The robotics industry is growing fast, with tremendous growth in terms of funding and number of companies over the last five years. Between 2018 and 2022, total funding in the space grew $7B to $18.6B, spiking to $28B in 2021. Once heavily focused on autonomous vehicles, the robotics industry’s profile is now changing to reflect an increased interest in companies developing solutions for specific vertical use cases.
In the midst of a broader pullback in tech funding (for example, AV investment dropped almost 60 percent to $4.1 billion last year) F-Prime Capital’s recent State of Robotics report found that funding for “vertical robotics” companies actually grew in 2022. That increase — to $6.9 billion from $6 billion in 2021 — was driven by companies building vertical robotics for the logistics, defense and security, medical, and manufacturing sectors. The agriculture, lab and pharma, food, and construction and mining categories have also seen increased investor interest.
Ahead of our upcoming Robotics Invest summit (Wednesday, June 7 in Boston), I joined my fellow organizer and robotics investor Fady Saad of Cybernetix Ventures to answer some questions about the definition of vertical robotics, why it’s different from other sectors in the industry, and how the right teams will find success.
How would you define vertical robotics?
Sanjay Aggarwal: Vertical robotics target mostly industrial use cases with end-to-end solutions. Typically, companies building vertical robotics augment tasks which are otherwise performed by humans, thereby enhancing the productivity of existing labor.
Fady Saad: We see vertical robotics targeting the logistics, construction, and healthcare sectors, among others. An example might be a logistics robot that focuses loading and unloading trucks, or on pick-and-place use cases. These products will be focused on specific use cases within a vertical, and might have specific business models and/or deployment and operational processes.
Why do you find the category interesting, and why now?
Fady: This classification is interesting because it gives innovators, investors, service providers, and customers a specific focus and alignment, as they’re looking at more or less the same landscapes and speaking the same languages and terminologies. The robotics industry has been suffering from the challenge of having technologies seeking markets, an approach that wasted a lot of time and money. Having these vertically focused approaches could significantly expedite the search for product-market fit. The acquisition of Kiva in 2012 by Amazon was the most significant example of a market-driven innovation, and the success of 6 River, Locus, Motional, Auris, and many others was another validation of the approach.
Sanjay: Successful vertical robotics companies deliver solutions that reliably and predictably provide strong ROI to customers, in the form of higher throughput and more accuracy. Given the strong focus on specific use cases, vertical robotics companies are able to deeply understand both the existing processes and customer pain points, leading to fit-for-purpose solutions that deliver ROI. The last couple of years has seen a significant increase in vertical robotics companies as market tailwinds intensify, and as entrepreneurs shift their focus away from the AV sector.
Which subsectors within the vertical robotics category do you find most appealing for investment?
Sanjay: Logistics has been the workhorse industry for vertical robotics, with numerous large companies across that sector. However, most of the logistics use cases today have fairly strong incumbent robotics providers. Similarly, manufacturing was one of the earliest adopters of robotics, though newer solutions face a high bar in proving they are superior to existing offerings. One of the largest untapped opportunities is robotics for outdoor use cases, including agriculture, construction, and mining. These industries are experiencing strong tailwinds of growth and are seeing numerous labor challenges — a combination that drives the need for innovative robotics solutions.
Fady: At Cybernetix Ventures, we developed our investment thesis based on quantitative and qualitative analysis of the robotics industry over the last 12 years and more than 10 verticals that we have been interacting with in different capacities. Based on that analysis, we believe that four key verticals will generate significant returns in the coming five to 10 years. These are advanced manufacturing, logistics and warehousing, architecture, engineering and construction, and healthcare — which includes lab automation, medical devices, surgical robots, and more. Beyond this timeframe, we are monitoring interesting developments in outdoor and indoor agriculture; oil, gas, and mining, and food preparation.
What are the key factors for success for any vertical robotics team?
Fady: Deep knowledge of how their target vertical is structured, organized, and operated. What are the value and supply chains in this particular vertical? What are the most common business and pricing models? Who makes or influences the decisions? What factors is this particular vertical most sensitive to?
Sanjay: While any robotics team requires depth of technical expertise, the companies that stand out are those which also have deep domain expertise. The domain expertise enables those companies to quickly identify high-value, yet feasible use cases to target and navigate the go-to-market nuances of their targeted industry.
How does robotics investment differ from other categories across the broader tech industry?
Sanjay: The lifecycle of a robotics business is very different from a software business. Progress in the early stages of a robotics business can sometimes feel slow and require more capital than a software business. Interfacing with the real world means solutions take more time to perfect, and customers are risk averse so they may have an extended validation period to prove ROI and adapt their processes.
However, if you can cross those hurdles, customers will often drive very rapid adoption, which can create a hockey-stick growth curve. All of this also means that robotics has inherently higher competitive moats, and customers are very sticky once they’ve decided to scale.
Fady: Cybernetix Ventures was formed with the belief that robotics investment is different — and one can even claim that it’s a whole investment class in itself. The financial models, milestones, required capital, revenue structure and market dynamics, supply chain, manufacturing and support structures, and even portfolio support models are different.
Therefore, we decided to take the initiative and plan a first-of-its-kind event around making successful investments in robotics, called Robotics Invest. We are excited to have F-Prime as a key co-organizer together with an amazing group of underwriters and supporters. In this event, we’ve curated some of the most successful entrepreneurs and investors in the space to collectively share the most effective ways to build and invest in robotics.
Robotics Invest is an invite-only summit packed with keynotes, panels, case studies, and more on Wednesday, June 7 in Boston. You can request your invite here.
While any robotics team requires depth of technical expertise, the companies that stand out are those which also have deep domain expertise.