XCraft is raising at a $35 million valuation on a Regulation A+ offering, with investor perks for those who invest more than $1,000. This valuation is remarkably high, considering the company’s significant net losses in recent years and its $1.3 million in liabilities. Presumably the high valuation comes from the company’s intent to operate in a lucrative market and its patents, certified for drones and pending for flying cars. However, it’s not clear that such a high valuation provides much incentive to investors — particularly given doubts about the company’s ability to deliver on its proposed product.

As a specialist in drone technology, xCraft enjoys access to a massive and rapidly expanding market. The market is estimated to generate $22.5 billion this year and grow to $42.8 billion in 2025 at a CAGR of 13.8%. The market has contracted slightly due to the economic turmoil brought about by the COVID-19 pandemic and resultant interruptions in supply lines — but is largely expected to recover. The market is also crammed with powerful corporate players, such as Boeing and Northrop Grumman. Such stiff competition and innovation pushes prices down. This makes it more difficult for smaller companies with less supporting infrastructure to compete, and xCraft is no exception.

The size of the UAM market by the time xCraft could see profits from its designs is largely theoretical at this point, with no company — xCraft included — having produced a vehicle that could be commercialized for large-scale consumer use. However, the existing global market was valued at $660 million in 2018 and could grow at a CAGR of 15.31% through 2025 depending on technological innovation and consumer interest. Optimistic projections see the market reaching $86.83 billion by 2035.

XCraft is led by CEO JD Claridge, who graduated from LeTourneau University with a BS in Aeronautical Science. Claridge has a decade of experience in electrical and avionics engineering and spent three years as CEO of Aero Designworks, a company he founded. He holds a number of endorsements from his colleagues at Quest Aircraft Company, but boasts no industry-defining roles. His co-founder is Charles Manning, CEO of Kochava, a mobile advertising analytics company. According to the xCraft’s raise page, Ben Toews serves as its director. Ben is an experienced president and manager of a company called Bullet Tools, though this analyst did note that he has not marked his role at xCraft on his LinkedIn page, listing himself as “on sabbatical.”

XCraft also has an assembly of advisors from various technology and aeronautics markets, including Dan Franco, who spent 13 years with Northrop Grumman. Overall, though, xCraft doesn’t demonstrate a stellar or cohesive team, with one of its co-founders having stepped away from most of his role with the company to go elsewhere.

XCraft does hold a trio of patents that serve as drone enhancements, which it has employed most recently in its PANADRONE project. This drone model is designed to carry a so-called “drone nest” which it can deploy for such purposes as search and rescue.

XCraft has also submitted patents which it intends to use specifically for its forthcoming flying car designs, but these are still definitively in the application stage. In its highly competitive markets, XCrafts lack of strong differentiators is cause for concern for would-be investors.

Despite a strong opening performance in a breakthrough appearance on Shark Tank in 2015, XCraft has seen massive losses in recent years. It suffered $251,180 in losses in 2018, and these losses ballooned to $747,290 in 2019 due to the loss of a major customer. The company has huge expenses in excess of $1 million per year in general and administrative expenses, which are separate from research and development — these massive sums bog down the company’s earnings potential, resulting in huge losses year-over-year. 

As a result of these heavy losses, the company has accumulated heavy debts, having $1,332,397 in total liabilities. Furthermore, it only holds $33,392 in cash on hand and requires $910,000 to achieve its short-term goals. If it fails to meet its goals in this raise, the company could continue to operate for 3 months, but may be soon forced to close down.

Finally, it’s worth noting that past failures are dogging the company even now. The current raise’s comment section is filled with supporters of xCraft’s 2015 “PhoneDrone” Kickstarter campaign, who complain of failed promises and bad-faith operations.

Simply put, xCraft is in a financially tenuous situation due to recent failures — which could be enough to put off most investors. It holds no active patents to capitalize on its plans to develop flying cars, even should technological breakthroughs make the market open up in the near future. As COVID-19-induced supply disruptions cause further hardship and as it faces gaps in its leadership team, the company may be on the verge of figuratively falling out of flight with its competitors and crashing to the ground.

XCraft stands in an expansive market — if it plays its cards right. Assuming it raises sufficient capital to expand its operations by acquiring its first military contract — and assuming its technological research leads to breakthroughs above and beyond what emerges from much larger competitors like Boeing — XCraft could carve out significant chunks of the UAV and UAM market in the coming years. Even so, the company has dug itself into a formidable hole, and past failures are weighing down its reputation among past supporters. It will need to win back the faith of these disappointed consumers and make up for the loss of past clients. To its credit, xCraft has pledged to use the funds for this raise to pay off the remaining liabilities from its failed Kickstarter.

XCraft is a drone manufacturer that has ambitious plans to create a flying car and claim a chunk of the emerging UAM market. It holds a few patents for drone technology and is still waiting on approval for flying car patents. While the company puts on an optimistic face in its advertising, it has significant money troubles — high levels of expenses have led to recent massive losses year-over-year. As a result, the company combines massive liabilities with sparse cash on hand. Therefore, XCraft Enterprises has been rated an Underweight Deal.

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Analysis written by Benjamin Potts.