The Government Shutdown Grounds A Drone-Focused Unicorn by Forbes – Entrepreneurs

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For Amber McDonald, CEO of Indemnis, growing a unicorn — a privately held tech startup valued at over $1 billion — means breaking down a complex problem into small goals. She’s accomplished each goal necessary to bring her safety solution for drones to market but one — getting a thumbs up from the FAA. The ripple effect of the government shutdown slows the trajectory of this unicorn-bound startup. 

Amber McDonald, president and CEO at IndemnisIndemnis

Target A Large And Lucrative Market

In 2016, the global market for drones was estimated at $127 billion, according to a report by PwC on drone technology. The market is vast because drones can be used for everything from monitoring and maintaining infrastructure to boosting crop yields, from verifying insurance claims to filming movies.

For safety reasons, drones are usually not allowed to fly over crowds. Indemnis equips drones with parachutes, making it safe for small drones to fly over populated areas.

McDonald, and Alan Erickson, CTO, knew from first-hand experience — they flew drones for the film industry —  that no matter how good the technology, sometimes drones fail and fall out the sky. Ten- to 20-pound metal objects falling out of the sky aren’t just going to damage equipment. They could kill someone. Yet, parachute systems did not work reliably. The company pegs the current addressable safety market for drones at $1.2 billion. 

In 2014, McDonald and Erickson were joined by four others who began working on a solution.  The company was officially formed in 2015. Initially, they bootstrapped it, working day jobs to support themselves, and spending nights and weekends working on a safety solution for drones.

Seek Out Referrals To Wealthy Investors

By 2016, the team felt they had a strong business plan and solid product. They were ready to seek funding. “There is no ecosystem in Alaska for raising money,” said McDonald. Raising money was very grassroots. She started with friends and family, who referred her to high-net-worth locals, most of whom were engineers in the oil and gas industry. “For every 10 pitches, I got a ‘yes,’ ” she said. “Anyone who wanted to meet us was given a tour and the pitch. I spent thousands of hours doing this.”

Make An Agreement That Is Mutually Beneficial To You And Eary-Stage Investors

“We put safety first in everything that we do,” said McDonald. “We chose not to sell products until we hit all our [safety] milestones.” Most importantly, they needed to prove to the U.S. Federal Aviation Administration (FAA) and its counterparts in other countries that they had developed a failsafe solution. Drone manufacturers can get a waiver if they demonstrate they have a robust safety plan in place. The Nexus parachute system is the foundation of that plan for drone manufacturers. Before marketing, Indemnis conducted engineering tests and human injury studies.

Because Indemnis was pre-seed — funding that is raised pre-revenue and before the company has demonstrated product and market fit — McDonald used a SAFE (simple agreement for future equity). It is an agreement between an investor and a company that provides rights to the investor for future equity in the company without determining a specific price per share at the time of the initial investment. The SAFE investor receives the future shares when a priced round occurs. This allows both sides to maximize return on investment and minimize risk.

Prepare For Future Investment Rounds

“We became very good at telling our story,” said McDonald. The company raised about $3.4 million doing this in Alaska. However, to attract big money — large venture capital firms  — they needed not only revenue but an expanded investor base, one that went beyond Alaska.

McDonald chose to raise money through Regulation Crowdfunding. With Reg CF, entrepreneurs aren’t limited to raising money from the 8 million accredited investors (wealthy people). They can raise money via a crowdfunding platform from 240 million average American investors.

“Entrepreneurs from all over the country are making use of Reg CF,” writes Amy Cortese in Locavesting. “Crowdfunding is also encouraging broader participation by underrepresented entrepreneurs, including women and people of color. And, portals are stepping up their efforts to court these founders.” One of those portals is Republic — the Reg CF platform Indemnis used.

Succeed At A New Way Of Raising Entrepreneurial Capital

Succeeding at crowdfunding takes hard work. “There is a lot of public disclosure that you need to make,” said McDonald. “You have to be extremely organized.” Indemnis had to disclose two years of financials and have them reviewed by an independent CPA, and talk about the financial risks of the company.

Marketing is time-consuming. To ensure messaging was consistent, marketing fell to the management team, which was already stretched thin.

Indemnis did well, raising nearly $630,000. As a result, it is receiving extra support from Republic, including future introductions to VCs. In addition, PR efforts of both companies resulted in lots of media coverage including Cheddar TV, Popular Mechanics, and TechCrunch.

Get An FAA Waiver

Indemnis Nexus parachute system for  DJI Inspire 2 drone is the first to pass the ASTM F3322-18 standards — a rigorous series of 45 functionality tests across five different failure scenarios — to enable the safe flight of drones over people.  DJI is a manufacturer of drones. 

However, there is one last hurdle before sales can begin: the processing of the waiver application by the FAA, which can’t be done until the shutdown is over. For now, McDonald’s view is this is a pause just enough time for the team to catch their breath after working full out for months. 


January 23, 2019 at 06:27AM
https://www.forbes.com/sites/geristengel/2019/01/23/even-unicorns-cant-fly-when-the-government-shuts-down/
Forbes – Entrepreneurs
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