Exclusive: Inside Unusual Machines' $52 Million Drone Battery Acquisition

In 2020, Matt Barnard built a drone by hand at his home in Missouri and thought he had the perfect buyers for it: cattle ranchers in neighboring Oklahoma, who he knew had a heck of a time keeping track of their grazing herds. Using drones equipped with cameras, ranchers could follow their cattle on their laptops. But then the ranchers came up with a competing way to locate the cattle—GPS devices clipped to the animals’ ears—and lost any interest in Barnard’s drones.

If he couldn’t sell drones, Barnard thought he might be able to produce and sell the primary component that makes them go—batteries. He launched a startup designing battery packs specifically for drones.

The bet paid off last week, when Barnard closed the sale of that startup, Upgrade Energy, to Florida drone component supplier Unusual Machines for $52 million in cash and stock. It was a coup for Barnard, who told me he had entirely bootstrapped the business and raised no venture capital or debt.

The deal was also a big get for Unusual Machines, which added to its muscle as the leading supplier of U.S.-made drone components to companies competing in the Pentagon’s Drone Dominance program for $1.1 billion in contracts.

Chinese manufacturers such as DJI make most of the world’s drones, along with the components that go into them. But the Pentagon, seeking to build up a U.S. drone industry and wean the country off Chinese suppliers, has sharply restricted the use of Chinese-made components by Drone Dominance participants.

In the latest stage of the Drone Dominance competition last month, Unusual Machines supplied components to four of the nine companies that placed, including top winners Perennial Autonomy, founded by former Google Chair Eric Schmidt, and Neros Technologies.

The acquisition of Upgrade Energy, which is also a supplier to Perennial and Neros, bulks up Unusual Machines’ manufacturing capacity with the most expensive single component in a drone—the battery.

Unusual Machines’ shares are up 21% since it announced the deal in May, and they’ve risen 32% over the last year.

“We exist because we took this gamble and people invested in this gamble,” Allan Evans, CEO of Unusual Machines, told me. “We’re a little past it being a gamble—it’s worked out and now we’re scaling.”

I visited Upward’s factory in Torrance, Calif., earlier this month. It’s a large, white-painted space in an industrial park where after work a group of young men sitting on a couch huddled together over a videogame and otherwise hung out. The factory itself was through a door in the back. There, in rows of desks packed with electronics, some 50 workers package next-generation cylindrical cells from Taiwan’s Molicel, Calif.–based Amprius Technologies and others in black, rectangular packs small enough to hold in one hand. They then box them up and move them on pallets to a loading dock. Barnard said they are pumping out 400 packs a day.

Next-generation battery startups began to pop up in the late 2000s and the early 2010s, triggered by improvements in lithium-ion batteries and especially the rise of Tesla. In 2020 and 2021, a slew of them went public on the general expectation of an electric vehicle boom. But EV sales beyond Tesla remained sluggish. The industry is only now coming out of that malaise.

The drone boom, along with the mania over AI data centers, have been the main life preservers for these startups, as we have reported.

But Barnard has been in the business longer than most, pumping out drone packs. His big insight was to avoid the risks most of the other battery startups took in attempting to invent and scale up a new battery chemistry or component.

He decided to take some of the best of what was already out there—like the batteries made by Molicel and Amprius, with their next-generation silicon anodes—and figure out how to package them optimally for drones. He then got those packs in front of drone makers.

In 2023, Barnard said, he got a deal to power drones that delivered food in Georgia for Papa Johns Pizza. The same year, he landed his first significant deal—a contract to supply Neros, at the time a small drone maker based in El Segundo, Calif.

Based on that contract, Barnard decided to move Upgrade from Missouri to Southern California. He and his father packed up his things, stuffed them into a big truck, and drove to the state. With three employees, they moved into a space in Compton, Calif.

Upgrade got some press when it powered a solar aircraft making a round-the-world flight. Last year, orders for batteries to power combat drones started rolling in. Barnard continued to get business from Neros, which had become one of the country’s main drone manufacturers, and now also had business with Anduril and AeroVironment, he said.

Near the end of last year, Evans came around. Barnard recalls Evans saying that Unusual Machines wanted to begin building batteries.

“I said, ‘OK, cool. What do you want to do?’ And they’re like, ‘Acquire you.’”

“‘Ah, OK, great,’” Barnard recalls responding.

Evans said he had to take Barnard out for meals before he could close the deal. “Initially he was like, ‘Nah.’ And so we had dinner a couple of nights,” he said. Evans stressed that he could promise Barnard a ton of business and expansion.

“We have the buying volume to be an anchor customer for somebody to move cell production to the U.S.,” he recalled telling Barnard. “We have the ability to automate and scale. We have the ability to put batteries into thousands of drones.”

That turned Barnard around.

“Now I’m not competing against some other company that just raised $10 million, $20 million, when I did not have $10 million or $20 million sitting around,” Barnard said. “I recognized that to stay competitive, I needed to attach myself to some of that funding. I’m glad I did.”

Noteworthy

General Motors led a $108 million Series B round in sodium-ion battery systems provider Peak Energy. GM and Peak are developing sodium-ion batteries for deployment on the grid. In total, Peak has raised $173 million in equity funding.

High-nickel battery maker Forge Nano went public in a merger with a special purpose acquisition corporation, highlighting the revival of new stock listings in the battery industry after a four-year downturn. The company is building a plant in Morrisville, N.C., to manufacture high-nickel batteries with either silicon or graphite anodes, and it plans to begin production in 2028.

China tightened its export ban on components for large drones. The new restrictions, affecting drones and components that can be used in combat, take effect Nov. 18.

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Steve LeVine is editor of The Electric. Previously, he worked at Axios, Quartz and Medium, and before that The Wall Street Journal and The New York Times. He is the author of The Powerhouse: America, China and the Great Battery War, and is on Twitter @stevelevine