The Unicorns in robotics are being founded today: Where to invest and where to avoid.
AI-powered robotics used to sound like science fiction, but today robots — built primarily with off-the-shelf components — are beginning to take over jobs that are dirty, dull and dangerous. Unlike humans, they can work three shifts per day. Grit Labs and other venture firms are investing billions in transportation, construction, industrial and agriculture verticals and exploring a new business model — Robotics-as-a-Service. Although it’s still early in this enormous technology wave, venture funds are beginning to see early returns. In 2017, the RoboReport reported $5.5 B in robotics venture funding, 14 IPOs and 53 acquisitions (with an average of $227M per acquisition after removing some of the largest outliers, which bumped the average price to over 1 Billion).
Cobots Are Address Labor Shortages
Collaborative low cost robots are going to transform every major industry. These are not robots in human form, these are lighter weight, lower cost robots built with off-the-shelf components driven down in cost by the manufacturing volumes associated with the smart phone revolution and the trillions going into the development of autonomous vehicles. They are fueled by advances in AI, powered by open source software and availability of images and data to train the AI, as well as advances in vision technology and improvements in dexterity for gripping.
These robots are outfitted with sensors, are smaller and less dangerous and work alongside humans in factories, greenhouses, and on construction sites. They are good at performing repetitive tasks in verticals like harvesting produce, cleaning up debris, texturing drywall, sorting and picking in distribution centers, or cleaning and repairing hard to reach locations and structures like mines, ships, and bridges.
Shortage of labor is the biggest driver in the size of this opportunity. 22% of US manufacturing laborers will retire in the next decade and the industry will be 2 M workers short. In older industries like agricultural and construction, workers have been steadily declining over the last decade and this trend is not expected to reverse.
Korn Ferry predicts that in the United States alone by 2030, we could experience unrealized revenue of $1.7 trillion
due to labor shortages. These trends are driving the Fortune 500 to invest in AI- powered robotics at a faster pace than normal technology adoption. BCG predicts double digit labor-costs savings by 2025 from advanced industrial robots.
Purpose Built Robots Will Lead The Way
Recently there have been several notable, well-funded robotics companies that have failed. Companies like Rethink Robotics, Mayfield Robotics, and Jibo have lost hundreds of millions of dollars. These companies were founded as early as 2008, however, and they did not constrain the environments or use cases for their robots. Instead of creating purpose-built robots to do automate a specialized task, they tried to build machines that could be flexibly trained to do many tasks — and then sell those to companies envisioning that they would have teams to program the robots for specialization. This did not turn out to be a reality. With every technology wave we have seen early failures (remember Go Computing, Danger, and Palm who raised billions but failed to become the market leader in mobile platforms?). But the pace of technology evolution is unrelenting and eventually startups nail product-market-fit and the winners emerge.
Combining the recent exits in the robotics industry with higher level market views (re: Gartner Hype Cycle, Roboindex, etc.) it is clear that the time for great returns in seed stage robotics investing is now. The eventual winners in verticals are being created now — they will eventually acquire companies in their field that cover additional specialized tasks, they will grow and become B2B household names.
According to a recent Associated General Contractors of America survey, 70 percent of construction firms have difficulty finding skilled workers.
By 2025, the market for industrial robots alone is projected to balloon to $33.8 billion. To put that in perspective, in 2016 the global industrial robot market was valued at $12.3 billion. So in less than 10 years, the market value of industrial robots could nearly triple. McKinsey projects the Robotics market opportunity will be $6.4 Trillion by 2030.
Grit Labs believes that Cobots will start this new technology wave. Cobot startups are more capital efficient. With the new Robotics-as-a-Service model, coupled with low cost hardware, these startups can get to profitability on less than $20 M. Opportunities for M&A are abundant. Think John Deere buying autonomous tractors, major US manufacturers and distributors investing in warehouse robots to keep up with Amazon, Skanska, Bechtel and WeWork buying construction robots for framing, drywalling, or debris cleanup.
Eventually new dominant hardware platforms will emerge that leverage cloud-based AI and that integrate with full stack applications and with it will come the next Amazon, Google or Facebook.
