New policies, use cases lure investors to drone startups

India’s drone industry is taking wing on the back of favourable policies and emerging use cases, attracting investments to the fledgling sector.

According to Venture Intelligence data, the number of deals in the sector between July 2021 and June 2022 has doubled from the year before, while the value of investments tripled. The industry raised $87 million over 10 deals in the past year, against $24 million over five deals in the year before.

“The recently amended drone rules and the production-linked incentive (PLI) scheme for drones encourage the domestic manufacturing of drones, components, and software for the global market, and opened the doors for more players to get involved in the growth of the ecosystem,” said Varsha Tagare, managing director at Qualcomm Ventures, the investment arm of American chip firm Qualcomm Inc.

Qualcomm Ventures was one of the investors in the $20 million Series-B funding round in drone manufacturing startup ideaForge in April this year. While the venture arm of Qualcomm is investing in startups, the parent is building reference designs, platform support, and providing access to software development kits (SDKs) so that drones can be customized for different use cases. SDKs are a collection of software tools that help create large applications.

Vishesh Rajaram, managing partner at Speciale Invest, agreed with Tagare’s assessment. The VC fund led a $5 million funding round in The ePlane Company, a Chennai-based startup aspiring to build flying taxis, back in January.

Yet, valuations of drone startups still pale in comparison to firms in the edtech or software-as-a-service (SaaS) sectors, though companies expect them to swell in the coming months. Chennai-based Garuda Aerospace last month said it expects its valuation to touch $250 million with a $30 million Series A round that is expected to close by the end of July.

A key reason for this growth is that from being limited to defense use cases till a few years ago, more sectors are now looking to use drones. Tagare noted that drones can be used in everything from safety and surveillance, to maintenance of oil and gas refineries and telecom.

Speciale Invest’s Rajaram said that long-distance large-capacity drones are expected to see the most traction initially, “especially those providing applications for industries and business”. The first opportunity, according to him, will be for firms operating in the business-to-business (B2B) space.

Both Rajaram and Tagare agree that investments in the industry will only increase as it matures. The rollout of 5G networks and the option to acquire 5G spectrum for private networks is expected to spur growth as well.

The government’s Drone Shakti mission, announced in this year’s Union Budget this year, has paved the way for companies to offer drones as a service (DaaS), which in turn allows them to shore up revenues and increase investor interest.

Though funding in drone startups is growing, overall startup ecosystem is going through a funding winter. According to Tracxn, investments in Indian startups declined by 33% quarter-on-quarter (QoQ) in April-June quarter of CY22.