After tracking investments in drone companies for over a decade, it is evident that commercial drone funding remains a central challenge to the growth of the drone market. As long as regulatory restrictions hinder organic market expansion, funding continues to be essential. Following a peak in 2021, investments have significantly declined consistently in recent years.

The amount of money invested in the drone industry in 2022 was USD 3.04 billion. However, the total value of investments decreased by 43% (to USD 1.7 billion) in 2023 and by an additional 54% in 2024 (to USD 820 million).

Next to the steep increase (hype) and the substantial downfall (trough), an interesting correlation suggests itself. Are commercial drone funding reflecting the Hype Cycle (according to Gartner, Inc.)? Are we closing in on the “Trough of Disillusionment”? Some indicators point indeed in this direction, as the results of the annual drone survey show: The need to acquire more funding increased from position 8 to 4 in what drone experts identified as the biggest challenges for the industry.

When the “Gartner Hype Cycle” and the “Rogers Diffusion Theory Consumer Types” are compared to the drone market investment chart, there is a strong correlation—not just in shape but also in terms of adoption stages.

While the hype cycle illustrates a technology’s development phase, Rogers’ diffusion theory explains the progression of innovations and their market spread. When product phases and consumer adoption types are layered together, they create a comprehensive overview of how technology enters the market and the challenges presented by each phase.

When adding the commercial drone funding development to this, it becomes apparent that the funding peak follows the hype peak. In contrast, the lack of funding corresponds to the descent into the trough of disillusionment. This means the industry is entering “the chasm,” a challenging phase for the drone market. In this phase, the market consolidates – there will be a lot of M&As, re-focusing on other domains, and insolvencies. During this phase, funding is crucial for companies to keep their financial runway long enough or to use it to pivot to a more promising offering.

So, is this a correlation or coincidence? The hype cycle for new products typically shows a much steeper increase at the beginning, which argues against a correlation; however, this phase of the drone market has extended over seven years. The theory has a significant mismatch, yet it aligns with the slow progress in industry adoption through restrictive drone regulation and cautious investments in the past.

The chart suggests a correlation indicating that the “Early Adopters” phase is currently underway. It also implies that the “Early Majority” phase has yet to begin, which also aligns with overall market observations.

For drone companies, this presents a significant challenge: during a time of scarcity, high interest rates, stringent regulations, and a large segment of the potential client base still untapped, “Surviving the Chasm” will be a Herculean task. Following rapid growth and high expectations, the drone industry is now experiencing a phase of realignment in commercial drone funding and strategic positioning.

The big question is, where does the market go from here? Will the low point of investments occur in 2024, 2025, or later? Regulatory breakthroughs cannot be expected in the short term, which suggests that reaching the “plateau of productivity” will likely happen later rather than sooner.

Two scenarios present themselves:

1. The low point occurred in 2024. Commercial drone funding is projected to increase in 2025, allowing these businesses to adapt, discover lucrative markets, and enhance productivity. Funding rounds from companies like Meteomatics at $22M, Hidden Level at $100M, and BRINC at $75M indicate that the market is already very active in 2025. More permissive regulatory conditions, such as standardized BVLOS rules, will be necessary to capitalize on the potential of drone technology fully.

2. The low point is expected to occur in 2025 or later; 2025 marks another year of reduced investments and further consolidation in terms of market exits or M&As, resulting in a postponed industry low point.

Another strong indication points to the defense market – an addition to the commercial route many companies have started to follow. The situations in Ukraine and Israel have seen huge investments in military equipment, with (alternate) drones at the forefront. This development brings new players to the market – not just traditional defense companies – but civil companies Bosch, Continental, or Motorola, that offer mass production capability and national supply chains for both commercial and military drones.

The technological development and market adoption phases align closely with the investment situation, strongly suggesting that this is not a coincidence but a correlation. This indicates challenging times are ahead for the drone market. With no regulatory breakthroughs on the horizon, the struggle continues and will undoubtedly impact the number of participants in the market.

However, as with any crisis, plenty of opportunities arise. “Buying the dip” can prove to be a very lucrative strategy, provided there is a solid strategy moving forward.