October 24, 2012
The tech boom of recent decades has minted a countless number of millionaires, not to mention a few odd billionaires.
With many financial experts picking robotics as the “next big thing” in high-tech, a growing number of people are looking to get in on the ground floor of an industry that promises to radically transform nearly every aspect of business and personal life.
“Passionate teams and experienced visionary leadership are great indicators for commercial success.” Steve Jurvetson, managing director of Draper Fisher Jurvetson
But where to begin? Where to look? And what to avoid? Steve Jurvetson, managing director of Draper Fisher Jurvetson, a venture capital firm located in Menlo Park, Calif., says that knowledge is essential to becoming a successful robotics investor. “Learn as much about the space as possible by speaking with experts in the industry and networking at conferences,” he suggests.
Jurvetson says that the robotics industry is just beginning to gain momentum. “The interest in robotics has been limited to a handful of investors so far, because technologies are still evolving and the capital intensity of some industrial sectors limits the pool of possible investors.”
But Jurvetson feels that it’s only a matter of time before this situation changes. “I believe the future of our daily lives will be made easier by robots,” he says. “Forward-thinking investors who have a unique perspective and are inspired by the disruption of bold new technologies gravitate toward robotics.”
More than money
Paul Maeder, co-founder and general partner at Highland Capital Partners, a venture capital firm based in Cambridge, Mass., says that many investors err by focusing only on money-related issues.
“This business is really very little about the money, it’s about the extraordinary people,” he says. “Can you see through the smelly, scruffy, unshaven kid in a t-shirt and see on the other side of that, Steve Jobs?”
Brad Feld, managing director of Foundry Group, a venture capital firm headquartered in Boulder, Colo., agrees, noting that it’s impossible for a successful robotics investor to approach the field dispassionately. “I really believe that investors who are investing in the next generation of innovation, especially those who are investing early in the lifecycle of the companies, should have an affinity, and intellectual interest in the product,” he says. “I think a mistake a lot of people make is that they focus on investing from a purely financial return dynamic. As an early stage investor, I think it’s all about people and it’s all about the products.”
“Really try to drill down, not just to the technology, but the commercialization of the technology—is it at the right price and will the technology make peoples’ lives that much better?”Brett Garrett, a principal at Boston-based Bain Capital Ventures
Maeder says that new investors need to get elbows deep into their investments. He notes that venture capitalists, who invest in promising startups for a living, involve themselves in a promising startup in the same way a movie or record producer nurtures a hot new star. “The talent is important, for sure, but you don’t become Dionne Warwick without a lot of help and a lot of editorial advice and a lot of business help,” he says. “For the 25-year-old straight out of MIT who has an idea of how to change the world, that’s what we do.”
Still, an investor shouldn’t get carried away by the excitement of discovering a novel new technology, says Brett Garrett, a principal at Boston-based Bain Capital Ventures. One always has to keep an eye on the innovation’s eventual revenue potential. “We made one big investment in a company called Kiva Systems, which [offers] robotic automation for warehouse fulfillment,” he says.
Kiva’s mobile robots and sophisticated control software allow businesses to quickly fulfill orders with reduced labor requirements, from receiving to picking to shipping. “We really saw them as a disruptive service with a robotics component, but it was less about the robotics and more about what they were able to achieve through the robotics,” Garrett says.
Investing in a robotics startup is like prospecting for gold or traveling into space. “There’s lots of ways to make money,” Feld observes. “This is a way to actually go on a journey where you’re creating something magnificent together and, as part of that, if you’re successful you’ll make a lot of money.”
Public or private?
For less adventurous investors, Jurvetson notes that opportunities can be found in established public companies as well as untried startups. “It depends on your appetite for risk and return,” he says. “We’re seeing some of the more exciting, cutting-edge ideas being developed at the startup level,” he observes. Public companies, on the other hand, often embrace innovation by acquiring promising startups. “If you want to invest in disruptive companies that will change the world, however, that is almost always a startup,” he says.
“We’re looking for a greenfield market—a product that isn’t going to get market share by displacing other companies or products, but somebody doing something completely new.” Paul Maeder, co-founder and general partner at Highland Capital Partners
When analyzing a robotics startup for its investment potential, Jurvetson suggests looking first at the company’s management and workforce. “Passionate teams and experienced visionary leadership are great indicators for commercial success,” he says.
Maeder notes that an investor also needs to consider how a new technology will survive in a marketplace that’s constantly innovating and evolving. “We’re always looking for a big potential market,” he says. “We’re looking for a greenfield market—a product that isn’t going to get market share by displacing other companies or products, but somebody doing something completely new.”
Garrett says that an investor looking at any promising technology needs to ask a single, fundamental question: is it commercial? “Is it solving an issue in the real world that people will pay for?” he asks. “Really try to drill down, not just to the technology, but the commercialization of the technology—is it at the right price and will the technology make peoples’ lives that much better?”
Given the high mortality rate of robotics startups, investors need both a positive attitude and a cast iron stomach. “It’s very high risk, very high stress,” Maeder says. “It involves lots of intuition and lots of hard work.” Yet there are also intangible benefits that other, more staid investment channels, simply can’t match. “It’s exciting, it’s all about small companies, small teams of people changing the world in a way that big companies can’t,” Maeder says.
Maeder says he can’t imagine working in any other field. “If you asked me whether I’d rather sit here and read ticker tapes, look at numbers with key ratios and all that and be removed from what the business is actually doing and removed from the actual people, I’d say I’d rather be dead,” he says. “It’s would be like being an accountant.”
Robotics investors should be buoyed by the fact that field has almost unlimited potential. “Entire industries are being disrupted by robots and are supplementing American factories with new, cost-effective solutions,” Jurvetson says. “We’re seeing robots assisting with automobile assembly, human tasks like cleaning and dangerous tasks like mining, making workers safer and greatly reducing the need for low-cost offshoring of simple tasks that can be automated.”
Garrett concurs. “One thing that we find exciting in the robotics landscape is that the components to build robots—hardware components, micro controllers—they’re all getting so cheap that ... it’s really opening up new opportunities for robots that didn’t exist before.”
Jurvetson describes robotics as an exciting space with the potential to change the world. “The sector needs investors who can think big and bold about cutting-edge technology developments to pioneer new areas that we don’t even realize are possible today.”