Robotics Exits & a PE Fund

As we’ve been diving deeper into developing our investment thesis for Robotics I’ve started to look at a lot of the data surrounding exits in the space.

The largest non-public-to-public exit in robotics in the past 7 years was Kiva Systems (now Amazon Robotics) for $775M. In fact, there have been less than 15 robotics exits over $100M since 2009, per CB Insights data. The upper-bound of $775M is impressive, however we have to remember that this was a highly strategic acquisition by Amazon which suggests a potential premium could have been paid for this deal.

As you’re looking at exit scenarios for robotics investments, often you are hoping for exits larger than $775M. Because of this I’ve started thinking a lot about what will drive these potential exits. Most VC funds are built around the concept of some form of power law, thus by thinking through these scenarios we can see if robotics truly will break out and have multiple “all-time high” exits (something that is often the bet within frontier tech), or if capital constraints could put a ceiling on exit valuations within the industry.

Here are a few successful exit scenarios:

1) The robotics company is able to quickly get to profitability due to massive increase in efficiencies via automation, and then can either dividend out cash, or eventually go public as a profitable entity. Perhaps these companies tap debt markets for cap ex so founders can maintain larger stakes.

2) The robotics company scales its technology with additional fundraising, and eventually reaches a point where a massive capital injection is needed and/or other hardware-esque constraints (supply chain/manufacturing perhaps) make an acquisition by a highly strategic, large entity make sense (a la Kiva). Later-stage robotics investors haven’t really existed yet and the robotics market will most likely not be where late-stage VCs write growth-stage checks in the near-term. Thus the company sells for somewhere in the $300-$1B range. Still a great exit.

3) A PE fund/entity emerges that rolls up all of these vertically specific robotics companies, similar to software PE funds like Vista Equity Partners, Francisco Partners, and others.

The third option is intriguing and could create a new class of investor that matches more closely with robotics companies’ needs.

In the end these types of investors could displace (or modify) traditional VCs who enter the robotics market, as the more I research robotics startups, Seed/Series A -> Growth/PE-style capital makes much more sense than traditional Early-stage -> Mid-stage -> Late-stage venture.