How A Grisly Injury Threw $5 Billion Drone Startup Shield AI Off Course

Shield AI executives overlooked its V-BAT drone’s safety hazards, Forbes found. Now with sales falling short and the CEO stepping down, the company is trying to win back military customers.

InApril of 2024, a handful of U.S. Navy officers gathered outside of Fort Stockton, Texas, to watch defense tech unicorn Shield AI demo its latest drone. Called the V-BAT, the autonomous aircraft was designed to launch and land vertically without a runway and could be piloted through war zones where GPS wasn’t reliable. Shield had yet to announce a major contract for it, and the U.S. Navy’s support was crucial to the company’s hopes to sell thousands of the $1 million drones to the Pentagon.

But as the 12-foot-long V-BAT came in for a landing, things went sideways. Unlike most drones, which don’t require physical intervention, Shield’s operators needed to assist the drone in landing vertically, like a SpaceX rocket. Instead it dropped to the ground and tipped over, resulting in a grisly incident: When a U.S. service member approached the drone, his fingers were caught in the spinning blades and partially severed.

Shield AI has emerged as a lead contender in the increasingly crowded race against competitors like Anduril and AeroVironment to outfit the U.S. military with killer drones. The $5 billion-valued startup, founded in 2015 by brothers Ryan and Brandon Tseng, sells a suite of hardware and products, including autonomous piloting software that has been used to fly fighter jets. In March, it raised $240 million in a funding round led by Korean conglomerate Hanwha and American defense contractor L3Harris with the goal of preparing the military for the future of autonomous warfare.

The V-BAT, though, has been the company’s primary revenue driver. “I have personally led the effort to scale revenues from zero to hundreds of millions of dollars in the defense sector,” Brandon Tseng, a former Navy SEAL, told a Congressional committee in September, “something maybe only three to five people have achieved in the past 30 years.”

Shield’s 1,000-strong workforce has been encouraged to embody a warrior ethos, with slogans like “Do what honor dictates” and “Live as a servant leader.” But the incident with the U.S. Navy, which hasn’t previously been reported, has spotlighted the risks brought by a new generation of hard-charging military startups seeking Pentagon contracts while hyping their companies to Silicon Valley investors, sometimes at the expense of physical safety.

“The V-BAT was not as...mature as I had thought it was when we acquired the company.”

A spokesperson for U.S. Naval Special Warfare Command said in a statement that the service member had three fingers partially amputated during the incident. The person made a full recovery after four months and is now “performing all duties without limitations.” (The service member declined to comment.) The spokesperson declined to provide information about the result of an investigation into the incident, and directed requests to the U.S. Naval Safety Command, which declined to comment.

CEO Ryan Tseng, confirming the U.S. Navy incident to Forbes, said that flight restrictions were imposed on the drone by U.S. military customers for several months. “It's the opposite of our mission if somebody gets hurt,” Tseng said in an interview with Forbes. “We exist to protect service members and civilians.”

Tseng said that the V-BAT “had been flying almost 10 years, with a perfect safety record,” adding, “The event was a surprise, and it was one that, frankly, I feel terribly about.”

But Forbes found that for years, as Shield raised hundreds of millions of dollars from investors like Andreessen Horowitz and billionaire Thomas Tull’s USIT, its executives overlooked engineering issues and safety hazards that ultimately scuttled contract opportunities, according to former employees, internal documents and legal filings.

In 2022, almost two years before the U.S. Navy member was injured, Shield’s then-quality assurance manager “reported a safety issue involving danger of propeller strike/injury to personnel due to unsafe blower handling,” according to a lawsuit he filed against the company in October related to disability accommodation (at the time, Shield denied the safety claims in its legal response; the lawsuit was settled). Then in 2023, an employee’s shirt was sucked into a propeller and shredded during a test flight, according to multiple people, one of whom raised alarms internally.

After flagging concerns about the V-BAT to executives, two former employees told Forbes they were fired; they said they were aware of several other employees being fired for similar reasons. Two others told Forbes they became disillusioned and resigned when no action was taken regarding their complaints about the drone. “You either had to do what you were told, or you would be let go,” said one former employee who worked on the V-BAT and was fired last year. “Even though we knew from experience what they wanted us to do was unethical.”

“I reject the notion that we don't take concerns seriously,” Tseng said. “We have a culture where across the organization, people call balls and strikes as they see them.”

When asked why Shield AI didn’t adequately address the propeller hazard when employees first flagged it, Tseng said “numerous” safety improvements had been made to the V-BAT. “Today, V-BAT retains a perfect record of no injuries when following trained procedures,” he said.

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Tseng said the company has since passed two Pentagon safety audits (the units that conducted the audits didn’t respond to a comment request). He also said Shield has addressed the propeller hazard in an upgrade to the V-BAT announced last month, which included new landing gear that removed the need for human assistance during landing and take-off. He added that the drones now have warning stickers near the fan ducts, and that employees wear flight suits — a requirement imposed after the incident involving the shredded shirt. “We have continuously invested in a safety culture,” he said.

The company had hoped to generate more than $400 million in revenue and become profitable this year, mostly due to V-BAT sales, according to financial projections shared with investors in 2023 obtained by Forbes. Shield no longer expects to hit those financial targets, or reach profitability in 2025, Tseng told Forbes. “The mishap delayed the decision process of many potential customers domestically and internationally,” he said in a written comment. “We are back on track now.”

Tseng told Forbes that Shield has recently signed contracts valued at more than $100 million for European government customers, including for V-BATs sent to Ukraine (he declined to disclose the customers). The company also has a five-year V-BAT contract with the U.S. Coast Guard, with a potential $200 million value if the order is fulfilled, and announced agreements with Taiwan and Japan governments, but has not disclosed their value.

In the months after the U.S. Navy incident, Tseng said he suggested to the board that he should step down as CEO. “I have always felt like I owed this team the absolute best possible leader,” he said. “I was the guy on the side of the ship as it was racing forward.”

Last month, Tseng announced publicly he would step aside, telling Forbes he would become co-president of the company with his brother. A new CEO, Gary Steele, who previously led cybersecurity companies Splunk and Proofpoint, is set to take over this month. “I'm excited to work with him to build a great company that makes mission impact,” Tseng said. As for the co-president role: “Brandon and I will both take on external facing roles, forming relationships with customers globally.”

The company declined to provide a comment from Steele. Brandon Tseng said in a statement he plans to remain at Shield “forever, until our mission is accomplished at grand scale.”

Investors Hanwha, Andreessen Horowitz and USIT didn’t respond to a comment request. “Shield AI is proving that autonomy at scale is not only possible but inevitable,” L3Harris spokesperson Sara Banda said in a statement.

Launched in 2015, Shield AI initially aimed to solve a fatal problem dogging U.S. service members in the Middle East: clearing buildings held by adversaries. Brandon Tseng was intimately familiar with the danger as a former SEAL, and pitched Ryan — an entrepreneur who had sold a startup that made wireless charging pads to Qualcomm — on a company to sell drones that could fly through buildings and detect dangers before soldiers went in.

Its first product, a quadcopter called Nova they claimed could autonomously navigate buildings, helped Shield secure early investment from the Pentagon’s Defense Innovation Unit and Andreessen Horowitz, which led two early funding rounds into the company totalling $30 million. But as the U.S. shifted its focus from Middle East war zones to China tensions, the Nova drones struggled to secure larger Pentagon contracts. The company said it no longer sells the Nova.

In 2021, Shield acquired Martin UAV, a longtime developer of the V-BAT, and sold investors on its potential with plans to enhance the device using its autonomous AI software, known as Hivemind, which it claimed could allow a single person to pilot multiple V-BATs. Investors, including Point72 Ventures, poured in $200 million for a funding round that valued the company at $1 billion. “We want to climb the unmanned systems food chain,” Tseng told Fortune at the time. (Point72 declined to comment.)

But the V-BAT, which had been in development for more than a decade, was an imperfect drone with limited success selling to the Pentagon. The aircraft was plagued by product defects, including cracked fuselages and faulty fuel systems that clogged with air bubbles, according to six former employees. The engineering issues were evident during multiple demos with U.S. military officials when V-BATs fell out of the sky; for example, two were lost in as many days during one set of demos for the U.S. Navy at a California facility in 2023, according to a person who was there (which Tseng confirmed). In other cases, the V-BATs crashed into the ocean during flight tests from ships (“We have lost aircraft over the ocean, as has every other vendor of [comparable] aircraft,” Tseng said).

“The V-BAT was not as, I'll just speak for myself, mature as I had thought it was when we acquired the company,” Tseng said. “And the people we bought the company from, frankly, I think that they thought it was more mature than it was.”

Now, Tseng says the company’s woes are in the past. In addition to addressing the propeller hazard, Shield announced a major overhaul of the V-BAT last month. With the Hivemind software, it can fly more than 80 miles and stay in the air for more than 13 hours, while carrying more than 40 pounds of payload. In Ukraine, V-BATs have completed more than 150 missions, he said. The “aircraft is, tip to tail, just a radically better airplane,” Tseng said.

He plans to stay with Shield “as long as possible.” In recent months, he has championed a flurry of announcements — a software partnership with Palantir to control autonomous systems, and with Airbus to install Hivemind on an autonomous helicopter. Shield has $1.9 billion in “credible opportunities in our sales pipeline,” he added, and the company expects to announce new European contracts in the coming months.

But plans for the V-BAT were notably absent from the press release announcing Shield’s latest funding in March. Instead, the company focused on how it would use the new capital to scale its Hivemind platform — ideal for its new CEO, Steele, whose background is in software. “I think he'll be better at the job than me,” Tseng said.

Still, the brothers continue to talk a big game. “I can confidently say no defense-tech company started after 2015 has made more strategic impact on the battlefield than @ShieldAI,” Brandon posted on X last week.

Ryan agrees. “I don't want to name companies,” he said, “but I think that we have made a really tremendous impact.”

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