An "Auto-Pilot" Investment Strategy

By Matthew Milner, on Wednesday, June 18, 2014

Late last year, Amazon.com announced the use of “drones” to deliver packages.

Drones are remote-controlled aircraft. They’re mainly used for military purposes.

At the time, it smelled like a publicity stunt…

Flying saucers delivering little brown boxes of books and shampoo?

Really, Mr. Bezos?

But as it turns out, it’s legitimate.

In fact, the more we dig into drones, the more we see that Amazon might be onto something big:

Other commercial applications include fighting fires, delivering medical supplies, providing security… the list goes on and on.

According to a recent report, by 2025, the economic impact of all these applications in the U.S. alone could reach more than $80 billion.

Could there be investment opportunities here for forward-thinking investors?

Yes – and today we’re going to show you one.

David Weekly’s AngelList Syndicate

Last November, I wrote about something called Angel List Syndicates…

Basically, they’re like mini venture funds:

Prominent investors take the lead in finding new deals. When they find one they like, they invest their own money – and let investors like us tag along.

Recently, a successful venture capitalist named David Weekly set up a Syndicate.

His sole investment focus?

Start-ups focusing on drones.

Whenever he finds a promising drone deal and puts $10,000 of his own money into it, you can invest alongside him. You can invest as little as $1,000 into each deal.

David doesn’t charge us anything upfront. He only gets compensated if his deals are successful: he takes 15% of any profits. (Angel List takes an additional 5% for handling the administrative stuff.)

But Angel List offers dozens of syndicates. Many of them focus on broad investment themes such as Mobile, Financial Services, or E-Commerce.

Does it make sense to invest in something as “niche” as drones?”

Let’s take a look.

The Trend

David’s not alone when it comes to thinking about drones… and neither is Amazon:

Dominos is playing around with drones to deliver pizza…

A couple of engineers from recommendation site, Yelp, responded with the Burrito Bomber

And a textbook company in Australia is rolling out its drone delivery service later this year.

But Missy Cummings, a drone expert from MIT, thinks the industry is just getting started – and it’s going far beyond the burrito:

"Medical supplies, wildlife monitoring, cargo, firefighting – it’s a pretty long list of things that drones can do," she said. "It's reinvigorating a dying aerospace industry."

Meanwhile, the basic components that could make drones mainstream – from batteries that can re-charge in the air, to “real-time outdoor collision planning” technologies – haven’t even been developed yet.

That means it’s not just the consumer-facing companies that might profit from a blossoming of this sector… the behind-the-scenes infrastructure companies could profit, too.

This all adds up to a big potential opportunity.

But isn’t it risky for a guy like David to place all of his bets on a single sector?

The simple answer? It depends…

The Allure of Thematic Investing

Some professional investors like to narrow their universe of potential investments:

They only invest in healthcare, for example, or in e-commerce companies.

It’s called Thematic Investing, and it can be a winning strategy.

This makes sense:

Once an investor become an expert in a certain area, filtering out the good deals from the bad becomes easier. And if they become the “go to” investor in a certain industry, good deals will find them.

(According to a 2012 study from the Kauffman Foundation, 80% of venture funds that ignore a thematic approach underperform “public-market equivalents” such as the Dow Jones U.S. Small Cap Index or the Russell 2000).

OK, so what’s the downside of this Syndicate?

The Biggest Risks

Here are a few of the biggest risks:

1. David Weekly 

In many ways, David seems like a good bet.

He’s a Stanford graduate who previously ran a different thematic fund:

It addressed the growing market for tech companies based in Mexico.

That fund is still harvesting its investments and turning them into cash, but the value of his investments has already increased by 3x. (3x is often the bogey for a “successful” fund.)

And his Syndicate already has some strong backers, including Naval Ravikant, one of the founders of Angel List.

Our biggest concern with Mr. Weekly?

He’s not working on the drone fund full-time.

This doesn’t have to be a deal-killer, but we prefer our fund managers to be looking out for us 24-7.

2. The Downside to Thematic Investing

Drones are exciting. They could be the next big thing…

Then again, people have been saying the same thing about the Clean Technology sector for years – and no one’s made much money from it yet!

It’s possible that drones are still too early…

Or it’s possible they’ll never “take off” at all.

3. FAA says “Down With Drones!” 

Anytime you’re dealing with a regulated industry, there are risks that they’ll meddle with your business.

Although a recent court ruling found the FAA doesn’t have the authority to regulate drones, we expect they’ll find a way to get involved.

Find a Safe Place to Land

The investment risks of this fund seem manageable:

With a $1,000 minimum investment into each deal, and expected volume of 5 deals per year, you’d be putting an estimated $5,000 a year into drone start-ups.

Does that leave you with plenty of capital for other early-stage investments?

If so, you’d be in good shape. Always remember to diversify!

To learn more, check out David’s Syndicate here >>

(Please note: Crowdability has no official relationship with, and zero financial interest in either AngelList or David Weekly.)

Happy Investing!

Best Regards,
Matthew Milner

Founder
Crowdability.com

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Tags: Angel List Angellist Syndicates Drones Amazon

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