The 3 main companies I have come across building non-military consumer drones are:

  1. DJI, the ‘Apple’ of drones that generated revenues of ~$131M in 2013

  2. 3D Robotics, raised $35M in venture capital and by mid-2013 had sold over 30k units

  3. Parrot, a public European company

Parrot is the only public company, and therefore the only company for which we can get data to use as an indicator for current consumer and enterprise demand. Parrot manufactuers the popular consumer Parrot AR Drone, and the enterprise eBee drone.

Parrot KPIs

  • Earned a total of 42.1M Euros in revenue from drone sales in 2013
  • Total Q4 2013 revenue from drones was 13.8M Euros, down 18% in vs. Q4 2012 (16.8M Euros)
  • Sold 283k of the AR 1 between 2010 and 2012
  • Sold 324k of the AR 2 between 2012 and Q3 2013
  • Sold 400+ eBees in 2013
  • senseFly (makers of eBee) recorded $3.25MM in sales in the first half of 2013
  • ~$2M in 2012 revenues from senseFly professional drones
  • Pix4D, software for post-flight imagery processing, already has ~1k users
  • Total registered AR flight time of 7Y 316D

Consumer vs. Professional Drone Sales

  • Consumer drone sales (the AR Drone) peaked in Q4 2012 when the company sold almost 100k units
  • Professional drone sales has grown almost 800% year-on-year to 6.3M Euros in 2013, up from 0.8M Euros in 2012
  • Professional drone revenue was 2M Euros in Q4 2013, up from 0.8M Euros in Q4 2012
  • Retail drone revenue was 11.8M Euros in Q4 2013, down from 16.0M Euros in Q4 2012

Drones vs. GoPros

  • Parrot sold 218k AR Drones in 2012, and GoPro sold 2,316k
  • Parrot sold 181k AR Drones in 2013, and GoPro sold 3,849k
  • Parrot sold ~283k over 2010 and 2011. GoPro shipped 1,145k units in 2011 alone


Crowdsourcing has been a hot topic for many years, but over the past few years we have seen a number of platforms emerge to try and harness the crowd for collaborative innovation. The open source software community has been doing this for decades, but more recently companies have focused on crowdsourced innovation of consumer products.

Quirky has led this movement and created a platform and process that enables anyone to contribute to the development of new consumer goods. And by all easily accessible metrics Quirky is wildly successful. The company has raised $175M in the past 4 years from top tier investors like Andreessen Horowitz, Kleiner Perkins, RRE Ventures, General Electric and others.

But how does the business of crowdsourced innovation really work under the hood? I was poking around on Quirky’s site and found that every product has a unique product page, on which Quirky exposes a variety of data including

  • Number of units sold each month
  • Payouts to the product’s inventor community each month
  • Total number of influencers
  • Distribution of the crowd’s vote of what they will pay

This data is loaded in a javascript function, and can be extracted and structured from the DOM with a fairly simple script. If we do that we can get a better understanding of how the direct online business is really working1.

Product Creation

Quirky has 823 products on the site, that break out across a variety of different product statuses, including ‘In Development,’ ‘On Sale,’ ‘Started Development’ etc. Of the 823 products Quirky has approved, 13.24% are currently on sale.

Cumulative Revenue and Community Payouts

According to the public data, Quirky has generated $51.32MM in total revenue from 3.58MM sales, and paid out almost $6.78M to the community. Quirky’s monthly revenue appeared to peak in December 2012 at almost $7M.

Hit Driven Revenue

Product sales on Quirky have an unmistakable long-tail distribution. Pivot Power, Quirky’s best performing product, has generated 36.28% of Quirky’s total revenue to date. The top 5 products on Quirky have generated 53.54% of Quirky’s total revenue.

The classic 80/20 principle is also true for Quirky; the top 20% of products (25 products) have generated 83.78% of Quirky’s total revenue.

If we look at what the community has earned per product, we find the same long-tail distribution. Pivot-power has generated 20.40% of the community’s earnings. The top 5 products generated 46.15%, and the top 20% (25 products) generated 73.93% of the community’s earnings2.

Product Categories

Quirky has 3 main categories of products: 1) Electronics and Power 2) Home & Garden and 3) Kitchen3. Over 80% of Quirky’s revenue has come from the electronics category. Quirky’s founder, Ben, has a long history of producing electronic consumer products.

Community Payout

For each product sold Quirky makes payments to the community for their inputs on the idea, development etc. Quirky pays out the smallest percentage of revenue for electronics: 12.85% vs. up to 17% for kitchen products.

If you are thinking of contributing to the development of products on Quirky though, electronics have the best return. The average pay per influencer of an electronics product is almost $80, almost 5x that of products in the home and kitchen categories.

If we exclude Pivot Power, Quirky’s most successful product, Quirky pays out 8.26% of revenue to electronics and the average pay per influencer is $56.


Electronics are the highest priced category of items ($35 vs. ~$16 for home and kitchen items).

For some products, Quirky runs a consumer vote, asking consumers what they think they would be willing to pay for the item. What is particularly interesting is that Quirky prices electronics significantly higher than the median consumer vote. On average, Quirky prices electronic items $32 higher than the median price voted for by the community. For home items and kitchen items, on average Quirky prices them in line with the median consumer vote.

Consumers have a higher variance in the price they are willing to pay for electronics vs. home and kitchen items; on average, the 25th to 75th percentile range is $7 for electronics vs. ~$4 for home and kitchen.

Key Takeaway

I outline a few caveats to the data below, but assuming the data is directionally correct for their direct sales, it is fascinating that despite trying to tap the crowd and de-risk the volatility of consumer demand for a new product, Quirky has only produced 1 breakout success since launch. The data suggests the crowd doesn’t really know what they want.

End Notes

You can find the script I wrote to collect this data as a Gist here.

You can find the excel with this data and analysis here.

I am not certain the data is consistent. For example, I previously ran an older version of the script in February and got $59.73MM (vs $51M) in revenue and $5.95MM (vs. $6.78M) in payouts.

  1. Quirky also sells products through retailers, which I am cofident are not included in this data.

  2. This may be a more accurate metric to assess the hit driven nature of Quirky’s revenue. I am not entirely confident that the revenue data accounts for offline retail sales. However, given that Quirky relies on the community to generate and refine product ideas, I am confident that the amount paid out to the community is accurate. While community earnings are likely affected by the number of contributors etc. the 80/20 distribution of earnings that is roughly in line with the revenue distribution per product further supports the hypothesis that consumers don’t know what they want.

  3. They also have ‘Health & Fitness’ and ‘Travel & Adventure,’ but these two categories have very few products.

It is very hard to get genuine transparency on what VCs look for when making an investment. Some investors share their investment criteria, but rarely how they have assessed opportunities against those criteria.

The only public domain investment memo I have found is by Roelof Botha recommending that Sequoia make a seed investment in Youtube1. Roelof has supported some of the most exceptional companies over the past decade including Youtube (I think one of his first), Instagram, Tumblr, Evernote, Square, MongoDB and others. It is a rare opportunity to see how such an accomplished investor thought about the opportunity behind closed doors and communicated his thoughts to the partnership.


In 3 succinct paragraphs Roelof articulates his primary theses that underpin why he thinks YouTube is a compelling opportunity. The most fundamental of these is his hypothesis that Youtube can become the ‘primary outlet of user-generated video content.’ This is supported by calling out several ‘strong veins’ (macro trends) that Youtube taps into2.

Roelof lets his simple thesis and supporting macro trends stand for themselves. He doesn’t feel the need to defend these foundational premises or articulate them further to the partnership. This concise thesis, articulated in 9 lines, seems obvious in hindsight but at the time video was basically non-existent on the web.


Roelof lays out the shell of an investment in a single sentence: $1M followed by a $4M Series A for ~30% of the company post Series A. It is interesting that Sequoia intended to traunch the investment contingent on the company achieving 5 ‘specific milestones’ spanning business planning, product, customer acquisition, and hiring.

Assuming Sequoia maintained ~30% ownership in the company through the Series B, Roelof returned ~$480M on a cumulate investment of <$10M between writing this memo on September 2nd, 2005 and the sale to Google on October 9th, 2006 for $1.6B.


Roelof indicates his position on the company’s top priority over the next 3-6 months: focusing on product development to ‘increase [YouTube’s] defensibility.’ This would likely have translated into his key priority when he joined the board. Documenting this in the memo can be valuable in solidify the investor’s perspective, and also to ensure the investor’s perspective is aligned with the founders and his partnership at the time of the investment.

Hiring Plan

Roelof also calls out finding executive talent to support the founders as an area for the partnership to help: ‘I would appreciate any ideas on potential candidates for either role.’ He also hints at management as an item for discussion as a team: ‘My preference would be to launch a search immediately.’ In this way, Roelof keys up conversation for the Monday meeting, and turns the memo from being an essay of personal thoughts to a collective document detailing the partnership’s priorities.

Key Risks

This is the longest section of the memo, comprising 50% of the 3 pages. This section could also be titled monetization, as Roelof primarily assesses if YouTube could reach the scale to generate meaningful ad revenue. Roelof breaks out the key risks across the following 5 subcategories, almost all of which are relevant when thinking about any opportunity:

  1. Competition and Defensibility
  2. Revenue Model
  3. Scalability
  4. Balancing Growth
  5. Exit

Roelof again makes it clear that defensibility should be the primary focus: ‘The company needs to remain laser focused on improving the user experience …’

The ‘Revenue Model’ section is the only place in the memo when Roelof uses the word ‘believe’: ‘I believe that YouTube has a clear advertising revenue opportunity.’

He makes it clear to the partnership that the revenue model is still unclear and raises questions for the rest of the partnership to consider, again, teeing up topics for discussion on Monday: ‘can the company develop attractive products that are not intrusive to the consumer experience?’

In the rest of the ‘Revenue Model’ section Roelof lays out 3 different bottom up market sizings based on the 4 key revenue levers in sees in the business3. Roelof notes that he intends to make sure the company carefully tests these levers over the coming months. Again, Roelof’s investment memo for the team likely translated closely into his key priorities for the board post-investment.

In the ‘Exit’ section Roelof succinctly states that: ‘we cannot point to many high comparable exit valuations.’ Unknown exit opportunities doesn’t deter him from recommending an investment though, nor does he feel the need to further articulate his thesis.


Roelof updates his partnership on how Sequoia is positioned relative to other VCs (‘pole position’). Despite being pole position, Roelof doesn’t want to wait around the hoop.

He tells the partnership he would ‘like to give the company our decision on Monday.’ The memo is dated September 2nd, 2005, which was a Friday, so the partnership likely had the weekend to review the memo.

In the last paragraph Roelof clearly lays out why he recommends an investment:

  1. Great team
  2. The growth of user-generated content with video as the next step
  3. Early indication of video ad potential based on diligence

Abstracting a level higher we can group these under: management, market, and monetization.

It is easy for VCs to operate in silos, but throughout the memo Roelof emphasizes Sequoia’s collective role in evaluating the opportunity and supporting the company by using ‘we.’ In this section, when articulating his final perspective based on the analysis, Roelof switches to the first person subjective: ‘I recommend that we proceed with the financing as proposed.’

He ends by reiterating the team’s immediate focuses post investment: ‘we need to surround the company with management talent’4.

Final Observations

It’s particularly interesting that through the memorandum Roelof doesn’t appear to try and sell the opportunity to the partnership. The memo doesn’t have a section titled ‘upside’ or ‘opportunity,’ and he clearly calls out what he doesn’t know. Between the section on key risks and competition, over 50% of the memo focuses on discussing areas of concerns. The team likely already agreed on the macro trends that could support a mass market UGC video platform, which allowed them to focus their diligence and debate on whether or not YouTube could monetize and if management was the team to build the product.

  1. Roelof included the investment memorandum as part of testimony in the Viacom vs. Youtube (Google) case. I found the case on Scribd here.

  2. These are user-generated content, online advertising, proliferation of inexpensive digital video capture devices, and continued broadband adoption.

  3. It’s funny to play monday morning quarterback and think about how wildly small Roelof’s bull case of 30M video views per day was given that YouTube passed 4B in January 2012.

  4. The memo has the following backup material: 1) Investment summary 2) Competitive analysis 3) Technology overview 4) Team bios 5) Company presentation 6) Company metrics. The investment summary seems to be a 1 page document written in advance of the full investment memorandum. The document is likely an early set of bullet points on the opportunity so the rest of the team knows about the company early in the diligence process. The investment summary may also be a consistent framework that the teams uses to analyze any opportunity and provide rigor. In the supporting materials on ‘Competition,’ Roelof walks through each of the subcategories listed in the memo in more depth, including any public traction and exits. The remaining 4 sections of additional content are information provided by the team.