US drone maker Skydio has raised a $170 million expansion round, adding to the $230 million Series E round closed early last year.

The new round of funding attracts strategic investors like Japanese telecommunications operator KDDI and Axon, the creator of the Taser and other police technology. It also includes previous investors, like Linse Capital, which owns more than 21% of the drone maker.

This new funding comes at a time when defense technology financing is booming, with deals in the sector receiving more than $9.1 billion in the first half of 2024, according to PitchBook.

“Frankly, we have no problem investing,” said Bastiaan Janmaat, managing director of Linse Capital. “Because we arrive at the same valuation, even if the activity has doubled.”

TechCrunch viewed a pitch deck prepared this summer by Linse Capital for a potential Series F funding round, which showed the investor was considering a $200 million to $300 million raise for the company’s $2.2 billion valuation. series E. Janmaat told TechCrunch that Skydio opted to do an expansion of the Series E instead. “We were of the opinion, ‘Hey, go launch a big F series now,’ and that’s what we We initially presented our LPs,” Janmaat said. “But, you know, we can’t force Skydio to do that.”

Janmaat said the extension round was initiated by interest from KDDI. KDDI ultimately invested about $60 million in Skydio and plans to place drones in 1,000 locations across Japan, as well as helping Skydio with LTE connectivity for the drones there.

Linse’s pitch deck also shows how Skydio is trying to diversify its revenue and achieve profitability. Last year, the startup had annual revenue of more than $100 million, the presentation showed. Thirty percent of that came from software. Skydio also reported a gross margin of 38.1% in 2023, “driven by a favorable mix shift toward software revenue and economies of scale in production costs,” according to the report.

The company has gained popularity among enterprise and public safety customers, particularly since it officially discontinued its consumer drone product in 2023. In 2024, Linse Capital projected that Skydio would generate approximately $180 million in revenue. income despite this change, depending on the deck.

Skydio’s military ambitions are also improving: of the $1.2 billion in pending orders, more than 50% have been ordered by defense customers.

In addition to winning contracts with law enforcement agencies across the country, Skydio received help from one of its investors: earlier this month, TechCrunch reported that Ben Horowitz, a partner at Andreessen Horowitz, who invested in Skydio, donated money to help the Las Vegas police purchase Skydio drones. This approach, which allowed Skydio to bypass traditional procurement and bidding processes, has raised concerns among advocacy groups.

But Janmaat told TechCrunch that he thinks donating technology to police is a smart approach, as long as that technology is worth using by police.

“At the end of the day, these police departments aren’t having crappy technology imposed on them,” he said. “They have incredible technology at their fingertips sooner than they might otherwise.”

Even with the massive expansion round and landing law enforcement contracts, Skydio, like many hardware startups, is poised to burn through a lot of capital quickly.

The pitch deck details how Skydio predicted it would spend $238 million by 2029. Linse Capital, meanwhile, modeled spending around $350 million over the same period. Janmaat told TechCrunch that Linse encouraged Skydio to “be aggressive” and spend more capital adding more products more quickly, given the lack of competition in North America. A Skydio representative said these burn rates are not in any of the company’s pitch decks and the startup cannot validate them.

But the numbers prepared by Linse ultimately present a more pessimistic view of the next five years than Skydio’s own projections. “It’s our job as investors, to be a little more conservative,” Janmaat said.

Skydio’s future still depends a lot on hardware releases, as well as convincing law enforcement and utilities to buy Skydio drones over competitors like Brinc and Chinese drone maker DJI.

According to the pitch deck, increased surveillance of Chinese drones at the state and federal levels could provide “tailwinds,” helping Skydio increase its domestic sales. But Skydio also faces this problem in reverse: last month, China sanctioned Skydio for the sale of drones in Taiwan, which affected the drone manufacturer’s battery supply.

Does Janmaat think it was really just because they were working with Taiwan, or as punishment for lobbying against DJI?

“Oh, it’s both,” he said.