Robotics, AI could be the next big thing and investors are watching with interest

Robotic hand pointing

Robotics is fast-emerging as a significant growth area given its adoption across a variety of sectors, resulting in unprecedented investor interest if venture capital financing data is an indicator.

Data platform CB Insights has reported that deals in robotics nearly doubled from 45 deals in 2014 to 83 deals in 2015, with an investment growth rate of 115 per cent. In comparison, 2014 saw an investment growth rate of 55 per cent. The largest investment in 2015 was a $150 million growth equity round closed by Auris Surgical Robots and involved Lux Capital, Mithril Capital Management and NaviMed Capital.

Robotics is being increasingly used by warehouses, hospitals and retail stores, industrial parks and university campuses. First reported in the Financial Times (FT), with Silicon Valley investor Steve Jurvetson predicting their increasing use over the two to five years, the impact of robots and their predicted “potentially devastating effect on human employment.”

After growing at a compound rate of 17 per cent per annum, the robot market will be worth $135 billion by 2019, according to technology research firm IDC, with a boom in robotics occurring in Northeast Asia (i.e. China and Japan), driven in part by China initiating a retooling of its domestic manufacturing sector.

According to the Financial Times, this accounts for 69 per cent of all robot spending. Data compiled by venture capital database CB Insights showed that investments into robotics reached a high point in 2015.

CB Insigts March 2016 Robotics funding.

Also Read: Taiwan’s Cherubic Ventures launches $120m fund, to target Saas, virtual reality & robotics

Japan’s LifeRobotics gets $4.4m funding from Koden, Mitsubishi UFJ, Omron 

Recent trends

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However, how does this align with recent investment trends? While FT has noted capital invested into the field is at an early stage, lead indicators such as patent filings suggest a boom, with data from patent research company IFI Claims showing a tripling in the annual filings of robotics patents.

At the same time, CB Insights data shows that investments in robotics have decreased for a third consecutive quarter, in an analysis that incorporated both equity financing and convertible notes and excluded investments in unmanned aerial systems (i.e. drones), though covered robotics firms focused on various automation solutions.

CB Insights noted: “Funding to robotics companies was up 115% in 2015, and annual deal activity also reached a new high of more than 80 deals. However, the year ended on a sour note, as funding crashed by almost 74% in Q4’15 compared to the previous quarter.In the first 3 months of 2016, funding has bounced back, but deals to robotics ticked down once more, the third-consecutive quarter of activity declines.”

Currently, robotics startup ventures like Silicon Valley-based Dispatch, which is testing autonomous delivery robots on two US college campuses and has raised US$2 million in venture investment, is capitalising on the collapsing costs of sensors. It is also leveraging on advances in artificial intelligence (AI) that are rendering autonomous machines a reality.

In a statement to FT, co-founder Uriah Baalke explained: “There is an exponential pace of improvement in hardware and machine learning algorithms. The computational power required has gone down a lot.”

Also Read: IDG, GSR, ZhenFund invest $23m in China’s Zero Zero Robotics

Yuri Milner finances China’s AI-focused startup Horizon Robotics

Associated developments

Historically, the form of robots has reflected their function as high-precision industrial machines operating in factory assembly lines, focused on heavy-duty repetitive tasks. However, there has been a shift towards cheaper, more versatile robotic platforms that are more adaptive to their environment.

Some examples are hospital logistics robot Tug, hotel room delivery robot Savioke and Grey Orange, which specialises in warehouse automation via their robots. This has been enabled by advances in software; computer vision and machine learning algorithms.

This synchronises with increased investment in artificial intelligence (AI) technologies, including areas such as image processing, natural language processing, machine learning, deep learning, and predictive APIs, among other core applications.

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According to CB Insights, deals in AI-focused startups increased by multiple of close to 7x over the last five years, from 4 deals in Q1 2011 to 27 deals in Q1 2016, with around 15 per cent of deals in Q1 2016 targeting ventures developing AI healthcare applications. This comes amidst suggestions that AI-based solutions may be a disruptive innovation in the cloud computing space.

Deal volume and value dropped significantly in Q1 2015, though deal volume has since risen while overall capital invested has declined. Nearly 74 per cent of AI investments over the past five years targeted early-stage startups, with more than 80 ventures closing seed/angel round while 40 firms secured Series A investments.

More deal action is expected in this space with the recent launch of a $100-million robotics investment fund by Dmitry Grishin and the launch of €100-million RoboValley Fund incepted by Vancouver-based Chrysalix Venture Capital and Dutch robotics professionals from RoboValley Innovation Hub.

According to RoboValley Fund managing partner Mike Sherman: “Global technology in robotics is advancing very quickly yet today there is no international pure-play venture capital fund focused on robotics and so closely aligned with a robotics ecosystem. Many breakthrough technologies are stranded in universities and national labs with insufficient early-stage funding available to help them commercialise and scale.”

Taken together, these developments and information suggest that in the medium and long term, robotics and artificial intelligence (AI) are positioned for robust growth trajectories, especially in light of the growth opportunities presented by the Internet of Things (IoT).

Also Read: INCJ leads $10m round for Japanese robotics startup 3D MEDiA; Creema raises $10M

China: Cheetah Mobile to invest $50m in robotics R&D; MissFresh secures $36m in series B

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