December 25, 2014      

?The key theme coming into 2015 is a confident consumer that is driven by the tail winds of higher levels of employment, lower costs of energy and higher equity market. Your 401K is doing better, your job is doing better and it cost less to fill up your tank. 2015 investing will be everything that is facing the consumer?The GDP number blew everybody away.?
?Art Hogan, chief market strategist at Wunderlich Securities

The S&P 500 and the Dow Jones Industrial Average set records as the U.S. economy expanded in the third quarter by the most in 11 years.

The U.S. economy soared by 5 percent in its most rapid rise since 2003. Technology stocks led the Dow and S&P 500 to record finishes.

With seemingly everything trending toward the good, especially technology shares, is the investment scene in 2015 ready for a big year for robotics?

Is everything all set to go?

Robotics is the next stage of information technology.

All the principles applying to computers, from Moore’s Law to interconnectedness to Big Data, apply to automation with the addition of interactivity with the physical world. As much as some maintain that Big Data and mobile computing are information-technology revolutions, they actually are trends of scale built upon previous innovations. Even mighty social media is the (very lucrative) monetization of computer networking.

Just as vision systems are upgrading to three-dimensional viewing and, soon, to actual understanding of the world, automation is moving beyond assembly-line welding to take on complex tasks that humans physically cannot perform. This change is happening as demographic, environmental and economic trends make mainstream robotics a certainty.

The traditional backers of technology — venture capitalists — are occupied with Big Data and social-media plays today, and with good reason. There is a lot of money there, and advancements will have a fundamental impact on robotics. Venture funds are watching developments in automation. A few of them are active here already, and more will come because this is where the new money is.

In the meantime, corporate venture and (remarkably) crowd-funding are sustaining at least some automation companies from the concept stage to near-maturity. Private placement is helping mature firms recapitalize and re-orient to meet the coming industry growth.

Tepid funding at an end?

The era of tepid external funding for robotics is ending, though it would be hard to infer this based solely on deals closed in the last few years. Transaction numbers have risen slowly and unevenly. Looking just at venture capital, average equity per deal has fluctuated between $4 million and $8.2 million since 2009 with no dramatic upward (or downward) swings. The same is true for the number of companies being funded and of venture firms doing the funding.

The last 30 years of development within the robotics industry has done little to inspire confidence among potential funders that automation could become a phenomenon on the scale of personal computing, much less the Internet. Still, worldwide sales of robotics hardware in 2013 increased 12 percent year over year, to $9.5 billion, according to the International Federation of Robotics.

The federation estimates that, including the cost of software, peripherals and systems engineering required by the hardware, worldwide sales were $29 billion.

Big numbers, but global information-technology spending in 2013 was on the order of $3.8 trillion.

robotics investment

Yes, robotics has amply proven itself in one economic sector — slow-growing manufacturing — but even there it is only a force multiplier. That is a valuable contribution to the industry, but it is far shy of automation’s potential.

Worse, an institutionalized feedback loop of complacency between automation buyers (largely auto makers) and original-equipment manufacturers has dulled the edge of established robot builders who once were highly innovative. Today, they have developed such a close symbiotic relationship that automation firms almost operate as outsourced manufacturing units for their clients.

Venture capitalists (and to a lesser degree corporate-venture units) are almost exclusively interested in high-risk investments in small, newer companies because that is where the chance for the largest rewards lie. ?Incrementalism? is the antithesis of what motivates venture funding.

Automation has been seen as being just one software or hardware breakthrough from mainstream deployment.

In order for robotics to have wide economic impact, the industry needs to break from old paradigms with products that are:

  • Broadly affordable
  • Flexible
  • Adaptable
  • Mobile, where relevant
  • Highly aware of their surroundings
  • Connected with peers and to the enterprise
  • Easy to use and programmable
  • Safe operating around people
  • Collaborative with peers and people

And to the surprise of many (including some in the industry), these long-sought capabilities are serendipitously maturing at the same time. Most are here or well along in development.

Sensors are quickly gaining in signal fidelity even as electronics shrink in size. Moore’s Law is reducing prices. System mobility and situational awareness are coming of age. Safe operation of robotics around people is happening.

The new systems can perform multiple roles during extended missions (in some cases months-long commercial and research projects). Even the most complex automation puzzle, machine learning, is producing meaningful developments.

At the same time, the world is changing in ways sympathetic to the mainstreaming of robotics. Workforces and populations are aging. Globalization has diminished the economic advantages of off-shoring. Easy-to-reach resources are disappearing, which is pushing oil, gas and mining industries to ever-more remote and dangerous locations.

Ready to launch

Squeezing significantly more cost out of production requires automation. The Boston Consulting Group has noticed, and predicts that the $15 billion spent globally on robotics in 2010 will more than quadruple to $67 billion in 2025. Some feel that is a conservative figure.

If robotics is ready to launch, where is the fuel — financing — and what is the flow like?

Though there are high points to discuss, there is no getting around the fact that financing of robotics firms remains thin and episodic. Certainly compared to the billions of dollars being pumped into the social-media and cloud-services boom, the numbers are underwhelming.

But even in this unenthusiastic funding, there lie encouraging signs and counter-intuitive indications of near-term financing growth.

  • The top three venture funds invested in robotics are Silicon Valley blue bloods
  • Crowd-funding is gaining respectability and importance in start-up financing
  • Of 64 funded robotics firms, only eight were pure-play software
  • Mergers and acquisitions remain funding mainstays
  • Corporate venture is warm, not hot, but current trends would light a fire
  • Europe has a robotics-only venture fund and at least one is forming here
  • The United States has its first robotics tracking stock index

Private-placement firms are active in robotics, but the action is uninspiring here, too. True to their historic mission, private-equity companies largely (but not solely) focus on older and more stable players — in this case, predominantly component makers. These funders will get more involved as mature electronics shops seek funding to keep up with the industry’s changes.

This is not another announcement that the age of robotics is near. (It is here).

This is more like the opening bell at the New York Stock Exchange. Everyone is ready to go.

Excerpt: Taken from Investing in Robotics 2015 members-only research report (full report available for download January 20, 2015)

Webcast: Please join us on January 22, 2015 for Investing in Robotics: What to Watch for in 2015

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