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Before I began working for you folks, I served as a senior advisor to a dozen tech startups and sat on the board of a Silicon Valley venture capital (VC) firm.
And when it comes to finding profit-producing tech investments before mainstream stock analysts do, that gives me a leg up on Wall Street.
In fact, it gives me a "secret" method.
Besides following the stock market and keeping my ear to the ground here in Silicon Valley, I spend hours each week intensely studying VC funding.
That's because those early-stage investors have a proven track record of backing tech breakthroughs that eventually lead to lucrative profits for Main Street investors like you.
Today, we're going to look at a burgeoning tech sector that drew roughly $200 million in VC funding through early March.
At that rate, startups in this sector are on pace to receive nearly $800 million in seed money this year.
That's a lot – and it's worth following.
So I'm going to tell you about four primo startups in this sector that are big 2017 VC winners.
"But, Michael," I hear you saying. "These are privately held startups. I can't invest in them."
That's why I'm also revealing a great way to play this fast-growing market you can get into today.
One Heck of an Unstoppable Trend
I'm talking about unmanned aerial vehicles (UAVs) – or drones.
Drones have become a major growth area simply because their uses are nearly endless. Besides their well-known uses in spycraft and warfare, UAVs can be used for remote monitoring of assets like pipe and rail lines, farming, video and photography, and delivery of products and medical supplies.
And kids (and grownup hobbyists, too) love to play with them.
Indeed, we're at an inflection point on this unstoppable trend.
Spending on commercial and industrial drones is just about set to outpace military and intelligence spending.
Forecasters at the Teal Group say roughly $93 billion will be invested over the next decade on the commercial side, along with $30 billion from defense. Drone sales over the period will reach $14 billion a year by the mid-2020s – more than triple the $4 billion market size in 2015.
Now, let's head deep into the world of VC-funded startups.
Here are four early-stage UAV firms to keep an eye on…
Drone Startup Winner No. 1: AirMap
If there's a "winner" of the VC drone sweepstakes, it's AirMap Inc.
This Santa Monica, Calif.-based firm has 50 employees and has raised $43 million in VC to date.
But that's not the "real" reason it's the winner.
It's because of the heavyweight tech leaders backing it.
Microsoft Corp. (Nasdaq: MSFT) recently invested in this airspace navigation software startup. Considering the might that Microsoft carries in the software space, that's a pretty big vote of confidence for AirMap's advanced drone platform, known as computational airspace.
AirMap also has received money from Qualcomm Inc. (Nasdaq: QCOM). This is important because Qualcomm makes the Snapdragon Flight drone for consumer and robotics applications.
Plus, the startup has the backing of Sony Corp. (NYSE: SNE), which is pioneering commercial drones in Japan, and Rakuten Inc., Japan's leading online shopping mall, which launched a local drone service in April 2016.
Drone Startup Winner No. 2: Verizon Communications
Of course, mobile telecom giant Verizon Communications Inc. (NYSE: VZ) is hardly a startup. With a market cap of $286 billion, it's one of the nation's largest tech firms.
But here's why I'm calling it a "startup" here.
With little fanfare, Verizon last month bought Skyward IO Inc. for an undisclosed sum. That Portland, Ore.-based startup makes software for autonomous drone management.
Verizon's VC arm first invested in Skyward IO in 2015. In other words, it spent plenty of time getting to know Skyward before acquiring it.
Verizon plans to integrate Skyward's operations into the larger firm's Internet of Everything (IoE) business. The purchase comes just months after Verizon announced a new service to simplify certification and connectivity of wireless drones, a unit known as Airborne LTE Operations.
Drone Startup Winner No. 3: PrecisionHawk
Think of PrecisionHawk as a "hybrid" drone startup. It makes two drones, a single-engine small electric plane known as the Lancaster, and a multi-rotor UAV that can be set up to focus on crop scouting, remote sensing, and precision construction.
The other parts of the Raleigh, N.C.-based firm's operation may be even more lucrative. It provides mapping and flight software and sells analytics and tracking services. PrecisionHawk also offers plug-and-play sensors for video, thermal, and spectral analysis.
In April 2016, the startup received $18 million in a Series C VC round that included Verizon, Yamaha Motor Ventures and Laboratory Silicon Valley, and insurance giant USAA. Two years before that, PrecisionHawk got $10 million in a Series B round that included chip giant Intel Corp. (Nasdaq: INTC).
Not only that, but the firm has built its brand by picking up a lot of medic coverage. PrecisionHawk has been featured on CNN and FOX Business and gotten ink in Forbes, Fortune, Reuters, and The Washington Post.
Drone Startup Winner No. 4: Dedrone
Just last month, Dedrone Inc. received $15 million in a Series B VC funding round that included one of the world's top technologists – John Chambers, former CEO of networking giant Cisco Systems Inc. (Nasdaq: CSCO).
That alone is reason to believe Dedrone and its focus on drone security just may have the right stuff for this massive growth market. But Chambers isn't the only heavyweight backing Dedrone.
Based in San Francisco, Dedrone also has the backing of Dominic Orr, CEO of Aruba Networks, a unit of Hewlett Packard Enterprise Inc. (NYSE: HPE), and Selina Lo, CEO of Ruckus Wireless, a unit of Arris International Plc. (Nasdaq: ARRS).
Then again, this is a UAV startup with a unique hook – anti-drone technology. Its software and related hardware components track drones so that customers can protect their facilities from errant unmanned vehicles.
We're talking everything from air-traffic systems and utilities to data centers and utilities to stadiums and prisons. Dedrone says its sophisticated system is like putting a protective fence in the sky.
Clearly, there's no direct way for retail investors to get in on all the VC funding for drone technology. But there is a profitable way to invest in the fast-growing drone sector as a whole.
A "Basket" of Drones – and Other
With the iShares U.S. Aerospace & Defense ETF (NYSE Arca: ITA), we get to invest in a wide range of drones for the military market, where the bulk of the action is right now. But the exchange-traded fund also is set up to profit from the aerospace industry's move into commercial drones, which is set to grab three times as much spending over roughly the next decade.
Key holdings in ITA include…
- Lockheed Martin Corp. (NYSE: LMT) makes a full range of unmanned vehicles. That means it can cover air, land, and sea assignments for both military and commercial uses. The company is widely known for military drones like the Desert Hawk III, used by the UK military to surveil suspected terrorists. It also makes the Marlin, an oceangoing drone that can conduct underwater surveys and inspections.
- Northrop Grumman Corp. (NYSE: NOC) makes unmanned aircraft for defense applications naturally. It's also collaborating with Yamaha Corp. (NYSE ADR: YAMCY) to develop an autonomous helicopter with onboard intelligence-gathering equipment for such civilian uses as search and rescue and forest-fire monitoring.
- Raytheon Co. (NYSE: RTN) is a great backend play because of its drone-support platform. The Common Ground Control System is an open-format control station that can be used to control all manner of UAVs. I expect the system to be adapted for commercial/industrial use as well.
As exciting as ITA's drone exposure is, we also get a nice kicker with this ETF – defense spending.
The Trump administration just released its first budget, which calls for $54 billion in additional spending for the Pentagon. That means the firms in which ITA has invested all are looking at excellent growth over at least the next four years.
It's already up close to 16% since the last time I brought it to you. And it's got a lot further to go…
Plus, ITA passes through all three of our ETF Profit Screens. It's got an expense ratio of 0.44% and a five-star rating from Morningstar. And you already know it's in a good trend.
That makes this a great foundational holding to help put you on the road to wealth.
Whether you're filling your retirement fund or saving up for a sailboat, it's the sort of play you want in your portfolio.
And it doesn't take a "secret" formula to figure that out.
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The post To Make Big Money in Tech, You Have to Study the "Other Side" of Silicon Valley appeared first on Strategic Tech Investor.
About the Author
Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.