Being prudent in spending should be at the heart of every management conversation: Aerodyne CEO

With 21 acquisitions in nine years, Malaysia-born Aerodyne Group is in a class of its own.

The group, founded as a 3-person startup by Kamarul A Muhamed in 2014, is now a drone-tech company with a presence in 45 countries. The ‘360DT3’ (drone-tech, data-tech, and digital transformation) company helps organisations overcome complex industrial challenges by leveraging drone data and AI-powered analytics.

With over 1,000 drone professionals operating across 45 countries, Aerodyne specialises in managing critical assets, such as power lines, solar facilities, telecommunications infrastructure, agriculture, and oil and gas operations.

In this interview with e27, CEO Muhamed speaks about the company’s growth and how it navigated various global challenges to become a leading enterprise drone company globally.

Excerpts:

How has been the past two to three years for Aerodyne from a business growth perspective?

From a growth perspective, the past few years have been good. Our revenue grew by 2.5x per annum. During that timeframe. revenue base also weighted heavier internationally vs Malaysia, and we achieved that breaking point last year.

Also Read: AI can bring more intelligence and automation into drone industry: Aerodyne CEO

Of course, markets were not ideal, and we had to make tactical shifts to our long-term growth plans by streamlining our technology offerings to the market. We also expanded to new markets such as Brazil, Italy, Australia and the Middle East since 2020.

How many rounds of funding have you raised of far? Can you share the details of each round? How has fundraising and business matching changed for you in the last two to three years?

We have been prudent in raising capital and were relatively late to raising external capital. We used cash flow from operations for four years before raising external capital in 2018.

We raise capital only for growth requirements (that is, for acquisitions, investing in new markets, etc.) and not to supplement working capital.

To date, we raised four rounds: US$3 million in Series A in 2018 from Axiata Digital Innovation Fund, US$30 million in Series in 2020 led by KWAP, US$5 million in Series B+ in 2021 from a consortium of Japanese investors), and US$30million in pre-Series C in 2022 led by Petronas).

Do we see an end to the raise-cash-burn-cash growth model and the emergence of the ‘make profits, sustain & grow’ model?

We have observed that investors in the market have placed a lot more emphasis on the “path to profitability” and achieving steady-state EBITDA sooner rather than later. We have also observed market reactions to listed companies that have made efforts to increase operational efficiency, which would result in improved profitability or an inch closer to profitability (for those who have not yet achieved profitability). Markets have reacted favourably to companies that have placed spending prudence at the core of their agenda.

With this trend, growth-stage companies would need to recalibrate their growth strategies to achieve EBITDA breakeven and, subsequently, EBITDA positive sooner rather than later to minimise discounts to valuation.

What challenges does a late-stage startup face compared to an early-growth-stage startup?

Late-stage startups typically have a larger team and complex organisational structure compared to early-growth-stage startups. As the company grows, there may be more pressure to generate consistent revenue and profits to satisfy investors and stakeholders.

Scaling a product or service can be more challenging for a late-stage startup, as the company may need to expand its infrastructure, technology, and customer base. The competition may also be more intense for a late-stage startup as established companies and new entrants enter the market.

Maintaining the company culture and mission can be more difficult as the company grows and new employees are added. The founder or CEO’s role may shift from being hands-on with day-to-day operations to focusing on strategic decisions and leadership.

Late-stage startups may also face increased regulatory scrutiny and legal challenges as they expand their operations.

What learnings can early or growth-stage companies make from late-stage companies?

Late-stage companies have likely navigated many of the challenges that early or growth-stage companies are currently facing, so early-stage companies can learn from their experiences. Late-stage companies may have a more established brand and reputation, which can provide insights into how to build a strong brand identity.

Late-stage companies often have more sophisticated systems and processes, which can serve as a model for early or growth-stage companies looking to scale and improve their operations. They may have a more diverse and experienced team, providing insights into attracting and retaining top talent. They may also have more resources and connections, which early or growth-stage companies can leverage to accelerate their growth and success.

Can you speak of recent fundraising efforts and how the current economic climate impacted those efforts?

I will not comment on specifics. However, as I have mentioned earlier, there has been a lot of emphasis on earnings, the path to profitability, and so on. This is also heavy on the agenda of investors, and rightly so.

However, we see in the market that because of the general trend of moving down the risk curve, there is immense opportunity for consolidation of the market. Our investment pipeline looks more favourable, considering that industry players could face headwinds in raising capital and hence become more attractive valuation-wise.

How is the mindset and cultural shift happening internally since we are in a high-interest rate environment and funding isn’t going to be as easy as before?

As I have mentioned before, being prudent in spending should be at the heart of every management conversation.
This environment is not an outlier but rather a revision to mean. The low-interest rate environment, which many startups/growth stages have been comfortable with in recent years, was not meant to last.

Also Read: Investor expectations have evolved beyond a singular focus on topline scale, growth: KKday CEO

That being said, be it a low-interest rate environment or otherwise, operational efficiency or having frameworks to continuously innovate to expand revenue lines and achieve better operational efficiency should be of utmost importance.

At Aerodyne, we consciously traded the profitability we achieved in the first five years of operations to fuel growth during the pandemic, coinciding with the commencement of rate cuts. Since then, the focus has been to turbocharge products and geographical expansion, which has borne fruit.

How does the current global economic slowdown affect your business, and what steps have you taken to mitigate any adverse impacts? Have you noticed any changes in customer behaviour or demand, and how have you responded?

Supply chain: inputs are no longer as easy to be sourced at the right price points, which in the long run will affect gross profit. However, we have taken steps to manage this by assembling our drones to supplement the demand for our technology worldwide.

However, considering the point about efficiency, which I mentioned before, we see the growing demand for solutions which fit themes of automation and big data, which we fall under.

There has been increased demand in the industries we serve, such as agriculture, oil & gas, critical infrastructure management, and so on, that are traditionally less technologically infused. These industries are looking to technology providers like us to catalyse operational efficiency within their own operations

Can you discuss any cost-cutting measures you’ve implemented and how those measures have impacted your business operations? Did you lay off employees to stay afloat in the market?

We didn’t lay off employees even in the challenging operating climate. We saw this as an opportunity to invest heavily in the R&D of new products to ensure we are ready to take advantage when the market recovers.

Also Read: ‘Global firms are paying closer attention to SEA’s tech talent pool’: Glints CEO

Nonetheless, Aerodyne recalibrates how we do operations in various countries across multiple verticals to optimise cost structures. This includes harnessing operational efficiencies by leveraging artificial intelligence, which we are heavily investing in, finding alternatives to the input equipment we use for operations, including localising assembly where possible.

Can you speak of any market opportunities that have emerged due to the economic downturn and how your company is capitalising on those opportunities?

As I mentioned earlier, many companies face challenges when raising capital for continuity because of economic headwinds. We see this as an opportunity to be in a position to be that beacon to consolidate the market.

As the less-than-ideal economic climate emphasises cost efficiencies, we see increased demand for automated solutions, big data platforms and artificial intelligence, all of which we offer to the market.

Can you discuss your plans for diversifying your revenue streams or expanding into new markets in light of the current economic climate?

1. Over the past few years, in the face of global economic slowdown, travel restrictions, COVID-19 and so on, we have made tactical moves to adjust our plans by streamlining our product base into four vital solutions:
   Agrimor — an end-to-end digital transformation solution for agriculture;
2. DRONOS — a mega SaaS platform that incorporates all the learnings which we have harnessed over the nine years of managing drone operations in various countries and verticals into the back-end algorithm;
3. Fulcrum — a nested autonomous drone system; and
4. Argentavis is an advanced air mobility system optimised for long-distance payload delivery.

These innovations occurred when the world was at a standstill following the COVID-19 outbreak, and the demand for such products spiked. These products will continue to be enhanced and offered to the market.

How has Aerodyne maintained a strong company culture and motivated your team during these challenging times?

Building a solid working level also requires ensuring they understand our purpose, which is embedded in the Aerodyne Way, which guides our culture, value, solutions, technology, and the people we hire are the people who are aligned with our long-term vision.

Aerodyne has grown from strength to strength whenever we resolve a challenge. Building the right corporate culture is also a key thrust.

As of 2023, we are standing strong with 1,000 AeroRangers globally.

How are startups tackling talent issues? Is that an issue in this market?

Our early challenges included adopting the technology we were proposing, getting the right talent and raising capital.

Aerodyne has been working closely with universities in many events benefiting research & development, one use case of drones across industry and usage, obtaining high-quality talent, especially for data analysts, and enhancing the drone ecosystem.

The drone industry has created hundreds of jobs involving software developers, AI and data scientists, engineers, technicians, and UAV pilots, to name a few.

In the first three years, we focused on building the team to instil belief in the cause and being on the same wavelength, principles and objectives.

Also Read: Malaysian drones services firm Aerodyne adds Japanese investors to its cap table

Building a solid working level also requires ensuring they understand the culture, value, solutions, technology, and the people we hire are the people who have a long-term vision as us.

We also overcame the talent issues through strategic partnerships to strengthen the human capital development initiatives (reskilling and upskilling) to increase talents’ employability and marketability, specifically in Artificial Intelligence (AI), drone tech skills, and data technology.

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