If you've never heard of Lumenier, you probably do not race drones. But if you're in the high-performance drone world, chances are that you know the company well. Lumenier, which is profitable and made over $20 million in revenue last year, sold a majority stake to a private equity firm last week. The deal, which was a leveraged buyout, marked one of the first private equity deals in the drone space--a signal that the industry, mostly backed by venture capital, is maturing and ready for institutional investment, people close to the deal say.
On September 29, Lumenier, which designs, manufacturers, and sells drone equipment and electronics, closed the deal with Chicago-based private equity firm Pfingsten Partners. The details were not disclosed, but Pfingsten, which invests in middle-market founder-led companies, acquired a majority stake in Lumenier. Tim Nilson, the founder and CEO of Lumenier, still holds equity and will stay on as CEO to lead the company from the headquarters in Sarasota, Florida. Lumenier also owns a factory in Shenzen, China where its employees manufacture brushless motors and other parts for drones.
Tom Bagley, founder of Pfingsten, says the firm will help Lumenier expand its production in China, increase product design and development in the U.S., and expand infrastructure. The company, which has 30 employees in the U.S. and 20 in China, is composed of two segments--Lumenier is a manufacturer and GetFPV.com is the company's online store. GetFPV.com is one of the largest e-commerce sites in the drone racing space. It sells Lumenier products and products made by other popular brands.
With the backing of Pfingsten, the company plans to expand its customer base by entering the original equipment manufacturing space to sell drone parts to companies that need high-performance equipment. As drones become legitimate business tools for industries as diverse as insurance, agriculture and construction, companies will need high quality parts, Nilson says. Lumenier owns its own factory and supply chain, so Nilson says Pfingsten's investment will help the company ramp up production and focus on the commercial and enterprise market.
Bagley says he would describe the deal as a "growth equity play" because they used "conservative financial leverage," he says.
"Lumenier is a meaningful player in the drone industry and is growing rapidly with a lot of potential," says Bagley.
The drone industry, according to a Goldman Sachs report, is poised to become a $100 billion industry by 2020. The majority of the industry, $70 billion, has been cornered by defense and military contractors like Lockheed Martin. But companies like Lumenier have been making money in the $17 billion consumer space and the $13 billion civil and local government segment. (Think fire departments, city inspectors, and police.)
Chris Parisi, founder and managing partner at FPG Advisory, an investment banking firm that represented Lumenier in the sale, says this deal is a bellwether for the drone industry.
"Private equity getting in the drone space means that the industry has arrived," says Parisi. He says that the drone industry is maturing from its days of risky, money-losing startups to companies like Lumenier, a five-year-old profitable company that owns its supply chain.
"Venture capitalists are speculation players that take on high risk [and hope for] a big reward. PE deals are about real companies that are already profitable," Parisi adds.
Nilson says the deal is the first time Lumenier raised capital. Nilson bootstrapped the company and launched it from his Upper West Side apartment in New York City in 2012.
"In order to keep growing as the industry expands, I needed to take on investment," says Nilson.
Drones and radio-controlled aircraft were not a childhood pastime for Nilson. A graduate from the Berklee College of Music, Nilson started a ringtone software platform after getting his BA in 1996. By 2002, he sold the company, Run Tones, to Sony Music.
He became the chief technology officer at Sony Music and in 2012, Nilson was looking for something else and he stumbled upon a video of a guy flying a drone in Manhattan. He was hooked and bought parts to build his own drone and started flying around in Riverside Park.
Nilson started ordering parts and assembling kits to sell to other drone enthusiasts. He started a site, GetFPV.com, and sales stared coming in. (FPV stands for first person view, as in first person view goggles. Drone pilots wear FPV goggles to live-stream the video feed from the drone's camera.) Nilson was juggling his job and startup, packing kits after work and going to the post office to send kits to customers before heading into Sony. The apartment started to fill up with boxes and Nilson had to make a decision. He quit Sony and moved his wife and child to Sarasota, Florida, where he opened up the company's headquarters.
While drone giants like DJI dominate the ready-to-fly drone space and put smaller competitors out of business, Lumenier focused on parts for enthusiasts and drone racers--customers who care about custom, high-performance parts.
"We created our own niche in the marketplace," says Nilson.
But as the industry expands and more industries embrace drones, Nilson is growing outside of his niche.
"Drones will play a major role in everyday life in the not too distant future--drones will be just as common as the UPS truck," says Nilson. "We still need to get through regulatory challenges, but like the self-driving space, it requires infrastructure. Once that happens, the world will see drones zipping around everyday life."
He plans to build Lumenier into the premier drone OEM.
"Every drone will need at least four motors. Companies like Amazon will need huge fleets--many hundreds of thousands," says Nilson. He says construction, infrastructure, insurance, emergency medical delivery, and agriculture will also need high-performance parts.
"If you think about that future, the world will need a [lot] of our brushless motors," says Nilson.