Robotics investing has taken off in recent years. Though it still represents a small fraction of overall VC spending, related deals are increasing in both frequency and size, with roughly $520 million invested across 40 deals in the first quarter alone, compared with roughly the same amount invested in 130 companies across all of 2014.
This week, we sat down with top robotics investors Josh Wolfe of Lux Capital, Helen Zelman Boniske of Lemnos and Manish Kothari of SRI Ventures to ask what they’re shopping for right now and what they hope to hear in startup pitches. You can see our sit-down below. In the meantime, some highlights from that conversation:
On why robotics investing has taken off:
Wolfe pointed to the “outpouring of engineers,” many of whom have been trained at “amazing places” like MIT under the tutelage of professors who themselves have started companies. He also cited the ebbs and flows of capital markets, noting that “any time the hype increases, the cost of capital gets low,” meaning more founders are able to raise money right now.
Not last, Wolfe noted that robotics companies are making other robotics companies possible. Specifically, he pointed to the satellite company Planet, which captures photos that are then analyzed by the geospatial analytics company Orbital Insight, which then sells its research to customers, including retailers wanting a better idea of how many cars are in their parking lots.
Kothari meanwhile talked a bit about falling component prices and GPUs — or specialized electronic circuits — that are now a “big part of the game” and without which “a lot of this [uptick in robotics investing] would not be possible.” He also talked of the importance of software becoming far more sophisticated and thus easier for founders to use as a building block.
On whether there’s enough follow-on funding for the many young robotics startups that have snagged seed and Series A-stage funding:
“At the moment, cash is abundant,” said Wolfe. “There are new angels coming [into the industry]. There are new venture firms forming. There are corporate guys coming in. SoftBank is making a huge impact on this stuff [including with its huge new Vision Fund].” All of it means that the risk of raising early rounds and follow-on funding is “very low,” in his view — as long as founders make products that are also “good businesses.” (The funding picture will invariably change, said Wolfe.)
Boniske said that in terms of later-stage funding, she’s seeing venture firms in Series A and B deals and that for later-stage deals, “strategics” — i.e., corporations with deep pockets and a need for new technologies — are more commonly involved.
Like Wolfe, she, too, stressed that founders better make certain the unit economics of their robots work, given that a downturn is inevitable.
What the VCs want to see in founding teams:
Kothari said he wants to see founders who are “creative” with their business models. “People are now thinking about robot-as-a-service models and other things versus purely a [capital expenditure] play. Those capex plays were tough, and one of the points I make to our companies is if you’re going to do a service model, you better find a way to recover your costs in six to nine months. If you can’t do that, then you don’t have a service model … if you do have the proper mechanics, there’s no shortage right now of capital to be had.”
Boniske said it comes “back to the founders” and that, in her view, an ideal robotics founding team probably has three people, including the CEO who’s “going to be the visionary and drive the strategy of the overall company; this person is going to be doing the fundraising and recruiting. Then you’ve got the technologist who’s going to go and build out the engineering team and who ideally has a lot of robotics experience.”
The third piece — and it’s missing for a lot of teams, she said — is someone who can communicate the exact value proposition for the customer and speak their language.
As for Wolfe, he said to dazzle him, basically, “Yes, margins matter. Yes, the business matters. But in the early stage, what I recommend in two words is: make magic. I can tell you, sitting on the other side of the table, that when an entrepreneur comes to us, and we feel that magic has just been made — that we’ve seen something that nobody else has seen, that we’ve seen something that came out of a sci-fi movie, that we’re sitting across from some scientist who is like some rebel that’s trying to shape the world in their view — that’s the thing that gets us to part with our cash.”
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