VCs scout for local drone startups as rules ease and sops land

VCs scout for local drone startups as rules ease and sops land


Venture capitalists are showing increased interest to back Indian drone startups after the
government recently introduced liberalised regulations for the sector and a Rs 120-crore production linked incentive (PLI) scheme to boost manufacturing, a senior government official said.

The government has set a target to attract Rs 5,000 crore worth of investments into drone manufacturing over the next three years.

Amber Dubey, joint secretary at the Ministry of Civil Aviation (MoCA), told reporters on Saturday that the ministry is already witnessing interest from investors to back drone startups.

“Venture capitalists have suddenly taken note and we’re also getting a lot of inquiries. The government will never get into the business of giving investment advice, but when we show them our overall policy direction, they’re getting a lot of confidence,” Dubey said.

While announcing the PLI scheme, the government had said that the drone manufacturing industry may touch around Rs 900 crore by FY24 from Rs 60 crore in FY21, and in the process create 10,000 direct jobs.

The government is expecting the services industry arising out of drones to grow to Rs 30,000 crore in the same time, while generating more than 500,000 lakh jobs across functions such as operating drones, managing drone logistics, data processing and traffic management, over the next three years.

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So far, venture investors have largely stayed away from backing Indian drone startups, owing to the lack of clarity around regulations after the country made it illegal to fly drones for civilian applications in December 2018.

According to data intelligence firm Tracxn, only about $42 million has been invested in Indian drone startups between 2011 and 2021, compared to around $4 billion in the United States and $6.2 billion globally. Moreover, the number of drone startups in India stood at around 158, among 2,772 such firms worldwide.

“Several Indian drone startups are currently in talks to raise Series A funding and not just angel investments,” said Smit Shah, director of partnerships at Drone Federation of India, which represents over 200 drone manufacturers and service providers in the country.

Shah added that investor sentiment – which had taken a turn for the worse due to ambiguity around regulations – had now been reversed.

Infosys,
which invested in Mumbai-based IdeaForge, and 3one4 Capital, in Aarav Unmanned Systems, have been among the few investors that have backed drone startups so far.

More recently,
InfoEdge has backed Bengaluru’s Skylark Drones, co-leading a $3 million pre-Series A round in the company.The Indian Angel Network and Blume Ventures are other well-known VCs that have backed drone startups in India.

“Services will always be 20, 30 or 50 times the size of the manufacturing industry, so we’re expecting the investment in the drone services part to be three to five times of what we’re expecting on the manufacturing side,” Dubey added. “I’m seeing a lot of interest from the investment community.”

India, he said, needs to catch up with China and others who have built a lead in manufacturing drones and offering services to industries varying from agriculture, oil and gas, heavy industries, mining, law enforcement, defence and others.

Dubey said the civil aviation ministry’s suggestion to entrepreneurs working in the sector is to build in India for the world and not just for local requirements, which will help achieve the government’s goal of turning India into a drone hub by 2030.

Talking about the revised Drone Rules 2021 and previous rules being repealed quickly, Dubey said it was done after receiving negative feedback from industry, academia and other government agencies.

Dubey told the press that the Drone Rules were simplified by focusing solely on regulating drone registrations and permissions, and leaving issues such as import, privacy, insurance and the rest to other sister legislations that already exist.

“In this government, the UAS Rules, 2021 was the first to be repealed. We have the humbleness to say, ‘yes, we made a mistake’,” Dubey said.

The previous rules, he added, were too restrictive as it overcompensated for safety and security requirements at that point, as drones had previously been used to carry out attacks on oil facilities in Saudi Arabia.



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