Drone biz Lily Robotics takes $34m in pre-orders, ships nothing, shuts down, gets sued by San Francisco DA

Lily Robotics says its decision on Thursday to shut down and return pre-order payments for a never-delivered drone, which came on the same day that San Francisco District Attorney George Gascón charged the company with false advertising and misleading business practices, was purely coincidental.

"We had been in the process of shutting down prior to the lawsuit being filed and the timing is nothing more than coincidence," a spokesperson for Lily said in a phone interview with The Register, in a tone that sounded very sincere.

The spokesperson said the decision to pull the plug in the face of dwindling funds had been reached "several weeks ago" and was conveyed in an announcement to employees.

According to a source familiar with the complaint filed against the company, Lily Robotics has known about the DA's investigation for several months.

On the strength of a promotional video on YouTube in May 2015, embedded below, Lily Robotics raised more than $34m in pre-order sales over the course of that year for a drone called Lily Camera. The flying gadget, when built, would be capable of being launched with a throw, following people, and recording them.

Youtube Video

But after pushing the delivery date back multiple times, Lily Robotics has yet to ship a single drone to its 60,000 prospective customers, according to the lawsuit filed against the company.

In theory, Lily Robotics could face a fine of more than a hundred million dollars, depending upon the outcome of a trial, if it comes to that. The company faces potential fines for at least two business code violations subject to a civil penalty of $2,500 per violation, and there are some 60,000 individuals affected. In practice, however, such fines are usually orders of magnitude less, particularly if both sides agree on a settlement.

The complaint against Lily, obtained by The Register, alleges that the company knowingly misled customers by creating a promotional video that purported to show video footage captured with a Lily drone prototype.

"In fact, none of the video in the Promotional Video was shot by a Lily Camera," the complaint says. "Most notably, the POV footage used in the promotional video was filmed using a professional camera drone called the DJI Inspire."

Among the Lily Camera prototypes present at the video shoot, the complaint says, the ones that could actually record video were able to do so because they had Go-Pro cameras mounted on them.

Company co-founder Antoine Balaresque, in a February 2015 email cited in the complaint, asked the director of the video to disguise the true source of the footage that would be attributed to a Lily Camera prototype.

"For the VFL [View from Lily] shots, we will be using a Go[P]ro mounted on a Lily prototype," the email says. "However, we do not feel comfortable telling people that we shot VFL scenes with a Go[P]ro (because the whole thesis of our product is that you do not need a Go[P]ro). Can you modify a Go[P]ro image in post-processing so that people cannot tell it was taken from a Go[P]ro?..."

Despite reassurances this could be done, Balaresque allegedly expressed concern that a "lens geek" might see through the deception, noting "I don't know much about lenses but I think we should be extremely careful if we decide to lie publicly."

The complaint and the supporting application for a temporary restraining order claim that Lily Robotics lied when it promised, in a December 2015 funding update, not to use customers' pre-sale payments to fund the operations of the company. A witness at the company told investigators that the company had used the funds to secure a $4m loan in mid-2016 to enable it to continue its operations.

The loan, according to court documents, was necessary because the $14m raised in Series A funding in 2015 "was likely to be insufficient to achieve the anticipated order delivery dates." By using customer's money as collateral for a $4m loan, the company gave the bank precedence as a creditor over the company's customers in the event of bankruptcy, an event the legal filing suggests was likely given company's financial burn rate.

Documents obtained from Silicon Valley Bank, according to court documents, indicate the firm has more than $25m in its accounts and that several million are held by payment processor Tilt.com.

The company's business practices give some suggestion as to its inability to meet promised shipping dates. According to a witness cited in the complaint, the company's online order system, which took email addresses and credit card numbers, did not ask for a shipping address in order to reduce signup "friction." ®