We love mergers and acquisitions here at TechCrunch. We even kind of like reverse mergers. But this latest development in the robotics industry sure has us excited!
Delivery robots maker Serve Robotics is going public via a reverse merger with a blank-check company, and it raised $30 million just before the deal. That could be great for the company, but we’re more interested in the visibility this deal grants us into the economics of building, deploying and running a fleet of delivery robots.
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On one hand, using people to move goods around cities is expensive and can contribute to congestion and pollution. On the other, when has anything about robotics been cheap?
Using tech instead of flesh and blood usually results in savings — you only need to look around yourself to realize the benefits of the industrial revolution and the Internet. But robotics can prove tricky even for smaller sidewalk-level devices, despite recent advances.
So, how good is Serve’s business? We do not know. What we can tell from the numbers, however, is that it’s still early days for companies deploying hundreds or even thousands of robots to bring you food and groceries.
Serve’s numbers
When a company files to go public, we usually sigh with excitement because we get to pore over its last few years’ financial results to understand the business’ health and valuation prospects. Serve doesn’t fit that model well.
The company recorded no revenue in 2021 and managed a mere six figures of topline in 2022, so we are not dealing with your traditional tech shop on its way to the public markets. Serve has a good reason for working to go public, though: As my colleague Kirsten wrote, following the SVB crisis, the company found itself on uncertain financial ground, which led its co-founder and CEO Ali Kashani to take a closer look at the company’s approach to raising capital, and he decided Serve needed a broader scope of investors.
More capital from more sources seems reasonable since Serve needs the cash — its current revenue isn’t anywhere close to generating enough operating profit to cover its operating costs.
Serve reported revenue of $107,819 in 2022, but its cost of revenue came to $1.15 million in the same period, resulting in a gross loss of $1.04 million. After factoring in operating costs of $19.9 million, operating loss came to $20.9 million last year.
Is that bad? Not really. Serve looks like — and this is worth chewing on — a startup in its second year of monetization that is working to reach sufficient scale and show off what it expects its real profitability posture to be.
But how have things been recently? Here’s the company’s Q1 2023 data:
- Revenue: $40,252, up 154% from $15,860 in Q1 2022;
- Gross loss: $327,009, 199% worse than a year earlier;
- Operating loss: $4.23 million, modestly worse than $3.95 million in Q1 2022.
Again, it’s hard to predict much from these numbers. Serve’s revenue is growing quickly, which is good; its gross loss is somewhat worrisome; and it’s encouraging that the company’s operating loss isn’t widening too much anymore. (Note: Serve’s revenue costs include salaries for the people needed to help robots in the field, not just hardware, which helps explain why it’s so high. In time, the company will presumably need fewer people to help its robots out in the world, which could bolster its gross margins.)
What Serve needs is more revenue and better gross margins. It plans to achieve both.
Serve currently has a tiny fleet out in the world. In 2022, it had 12 robots doing daily deliveries on average, 26 in Q1 2023, and its filing notes that the current fleet consists of over 100 robots, which is a modest amount. The company intends to grow its fleet by “building and deploying hundreds of new robots in coming years after raising additional rounds of financing.” With $30 million in the bank, it can afford a few more four-wheeled ‘bots.
Throw in the fact that it can deploy up to 2,000 robots on Uber Eats, and you can start to visualize the growth arc that Serve envisions.
Indeed, Serve said that its goal is to scale its operating fleet by a factor of 10 and expand to new markets beyond Los Angeles. If its current ratio of robots to revenue persists, 10x more robots on the market would push the company’s quarterly top-line into the seven figures.
You could argue that deploying more robots while having negative gross margins won’t make Serve profitable. However, Serve is not just a delivery company. Like nearly every other company that moves things around the world these days, it’s also an ad business. Per the filing, its Uber Eats partnership accounted for 50% of Serve’s revenue in 2022; presumably, “branding” revenue makes up a good portion of the rest. It’s fair to infer that Serve will also scale its ad business as it expands its fleet of robots.
Having a second income stream layered atop its core business could help the company become more profitable over time. Advertising and scale go together like vodka and ice, after all.
So what?
Serve looks like a startup, it just raised a startup-like amount of money, and it is growing like a startup as well. It’s impossible to tell right now if the company’s model, methods and market will result in something lucrative — it’s too small at the moment.
But that’s exactly what makes this company and its public listing so important. Startups and their backers usually protect their financial performance as if they were state secrets, but Serve’s going public gives us the rare opportunity to follow a startup’s crucial, early growth days.
Even better, we’ll be able to see its revenues and margins evolve, which will provide valuable perspective on how a company that’s operating in a nascent market with a limited capital base manages cash and expansion. There will be much to learn from following this company’s journey, and it’s going to be so much fun!
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