Manning the drone

A dramatic lull in drone investment in 2016 was the result of an early investor focus on hardware and a failure to see the bigger picture 

Originally known as unmanned killing machines used in high stakes military missions, drones have naturally brought a mix of controversy, allure and excitement when introduced to new industries.

Agriculture has been no exception, and many industry insiders – as well as the investment community more broadly – continue to hail drones as nothing short of a revolutionary new tool for agriculture. Goldman Sachs predicts a $100 billion market opportunity for drones by 2020.

But like every technology launched into ag with lofty dreams of plowing through fields (or the skies above them) to solve the woes of the working farmer, their adoption has been much slower than many let on.

“I think we are finding that drones, sensors/networks, and ‘big data’ […] don’t hit ‘real world’ problems and levers for productivity or costs,” David Chen, principal and chief executive of Equilibrium, wrote me in an email.

One hard stat backs that up: there was a 68 percent decline in drone technology investment in the ag industry between 2015 and 2016, according to a report from AgFunder.

That decline came as agtech investment dropped by 30 percent to $3.2 billion in 2016 from a record $4.6 billion in 2015, which was largely reflective of a broader decline in VC activity across the globe, AgFunder chief executive Rob Leclerc tells me.

But the near-70 percent decline in drone investment is too steep to blame solely on the global lull. It stemmed largely from an early investment focus on companies developing hardware, and it is reflective of a promising tool that still needs considerable development before farmers can put it to practical use.

“There was a lot of buzz and interest around drones, but a drone is just a vehicle and that’s become a very, very crowded space without a lot of differentiation,” says Mike Ritter, chief executive of SlantRange, which focuses rather on drone sensor and software analytics – and raised $5 million in equity financing last year.

Ritter explains that his firm tailors sensors and software to address individual needs of farmers, whether counting particular crop types or uncovering irrigation leaks just below the soil. Attempts to use existing software models that streamlined other industries have until now failed when applied to drones used for ag, he said.

Samuel Schwerin, co-founder and managing partner of Millennium Technology Value Partners, similarly argues that too many investors targeted hardware investments early on. Millennium led a $10 million Series B round into drone company Precision Hawk in 2014, participated in a $18m Series C, and “will raise another round in 2017 for sure.”

Schwerin attributes Precision Hawk’s ability to raise this amount of capital to its vertically-integrated “ecosystem” approach. The company’s products combine everything from flight planning, autopilot technology, sensors, cameras, mapping systems and algorithms to address specific needs.

“Customers know drones are important but need a product that is digestible,” he says. “It’s all about data, not the hardware.”

This full stack of product offerings is one potential method to make it easier for farmers to adapt to these new technologies, offering a one-stop-shop to address specific problems.

Part of the rush to invest in drones came from ‘less-than-seasoned’ investors looking to cash in on the next hot thing; and part of the decline in investment is due to the natural growth cycle of a technology that received its first big rush of capital and must evolve into a full-service product to meet real farming needs. Only then will drones warrant a second big wave.

Until then, investors may need to sit tight, like passengers aboard a plane that’s been grounded on the tarmac, impatiently waiting for their drones to take off.