American billionaire Bill Gates' radar bet Echodyne sells for $5.3 billion

Echodyne Corp., a radar maker that American billionaire Bill Gates has backed since its founding, has agreed to be acquired by defense technology company Shield AI in a deal valued at up to $5.3 billion.

Shield AI said on Nov. 5 that $4.8 billion will be paid and issued at closing, with up to $500 million more depending on Echodyne meeting agreed performance targets. The companies did not say how the payment splits between cash and stock. The deal is expected to close in early 2027, subject to regulatory approvals.

To pay for it, Shield AI is raising $2.5 billion. That includes a $1 billion Series H round at a post-money valuation of $28.8 billion, co-led by Disruptive and Innovation X Capital, with Advent, the Strategic Investment Group of JPMorgan Chase's Security and Resiliency Initiative, Snowpoint Ventures, Apandion and Center15 Capital also taking part. Funds managed by Blackstone are putting in $1 billion of structured equity, and JPMorgan Chase Bank is arranging $500 million of debt.

The valuation is more than double the $12.7 billion Shield AI was given in a $2 billion financing in March.

Gates' early bet

Gates has put money into every Echodyne funding round since the company was spun out of Intellectual Ventures, the patent and invention firm run by former Microsoft technology chief Nathan Myhrvold, in 2014. In June 2022 he and Scottish investment firm Baillie Gifford co-led a $135 million round that took Echodyne's total funding to $195 million. Madrona Venture Group, Vulcan Capital, Northrop Grumman Corp., NEA and Vanedge Capital also invested. The size of Gates' stake has not been disclosed.

Echodyne, based in Kirkland, Washington, builds compact, solid-state radars using what it calls Metamaterials Electronically Scanned Array technology which relies on standard materials and manufacturing processes. Its radars are used in hundreds of counter-drone and security systems in more than 40 countries.

"You can't defend against $1,000 drones that can be everywhere with a $100 million radar system," Chief Technology Officer Tom Driscoll said when the 2022 round closed.

Demand for that kind of equipment has grown fast. In September, Echodyne won a contract with a ceiling of $250 million from the Pentagon's Joint Interagency Task Force 401 to supply counter-drone radar. It recently opened an 86,350-square-foot factory in Kirkland, a $40 million investment that can turn out about 30,000 radars a year.

What Shield AI is buying

Shield AI, founded in 2015, makes the Hivemind autonomy software that flies aircraft without a pilot, the V-BAT drone and the X-BAT, an AI-piloted fighter jet designed to take off and land vertically. Chief Executive Gary Steele said the company is building "a new-generation defense technology company" organized around autonomy software, autonomous systems and mission systems.

Echodyne will run as a standalone unit inside the mission systems business, with no layoffs or relocations planned. Co-founder and Chief Executive Eben Frankenberg will report directly to Steele and keep charge of products, manufacturing and customers.

"Shield shares our view that autonomous systems can only act on what they can sense," Frankenberg said. Both companies expect triple-digit revenue growth this fiscal year.

Gates, 71, co-founded Microsoft with Paul Allen in 1975 and built it into the world's largest software company before stepping back to focus on philanthropy. He now spends most of his time on the Gates Foundation, which plans to spend about $200 billion before closing at the end of 2045.