Why we invested in Augmented Robotics

At the beginning of 2022, we invested in Augmented Robotics co-founded by three former space engineers at TU Berlin — Tony Nitschke (CEO), Patrick Bethke (CIO) and Evgeni Melan (CTO). They literally were sending satellites and rockets into space. The company helps develop tools with the end-users in mind, focusing not only on fun and entertainment but also on education, fitness, and other add-ons to create a superb user experience.

First steps

I have to admit that investing in Augmented Robotics was a long game . Our friends from another Polish VC firm showed us the company a long time before we finalized the deal, but synchronizing (and leading) an international syndicate with a corporate VC is not an easy task :)

The story is even more complicated because after the first two calls I said “no” to the company. The concept of Augmented Reality in the toy industry is known for a long time, but in my opinion, it is a super-challenging market. In the past, many companies tried to conquer the niche but without any success. Also, while we meet founders for the first time, they have almost no revenue (apart from a couple of pilots) which is a major issue for the RKKVC Investment Committee. Although there was something in this company. The team? Their passion? Motivation? The story? I didn’t know then, but I said to Tony:

“yeah, we liked your ambition, but we need to see progress with the traction. Let’s catch up in the next couple of months”

First of all, it is admirable from these entrepreneurs that despite the initial “it’s too early at this point” answer during our calls, they didn’t take it personally, matured their growth, sustain technology development and they simply keep their growth. All entrepreneurs should not be discouraged by an initial “no” and actually use it as motivation to succeed!

Weeks later, during our investment pipeline review, we get another company from the AR industry and we wanted to compare it with Augmented Robotics. Poul, RKKVC investment director started a deep dive analysis of the company to compare it with the current one. After a week of analysis, we decided to come back to Tony and ask if there was still a chance for a return to the deal.

And we did :)

We didn’t need to recap the founders’ background, so we quickly delved into the technology and run a commercial diligence (meeting their prospective clients, analyzing the competition, etc), but also we tried to understand why they started Augmented Robotics while they could pursue a very promising careers at European Space Agency, NASA or, our other portfolio company — SpaceX. Most importantly we tried to understand why the toy industry is still untouched by AR technology. By the way, you can check a cool clip here from STERN and read more scinetific stuff what founders did in the past: here and here.

The conversation flowed, and it is what you should expect from a successful first meeting. We felt the chemistry and trust between each other. That was an important step, so Tony decided to choose us as lead investors despite being in the interests of multiple international VCs.

What was my feeling after three meetings, that held a place in about 6 weeks:

1. Entrepreneurs with a clear vision of their business, and willing to listen. They are super smart but open to coaching and ready to hear the advice and to learn.

2. Laser focus on achieving the strategic objectives in time (i.e. work on technology, secure non-equity grants, test the MVP on multiple clients, build sales pipeline — in that order)

3. Monitored spending of funds already raised. They knew their numbers from A to Z. Founders were smart and they took below-market standard salaries in order not to drain the runway.

4. Entrepreneurs who re-invested all their savings to start Augmented Robotics. They have skin in the game.

Before the investment committee

Our investment team spends days analyzing the macro environment and financial models, and talk to the interested investors to join the round. We spent hours playing with the assumptions and projections and creating best/worst-case scenarios. So we really drilled down on the model. Who are the clients? Why are they coming, or why are they leaving? Why are they willing to pay? On what basis? What model? It seemed all pilot clients favored Augmented Robotics for the following main reasons:

1. Outstanding technology that is the most accurate.

2. Hardware agnostics — you can use it basically on almost every smartphone.

3. Smart algorithms avoid over-computing so the smartphone won’t heat up like crazy.

This is a new disruptive solution on the market, and toy market leader companies have never seen anything like that before.

Then I wanted to grasp the idea about the scalability of the solution and how it can relate to the legacy software of large, potential clients, and how they want to differ from the competition in a long run.

With that information, we went to our investment committee (it typically runs a couple of hours) and we decided to join the round and lead the international syndicate of professional VC investors (including Sony, Depo, Zugdamer) and HNWI like: Douglas Wong, serial entrepreneur, ex-Apple CFO, who (despite investment) decided to join the company as a chief of sales. What is interesting, a couple of the investment committee members (who are not LPs) also wanted to join the financing round as business angels . That was a bulletproof statement that this investment has high potential.

After the investment committee

This is the part that you don’t hear much but that takes most of the time in the life of a deal, especially between the lead investor and the entrepreneurs. And as much as it may not look like it, discussing the valuation is the easiest process for both the investors and the entrepreneurs.

We needed to negotiate the TS, investment agreement, shareholders agreement, memorandum of association, etc. Most importantly we started our cooperation so we can prepare how RKKVC can be an added value investor. We also set up weekly meetings, status calls, and explore our network to kickstart the cooperation.

After the investment

After we closed the financing round we immediately did our standard post-closing procedure — explore our network, and strategic partnerships (i.e. AWS, Nvidia, Oracle, Microsoft) to support the company, and offer additional (free of charge) grants and support from the large corporations.

At the end of the day, we had a great fit with the entrepreneurs. They were serious, motivated, and had a clear vision of how to disrupt the industry. After the months after the investment, we are proud of this investment and we are sure this cooperation “clicked” between us. We are closely observing the company as well as the founding team for about a year. We see they are following the pattern of a successful partnership and for us it is just a matter of time when Tony, the company leader, will achieve the success.