Robotics Investments Continue to Surge in 2016

As the robotics world absorbs the news that Ford has committed to an investment of $1 billion over the next five years in robotics and artificial intelligence start-up Argo AI, it’s a good time to step back and take a look at the overall robotics investments landscape.

How does 2016 compare with 2015? What are the hot sectors for investors? What trends are industry experts watching?

Let’s find out.¬†(Click here for RBR’s full Q4 2016/Year-End Transaction Report.)

Business Takeaways:

  • Cobots, social robots, medical robots and drones are attracting the most investor interest.
  • While U.S.-based startups have traditionally attracted the most robotics investments, that is being seriously challenged by growth in the Asian market.
  • Despite the recent high-profile failure of Lily Robotics, crowdfunding remains an important option for companies seeking investment.

A broadening robotics investments landscape

First, some important numbers: In terms of funding, three of last year’s top deals were humanoid robot maker UBTech ($100 million Series B), social robot firm Roobo ($100 million Series A), and educational robot company Anki ($52.5 million Series D).

Growing at a compound rate of 17 percent a year, the global robot market is expected to be worth $135 billion by 2019, according to research firm IDC.

Last year also saw a substantial increase in robotics investments, particularly in Asia. As The Financial Times put it: “A boom is taking place in Asia, with Japan and China, which is in the early stages of retooling its manufacturing sector, accounting for 69 percent of all robot spending.”

Overall, 2016 saw a significant increase in the number of deals to robotics startups and a rise in the number of enterprise deals, explained Deepashri Varadharajan, a tech industry analyst at CB Insights.

“There were 173 deals to robotics startups in 2016, up from 146 in 2015 [excluding driverless cars and startups focused exclusively on robotics and drone software],” she said. “There was a 26 percent increase in deals to the enterprise robotics sector, which was a major contributor to the overall equity deal growth to robotics startups in 2016.”

Specifically, deals to non-delivery drones involved in various tasks such as field surveys, surveillance, mapping, and monitoring nearly doubled last year from 2015.

End-user interactions are key

Original equipment manufacturers (OEMs) are currently “front runners” in the investment space, said Bharath Kanniappan, a senior industry analyst at Technavio. This is mainly because of their “continuous and direct interaction with educational and research institutes” alongside regular monitoring of service and requirement related queries from end-user segments, he said.

“These interactions between the suppliers, research institutes, and end users have gained major breakthroughs in the product designing and development activities,” he said.

In terms of global research and development, which are currently dominated by robotics investments from OEMs, Technavio forecasts that the market will reach $4.5 billion by 2020, with close to 40 percent governed by third-party funding entities.

“These entities are extending their investments mainly in the areas of healthcare and logistics, where the maximum revenue realization is expected to happen during the next four years,” explained Kanniappan.

Asian activity ascends

Investment money been flowing to and from Asia on an unprecedented scale over the past year, with the most notable deal in 2016 being Chinese consumer appliance firm Midea Group’s investment in German industrial robot maker KUKA AG.

Alibaba, Agic Capital, Wanfeng Technology Group, and Xiaomi have also invested in robotics companies over the past 24 months.

Analyst firm Tractica has predicted that that sales of industrial robots in the Asia-Pacific region, primarily driven by demand from China, will reach $15 billion by 2021.

With the Chinese government providing generous support for robotics investments, we expect to see further spending¬†— in both directions– over the next year.

Crowdfunding continues despite stumbles

The crowdfunding failure of Lily Robotics stole headlines recently, but crowdfunding remains an important component of the investment landscape.

As Varadharajan pointed out, some well-funded startups, especially those around social robots and drones, have opted for crowdfunding in their initial stages of fundraising. For example, UBTech ran an Indiegogo campaign and raised $1.4 million. The educational robot maker is now valued at $1 billion.

Meanwhile, in the drone sector, China-based Ehang and California-based Zipline International were crowdfunded, and both have raised over $40 million in equity since.

Drone market tightens

There is a better understanding of the opportunity presented by robotics today than in previous years, said Sam Korus, an analyst at ARK Invest and an expert in industrial innovation.

“People are beginning to recognize that easily reprogrammable robots can enter new markets and make a needle-moving difference for companies,” he said. “It is still at an early stage, but more and more case studies are emerging proving the value proposition.”

Varadharajan highlighted growing interest in last-mile delivery drones and ground robots, including the aforementioned Zipline, backed by Google Ventures and Sequoia Capital, and Dispatch, backed by Andreessen Horowitz.

Dominance in the consumer drones category by established businesses such as DJI may make it harder for newer startups to break into the market, warned Varadharajan.

He also noted that some drone providers are pivoting from consumer to commercial offerings. In addition, drone company 3D Robotics recently said that it’s exiting the hardware business — despite raising nearly $100 million in equity.

Healthcare is a hot robotics sector

“2016 witnessed a major improvement in the fields of healthcare, logistics, and personal service robots, with the majority of the investments on [R&D] in the healthcare and logistics sectors,” said Kanniappan.

Although the medical robotics sector saw fewer deals compared with consumer and enterprise robots, there were some well-funded rounds, said Varadharajan.

Restoration Robotics raised $45 million in Series D the first quarter, and Auris Surgical Robots raised $49 million in growth equity in the third quarter.

The robotics industry has gained traction in most end-user segments over the past four years, said Kanniappan. This is mainly the result of increased automation requirements to optimize workflow, increased data interpretation and analysis, and adherence to quality schedules.

“Entry of new market participants both in the product-development and software-solution streams has paved way for venture capitalists [VCs] to focus on extending their support in terms of capital and series funding,” he said.

“Apart from funding these start-ups, the VCs are also in focus to generate maximum [returns] out of the patents produced by these robotics companies,” explained Kanniappan. “These types of funding are mainly witnessed in the healthcare sector in the U.S., due to the high acceptance ratio of rehabilitation and assistive robots by the patients and healthcare institutes in comparison with other regions.”

He added that he expects to see more deals going to startups outside the U.S. over the next 12 to 24 months.

Cobots, companions capture interest

Collaborative robots are an “exciting area” for investors, said Korus.

“For traditional industrial robots, setup can account for approximately a third of the cost, which includes an expert programming the robot to do a single task in high volume,” he said. “Collaborative robots appear to be expanding the market by requiring less upfront capital and by being easily trained to do different tasks.”

Investors are also looking at advances in artificial intelligence, voice-based interactions, and home robots, says Varadharajan.

“There was an increase in investment activity to social robots –consumer-focused companion robots– as well as educational robots that teach children how to code,” she said.

“Post-Alexa, we may see increased investor interest in voice-enabled home robots,” added Varadharajan, citing Rokid Inc. The company uses deep learning and voice recognition and recently raised $50 million.

And in education, Wonder Workshop raised $20 million from investors like CRV and the Harper Group.

More on Robotics Investments:

Deep learning and automation for GDP

Korus is keeping an eye on advancements with deep learning and robotics.

“ARK’s research indicates that deep learning could grow the robotics market by an order of magnitude,” he said. “Between 2015 and 2016, the winning robot’s performance in Amazon’s Picking Challenge more than tripled from 30 to 100 items per hour. If that rate of improvement continues, robots could surpass humans in picking more items per hour within two years.”

ARK Invest predicts that by 2035, real GDP will be 42 percent higher with automation than without it.

The firm’s researchers also found that the “capability per unit cost” of robots is increasing, which means that the cost of robotics hardware is decreasing, and robotics software is making robots more useful across a wide range of applications.

While each robotics investment needs to be measured on a case-by-basis, as we look towards the rest of 2017 and beyond, it’s clear that exciting opportunities abound for investors interested in participating in the robotics revolution.

— by Emmet Cole

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