Deal to Watch: Multi-Purpose Drones from Airgility

Key Stats:

Summary

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

The Airgility founders are part of traditionally underrepresented groups in startup investing. 

Problem

Drones offer a variety of new opportunities across industries. Whether it’s a midstream company looking to monitor its extensive pipeline network, the US military trying to mitigate human deployment, or Amazon seeking to deliver goods more rapidly, drones can solve the problem. One issue facing the space, though, is that drone technology is still limited. UAVs (unmanned aerial vehicles) still require humans to direct them around obstacles. Limited computational capacity makes autonomous solutions a challenge. Range, network compatibility, and battery life are all issues as well.

Solution

One company that claims to have the solution to the ills facing this market is Airgility. The company’s aim is to develop more advanced UAVs that address the issue of flying without a human. They are achieving this by adding AI and machine learning aspects to their technology. According to management, their drones are capable of flying most anywhere. This includes in tunnels and other complex environments. While each unit can connect to a network, they continue to fly when leaving it and even outside of GPS range. Through the use of multiple sensors, Airgility has programmed their drones to recognize objects and make decisions on its own, fly autonomously, and even map out the areas it’s flying through.

During the flight process, Airgility’s drones provide analytical feedback in real time to the organization using it. It is also capable of tracking objects in motion, enabling it to go where it’s needed and when it’s needed. To make the devices truly universal, the company has made sure that they are capable of taking off and landing vertically. All of these features, management alleges, makes Airgility’s technology perfect for a wide range of activities. The drones can be used for search and rescue, monitoring the nation’s borders, delivering medical supplies, and more. Their modular construction also makes maintenance and repair work in the field a simple process.

At this time, the company is working on three different drone types. The first of these is the DS-1. This drone’s purpose is to inspect areas and act as a first response device. In light of the COVID-19 pandemic, management has partnered up with ReMUV LLC. Their partnership will result in a UVC light being outfitted to the DS-1. This will permit it to go to major gathering spots, like sports stadiums. There, it can use the UVC lighting to disinfect the stands and other potentially-infected areas. Their second drone, the MS-1, is focused more on reconnaissance and countering other drones in mid-air. Finally, the HS-1 is dedicated to delivery and communication.

As of this writing, management has a small contract with the DHS (Department of Homeland Security). This order is for four DS-1 units, priced at an aggregate of $75,000, or $18,750 apiece. This order came after the company completed five successful field trials with the DHS. The particular trials included search and rescue operations, and they were conducted over a two-year window. Ultimately, Airgility intends to sell these units for between $5,000 and $10,000. This is a significant markup over the $1,000 they believe they can get their construction costs down to. The MS-1 and HS-1 are still in development, but the company has received some grant money to work on them. 

Despite being an early-stage company, Airgility has done well to generate some revenue. In 2018, revenue totaled $50,000. Last year, this grew to $173,445. While revenue expanded nicely, net losses unfortunately grew as well, soaring from $43,842 in 2018 to $88,118 in 2019. The company’s net operating cash outflows in 2018 were $64,294. This expanded to $82,313 last year.

An Attractive Market

The market Airgility is in is rapidly growing, but it’s difficult to put a single number on the space’s opportunity. One report, issued by Goldman Sachs a few years ago, stated that between 2016 and 2020 the global market opportunity for drones would total around $100 billion. The largest share of this, about $70 billion, would come from military applications. A further $17 billion was attributable to the consumer space. Retail/Consumer shipments of 7.8 million drones worth $3.3 billion were expected to occur this year. This is up from just 450,000 shipments worth $700 million in 2014. The final chunk of the pie was $13 billion attributable to the commercial market. Construction activities were expected to be the largest sub-category for drone usage. That market was estimated to be worth $11.16 billion. Agriculture came in second at $5.92 billion, followed by insurance claims in third at $1.42 billion.

Of course, not all estimates are the same. One source we found pegs the global market opportunity at about $26 billion this year alone. The expectation is for the space to grow at about 19.9% per annum. At that rate, the industry would reach $88.57 billion by 2027. Another source thinks that the global market this year is worth about $22.44 billion. Its forecast calls for an annualized growth rate of 17.22%, putting the market at $49.37 billion by 2025. Yet another source, this one focused on the delivery side of the market, pegs the opportunity at $15.98 billion. The expectation is for growth to take it to $29.05 billion by 2026.  One source pegs the overall commercial market at around $16.01 billion today, calling for an annualized growth rate of 57% through 2025.  

Purchases by the government for military purposes are likely to be big for the drone industry. Another often under-examined opportunity is the first responder network known as FirstNet. A public-private partnership between AT&T and the US government, the program will involve investments by AT&T totaling more than $40 billion over 25-years. The end goal is to establish a telecommunications network dedicated to first responders. Drones and other technologies have already been built into this plan. So while management has not discussed anything related to this initiative publicly, the continued rollout of that network could also prove to be fertile ground for the business.

Terms of the Deal

To continue developing and growing their business, the management team at Airgility is undergoing equity crowdfunding. Their chosen transaction type is an offering of the business’s common stock, priced at $1.09 per share. In order to participate in the transaction, investors must contribute a minimum of $248.52 apiece. In all, the firm is hoping to raise $1.07 million from this move, but it could close a round with as little as $9,999.66. As of this writing, the business has $50,214 contributed to the raise. But with 80 days before the round closes, it could see commitments rise considerably from here. One thing that could hold the business back is its sky-high valuation. Management wants investors to accept a pre-money valuation on the deal of $12.02 million. While the business does have revenue and it’s working with the US government on its technology, that valuation appears high.

An Eye on Management

Airgility has gathered a rather successful team to support its operations. But at the core of the business are its two founders. The first of these is Pramod Raheja, the business’s CEO. While running Airgility, Raheja serves as a Captain for United Airlines. He used to be the owner of Intelligent Office, an office/telecommunications solutions firm. Prior to that, he founded mystaffNOW, Inc. His educational background includes a B.S. in Aerospace Engineering. 

The other founder of Airgility is Evandro Valente. At this time, he serves as Airgility’s CTO. In the past, he lectured at the University of Maryland, where he focused on (among other things) the Autonomous Sand Vehicle Project. Prior to that, he worked as a Senior Design Engineer at Maritime Applied Physics Corp. Other past experience includes serving as an Aerospace Engineering Consultant at MD Advanced Development Lab and as a Materials and Process Engineer at GE Aviation.

Rating

Our team has rated Airgility as a Deal to Watch. This high level of distinction was decided upon based on a number of factors. For starters, the company’s product appears to be better than similar technologies out there. The probability of it working as described seems fairly high. This is especially true given the firm’s history of working with the US government and the significant grants it has been awarded. The founders of the firm know the industry and the space the company is operating in appears to be large and growing.

This is not to say, though, that everything is perfect. Naturally, any company that’s early-stage like this has limited revenue. Net losses and cash outflows are an issue that must eventually be corrected. Perhaps the biggest cause of concern though is the business’s high valuation. $12.02 million on a pre-money basis looks high, especially when you consider how small its current government contract is. The higher the valuation now, the higher the chance that investors could face a down round in the future. Even so, we feel that the upside potential of this business is attractive enough to be considered, even in light of these issues, for the long haul.