Between a $250M raise, a $500M IDIQ contract under the US Army’s Purpose-Built Attritable System (PBAS) program, and $100M in drone orders through the Drone Dominance Program, it’s been a big-dollar year for Neros.
As if that wasn’t enough, the Pentagon’s Office of Strategic Capital (OSC) is now adding an extra nine figures to Neros’ zero-filled balance sheet.
OSC announced a $450M conditional loan commitment to the LA-based drone startup yesterday, focused on scaling up production of components for small drones—both Neros’ own and the broader sUAS ecosystem.
- In exchange for that loan, the Pentagon is getting a “small stake in the company,” Neros’ Head of Growth, Ross Pedersen, told Tectonic, but “they won’t get any voting or decision-making rights.”
- As part of the deal, Neros is kicking in $165M of its own cash for scaling component production, bringing the total investment in the project to $615M.
- To note: This isn’t cash in hand, at least not right off the bat. It’s more of a very-high-value promise that OSC will dole out all that cash to Neros if they satisfy “various financial, legal, technical, investment, due diligence and other requirements.”
Drone dollars: If you’ve been tracking Neros’ stellar performance in the Drone Dominance Program, this might not come as a total surprise, but this loan isn’t actually funding production of the company’s popular end-product. It’s all about the unsexy stuff (components) inside of it.
The idea here is to help Neros become more fully vertically integrated and, more importantly, a domestic component supplier to other sUAS companies.
- To start, Neros is focused on bringing drone motors in-house—the first of which came off the line last week—and internal electronics, sensors, batteries, and more afterward, Pedersen said.
- “[OSC] is very interested in making sure that America is self-sufficient when it comes to components for drones, and this basically helps us accelerate and expand that effort,” he added.
- Worth noting: This isn’t the first drone component-focused loan OSC has signed. Back in August, the office inked an $820M deal with Alabama-based drone company PDW to “establish high-volume domestic manufacturing capacity for critical drone components.”
“Neros has already demonstrated an ability to design, manufacture, and deliver exceptional small unmanned aircraft systems,” OSC Director David Lorch said in a statement. “OSC’s investment will turbocharge Neros’ ability to manufacture drones and components critical for the production of drone systems.”
Question marks: Despite this $450M OSC loan, big-dollar IDIQs, and hundreds of millions in internal capital invested to scale up manufacturing—and deliver on orders ahead of time and on budget, in Neros’ case—serious questions remain about the future of US drone programs.
Industry—especially Neros—has proven that it can scale up production, but the Drone Dominance Program ends next year. To date, that’s been the most high-volume procurement pathway companies have had.
“One part of the Department of War [i.e., OSC] is leaning very aggressively forward with us, and with PDW and with others potentially, in saying, ‘Hey, we need a small UAS industrial base here, and we’re gonna back that idea to the hilt,” Pedersen said. “Then you look at the Department’s procurement budgets, and once Drone Dominance ends, there really is no budget anywhere for small UAS.”
“There’s a little bit of a mismatch with leaning super hard into the supply chain and making sure there are enough components, and then on the other end, who’s buying the drones?” he added. “The question that this brings up for me is like, okay, great, we’re going to be able to produce all these components, but then what? That’s the question I ask every day.”
