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Top VCs discuss how COVID-19 is impacting robotics

Brian Heater Arman Tabatabai 4 years

In the space of several weeks, COVID-19 has transformed countless industries and will continue to do so in ways we can only imagine.

The pandemic has also spurred many to find new ways to work and keep society moving amid physical distancing, stay-at-home orders and mass hospitalizations. For years, robotics and automation have been a looming presence in a number of fields ranging from shipping and fulfillment to construction sites and operating rooms. But the novel coronavirus could well be the disruption that accelerates the adoption of these technologies.

These changes take time, but because COVID-19 won’t be disappearing any time soon, it seems likely that this era will transform many of the robotics- and automation-curious into full-fledged converts. How different would this moment be if we were bolstered by a workforce that couldn’t transmit viruses or call in sick?

Following recent surveys exploring COVID-19’s impact on media, fintech startups and esports, along with an earlier exploration of robotics investments, we’ve asked the category’s top VCs to discuss how the pandemic will impact their portfolio companies:

Shahin Farshchi, Lux Capital

How has COVID-19 impacted automation and the robotics investing landscape?

We just closed on a fresh $1 billion and are actively making new investments in automation. COVID-19 revealed that our just-in-time manufacturing and logistics infrastructure cannot react to unexpected change. We expect the best practices of tech companies: rapidly adopting new tools and quickly iterating on their products and processes to become common in the realm of manufacturing and logistics. Engineers will be handed credit cards to try the latest tools, building on open source will be widely embraced, and making bets on products from startups will become the norm in this industry which has its roots in the industrial revolution.

COVID-19 will also encourage employers to rethink workspace layouts; keeping workers at a distance makes for a safer work environment. Automation enables that distance, and we continue to seek amazing teams aiming to empower human workers through automation. COVID-19 has created a period of uncertainty relating to demand, which will impact manufacturers’ ability to purchase automation to meet that demand. We encourage automation startups to revisit their assumptions on customer purchasing patterns, knowing that automation will become a priority in our new normal.

How has COVID-19 impacted automation and robotics startups operationally?

COVID-19 is an unexpected event causing a simultaneous disruption in supply and demand. Hardware companies have a design component which can be done from home, but there is also a laboratory component, manufacturing, and a supply chain that needs to function so that product can be shipped on time. We are seeing advances in lab automation to the point where an IT person at the office can set up experiments to be run remote, and these are becoming more common. Disruptions in supply and manufacturing can be mediated by having a diverse set of sources. Unfortunately, the big impact of COVID-19 is what’s not in the startups’ control: demand. As consumers stop spending, factories shut down, and workers seek jobs, automation-related spending is likely to be pushed out and startups need to adjust their plans accordingly.

Has COVID-19 significantly changed sentiment around automation or assisted remote work?

Times of crises are fantastic opportunities to embrace changes. Changes that, at the outset, seem uncomfortable or unproductive, can be unpredictably positive and accretive. Many engineers and managers may emerge with a preference to do Zoom meetings vs. huddling into conference rooms in person. College students may get better at, or perhaps even prefer to take courses online, which will likely improve dramatically in quality during this challenging period of closed campuses. Scientists and engineers may become more productive working remotely, and we may have a whole new type of “technician” whose job would be setting up experiments on-site to be performed remotely.

How has COVID-19 impacted robotics sub-verticals like food prep, delivery, fulfillment and telemedicine? Plus, any other thoughts you want to share with TechCrunch readers?

This challenging time of change is a huge opportunity for innovation. On-demand, at-home services will thrive. Clear unit economics in those businesses creates clear goals for automation. We don’t have a shortage of great robotics, we just don’t know how to best put them to work. The greatest robotics startups will be those that generate the most value for customers, by putting robots to work alongside their people. At Lux, we are not seeking robots for direct labor replacement, but rather robots that can work with people to offer new products, services, and abundances where there is scarcity, like what we have seen in food, energy, construction, and manufacturing.

Aaron Jacobson, NEA

How has COVID-19 impacted automation and the robotics investing landscape?

I expect COVID-19 to increase investor interest in the space. The current pandemic has only aggravated challenges addressed by robotics, including solving for labor shortages and augmenting worker productivity. Automation solutions are also critical for enabling supply chains to keep up with the current surge we are seeing in eCommerce. And, even after we overcome the current wave of COVID-19 and life returns to “somewhat” normal, there is still going to be a risk of disruption from future outbreaks. Deploying more autonomous solutions will help organizations strengthen the resilience of their operations. For example, I expect to see growth in factory robotics as companies look towards on-shoring as a way to reduce the impact of future global pandemics.

How has COVID-19 impacted automation and robotics startups operationally?

Robotics startups are making many operational adjustments to adhere to social distancing and work-from-home environments. When it comes to lab development or real-world testing, they are implementing strict work schedules that limit the number of on-site engineers. They’ve also introduced sterilization and wipe-down procedures for tools and parts used when working on hardware. We’ve also seen companies develop internet-accessible APIs for each module within a robotics system so that engineers can continue to develop individual modules from home while still being able to test with the rest of the system.

How has COVID-19 impacted robotics sub-verticals like food prep, delivery, fulfillment and telemedicine? Plus, any other thoughts you want to share with TechCrunch readers?

Food prep: Given current economic pressures, restaurants are unlikely to have budget in the near-term for deploying automated food prep solutions. At the same time though this crisis is really “driving home” the benefits of autonomous food prep when it comes to fulfilling take-out orders with limited staff. Once we are on the other side of this downturn, I expect increased interest in not only food prep robots but also cloud kitchens which offer highly-automated environments for cooking.

Delivery: On one hand, delivery robot startups are likely to be challenged in the current environment given many of them are deployed on work and college campuses which have closed in response to COVID-19. However, I think the pandemic is illustrating the need for more autonomous delivery to homes and essential businesses, whether it be sidewalk robots or drones. Regulation has typically slowed down the deployment of these solutions, so my hope is governments help accelerate larger scale deployment of autonomous delivery.

Fulfillment: The change in consumer behavior towards “stocking-up” as well as the surge in home delivery is a huge tailwind for supply-chain robotics. Amazon is going to need a lot more robots working alongside the 100,000 warehouse workers they plan to hire. Other e-commerce players are in the same boat. Furthermore, there are numerous retailers who’ve underinvested in their e-commerce infrastructure and suddenly find online as the only way to serve customers. They will need to quickly shift budget to fulfillment automation to keep pace with demand or risk further erosion of market share to their online competitors.

Kelly Chen, DCVC

Despite the clear slowdown these last months, there have been pockets of opportunity for hardware investors. We and a few peer VCs have noted initial higher deal flow after COVID-19, while other peers are pulling back and “evaluating the situation.” Those who take a medium-term/long-term view instead of a short-term one are finding high-quality companies at reasonable valuations. In these times, hardware companies will likely be hit harder due to global supply chain difficulties, complications from remote work, and on-customer-site implementation challenges. Startups that just weeks ago were shoo-ins for next funding rounds are now struggling to get investor meetings. An increasing number of companies are finding themselves suddenly near cash-out due to payment delays of signed contracts. Debt has dried up. Expansion revenue is delayed. And new customers are heads-down. Difficult decisions need to be made: rebalancing labor, rethinking single points of failure, and prioritizing initiatives in worst-, medium-, and best-case scenarios. Despite the storm, we are optimistic about a number of things:

  • As the crisis spotlighted, global supply chains are a delicate balance of factors that can easily be disrupted. In addition to growing labor costs, regulatory uncertainty, and higher international shipping costs, we believe companies will increasingly innovate on domestic manufacturing channels. “Bring manufacturing home” is a cry reverberating across many industries in many countries.
  • Online commodity retail is finally getting a kick in the tail. Last year, 4% of groceries were ordered online. In a recent large survey after COVID-19, a third of respondents ordered groceries online, many for the first time. The traditional two-day delivery will benefit, but we think momentum will shift to micro-fulfillment, where large hubs will service distributed local warehouses that are much closer to the customer, auto-fulfilling orders within hours.
  • Separate from fulfillment, we believe the hundreds of thousands of new manual delivery jobs will endure. We predict it will be years before tech allows for scalable automated door-to-door delivery.
  • As employers explore tech to automate labor in tough times, they find that humans are incredibly difficult to replace. At DCVC, we like tech that automates the kind of tasks that could never be done at human scale — things that scale the value of human skills, not replace them.

Cyril Ebersweiler and Duncan Turner, SOSV & HAX

How has COVID-19 impacted automation and the robotics investing landscape?

Cyril Ebersweiler: So far, the situation has not affected any planned rounds, but it is still early days. Investors in Robotics are in it for the long-term, so despite concern about the down-turn, there is little panic, yet.

As we get more clarity on the COVID-19 situation, we can expect two different opposing thoughts affecting investors:

There is a massive opportunity for automation and remote control to play a role in a physical distancing between humans and infection. There could well be a flow of investment into automated cleaning (such as Avidbots or Somatic), while special-purpose robots such as Youibot have already been deployed to combat COVID-19.

Conversely, we are likely facing restrictions on investment capital and lower valuations. We could see the higher cost of a robotics company look less favorable than a bargain SaaS or fintech business. High unemployment in the U.S. could also increase the competition to the robot workforce (humans).

How has COVID-19 impacted automation and robotics startups operationally?

Duncan Turner: Our biggest initial fear was the supply chain for those startups building robots. We were surprised how quickly Shenzhen was able to get back to work. Companies that managed to get into SZ before the recently enforced shutdown have been able to continue developing and manufacturing. Western companies not now physically in Shenzhen will struggle for the next few months.

Challenges have occurred with pilot projects which are now mostly on hold in the U.S. and Europe. For more mature companies with commercial agreements already in place, this is a golden time for them to keep “business as usual” where humans are not able to be at work. Our investments in manufacturing robotics will suffer as global demand lowers. Contrary to popular belief, it’s not possible to replace a worker with a robot in a few weeks. It takes months to integrate into the existing infrastructure. In China, our teams have been inundated with RFQ’s which are expected to convert in Q3/4. The U.S. will undoubtedly pick up also but may not be until early 2021.

Has COVID-19 significantly changed sentiment around automation or assisted remote work?

Cyril Ebersweiler: Robots are assisting the front lines in the fight against COVID-19; Opentrons has been running at max capacity to produce a scalable, automated solution for testing (up to 2,400 tests per day). Formlabs is producing a record number of novel test swabs demonstrating the value of 3D printing in manufacturing. Companies like Presso have pivoted their cleaning technology to provide a quick solution for the sterilisation of healthcare workers scrubs.

How has COVID-19 impacted robotics sub-verticals like food prep, delivery, fulfillment and telemedicine? Plus, any other thoughts you want to share with TechCrunch readers?

Duncan Turner: It is difficult to say for sure at this early stage. If we make an assumption (which may not be true) that COVID-19 will be with us for another year, we will need to adapt to a new reality and rely on robots for certain tasks.

  • Food prep

Food prep is likely to be a longer-term need for the masses to ensure food service outside with disruptions to the labour force. While under lockdown, people will stay at home and food-prep automation is less of an urgent need (although it would definitely make sense for the delivery services). Emergency workers will need an immediate measure, and it would make more sense to rely on other humans.

  • Delivery

Delivery is an immediate concern, within that, rapid delivery of essentials. We recently invested in Robomart, who is about to launch a fresh-grocery delivery service aimed at contactless order to delivery in less than one hour.

  • Fulfillment

Logistics is already seeing a rapid ramp-up in automation. As there is less of a risk factor here with COVID-19, this could be impacted positively by ensuring logistics in lock-downs, or, negatively with a more readily available work-force.

  • Telemedicine

Safe care for the elderly is essential as they are the highest risk. Robots like Labrador can play a critical role here in enabling safe delivery of supplies, flexible sensing and remote consultation. Exo-skeletons such as Japet could keep physiotherapy going while decreasing the risk of infection.

Eric Migicovsky, Y Combinator

This situation has accelerated our investment in robotics and automation startups.

Last YC batch we had four impressive robotics and automation companies (Somatic, Robotire, Teleo and Cyberdontics). We hope to double that number in the next batch.

Helen Liang, FoundersX Ventures

How has COVID-19 impacted automation and the robotics investing landscape?

I think a crisis like COVID-19 will instill a sense of urgency in both service industries and manufacturing to adopt automation and robotics solutions ASAP, in order to reduce labor cost and future loss risks with the next pandemic.

How has COVID-19 impacted automation and robotics startups operationally?

Operationally, in the near term it will slow down the growth of automation and robotics startups due to massive business and factories shut down during the crisis and the slow recovery ahead.

Has COVID-19 significantly changed sentiment around automation or assisted remote work?

Yes, it forces business owners to think hard on automation and robotics as a safe alternative to avoid massive human labor loss when facing a pandemic crisis. It makes the tech adoption urgent as the best path forward.

How has COVID-19 impacted robotics sub-verticals like food prep, delivery, fulfillment and telemedicine? Plus, any other thoughts you want to share with TechCrunch readers?

YES for all, probably more so for food prep and delivery, since restaurants are all closed during the crisis.

Overall, the COVID-19 crisis forces business owners to think long-term and how to protect their companies against pandemic risks, which could accelerate the adoption of robotics and automation, reducing dependency on human labor.