6 minute read
INVESTMENT
Using Angel Networks
to facilitate Seed Capital for UAS Startups
By Craig Mahaney
Expanding the size of the angel investor pool who understand realistic market timing and technical platform requirements is valuable for the whole industry ecosystem. There are two emerging aerospace industry areas that the UAS Angel Network focuses on, Unmanned Aerial Systems (UAS) and Advanced Air Mobility technology (AAM). Both of these platforms are beginning to accelerate the development of disruptive technologies at a rate not seen since the early days of traditional aviation.
What we are witnessing is the convergence of commerce, big data, sustainability and transportation ecosystems, and the revelation of previously unknown business models. Even if we only look at the current UAS and AAM markets, it’s not difficult to understand both Main Street and Wall Street’s growing interest over the last few years. According to Deloitte, the AAM technology market in the U.S. alone is estimated to reach $115 billion annually by 2035, employing more than 280,000 high-paying jobs. Looking at LaunchPad’s Drone VC feed, the UAS market has raised more than 1.8 billion dollars of capital through May of 2021.
Founders seeking to build and grow companies in this market face serious headwinds in the startup’s early life cycle. Hardware heavy platforms require a strong technical team and sufficient R&D funding to realize a minimum viable product. Vehicle certification processes require a lengthy capital runway and increased investor patience. On top of these hurdles, market timing and the associated regulatory and rulemaking constraints mean that capital resources must be significant enough to weather pressures outside of the company’s control. Many startups will simply not reach commercialization or miss out on valuable market share because seed capital constraints were just too much to overcome.
Angel network is a broad term. They take many shapes and forms, but generally, we define them as organized groups of highnet-worth individuals passionate and dedicated to the very exciting, and often risky, early phase of the startup life cycle. Many times, these investors are unknown outside the founder’s early startup team, but can
wield significant influence and provide valuable mentorship during those early turbulent days. The majority of angel investors we’ve had the pleasure of working with have developed a very personal and fairly rigorous investment philosophy. They are, however, open to being flexible for the right opportunity if some personal connection can be made (industry area of expertise, hometown startup, previous founder relationship). Unlike venture capital fund managers, they are not beholden to a limited partner’s investment philosophy which allows them to pivot to changing areas of opportunity. I have yet to meet an angel that was comfortable investing in a company or industry where they did not have a solid understanding of the market or technology. Belonging to an angel group can provide a hedge against missing deals that don’t offer the individual investor level of comfort needed for a go-it-alone investment strategy. Using other members’ expertise and feedback can provide a level of real risk management.
The normal catalyst for a robust and active angel investment ecosystem within an industry usually begins with founders from that specific industry growing great companies and reaching a successful exit. This newfound capital is then leveraged back into the industry startup ecosystem, as those previous founders now have the expertise, desire, and network to support the growth of new companies. It becomes a self-sustaining entity. We have seen this play out many times in software, biotech, fintech, crypto, and consumer tech. Unmanned and autonomous aviation systems, along with advanced air mobility technology, are truly emerging markets. Those first early tech founders who will accelerate the industry growth of angel investment are still in the throes of the startup lifecycle. What we have instead is a geographically dispersed set of investors that provided initial funding in support of promising and exciting technology, while at the same time, are still learning about the regulatory challenges, infrastructure constraints and market potential as it plays out in real-time.
Raising startup capital is always challenging, even under the best circumstances. We continually hear from founders that the level of industry maturity, regulatory timing complexities, and dispersed core industry investment partners, means very long and inefficient capital raising timelines that suppress company growth. To combat that, the UAS Angel Network looks for opportunities by diligently building relationships with startups whose technology supports both unmanned systems and advanced air mobility platforms. At the same time, we strive to offer access to sophisticated angel investors with market experience and some level of industry knowledge. The number and types of technology that touch both UAS and AAM is constantly expanding. This creates new investment opportunities in some of those areas like: data management, artificial intelligence, machine learning, and smart city infrastructure. This expanding technology envelope is good for both the investor and startups.
Startup founders have to get used to the word “No.” It is a natural part of raising capital. Most investors or groups they meet will, for one reason or another, choose not to move forward with an investment. Traditional angel investor networks come to a decision not to invest in a particular company, and that startup is quickly filed away and new deals come under review. The UAS Angel Network believes that those investors interested in an emerging market should consider some type of continued engagement, even for companies that may not have found investment through our group. With so many capital raising challenges specific to the UAS and AAM market, we believe there is value in providing some level of support and tracking necessary to identify future investment opportunities as startups find success or don’t.
From the beginning, the vision of the UAS Angel Network has been to be both a connector and convener of angel networks and investors focused on catalyzing investment and startup ecosystem growth specific to the UAS and AAM industry. Our network does not manage a separate investment fund, take equity in startups, or co-invest beside our investors. This allows us to take maximum advantage of future partnerships and provide fully transparent support of founders working with our network. We are committed to building a pre-seed and early-stage capital funding pipeline necessary for companies to achieve the milestones required for future priced funding rounds they will need for long term growth and success.
Author: Craig Mahaney Executive Director, UAS Angel Network and UAS Cluster Initiative cmahaney@dcnteam.com
