As we all know, there’s a whole lot of private capital going into defense these days, but more and more companies are jumping on the growing appetite in the public markets, too.
On Friday, California-based heavy-lift drone startup Elroy Air announced plans to go public later this year through a Special Purpose Acquisition Company (SPAC) led by Inflection Point Asset Management.
- The merger includes over $165M in committed Private Investment in Public Equity (PIPE) capital and values Elroy at $800M pre-money, giving the company an expected $1B valuation when it’s listed on the Nasdaq.
- Elroy Air was founded in 2016 and raised a $40M Series A in 2021 from Lockheed Martin Ventures, Marlinspike, and DiamondStream Partners.
- Inflection Point, Elroy’s partner in this move, is an old hand in the aerospace & defense SPAC world. They’ve taken aviation autonomy startup Merlin Labs, USA Rare Earth, and space companies Intuitive Machines and Quantum Space public in the past few years.
SPAC-tacular times: Elroy’s IPO-via-SPAC plan is the latest in a string of public market forays for defense and defense-adjacent companies in recent months, including drone-maker Aevex, HawkEye 360, Applied Aerospace & Defense, Ukrainian-American drone software company Swarmer, and defense components manufacturer Arxis. There was also that whole SpaceX thing.
“We’re seeing just incredible tailwinds right now around defense tech, and not just general tailwinds, but this real focus on contested logistics, which is a core part of what we do,” Elroy Air CEO Andrew Clare told Tectonic.
Good chap: Elroy Air’s flagship VTOL unmanned aircraft, Chaparral, is the focal point for this capital raise and the company’s production ramp-up plans.
- The drone, which measures about 22 feet long with a 30-foot wingspan, is primarily designed for long-range cargo missions. It has a payload capacity of up to 500lbs and can fly over 400 miles at 132mph.
- It features twelve fixed propellers for vertical takeoff and landing, eight for vertical and four for forward propulsion.
- Elroy isn’t making the aircraft themselves—last September, they inked a five-year “exclusive manufacturing agreement” with Kratos, which will manufacture Chaparrals for both Elroy’s defense and commercial customers.
- The drone is “more than 90 percent common between the defense and the commercial variants, so we can address both our defense partners and our commercial partners as we’re scaling production,” according to Clare.
- What makes Chaparral different is the company’s “contrarian bet” on hybrid-electric power. That gives its range and fuel efficiency a boost, but, more importantly, offers “50kW of spare power” that effectively makes the drone a “roving [Auxiliary Power Unit] that can provide power where it’s needed out in the battlefield,” he added.
Bottom line: And according to the company, all that’s gotten the attention of a whole lot of customers on both the commercial and defense sides of the ball.
- On the commercial side, Elroy has roughly 1,400 Chaparrals in the order pipeline from logistics and aviation companies, including FedEx, and over $5B in “potential revenue.” That’s the “actual order pipeline in a variety of different forms of signed agreements on just the commercial side of our business,” Clare explained.
- On the defense side, they have over six years of “active defense programs” with the US Army, Marine Corps, and Air Force under their belt, along with a lot of interest from foreign buyers, including the UAE and the Japan Self-Defense Forces.
Switch up: Contested logistics is the Chaparral’s main selling point, but Elroy is “almost seeing balanced, if not more, interest in other use cases, which, for the military, turns the value prop from a logistics aircraft into a multi-mission capable drone,” Clare said. “[Customers] buy one aircraft, and then can really just swap the [cargo] pod to do different missions throughout the day, depending on what they need.”
- Those other missions include everything from “counter-UAS,” including looking at ways to “use that 50kW of spare power” in the air (airborne lasers, anyone?), to a small-drone mothership configuration and ISR.
- “Basically, any use case you could imagine where you can put that energy and power to work is getting a lot of interest and traction right now across the DoW,” he added. “All you need to do is swap the pod to be able to do a variety of different missions with this aircraft.”
The SPAC deal and public listing is all about ramping up manufacturing to deliver on that big order pipeline.
“We have this surging demand from both defense and commercial customers that we wanted to raise production capital for to really go after this market and capture it,” Clare said. “This really accelerates our production timelines…and allows us to get this into the hands of the warfighter faster… It was just a no-brainer to really be able to efficiently tap the public markets.”