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US drone manufacturer Skydio has raised a $170 million extension round, adding to the $230 million Series E it closed early last year.
The new tranche of financing attracts strategic investors such as Japanese telecommunications company KDDI and Axon, the manufacturer of Taser devices and other police technology. It also includes previous investors, such as Linse Capital, which owns more than 21% of the drone maker.
The new funding comes at a time when defense technology financing is booming, with deals in the sector receiving more than $9.1 billion in the first half of 2024. According to Pitchbook.
“Honestly, it’s a no-brainer for us to invest in it,” said Bastian Janmaat, managing director of Linse Capital. “Because we get the same valuation, even though the business is double.”
TechCrunch saw a presentation prepared by Linse Capital this summer for a potential Series F round, which showed the investor looking for a $200 million to $300 million raise at a Series E valuation of $2.2 billion. Janmaat told TechCrunch that Skydio instead chose to do an E-series extension. “We were seeing, ‘Hey, go raise a big F-series now,’ and that’s what we initially offered on our LPs,” Janmaat said. “But, you know, we can’t To get Skydio to do it.”
Janmaat said the extension round began with interest from KDDI. KDDI eventually invested about $60 million in Skydio and plans to place drones in 1,000 locations across Japan, as well as help Skydio with LTE connectivity for drones there.
Linse’s trailer also shows how Skydio is trying to diversify its revenue and achieve profitability. The presentation shows that last year, the startup generated annual revenues of more than $100 million. Thirty percent of it came from software. Skydio also reported a gross margin of 38.1% in 2023, “driven by a favorable shift towards software revenues and economies of scale in production costs,” the group said.
The company has gained significant traction with enterprise and public safety clients, especially since it officially discontinued its consumer drone product in 2023. In 2024, Linse Capital expects Skydio to generate revenue of about $180 million despite the shift, the group said.
Things are also looking up for Skydio’s military ambitions: of the $1.2 billion in bookings in the pipeline, more than 50% have been ordered by defense customers.
In addition to winning contracts with law enforcement agencies across the country, Skydio got help from one of its investors: Earlier this month, TechCrunch reported that Andreessen Horowitz partner Ben Horowitz, who invested in Skydio, donated money to help the Las Vegas Police Department In purchasing. Sky Duo drones. This approach, which allowed Skydio to bypass typical procurement and bidding processes, raised red flags with advocacy groups.
But Janmaat told TechCrunch that he thinks donating police technology is a smart approach, assuming the technology is worthy of police use.
“At the end of the day, these police departments are not exposed to poor technology,” he said. “They are getting amazing technology at their fingertips sooner than they would have otherwise.”
Even with its massive extension round and enforcement contracts, Skydio, like many hardware startups, is set to spend a lot of capital quickly.
The presentation explains how Skydio expects it will burn through $238 million by 2029. Meanwhile, Linse Capital modeled spending of about $350 million in the same time period. Janmaat told TechCrunch that Linse encouraged Skydio to “be aggressive” and burn more capital by adding more products faster, given the lack of competition in North America. A Skydio representative said that these burn rates are not present in any of the company’s presentations and that the startup cannot verify their authenticity.
But Lens’ numbers ultimately offer a more pessimistic outlook for the next five years than Skydio’s own forecasts. “That’s our job as investors, to be a little more conservative,” Janmaat said.
Skydio’s future still depends largely on hardware releases, as well as persuading law enforcement and public utilities to buy Skydio drones over competitors like Brinc and Chinese drone manufacturer DJI.
Increased scrutiny of Chinese drones at the state and federal levels could provide a “tailwind,” the presentation said, helping Skydio increase domestic sales. But Skydio is also facing this problem in reverse: Just last month, China imposed sanctions on Skydio for selling drones to Taiwan, impacting the drone maker’s battery supplies.
Does Janmat think it was actually just that they were working with Taiwan, or was it punishment for putting pressure on DJI?
“Oh, both,” he said.
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