Where top VCs are investing in manufacturing and warehouse robotics

Robotics and automation tools are now foundational parts of warehouses and manufacturing facilities around the world. Unlike many other robotics and AI use cases, the technology has moved well beyond the theoretical into practice and is used by small suppliers and large companies like Amazon and Walmart.

There’s no doubt that automation will transform every step of the supply chain, from manufacturing to fulfillment to shipping and logistics. The only question is how long such a revolution will take.

There’s still plenty of market left to transform and lots of room for new players to redefine different verticals, even with many of the existing leaders having already staked their claim. Naturally, VCs are plenty eager to invest millions in the technology. In 2019 alone, manufacturing, machinery and automation saw roughly 800-900 venture-backed fundraising rounds, according to data from Pitchbook and Crunchbase, close to two-thirds of which were still early-stage (pre-seed to Series B) investments.

With our 2020 Robotics+AI sessions event less than two weeks away, we’ve decided to perform temperature checks across some of the hottest robotics sub-verticals to see which trends are coming down the pipe and where checks are actually being written. Just as we did with construction robotics last week, this time, we asked seven leading VCs who actively invest in manufacturing automation robotics to share what’s exciting them most and where they see opportunities in the sector:

Rohit Sharma, True Ventures

Which trends are you most excited about in manufacturing/warehouse automation robotics from an investing perspective?

There are several themes within warehouse automation, or broadly logistics automation, that are exciting to pursue from a robotics perspective. Every single step of moving goods from inception to consumption can be automated in an intelligent way.

Our definition of logistics includes the various mobility aspects of the challenge as well as shipping, freight, containers, railroad and trucks. From multipoint shipments of components, to assembly points, to solutions for storing and shipping, we are at the earliest stages of a multi-trillion dollar, multi-geography marketplace.

How much time are you spending on manufacturing/warehouse automation robotics right now? Is the market under-heated, overheated, or just right?

We engage with at least one good early-stage investment opportunity each month in this segment, and we spend between 1-3 weeks evaluating an investment decision. There are probably between 1-5 good opportunities in this industry every month.

Are there startups that you wish you would see in the industry but don’t?

I wish there were more startups focused on developing solutions that don’t just replicate a previously human or manual activity but instead reconsider the opportunities from a first-principles perspective. For example, all kinds of events a human might see as an anomaly, or an exception, or a failure must be seen from a robotic perspective as “normal” and accounted for.

Eventually, robotics is not merely about automating a particular action that is carried out multiple times a day and assumes some other system will have perfect knowledge of what the best or optimal way to perform that action might be. I look forward to robots that can learn while they work from their human or robotic coworkers and develop skills as they perform the work, including continuous improvements without human insights.

Also, the software that powers such machines is at least an equal-sized opportunity as a physical robot. For example, a multi-tenant warehouse that receives, assembles, stores and ships packages of multiple sizes requires operational automation as much as manipulation-automation, and preferably both.

It also requires a new type of resource-management system that includes scheduling, messaging, environmental control and monitoring, and loading/unloading solutions in addition to moving pallets around the inside of a warehouse. Startups that invent the information-systems backbone of such an operation in addition to flexible robotic/manipulation systems will eventually win, not just box-moving or stacking systems.

Plus any other thoughts you want to share with TechCrunch readers.

There are nearly 10 billion square feet of warehouse and distribution space in the U.S. alone. No matter what the mix of online and offline retail evolves to be, warehouse space will need to get more efficient, dynamic and multi-use in the next decade. This represents a massive value creation opportunity for startups in this space. (Data via Legg Mason.)

Ajay Agarwal, Bain Capital Ventures

Which trends are you most excited about in manufacturing/warehouse automation robotics from an investing perspective?

Some of the tailwinds and patterns we’re seeing that are most exciting include:

  • Raising the bar: Amazon, Apple and other technology goliaths are upping the ante and forcing the entire supply chain, from materials suppliers through manufacturers, logistics providers, up to retailers, to innovate or die. This is creating incredible opportunity for innovators looking to enable better operational performance and a superior customer experience.
  • Empowering the engineer: The “consumerization of enterprise” is washing away legacy top-down software as knowledge workers are increasingly empowered to choose the technology they love using — Slack, Dropbox, Figma, to name a few. Interestingly, this might be happening for manufacturing engineers, too, who we are seeing choose bottom-up providers like Vention.io and UpKeep.
  • Unleashing data: Sensors and wireless connectivity are more affordable than ever, and customers want results, not just data. Companies like Gecko Robotics are not only capturing information about plant performance and providing actionable analytics, but inching closer to delivering outcomes like plant uptime.

Based on our experience working with Kiva Systems from pre-customer days through their acquisition by Amazon, we get most excited when automation and robotics companies are focused on:

  • Constrained problems: The reality is that no robot today can do everything a human can do. What makes the most sense is to pick a fairly narrow, well-defined task that humans can do, but which machines can do better. Kiva chose to focus on moving shelves from deep within the warehouse to the packing line, not the actual picking and packing (and therefore gripping and lifting) itself.
  • Software at the core: Historically, it has been difficult to differentiate in the long run on hardware alone, except perhaps in the medical field. Teams that are too focused on hardware also run the risk of over-engineering, which could challenge their economics and viability as a business. Kiva was actually commodity hardware but delivered incredible value because of its software capability to dynamically optimize the layout of a warehouse.

How much time are you spending on manufacturing/warehouse automation robotics right now? Is the market under-heated, overheated, or just right?

Our best guess:

  • Warehouse robotics is overheated. Arms. Drones. Forklifts. These days the big buyers are always willing to pilot a few units, but it’s harder than ever to convert to meaningful scale. When Kiva was growing up, e-commerce warehouses were greenfield and we had the opportunity to become the “inventory OS.” Today, we are concerned that companies could end up among a long list of niche hardware suppliers filling small roles.
  • Industrial robotics is under-heated. There is lots of valuable telemetry that is either inaccessible or noisy because it’s too dangerous, narrow or otherwise impractical for humans to reliably retrieve. That might be in narrow pipes, or underwater, or in unpleasant sewage. To the extent that the data collection is fairly rote, seems like it could be a natural use case for automation — and with less competition, these providers could leverage that foothold into a larger software and “operating system” opportunity.

Are there startups that you wish you would see in the industry but don’t?

We would love to meet companies building against these problem areas:

  • Most warehouse management system (WMS) companies are now several decades old, yet the warehouse is becoming more complex and essential than ever. While you probably don’t want to try and wholesale replace existing products, are there adjacent opportunities to embed with the customer and disrupt their legacy providers?
  • In addition, manufacturing and warehouse environments will increasingly purchase a heterogeneous collection of automation suppliers. Who is helping stitch all these providers together? Is there efficiency to be wrung from orchestrating the end-to-end operation?

Rick Prostko & Fatima Husain, Comcast Ventures

Which trends are you most excited about in manufacturing/warehouse automation robotics from an investing perspective?

An important aspect of venture investing is identifying enormous market opportunities. The global warehouse and distribution center automation market represents a >$40 billion opportunity growing at a 10-15% CAGR.

Over the coming decade, there are literally hundreds of billions of dollars “up-for-grabs” as e-commerce fulfillment services evolve. Within this category, one vertical that we’re particularly interested in (and where we’ve made one of our first warehouse automation investments) is that of automated storage and retrieval systems (AS/RS).

AS/RS systems have been around since the 1960s, but recent advancements in robotics, combined with the operational needs of modern commerce, have the market poised for innovation. Advanced AS/RS solutions impact the footprint and efficiency of existing warehouses, in addition to enabling a new class of emerging micro-fulfillment solutions and services.

There’s a significant transformation underway across the retail ecosystem, as many established brands and retailers retool to operate in an omni-channel world. When these businesses analyze the operational costs of new services (such as in-store fulfillment), many will realize the need to redesign and automate their supply chains.

An emerging trend in this regard is the desire to “urbanize” the supply chain or locate distribution centers closer to the last mile of fulfillment. Unfortunately, there aren’t many one-million-plus-square-foot warehouses available in urban centers, and this supply chain urbanization involves downsizing existing fulfillment center technology into warehouses with drastically smaller footprints.

Smaller warehouses require greater storage density and higher system throughputs in order for the economics to pencil for the owner. A company that cannot re-invent its supply chain (whether owned in-house or outsourced as a service) simply will not be able to meet their customers’ or their own shareholders’ expectations. This is where advanced AS/RS solutions offer great promise: elegant, scalable, nimble solutions designed to address modern business needs.

Given the dollars at stake and near-term market demand, multiple AS/RS companies are chasing what is significant venture/growth capital interest (as well as M&A opportunities with strategic incumbents). It’s worth noting the challenges of launching and scaling an AS/RS company, the nature of which requires engineering expertise in hardware and software design coupled with reliable in-field system implementation and support services. It’s difficult for a lean startup to achieve success in one of these disciplines, let alone all of them.

That said, one company that impressed us with their patented storage structure and proprietary robotics shuttle solution was Calgary-based Attabotics. The Attabotics solution streamlines a typical fulfillment warehouse into a single, vertical storage structure. We are excited to have partnered with Attabotics in 2019 and are actively looking for additional, complementary investments opportunities across the category.

What are trends you expect to take off in the space?

With increased YoY growth in e-commerce, reduced appeal of working in warehouses that are hours outside of cities and consumers’ wants and needs for instant gratification, the logistics and warehousing industry is facing multiple tensions and is rife for innovation. One of the trends we expect to see take off in the coming years is micro-fulfillment centers and ventures providing fulfillment-as-a-service for the last mile delivery.

Retailers looking to sustain their businesses in the time of Amazon are actively looking to partner with entrepreneurs innovating in the space. This isn’t a red ocean market (yet) – there remain opportunities for different players to build strong offerings in the warehouse, logistics and supply-chain optimization space.

Shahin Farshchi, Lux Capital

Which trends are you most excited about in manufacturing/warehouse automation?

  • Powerful chips and sensors out of the consumer-electronics realm powering automation in logistics and manufacturing.
  • High-precision manufacturing robots moving down the cost-curve and being retrofitted for novel tasks, as well as human-machine collaboration, with the help of our portfolio company Veo.
  • Automating otherwise tedious and repetitive tasks giving way to new tasks for the same workers that make them far more productive, such as overseeing the robots.
  • Advanced robot user interfaces that allow the same workers which the robots are assisting to program and maintain the robots.

What trends are you most excited about from an investing perspective?

  • We’re investors in Veo, which is building the first human-collaborating robots that unlocks robots from cages and distributes them on the factory floor so all tasks can benefit from robot assistance.
  • We’re investors in Covariant, which makes training a robot as easy as training your dog.
  • We’re on the lookout for founding teams with intimate knowledge of a problem and can build amazing teams that can build attractive, scalable businesses solving that problem through automation. We expect these teams to be empowering our workforce and yielding superior, more sustainable products and services.

How much time are you spending on manufacturing/warehouse automation robotics right now? Is the market under-heated, overheated, or just right?

We see a great deal of talented engineers attempting to build and use robots in novel ways.

We would like to see more founders who have a deeper understanding of processes and the metrics customers of automation are aiming to improve. We are eager to meet teams building robots as part of a solution, not just robots.

Cyril Ebersweiler, SOSV & HAX

There is a lot to be excited about in this space. Consider the labor shortages — which are starting to impact productivity — combined with real-life examples about how robotics is boosting the output per worker (over 30%). With the performance of the machines improving constantly (thanks to the race for Level 5 autonomous cars?), the cost to build solutions is also dropping.

Finally, long gone are the tedious deployments as plug-and-play and task-based programming with a high-quality user experience is taking over, while everybody is getting more comfortable with the RaaS model (it’s been six years in the making).

Overall, this is a comfortable seat to invest from, with e-commerce growth dragging warehousing in its wake on one side and factories needing to fulfill an estimated 2.4M positions in the USA through automation in the next few years. There will be 4 million robots in 50,000 warehouses by 2025.

We’ve been actively looking at the warehousing space and made investments in companies such as Youibot and Unsupervised amongst others. There is an explosion of technological approaches representing the deconstruction of work, task by task.

Manufacturing is more intriguing and while dominated by giant companies, it’s also fairly rigid and requires a rethink of the overall process. Elon Musk famously tweeted, “Yes, excessive automation at Tesla was a mistake. To be precise, my mistake. Humans are underrated.” Understanding the future of automation in those environments means understanding the future of work.

The successful startups are those which will make automation disappear in the background. Consider what workers said about a forklift robot (built by Balyo) when there was an inevitable service outage: “we don’t want to do a robot’s job!”

Kelly Coyne, Grit Ventures

What trends are you most excited in manufacturing/warehouse automation robotics from an investing perspective?

We think that manufacturing and warehouse automation are industries poised for disruption from both AI and Robotics. The labor shortages in these areas are creating a disproportionate amount of pain to larger corporations and uncovering opportunities for start-ups to see rapid growth even in their early stages.

While we have seen most Robotics in these verticals focused on pick and place technology, Grit believes that robotics technology with the capability to assemble and manipulate components for manufacturing, unlocking a much broader set of use cases.

How much time are you spending on manufacturing/warehouse automation robotics right now? Is the market under-heated, over-heated, or just right?

Pick and place technology is starting to become over-heated. There are a great many companies focusing on the creation of robotic arms and new end effectors for this purpose and many of them target low-cost as their primary differentiating factor.

For us, these types of products are not as interesting in this maturing market- we see most manufacturing customers in need of a task-specific solution that does not require specialized in-house resources for set-up or management. We believe that new start-ups can create value in this ecosystem by building RaaS (Robotics as a Service) solutions that seamlessly fill the gaps created by labor shortage without additional workload being placed on the already labor-short customers.

Are there startups that you wish you would see in the industry but don’t?

We want to continue to see the growth of specialized robotics solutions for jobs extending past pick and place in warehouse and manufacturing. Specialization around assembly, inspection and solutions improving operational efficiency through data and analytics are of particular interest.

Note: The response from Kelly Coyne was added shortly after publication.