Verge Aero is currently raising via common equity at a $26.49 million pre-money valuation. Given that Verge brought in more than $1 million in revenue last year, this valuation is somewhat justified. However, it is quite high in comparison to other startups currently seeking capital online. Thus, the price score for Verge Aero is slightly below average.

According to one source, the global commercial drone market was worth $13.44 billion in 2020. It has an annual growth rate of 57.5%, taking it to $508.9 billion by 2026. However, this market is far too broad to encompass only the core activities of the business. Verge Aero suggested comparing its market potential to the fireworks industry. In the US, this works out to about $1 billion per year on the consumer side and $375 million per year on the display side. Globally, the fireworks industry was worth around $2.6 billion last year. With an expected annualized growth rate of 3.9%, it should climb to $3.2 billion by 2027. Because these drones can be used both in tandem with fireworks and on their own, Verge could see a slightly larger opportunity than what is simply projected within the fireworks space. However, the overall market is still quite small, and it’s unclear just how rapidly it will grow. Due to these factors, Verge Aero’s market score is its lowest across all five metrics.

At the head of Verge Aero is co-founder and CEO Nils Thorjussen. Thorjussen has spent more than 15 years working with LED and video technology at various businesses. He has also been part of two exits, one as a co-founder and one as a director. Thorjussen co-founded Element Labs — which focused on developing LED lights and video tech for the entertainment and architectural markets — and later sold it to Barco. He was also the director of hedge fund portfolio management software provider Blixel when it was acquired by Eze Software Group/TPG. These experiences give Thorjussen a strong background in providing technology to entertainment markets as well as seeing companies through successful exits.

In addition to Thorjussen, the company has three other co-founders. CTO Anthony Merlino appears to have joined Verge Aero after graduating with an electrical and computer engineering degree. He has no other work experience listed on his LinkedIn profile. Vice President of Software Chris Franzwa was previously a member of engineering staff at Lockheed Martin, where he served on the DSP team for the Space Fence project. Prior to that, he was a research assistant and employee working on STEM-based games at Rowan University. He has a bachelor’s and master’s degree in electrical and computer engineering. Vice president of flight operations at Verge Aero is Tony Samaritano. He has served as an adjunct professor at Rowan University. Before that, he was employed as an electrical engineer and systems engineer at Boeing. He also holds a master’s degree in electrical and computer engineering.

Verge Aero’s team of co-founders have a strong technical foundation. The team is notably missing any marketing, sales, or business development roles at this time. However, for a hardware and software company, this team has the right skills to build out Verge’s product offering. The team score for Verge Aero is above average as a result.

Given that drone services and entertainment is a small market, it’s not surprising that Verge Aero faces little competition. There is Drone Light Show Company, but it is particularly focused on providing drones and permits. Verge Aero sets itself apart by also offering a unified software platform, as opposed to having to rely on piecing together disparate software applications. Verge’s software also gives users a higher level of customization for their drone light shows. Verge also offers its services at a much lower price than Drone Light Show Company, further distinguishing it. The main drawback at this time is a lack of defensibility. Verge has no patents for its technology, and the barriers to entry in this market are low. However, with the low level of competition, the company has time to build a defensible moat for itself as it expands its offerings and transitions to solely selling its hardware and software. As an early mover in an emerging market, Verge Aero scores well in the differentiators metric.

Verge Aero has seen strong traction for its drone entertainment services. It has performed shows at significant events, proving that its software platform works and that it already has a significant number of drones in its fleet. From a financial perspective, the company has done quite well. In 2019, the business generated revenue of $603,000. Despite the COVID-19 pandemic, revenue soared to $1.13 million in 2020. The company went from generating a net loss of $190,602 in 2019 to seeing a net profit of $174,744 last year, and its operating cash flow went from a negative $86,167 in 2019 to a positive $446,365 in 2020. As a profitable startup, Verge Aero’s performance score is extremely strong.

Verge Aero’s overall risk profile is on the low end of the scale. Financials are the main area of concern. According to the company’s Form C, Verge Aero had more than $1.1 million in debt in the last fiscal year. That’s a concerning level of debt, especially considering the company only saw $174,000 in profit last year. However, $645,000 of Verge’s short-term debt comes from a convertible loan, which reduces the weight of the company’s financial obligations.

Something investors might not find favorable about Verge Aero is its high valuation combined with its limited market potential. While it has achieved profitability (helping to justify its $26.4 million valuation), Verge is operating in a very narrow market. Because drone entertainment services is still an emerging market, the company could struggle to grow enough to exceed this round’s valuation. The company also has quite a bit of debt on hand, but this is mitigated to some degree by the fact that much of the debt is convertible in nature.

Verge Aero boasts a strong performance over time and has achieved impressive operational traction. It is one of the few crowdfunding startups to have already reached profitability. The company has fully developed its software platform and invested in building out its drone fleet. The software platform provides ample differentiation from current competitors, and the Verge Aero team boasts strong technical expertise. If the drone entertainment market expands rapidly, Verge will be well-positioned to take advantage and become a major name in that sector. 

Verge Aero offers a software platform and drone fleet that can be used to make custom light displays for live events. The company achieved profitability last year, and it has built a software and hardware combination that stands out from the competition. The Verge founding team is also impressive, with strong technical skills and past entrepreneurial experience represented across the four co-founders.

However, investors should note that Verge Aero’s valuation is rather high. More concerning, the company is operating in a very small, slowly growing market. The limited market may limit Verge’s ability to grow beyond its current success. The company also has significant debt on hand, although it is convertible in nature. Taking everything into account, Verge Aero is a Neutral Deal at this time.

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com. 

Analysis written by Daniel Jones.