By this point, most of you have probably heard the rumor that Facebook is contemplating the purchase of drone maker Titan Aerospace. Indeed, if true, it is a stroke of genius on the part of the folks at Facebook. After all, according to Mark Zuckerberg‘s internet.org, he wants to provide free, or inexpensive, Internet connectivity to 5 billion people - and of course, do it via Facebook.

Titan Aerospace is in the business of designing atmospheric satellites - unmanned aerial vehicles, designed to fly at 65,000 feet and stay aloft for five years, without ever needing to come back down to earth for refueling or maintenance. It’s purposed to be a satellite without actually having to leave earth’s atmosphere - thus the term, Atmospheric Satellites.

These drones are relatively inexpensive to deploy and fly above the jurisdiction of countries and governments, allowing Facebook to potentially deploy internet connectivity to remote areas in different countries, circumventing local censorship (if it were to acquire Titan). I like the idea, already.

Whether you or I agree with the ramifications of connecting 5 billion people to Facebook, the issue here is Titan Aerospace’s viability and what it’s worth. At present, it is rumored that the total package being offered by Facebook, as consideration, is almost $85 million. That’s $60 million for Titan, and another $25 million in stock for the employees. Bear in mind that these are just rumors, but they’re coming from credible sources. In my opinion, if Titan can pull it off by actually proving its technology, the company could be worth $2 billion. If they can’t, well, therein lies the risk with all startups, and they’d be worth nothing.

So where did Facebook potentially pluck the $85 million valuation from? I guess value is in the eye of the beholder. WhatsApp, after all, was worth a cool $19 billion according to Facebook.

I like Titan. I like companies that come up with big audacious goals, then go about getting them accomplished. Last year, the company brought on Vern Raburn - the master of big audacious goals and a serious achiever. He is now Chariman and CEO. I’ve been a fan of Vern’s since his Eclipse Aviation days.

Vern is a huge plus for Titan for two reasons. One, the simple fact that he agreed to come on board tells me that Titan has a lot more positive going on inside than we know about. The second, it gives me confidence that Titan will be a success given Vern’s extensive experience and stewardship.

An Amazing Product Offering… If it Works

Titan’s product offering is to solve the issue of expensive satellites that orbit about 20 km above the earth’s surface. Getting satellites to that altitude is extremely expensive, as you can imagine. However, most of what can be accomplished at 20km can also be accomplished at 65,000 feet, or so is believed by Titan. And deploying their atmospheric satellites is less complex.

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With Titan, satellite TV could be cheaper. Satellite phones, satellite broadband and even detailed satellite-mapped road conditions are all achievable and can become mainstream, liberating millions who can’t otherwise afford it. Titan’s success will blow the doors off monopolistic companies currently controlling the industry, and allow satellite communication to be common place. It’s liberating. I want to see them succeed. But not in the arms of Facebook.

Strengths and Weaknesses

Aside from a great idea and a strong CEO, there is not much else in terms of strength, at the moment. With Titan, there is still a question mark surrounding its technology given how hush hush things have been. And I fear this innovation could be at the mercy of bureaucrats in short order. Here is why:

The US is looking at legislation for UAVs. Something like Titan’s offering could become heavily regulated. And with heavy regulation comes increased costs and less innovation.

The second major weakness is funding. Titan received initial angel funds to get off the ground, but since then it has been struggling to find a fresh infusion (we’ll see if Facebook buys it outright). The VCs mostly passed because they saw risk that was not able to be solved during the next few years (likely regulatory risk). Facebook is not a done deal, not even close. So funding is an issue I foresee. And even if Facebook is a concrete offer at $85 million, that valuation seems rather low for a technology with such potential, does it not? Clearly there are a lot of unknowns.

Another concern is that the company hasn’t been around for 5 years to prove that its UAV can, according to Titan, stay airborne for 5 years. Titan’s Lead Aerospace Engineer, James Reiner, was still in college five years ago. I believe they can get this done, Titan just needs to get the math right and prove it to the point that the guys with the cash beat a path to their door. But VCs, those with the cash, want to see it fly first. It’s a catch 22. And Titan appears to have little leverage at the negotiating table, for the moment.

Titan has heavy competition nipping at its heels, already. When you whittle down Titan’s product, what they are offering is a way to get satellite coverage, inexpensively. There is competition for that niche. Nano satellites are trying to do the same thing. The concept of nano satellites is to send up smaller, lighter satellites that are easily launched, even by private citizens.

Buyout?

If Titan is bought out by Facebook, the benefits of the technology will only be used for limited objectives - to spread the use of Facebook. For an innovation of this potential magnitude, that just doesn’t sit right with me. There is a lot of potential for Titan and its idea. What they should do is decline any offer from Facebook (especially an $85 million one), and develop this further and be a company in their own right. After all, if properly developed, this is a multi-billion dollar technology - not one worth $85 million.

However, Titan may be forced to accept Facebook’s advances because of the lack of interest from funding sources. It is not a matter of giving in, it is a matter of falling off. While it is easy for me to sit on the sidelines and seemingly wave off the approach by Facebook, I do understand Titan’s challenges.

Key Success Issues

To be successful on their own, Titan needs to bring on board some additional design muscle. Vern Raburn probably has a few names in his rolodex and he may be making a call or two as you read this.

Funding is a major issue that Titan must overcome. Nothing is going to happen unless they manage to rope in a strong financial backer. With the right financial backing, Titan will be able to ramp up enough to expedite prototyping and get real data from actual flights. If they prove the technology works as advertised, the company’s valuation will skyrocket.

Until they get the first prototype out, things are going to be rather slow. Titan needs to get the bird out and start testing so that they can start tweaking and understanding what the problems are in the test flights.

Finally, Titan needs to be ready to maneuver the legislative framework that is coming its way. If they get everything sorted and the plane flies, but they are not allowed to launch according to new potential regulations, everything will be a waste. So Titan may have to prepare to move its operations to a jurisdiction that doesn’t have a problem with UAVs. Legislative risk is what concerns me most. Leave it to a bureaucrat to destroy a great idea, and they likely will.

In the end, I still like the idea. Titan is on the right track, and they could provide a historic service, on the same level as an Edison success. At the moment, it is very expensive to put a bird in orbit and that is a severely debilitating factor when it comes to liberalizing communications. Titan Aerospace could solve the last mile issue in connectivity. Right now that last mile is controlled by the ISPs and in some cases it is prohibitive. In some cases, there is no connectivity at all. Titan, if they can pull it off, will put an end to that. This is a perfect crowdfunding idea and that should be what they pursue, aggressively. When one has a liberating technology, look to the people (those who shall be liberated by it) for support.