What this tells us is that in large part drone technology (the actual flying drones) are relatively well developed.

The challenge moving forward is how to drive commercial adoption of drones for nearly any application. In order to do so, a robust infrastructure that could support 1 million flying vehicles above our heads is greatly needed for both safety and efficiency.

From finding available licensed / qualified pilots, which are few and far between to getting qualified inspections and managing drones, many companies find themselves looking for outside resources to run their fleets. This is because the cost and expertise involved in running a drone fleet is complex and costly.

Unfortunately, there are few good sources for finding pilots and drone resources. This presents an attractive market gap for UpSonder to take advantage of in the coming years.

Solution

Up Sonder aims to serve as a complete solution to any drone needs, whether it be for manned or autonomous missions. They have created a marketplace that allows business to book drone services for many different needs.

Drones can be booked by corporations for any aerial surveying project, professional video, etc., as well as by any consumer.

Currently, Up Sonder has their Marketplace 1.0 up and running, renting drone services to clients throughout the country as we speak. All of the drones that they rent are legally registered, and all missions are fully insured.

Every pilot that is on their Marketplace 1.0 is commercially licensed and can be booked for missions through a simple search process on the marketplace.

When Marketplace 2.0 rolls out, they will have a network of charging stations for an autonomous drone fleet, as well as the incorporation of blockchain for built-in payments too. These features will help to continue to differentiate Up Sonder from its competitors, as well as help to push forward innovations in the drone market as a whole.

Up Sonder is allowing businesses simple and cost-effective access to qualified drone pilots with quality technology. No longer do consumers and corporations in search of drone pilots have to deal with the hassle of finding individual drone contractors for their projects, contractors that may or may not be insured and/or capable, but rather they have a simple navigable marketplace in which to find quality work from qualified individuals.  

Solution

1. Product Differentiation: As of today, there is nothing on the market quite like Up Sonder. There are a few competitors in this segment, but none of them have direct pilot access and are developing a charging network for the future of autonomous drones like Up Sonder is doing. These differences set Up Sonder apart from its competitors, and should aid in their capturing of the market.

As of now, Up Sonder’s two main competitors are DroneBase and Precision Hawk. Both of these companies have raised substantially more capital than Up Sonder thus far ($19M and $104M respectively).

However, neither Precision Hawk nor DroneBase are developing a charging network for autonomous drones like Up Sonder is. This is the main differentiator between these companies, as well as the fact that DroneBase does not allow direct pilot access like Up Sonder does.

2. Business Model: The beauty of Up Sonder is that, like Airbnb, it is solely a marketplace. This means that they do not have to take on the cost of building and maintaining infrastructure, something that can be costly and challenging to do in the drone market. This marketplace model is especially effective for early entrants, so Up Sonder is poised to build a substantial market share, all while benefiting from not having to own the equipment that they rent.

3. Market Opportunity:  The commercial drone market as a whole is expected to grow to be worth $13B by 2020 according to Goldman Sachs’ research and projections.

This means that even if Up Sonder were only to capture a small segment of the market, the possibility for large profits would still very much be there. This large market gives Up Sonder  potential to grow into possessing a sizeable market share.

4. Early Market Entrant: One of the unique and exciting things about the drone market is just how new and progressive it is. Up Sonder is on the cutting edge of the drone flight market.

The fact that they have entered so early should give them a leg up on competition that will inevitably enter the sector as it continues to grow in size. Up Sonder is providing a service that will become much-needed as the market continues to grow, and being early to this market will help them to build a trusted brand in a market will inevitably be safety driven.

As more large corporations begin to rely on drones for delivery, surveillance, etc., such as Amazon and Walmart the demand for Up Sonder will be greatly enhanced.

The Founders

Up Sonder was founded by two friends who saw an opportunity in the drone market that they thought they could fill. Derek Waleko and Dr. Isaac Nabors founded the company together in October of 2015.

Derek is the CEO while Dr. Nabors serves as the President of the company. Derek has a background in business, as he was in charge of mergers and acquisitions for the South Korean government.

This is the first startup that either of them have worked to build. They also have Kenneth Lowe, CEO and founder of Vizio as an advisor to the company. He helps to provide advice in growing the company, similar to how he grew Vizio into one of the world’s leading TV manufacturers.

The Terms

This is not Up Sonder’s first round of fundraising. In April of 2016 they raised $250k through an angel round. In this round of fundraising they are planning on raising a minimum of $25k and a maximum of $1.07M at a $6M valuation cap. They plan on using the capital raised to help further their development of Marketplace 2.0 and to continue to try and grow their current platform.

Precision Hawk, one of Up Sonder’s two main competitors is an example of the upside of this market. They have raised $104M to date and have also acquired 5 smaller drone companies over the past few years. This is the type of company that a few years down the line may be in line to purchase Up Sonder.

Given Precision Hawk’s large growth so far, we could see that purchase number be close to 10x return on Up Sonder’s current $6M valuation. Other companies entering the drone sector such as Walmart and Amazon may also be interested in acquiring Up Sonder down the line to scale their drone operations overnight with a cost affordable model.

Rating

Up Sonder is a Deal To Watch. Up Sonder has a unique opportunity to fill a market gap in a very new and rapidly growing sector of the economy. This market opportunity combined with the company’s strong product differentiation give them a real chance for success and to capture a meaningful market share in the long-term.

Over the past year, Up Sonder has organically grown from having members in only 18 US states to now having members in 46 of the 50 states. Building a reliable concentration of pilots across the US enhances the attractiveness of the platform as network effects take hold and large corporations can come to rely on the service no matter where they are located.

The main challenge and concern we have for Up Sonder is the fact that the market in many ways is still very nascent and wide scale adoption of overhead drone flight for commercial purposes could still be 3 to 4 years off in the future.

While we like early entrants, this also means weathering slow periods of demand and utilizing capital efficiently until there is enough market formation to sustain outsized demand growth. While we like the team a lot, this is their first entrepreneurial endeavor, which means in many ways they are untested.

However, despite these challenges, we like management, the market opportunity and the technology they are building out. As the market continues to develop the importance of having trusted marketplaces like Up Sonder are obvious. In this case, Up Sonder will have solid potential exit opportunities. For these reasons, we think that it is a Deal To Watch. Be sure to invest HERE if you want Up Sonder to be a part of your portfolio.