Episode 32: Why Swoop Aero turned down a $100m acquisition offer

Full Transcript

Chris Edwards (VO) (00:03)

People start businesses for many reasons. For some it’s ego. Others are attracted to the lifestyle of an entrepreneur. I’ve even heard of people striking out on their own just because they realised they don’t do well working for somebody else.

Then there are people like Eric Peck, co-founder of Melbourne-based drone logistics company Swoop Aero.

Eric Peck (00:27)

We founded the company in 2017. And I think to understand the founding story, I’m going to rewind back a bit further and talk about where I came from, because it’s kind of integral to what we did, right?

Chris Edwards (VO) (00:39)

In a previous life, Eric was a pilot flying combat transport aircrafts for the Royal Australian Air Force.

When he left the service after eight years in 2016, he decided to take up an MBA and became a management consultant. That’s when he met his now co-founder Joshua Tepper.

Eric Peck (00:59)

Now, Josh is a robotics engineer. So if you can imagine big arms on production lines, assembling cars or autonomous ground vehicles in warehouses delivering packages around the warehouse, that was kind of his bread and butter.

And we came across this question that came through, just networking in Melbourne, about whether a drone could be used to move chemotherapy medication in regional Australia. In fact, it was near Broken Hill, if the listeners know where that is. And, you know, in 2017, the answer was yes. It was actually really easy to stack together all these different pieces and build a physical drone that could fly 100 kilometres with a kilo of payload on it once. I mean, it’s even easier to do now.

We put our heads together as a robotics engineer and an ex-air force pilot and thought, what does a system look like that can do that scalably and reliably a thousand times a week? And so in 2017, we founded the company to transform how the world moves, making access to the sky seamless, on the back of this notion that we can leverage the potential of the sky to unlock the next giant leap in how essential supplies and services are delivered. And that’s what we do

Chris Edwards (VO) (02:07)

So Eric and Josh quickly got to work building Swoop Aero. And last year, five years after launching, the duo made headlines across the startup world when they turned down a $100 million acquisition offer from a US-based firm.

Welcome to Good Business, a Launchpad podcast that goes behind the scenes of the leaders of good businesses, who have people, planet, and profit at the core of their mission. I’m Chris Edwards, founder of The Honeycombers and Launchpad, and this is the story of how Swoop Aero co-founder Eric Peck turned down a $100 million offer to buy his company.

Now before we talk about the momentous occasion of the $100 million deal, we’re going to need to wind back the clock and jump into the early days of Swoop Aero.

Eric Peck (03:03)

I think when we first started the company, the only word that could describe the core emotion is excitement. We worked flat out as a team, whether we were in a garage in Bayswater or a mezzanine warehouse in Port Melbourne, you know, the good shed running in the Startmate program, or, you know, on the islands of Vanuatu delivering the service. I think it was kind of like this continuous energy. And I think we ran off adrenaline for the first couple of years. We were, you know, running flat out, we’re travelling all over the world. There’s this nervousness of like, I don’t know what I’m doing, excitement that we’re going to do it, and then wondering if we’ll be any good at it, and just kind of that cycle over and over again, you know, people talk about the roller coaster of emotions. I think ours is mainly above the line and the excitement phase. And we ran like that for a number of years, with this really small, tight-knit team.

Chris Edwards (VO) (03:54)

And that small tight-knit team saw its first big win a year after the company formed, when it won a contract to operate drone delivery services for medical supplies in Vanuatu, a South Pacific Ocean nation over a thousand kilometres off of the East coast of Australia.

Eric Peck (04:12)

So our first kind of contract as a company was only based in medical supplies. The world’s first competitive tender for medical drone delivery. We won that in Vanuatu in 2018. So a couple of Australians in a garage building some cool technology with a laser-sharp focus on product beat all these big venture capital-backed companies overseas to win this tender.

We really quickly had the whole company, you know, on the ground in Vanuatu, working with customers who had an actual need for the technology and the service. And we took that feedback from that first customer set, put it into a second customer set in the DR Congo. You know, we had career engineers and laptop coders in the Congo coding on their laptops, making sure the aircraft were flying and just had real-world exposure to not only the environment that we had to operate in, but also to the needs of the customers and the impact we could have with the technology. And I think by getting our hands dirty from day one, finding the people who we could create value for, working with them – we get paid for it so, you know, we’re not offering a service for free – we’re learning from people who are, hey, we’re gonna pay you to do this because it’s valuable to us, you can help us change our healthcare system, we can change people’s lives with this technology, by just getting everyone in the company down there in the weeds, seeing the impact, learning about the customers, getting the user experience, and then building that back into a product is what’s been our kind of secret sauce for the last five years.

Chris Edwards (VO) (05:32)

And that tenacity allowed Swoop Aero to scale to where it is today, with networks operating in various locations across the world.

Eric Peck (05:42)

The biggest operations that we have in the world at the moment are in Malawi, DR Congo, and Queensland, which is exciting. And we’ve got smaller operations in Namibia, Mozambique, and this is coming up in New Zealand as well, which is really cool. And then the technology stack is used by some other customers. So we’ve got a customer in the UK that moved products for the NHS with the aircraft and the technology stack, we’ve got aircraft that fly and land on ships in the harbour of Singapore, very soon we’re going to be adding a couple of additional countries across the African continent in on a national scale, which is really exciting. And so, you know, we operate in six, we’ve got partners and customers that operate in a few more, and to date, we’ve operated in 14 countries around the world. And so if you go into our manufacturing facility in Melbourne, in Port Melbourne, every flag of a country the aircraft is flown is on the wall and I’m pretty worried we’re gonna run out of room soon around the whole building.

Chris Edwards (06:32)

Hahaha.

Chris Edwards (VO) (06:34)

As Swoop Aero grew, it began getting international attention from media outlets and investors alike, reinforcing the team’s passion for their mission.

Eric Peck (06:45)

I think we realised we had an opportunity to change the world after we got an article in The New York Times because that was before our seed round led by Folklore and Right Click Capital. You know, we were kind of… my parents used to talk about how I’d gone through being an Air Force pilot for this huge aircraft and then I was back flying model planes at their farm, right? And um… but that was the first time we thought, actually, this is important, this is something that can change the world. And so then we raised the seed round. I often talk about this experience where in the village that I was living in Vanuatu, we had to stand on one mound to get phone reception. And so you take turns in standing on the phone mound. And I’d have the laptop there talking and then I’d be on the phone talking through the financial model. And I kind of raised our seed round shirtless in Vanuatu, getting sunburnt, trying to read a financial model on a laptop on an island in the middle of the Pacific Ocean. That’s what the seed round looked like for us. I flew back to Sydney for one day to sign the docs and then I flew back to Vanuatu.

Chris Edwards (VO) (07:41)

To date, Swoop Aero has raised $27.5 million dollars. Not bad for a couple of Aussies who started out in a garage. And despite the size of its operations today, Eric and the Swoop Aero team have always been laser-focused on their mission.

Eric Peck (08:00)

What that funding or what venture capital funding has done for our company has allowed us to compress, you know, 10 or 15 years worth of technology development into a five-year period. So we’re at the point we are now where we’re basically having operationally mature mini airlines in a number of different countries around the world that can operate the aircrafts. We have a manufacturing base where we use an Australian-based sovereign supply chain to build components, put them together, manufacture aircraft at home in Melbourne, and export them out to the world. And then we have the capability to develop future technology as well. And so now our focus as a business has moved from heavy learning alongside our customers and research and development to get that aircraft ready for production through to producing the aircraft, mass producing them using advanced manufacturing methods, so we can get this technology out into the world and to doing as much value as possible.

Chris Edwards (VO) (08:48)

But Eric and the team weren’t the only ones who knew the value they could bring to the world with their technology. Others were taking notice as well – and they wanted a hand in making it happen. Late last year, the team was in talks with a US firm to strike up a potential partnership, when the conversation suddenly turned into an acquisition offer for $100 million.

But rather than jump on the opportunity for a huge payout, Eric, Josh, and the entire Swoop Aero team decided no to the $100 million offer.

$100 million dollars. I was perplexed to hear that they’d turned down such a gigantic amount of money, but I suppose it was confirmation that what they’d built at Swoop Aero was truly world-class and could have incredible impact. Eric explained to me that what he and the team were doing was more important and valuable – but not in the way you might think.

Eric Peck (09:53)

When you start a venture-backed business, you kind of go through phases of what you’re doing it for. There’s the Zuckerberg phase where everyone thinks they’re going to build Facebook and maybe they can be a millionaire. You just got this overjoying thing the first time you get investment and someone believes in you. You’ve left your corporate job so you’re wearing a T-shirt to work in jeans rather than a suit or like I used to wear a uniform in the military at one point.

And so I think for me, you know, we had this offer, we built this amazing company, we’re doing some really, really impactful work in the world, we’ve got an opportunity to build a very big, valuable company, once we, you know, once the airspace opens up and once we’re scaling. And we thought, you know what, like it’s a lot of money to turn down. And it was a hard decision, frankly, but it was made very… like it was a hard decision that was made very, very easy by knowing that the team were there and we knew that we could build this ourselves.

And we didn’t just want the technology used, you know, for one purpose, for like a, you know, a defence sector and there’s a lot of people building technology for that. But we had this opportunity to build a really big company that was doing amazing things in the world beyond that. And I think we all wanted to keep that going. And so that’s what drove the decision for us to turn that down. And you know, it’s been a beautiful 12 months since then, the team have been working hard, we’ve got some amazing stuff done. I’m very glad we turned that down and we kept on building the company.

Chris Edwards (VO) (11:16)

One thing that makes this story so inspiring to me – aside from the fact that Eric’s telling us he’s glad he turned down a $100 million – was that the decision to say no to the acquisition wasn’t one that the founders made alone. They actually consulted the entire Swoop Aero team before making the final decision.

Eric Peck (11:38)

I think my co-founder and I both, you know, thought we knew where the sentiment lay, but if the team had have said “we really want this to go ahead”, we probably would have gone ahead. And, you know, the fact the team had a resounding, “Actually, we think we shouldn’t go ahead and we should keep on building”, that was the most powerful part for us. It was backing that you know what, we can keep on building. We’ve got the support of these people to keep on building the company. And so I think what that really did is give us the confidence to just go, “Yeah, we’re going to keep on going”. We know we’ve got this team behind us, so people have built it with us. And there was money on the table for lots of people, right? And so that then becomes, you know, if everyone’s turning down the money because they believe in what you’re doing, it’s pretty hard not to believe in it yourself.

Chris Edwards (VO) (12:24)

Eric’s had close to a year to ruminate on the decision that he and the team made to say no to the offer and he has no regrets – not about turning down the acquisition offer or any other choices that he’s made over the years at Swoop Aero.

Eric Peck (12:41)

Whatever you’re doing in life, frankly, you’ll always look back on it and you have this benefit of hindsight. And so I know Nick Crocker at Blackbird talks about this idea that personal growth equals pain multiplied by reflection. And so, I mean, I really liked that. That was part of the Startmate program. When we went back in that, through that program in 2018, it was like on day one, you know, Nick wrote that up on the whiteboard. And I think I often look back on the decisions we’ve made and you think, yeah, you could have done it better, but I don’t sit there lamenting about it and thinking, oh, I wish I’d done this, or I wish I’d done that. It’s all a learning experience and cool, like, maybe it was painful, maybe we could have made a better decision, maybe we could have done something smarter or faster or cheaper or leaner, but learning from that and making sure we don’t do it again is the real opportunity out of that. And I think that’s how I and the team all approach every decision we make or everything we look back on, whether we’re talking about a, you know, a propellant that broke in flight testing and put us a week behind schedule, or we were talking about a buyout opportunity. It’s an opportunity to learn, like, reflect on that and learn and grow as a person and as a company.

Chris Edwards (VO) (13:43)

Now with the acquisition prospect more or less ancient history for Swoop Aero, Eric and the team are looking ahead. Their goal? To reach a billion people with their integrated drone services by 2030.

Eric Peck (13:58)

So our core goal as a company is to reach a billion people by 2030 with integrated drone services. And so what that means for us over the next couple of years is continued expansion in our existing markets on the African continent. You’re going to see a lot more of us in countries like Australia, New Zealand, Europe, and the United States. We are currently scaling up the world’s largest integrated drone logistics network in Queensland. It’ll end up covering something like 200,000 square kilometres of Queensland, offering services from, you know, cold chain, medical supply delivery to pathology sample collection to agricultural mapping and search and rescue off the coast all with, like, one integrated network. And so that’s gonna be really exciting for us. And that’s one of our core focuses over the next 12 months is to scale up that network in Queensland, really learn how to translate our amazing skills that are building, deploying, growing networks in developing markets where it’s really, really hard to do in that in heavily populated areas in countries like Australia and New Zealand and the United States, and then replicating that. And so over the next 12 months, you’ll see us roll that out in Queensland, you’ll start to see more of our aircraft flying right here at home, and then in other developed countries, the United States is on the radar, Canada, through partnerships will be operating in Europe. And so it’s… rather than focusing purely on scaling at impact operations, we’re gonna scale both impact operations in low- and middle-income countries alongside, you know, growth networks and growth partnerships in high-income countries. And I think that’s what our future looks like.

Chris Edwards (15:36)

Amazing, Eric, I think we’ve got a really good podcast here!

Eric Peck (15:41)

Haha I hope so.

Chris Edwards (15:42)

Oh, yeah.

Eric Peck (15:44)

No, thanks so much, it’s been a pleasure chatting to you and looking forward to hearing… well, I don’t like hearing myself too much, but I’ll listen to it and hopefully I’ve done a good job for you.

Chris Edwards (15:52)

Yeah, you’ve done a great job. It’s a great story. Thank you for your time and we’ll be in touch when we’re ready to go live.

Eric Peck (15:59)

Yes, sounds great. Thank you as well. See you guys.

Chris Edwards (16:02)

OK, thanks, Eric, bye.

Chris Edwards (VO) (16:05)

Eric walked away from a $100 million deal. I’m pretty amazed that his vision and passion and I suppose strong drive to have a positive impact on the world was so much more important than ultimate financial freedom and never having to work another day in his life. Sure, the buyer was someone from the defence sector and I think that would be a really big deterrent on the offer, but this is a remarkable story of someone who is really one hell of a leader with a really clear vision and passion. Even just getting his whole team to buy into the decision is pretty impressive. I am in awe of this achievement and this clear vision and purpose. And if I was in the same shoes, I don’t know if I would make the same decision. Well, I suppose I’ll never know.

I hope you enjoyed Eric’s story and learning from it as much as I did. Special thanks to Eric and the Swoop Aero team. If you want to learn more about the amazing things they’re up to, check them out at swoop.aero.

Of course, I wanna say thank you so much for listening and tuning in to Good Business. Please do let me know what you think of today’s episode. Email us on [email protected]. We’d really appreciate it if you could give us a rating on our podcast and leave us a nice review on any podcast platform that you’re listening on. And if you liked today’s episode, please share it with a friend – that’s how podcasts grow and get discovered. Also, if you’re not subscribed to us, give that follow button some love. We’ve got so many more stories of good businesses and heart-led leaders that are truly inspiring, which is what you need when you’re running a business.

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Before we close out, I acknowledge the traditional owners of the land on which I am recording this podcast, the Arakwal people of the Bundjalung nation, and I also pay my respects to Elders past and present and future, and I extend my respects to all traditional cultures.

Thank you again for listening. I’m Chris Edwards, and I hope you feel as inspired as I am to create your own good business.