Like many readers of this site, I’m planning to start a robotics company. So when I saw Hizook's list of VC Funding in Robotics in 2011, it cried out to me: Who is investing in robotics? And how can I get some of that VC money? I did a bit of research to identify the robotics-friendly venture firms behind Hizook's list, with the hope of understanding how capital is allocated in robotics. Unfortunately, most robotics investors are following a healthcare, consumer, or some other industrial hypothesis and end up investing in robotics by accident, not because they are eager for robotics per se. As a result, the list is probably not as much help as a guide to fundraising as I had hoped. Still, I think my research and results may be helpful to other budding robotics entrepreneurs... so many thanks to Hizook for letting me share.
Using Travis’s list as a jumping off point, I used CrunchBase extensively and tried to do all the website and Google searching that my limited attention span would allow. This gave me the rough set of notes (Table 2), which I refined into a nice list of “VCs” that you see below (Table 1). I make no warranty of completeness, as researching transactions between private entities is notoriously difficult. I used only sources available on the internet for free, eg. as reported in selected S-1 filings or in media around an acquisition. If you can correct any of my omissions please add your information in the comments below and I will update the article.
Okay, Enough Already. I’ve peeked at Table 1, but who are they, really? And why did you just use scare quotes on “VCs”?
Here is what I saw:
So what? What does that mean?
Very few "high profile funds" (with track records of producing extraordinary returns) are represented in this list. Frankly, these funds just don't recognize the (spectacular) upside in robotics.... yet. I can imagine a few reasons why:
I’m concerned that we’re not developing a cadre of investors who intimately understand the robotics industry. Of the 37 funds identified as investing in robotics last year, only three invested in two companies (none invested in three or more) and only one is repeating from a previous robotic success. Plus, the repeat investor seem to be investing along some kind of industrial hypothesis as opposed to investing in robotics per se.
The Foundry Group invested in both the consumer robotics plays that got funded last year, Orbotix and MakerBot. Consumer web products is a specialty of the Foundry Group, so they are not playing too far from home, by adding unique, low-cost hardware.
Draper Fisher Jurvetson and their Mid-West affiliate invested in two of the more industrial companies, Aethon and Heartland. Their hypothesis is to seek out clear business opportunities where capital is under-allocated both technologically and geographically.
Bezos Expeditions went with the "making stuff" angle in Heartland and MakerBot. This might be an angle for Bezos, but the other things that Bezos Expeditions funds—such as fusion company, charitable causes, and a 10,000 year clock—make me question whether this is so much an investment hypothesis as a personal interest of the founder. Bezos Expeditions may not be required to generate the same degree of financial return that funds with outside investors must.
Trident Capital is the only fund repeating from a public robotic success, now in healthcare with Aethon. I’m not exactly sure how iRobot and Aethon are related, since Trident now lumps Aethon into its healthcare practice, but there must have been something attractive in the deal. Even the successful investors are not building repeatable practices in robotics investing, but treating robotics as a unique complication of some other kind of deal.
None of these investments seem to have been made with a specific filter for robotics the way that there are VCs dedicated to web, mobile, green tech, and biotech. We need to start getting more repeats and more experienced investors that can start solving some of the unique challenges of robotics investing.
Robotics definitely captures the imagination and clearly can create great value for society. However, it seems like in robotics entrepreneurs quest to raise capital, they look further afield than the straight VC route. This indicates that robotics is still an immature industry that does not have an established default capital structure.
ABS Capital made the largest investment by a single fund on the list into RedZone. However, I’m not sure that I would call ‘late stage growth’ who aim for 25% returns in their companies venture capitalists. The distinction here is the VC model is predicated on 50-80% of all investments failing and the remainder performing spectacularly with 50%+ annual returns. Growth equity firms on the other hand need failure rates less than 10% but only require returns in the 20-30% range. In the end, both of the strategies net the fund’s investors about the same amount (and well above the public stock market if things go well), but the tolerance for risk is very different. ABS’s investment in RedZone signals that ABS believes that RedZone is now a mature company with a proven business model, management, and technology—all it needs is to grow like crazy. Ostensibly, this is what ABS knows how to help companies do. The entry of this kind of investor into robotics is a very positive sign. It also confirms that companies are putting together one-off financing with funds that don’t understand robotics specifically.
The Pittsburgh Life Sciences Greenhouse and the Massachusetts Technology Development Corporation are both state affiliated development corporations which are aiming to develop their local area ahead of producing outright financial returns. Government capital will probably remain part of the mix in robotics companies for a long time to come, while this isn’t the sexy way to do it, I think entrepreneurs should take every opportunity that gets them closer to their goal.
Schlumberger is the 800 pound gorilla of oilfield services. Getting corporate investments in robotics is good. Honestly, I believe that corporate financing will become the leading way to build robotics companies. Corporate investors are financially motivated investors who can consider both the financial and strategic value created by their investment. Intel Capital’s investment in Aldebaran may also fall into this category.
Techstars was the only incubator I found supporting a company on the list. We will probably need more of this and specialized ones to help with the unique engineering requirements of a robotics company. But in the meantime we should applaud techstars.
Eagle Capital is another example, along with Bezos Expeditions, or a kind of super angel investor. That is an investor that is not organized as a close ended fund where the investors commit to the fund, but a platform for individual investors to make bigger investments. Although VC is sexy, angel investors are much more important than they are popularly given credit for. This an area where further research would be very welcome, though if you think finding information on VC’s is hard—good luck with angels.
There are several steps that I believe that we could take as an industry to promote the regular and efficient creation of new robotics businesses.
I hope that this analysis has added some nuance to the picture of robotics investment. I personally believe that this is the right time to be entering robotics. The fact that we can identify most of the challenges to robotics investing, but we’re still working on solutions, means that there are vast benefits to humanity to be unlocked and vast fortunes to be made. It is important that we solve the financial challenges to creating robotics businesses or we will never have the capital to build the amazing, Jetsons-like, robotically enabled future that we can all envision.
Robert Morris is a former Army officer who led the first RQ-7B Shadow (UAV) platoon in Afghanistan. Subsequently, he consulted to the Navy, primarily on unmanned systems issues, with Deloitte Consulting. He is currently pursuing graduate studies at Carnegie Mellon University and serving as the chapter president of AUVSI-Pittsburgh.