Published September 13th, 2023
The AI And Robotics Future Won't Be Humanless, But Human-In-The-Loop
Jay Kapoor: Welcome back to another episode of Climb by VSC. I am so excited to have on one of our co -investors here at VSC Ventures. Abe Murray is a general partner and he's leading robotics investments and incubation at Alley Corp Robotics. He has had more than 20 years of engineering experience. He built the Verily Life Science product teams Boston office, and he shipped several AI, ML, and computer vision products across Google before doing what he's doing now. He's also been an entrepreneur before that. We have looked at several investments together, we've made one recently. And so I kind of had a sense of, you know, some of the things I wanted to chat with him about, but I know that this is going to be a far-ranging conversation on both robotics and climate. Abe, am so excited to have you on Climb, finally, thank you for joining us.
Abe Murray: It's a pleasure to be here. This is podcast number three for me, so I still don't know what I'm doing. But it's super fun to have a chat with you, Jay. I’m glad I get to talk to amazing people like yourself, we hit the record button and share with others and I think that's just a pretty special thing to make happen.
JK: I love the spirit that you're bringing to this already, man. So let's set it up a little bit more for our audience that isn't familiar with your background as much. How did your experience founding a web 2.0 startup, working in the defense industry with unmanned aerial vehicles, drive you to leading investments in robotics now at Alley Corp.
AM: I've got a list of five things that matter to me. I've got three kids who are just chatting about that. I want the world to be good for the people who are entering it and I worry about a handful of things that really matter. Right? And so for me my list is Energy and Climate food from the family business. Like we got to eat. Education. We need more humans on leash to fix things. Like what's the point of being here if we can't be healthy, and have a nice lifetime. And by the way, we're bankrupting our countries by getting it wrong. And then productivity in general, if you think about how we, you know, enable billions of people to join us in the middle class without tanking the environment, right? We're already not doing a great job. We need more people to live as well as we do. And we need to do that, you know, in a positive way. Those things are all important to me. And I've worked on those at every step of my career, taking that ownership perspective to it. When I met Kevin Ryan and Alley Corp, and he was talking to me about wanting to build a robotics fund, it just rang bells in my head. I'm 1,000% on board with that because I believe that robotics and automation underpin every one of those five things I care about, and are enabled by a bunch of the things that I worked on in my career. So by working on robotics and automation, I think we get to tackle climate change. I think we get to ensure that future generations eat well and eat better than we did. I think we grew up in the mass food production, but it's not great food kind of, well. Maybe a generation from now, we can have even larger food production. And it's all organic and healthy food. How do we make that happen? robots and automation. So, yeah,
JK: I'll click in there a little bit more because I think there's always that VC mantra of you know, the best companies are built when they are non consensus. Robotics and hardware, I know you and I really dig in on it, but for a lot of VCs it is non consensus. I mean, so many funds had been burned investing in high capex hardware led startups in the pretty recent past. So what tailwinds or factors did you kind of see in the market that excited you about building a robotics focus on now?
AM: I'll share my perspective in a minute, but I'm really enabled by Kevin Ryan who built Alley Corp and Ally Corp’s unique take on things So Alley Corp was you know, as an early stage investor preseed and seed. They come in early, they back first time founders, and they build companies so they're incubators. They create things from scratch, and, and really limit that betting on what the world's gonna look like 10 years from now, because when you're coming in that early, your exits are way down the road. And Kevin has done a great job living that life doing, you know, well by his companies, and in some ways reading the trends and the things that he saw that got him excited about this were demographics and labor shortages. We can't put that genie back in the bottle. All of our companies struggle with that and we see that across the world. COVID exacerbated it, but this existed pre-COVID. We still have this challenge. The cost of labor is somewhat related to that first point, but a higher labor cost is great for everybody. Right? That means we're getting paid better. That also means there's more space to bring automation to do things to unleash humans on these higher paid higher-quality jobs. And then two other changes that we see. One is, I think it's at least 5x is probably not 10x, but it's getting there. A serious reduction in the cost of this hardware. So if you were building a robotics company 10 years ago, you probably had to spend a significantly larger chunk of your equity dollars, building the hardware for that company. Today, iIt's a different world. We have things like the NVIDIA Jetson computer like CPUs that have gotten better and cheaper. The motors have gotten better and cheaper. Like just across the board. It takes less to build prototypes, and it takes less developed manufacturing production runs. So that's all positive. And on the back of that you see the software capabilities have certainly improved by an order of magnitude over the last decade as well. I've lived this you've been investing in companies doing this. We see AI, computer vision and so on. Let's do a lot more with the hardware. So we think a combination of the markets are ready for this and the hardware and software can meet the demand. This must happen. But more fundamentally, we just don't see how a world 10 years from now doesn't have significantly more robotics and automation in it. If we're going to tackle climate change, if we're going to feed more people like those things we talked about, just demand that this happens. And that's the final point where I'm very grateful for Alle Corp for the way that they think about the world, they make those tenure bets. We come in early, and we believe that we can get there. And they weren't that successfully with examples like MongoDB, which went at databases when people thought databases weren't something that you could innovate on, but they saw that something had changed in that and that five plus years from now, you know, these internet companies, web two companies were going to go big and demand a new kind of database. So we see that happening and robotics and automation.
JK: Do you think the capital environment in that world is changing too? I think for a long time, the big concerns were, you know, there aren't venture scale outcomes here because either there aren't software like margins, or maybe there are but the amount of capital that it takes to get to those, you know, just kind of precludes folks from having those massive unicorn exits. So yes, you may have unicorn robotics companies, but it took 200 to 50 million to get there. And maybe that wasn't a great outcome for investors. Is your perspective on that, that the market is changing? Or are some of those constraints just inherent when you're building in the world of you know, atoms not bits.
AM: Before I was doing this, I'd spent a year and a half in Android doing you know, work with, you know, tablets and cool stuff at scale and before that five years in health tech building, you know, chronic disease management, value-based care and actually deploying a bunch of medical devices. Robots and automation aren't the only business where capex is required to scale and frankly, even you know, some more traditional businesses as they get big, they actually need a lot of CapEx financing to do different things. A really simple example, a commercial uniforms company and selling uniforms to UPS. You know, I've got to ship and deploy those before they pay me for them. So, I'd say it's not unique to our industry. It was probably harder when the stuff that we were building and shipping was ridiculously expensive when a robot arm was $100,000. Shipping those costs a lot of money when they're $10,000. Now it's actually easier to get through it and it starts to look more like traditional businesses. The other thing I'll say is, I've seen a number of companies that are building such high value products that deliver such value for their customers that they actually have really respectable margins. So very fast ROI on that capex deployment and once you've built the business, so there's certainly a trough, right the first couple of years when you're building, you haven't got revenues, you haven't, you know, proven that this machine can turn the crank. Equity dollars are gonna go on hardware, but once you really start to scale if you've picked your business right, and you're providing, you know, 10x, the value that you're capturing, and you're capturing a really strong margin with that value. These can be really great businesses. If you're a year or two down the road of shipping products and growing and showing these margins are real, banks will finance you and so I think that we can get there and our job as investors is to help our companies get through those intervening years. I don't know that we have to build hundreds of millions of dollars of CapEx, like traditional equity catbacks from VCs, to get to really big outcomes. And I think I did 10 years ago right. I think that many of them and I'm deeply appreciative of the companies that built before and show that there were big returns here, even if they require those big capex build outs. I think that the next set of unicorns will require the same amount of capital that the previous ones did.
JK: Yeah, I'll add to that too. I think you know, the answer that I have for a lot of, you know, co investors, who receive an opportunity from us, specifically within climate is “it will take a lot of capital to get there.” And I think you have to impress folks sometimes, but the scale of the opportunity is that much bigger, right? I think you have to believe if you're gonna make the investment, the size of the opportunity is there dovetailing into that, you know, we were sort of dipping the toe around climate. One of the things I find really cool about your portfolio is, I mean, what an intersection it is right? Earthforce, Glacier, and probably a whole host of ones that I'm not even mentioning. What specifically about that sub-sector, and like that convergence of climate and robotics, really interests you? Because it seems like you've had quite a bit of focus on it, especially recently.
AM: I have a couple of thoughts here. One is, my first answer was just selfish, I care about it. Right. I think that this is one of the big challenges our generation sees and that the people who I need coming out of school want to work on. And so I think that there's a lot going on there and a lot of opportunity. And it's fun. But my second thought, besides just me caring about it and looking for opportunities here, is that actually almost everything I look at is going to, if not directly, indirectly have a significant impact on climate. You know, you mentioned warehouses earlier. Warehouses were probably the first and best known robotics win out there Kiva systems and then many others to follow. So you might think that's a saturated space. Not much to be done there. Actually. It's just early innings. less than 10% of warehouses are automated so much to be done, and it's not just the warehouses, it's the last mile delivery, the you know, intermediate mile delivery, how we move goods around the world that drives a massive amount of co2 emissions, right, as I'm sure you know. So if you just step back and say, “we have a co2 problem, where's it all coming from?” Almost every industry is culpable in some way. Logistics is deeply comfortable. And so any robot tackling that is improving climate change, because better productivity and efficiency means less co2 release. So some are working more directly. Almost everything winds up there. Even transportation, right? If we can use our cars better, again, cars drive a lot of co2. If we could use them more efficiently, we'd make less of them, we'd have less co2 release. And the reality is that autonomous cars have not rolled out on a societal scale. They're not solving the problem. And if you ask people when that might happen at scale, when can you walk anywhere in this country and have autonomous vehicles solve the problem of transportation? You know, people still aren't saying it's, you know, 10 plus years out. So one of our first investments was in Atlas, which we think can deliver this in the very near term with more of a tail operation human in the loop. So everything we're doing is, I believe, mostly directly and sometimes indirectly, showing up for this problem.
JK: Yeah, yeah. One of the most, I think, common, differences that a lot of our guests talk about between climate 1.0 and 2.0 Is that climate, you know, 1.0 was so much about energy, and climate 2.0 is so much about industry, and difference really being here and you're talking about sort of indirect and direct impacts. It's not just warehousing, but it's logistics to and from, and it's not just getting supplies to and from it's getting humans to and from and at every piece of that there is a carbon impact. That's the big difference here. And that's sort of I think, as investors, right, not just folks that obviously care about this and like talking about it, but also as investors that have, you know, goals and targets for a return on investment. That's actually really, really exciting. You know, sometimes I think, meeting founders really admire the effort that some of these folks spend on, you know, building in the world of atoms building hardware. And I know you appreciate this because I've heard you say that founders build robotics or play games on hard mode so elaborate on that a little bit. What does that mean to you and what is it about these hardmode founders that particularly attracts you?
AM: When I look at some of the you know, the projections and spreadsheets who look at the span that we're going to need to do to prevent forest fires from you know, happening at the scale they are or the spend that we're going to need to do to maintain our infrastructure, even something as simple as maintaining the roads in this country, right. In terms of hardmode it's really hard to show up with solutions, right? Almost the first question I always ask when I'm engaging with founders is does it work? Because you can imagine that if it worked, there would be value for society right? There would be value for the investors or the value for the founders. Great. We're off to the races. But it's really hard to make this stuff work. And that's why I think it's hard mode to build a robot that can drive around the, you know, let's say Boston, where I live, you know, San Francisco, your neck of the woods, or in New York, where I was just earlier this week, and fil in the potholes, right, that would be nice. Those roads are pretty rough. That's harder to build right? There's just so many components to it. And so you need hardware founders who understand what's possible, understand how to assemble a pretty complex machine, and then you need the software to unlock that machine right. Have to know where you are to avoid hitting pedestrians and have some sense of the larger city right so you have not just a software problem, you have a hardware problem. And then that's great. Even if you can build that machine there's probably a near infinity of ways to drive a working machine into the ground and never see the light of day because you have to figure out how am I going to sell this machine to municipalities to, you know, contractors, etc. So then you have to raise money to enable all of this and you have to find the small set of people who are living 10 years in the future, which not all investors are ,and find those people and there aren't enough of them. So I think it is a hard space to work in. I think the wins are If you succeed, you get those really big industrial returns and you deliver huge societal value.
JK: As you evaluate these founders for investment, are there two to three things that you need? To see from the founders specifically, that convinces you that they're ready to play the game?
AM: The cliche is team, that's always going to be the first answer. Is this a phenomenal team? And there's many ways to measure that. For me, it's about you know, the cliche, but a cliche because it's true, is grit, right can this person keep going when things get hard? I've built a bunch of businesses. I've shipped a ton of products. I've seen businesses fail, you know, the family business and ups and downs. My startup looked good and then it didn't. Anything you do is going to hit a brick wall at some point. Is this founder going to keep going? Do they have evidence of that in the past? Are you making a bet that they are somebody who can do that? So getting a sense of them? So that's always the starting point. The other piece of that which is team related. Is this person going to be customer obsessed? Are they going to figure out how to go to market? Are they going to build the thing the world needs and in robotics, because it is hard? The people who tend to go down robotics paths tend to be hardware and software people who understand what they can do with this. They aren't always the people who want to go have 50 customer phone calls. Understand “what does the world need”? I have this cool idea. I have to tweak at five degrees. To meet what the world needs. That's the thing to figure out: this can unlock these companies' product market fit is always what you need. And I'm looking for people who think as much or more about that than they do about technology.
JK: And there's an aspect of storytelling there to aid and, not just sort of like toot our own horn, because this is what we do. But part of the reason why I love working with robotics founders is like there's a level of self-reflection that engineering-focused founders have where they integrate these systems, and I know how to get the robotic arm to pick up and drop and do the stuff. What I maybe don't know how to do is help my customer understand, at an emotional level, why this is the right solution for them. And I actually put him in one it's sure it's a challenge for us in our team as we're doing the storytelling. I actually love when you have a founder that understands their strengths and where they're not so strong, because when you can help them hire for it to you, you know, they'll sort of like hear you and your point. It takes a different energy to go and have 50 customer calls. You're in sales mode, you're in pitching mode, and not every founder comes out of the box with all of those skill sets. It is an interesting challenge to have but a very important one because somebody says if your technical talent is a 10 out of 10, but your communication skills are 3 out of 10, your customer is going to perceive that your technique is actually 3 out of 10 and so the more work you can do to improve your communication to get it as close to where your technical skills already are, that's like the alpha for you. That's the opportunity for you. And you know, I think more and more hardware robotics engineering founders are starting to realize the importance of that communication, that storytelling, that customer obsession. I'm really glad you called that out.
AM: And I love that you highlighted 20 years later after my tech career, I started as an engineer who just wanted to build cool stuff, don't want to do sales conversations, and think sales is silly. Just want to build and push the edge of technology 20 years later, you know it's the adage every sufficiently senior job is a sales job. All you're doing is selling and that includes selling customers and earning revenues and building a business but it's selling executives in the direction you think is going to win those customers and selling people to come recruit and join your teams. As you're scaling a company, fast recruiting becomes a long pole and you have to bring people in. And then it's selling the organization you built on what the North Star is and they all move in the same direction. So storytelling becomes a vision setting and leadership and bringing people along selling them on where you should go. And by the way, selling is not just shouting into a void. Right selling is listening. Right. The best salespeople understand it. What do you want, Jay? Right. Why are we talking? What is it that would solve your problem and then thinking, am I the person to solve that problem? And if not, could I be and how am I like so that's a way of approaching the world that if you get great at that you're going to be a successful founder. And I think great engineering leaders do that. Right and learn to do that. And it's totally a trainable skill. You just have to put the reps and put the time in. So we're always looking for that.
JK: Yeah, it's one of the hardest transitions I see. Engineering founders have to go into sales. And then for those of our listeners who are sort of at that phase, I'll tell you what, there's one other difficult transition coming around the corner, which is okay, now I've learned sales and I'm really focused on it. And now to go from a sales focused CEO to actually being a management CEO and hiring a sales team under you and empowering them where you don't have to be on every sales call. That's another transition that happens. I mean, look, as an investor, it's fun to see the founders, like really level up their game. I'm sure if you're in the thick of it. We're trying to balance both of these, you know, as a founder, it's not it's not the easiest thing. On the topic of first time founders. Are there things that you see, you know, first time founders building in hardware in robotics? Do you maybe wrong or do due to slowly that you feel like repeat founders are doing a lot better? What are the repeat founders doing that first time founders can be learning from?
AM: I will say a repeat founder has just stubbed their toe a lot, right? So they'll understand. And it's maybe related to my key takeaway from product management. If you asked me to distill product management into like two sentences, you'd probably be great at storytelling. We just had that conversation. And the amazing focus, right, pick one thing and do it well and know what it is and why. And I think repeat founders know that right when they're confronted with, oh, look, my company could be applicable to these five market areas. They know that they have to pick one and focus. It's maybe okay to explore five for a while, but if you keep exploring five for six months, time kills companies if it's not time spent on a focus area. So I think probably a repeat founder just understands that the urgency of time at early stages and the value of focus, and therefore lining the whole organization up on things that matter and ignoring things that don't. I just read, maybe this morning on Twitter, somebody was saying, as a founder. One of the things they learned is that you've got to let some fires burn now first time founders sometimes have that too, you know, whether by virtue of being lucky or thinking hard or or surrounding themselves with great advisors who have themselves stubbed their toes, so focused on the focus lesson, because of the times when I screwed it up. That's the experience.
JK: Yeah, I'll click on that too, because I often tell founders you have to understand who your audience is, right? Because we're a little bit back to our storytelling standpoint on this prioritization point. When you are telling one story to investors where they want to hear that you're going to conquer the world, this is going to be one of the 100 most important companies, and anybody is your customer and everybody is, you know, the target market. And sure that's, that's a good story to tell on one hand. That is not the story. You can be telling your team because your team needs to hear from you “hey, in the next 18 months, these are the customers we're serving. Here's the path that we're going down” and it's hard. I mean, I empathize with founders because you have to sort of hold two things simultaneously in your head, which is, one day everybody is my customer. But today I serve this very small niche, and I do that one thing really well. And to your point, you know, whether first time or serial entrepreneurs the best folks have the ability to balance those two things. And I think it's just an added aspect of prioritization, which is, you have to be able to tell everybody what the 10 year vision is, but then focus them down to the next 12 months. I guess, speaking of some of the challenges, you know, we talked about them at the top of our call, whether it was you know, the capital stack whether it was actually just having the team and talent to go and execute on the hardware and software point.
AM: I think we've got a pretty good answer. At Alley Corp, it’s pretty unique place because we build companies so because we incubate companies. We think a lot about “how do you go from zero to one, where zero is like nothing, maybe a concept, some proof points in the market, and a CEO to a company that's built and you got an MVP in the market. Of course, we have, you know, partnerships that help with storytelling and comms and that's important. We have search recruiting at you know, teams and Ally Corp that helped us staff that team quickly find go to market product edge leadership. We do a lot of executive CEOs search and placement, and other C suites. So that's great because team formation for forming a phenomenal team is not easy, incredibly important and we bring that for companies we invest in as well as companies we create. But the other really cool thing that we've got is Alley Corp engineering. So we have offices in Montreal and Colombia, where we have amazing people who are ready to go to work for companies that we build or invest in. And, again, that means and I saw this all the time, you go raise some money, great. I've got money, I have to staff a team. I can't spend that money. So I have an engineering team. And that can take time, right? Sometimes, labor markets are tight, but even when they're not tight, it's still hard to find the right people. You'll introduce a multi month lag into actually getting moving in three months when you have an 18 month runway as a huge percentage of your likelihood of success. So Alley Corp has engineering teams ready to go to staff onto our companies like that. And these people have worked together before we know them. The bar is very high in machine learning, data science, and other excellent backgrounds and by the way, some of them are robotics people. Now we have not created a robotics company before but we're starting to get into this world of can we have our engineering teams ready to go and help on the robotic side. So I absolutely believe we will be bringing this to bear in our companies down the road. A few of these conversations are happening, like building and shipping is critically important. The other cool thing is we'll build up an expertise as we have in SAS and healthcare and other areas, which will let our teams just kind of punch above their weight because they've been there done that those are a few examples of what I like what brings beyond just having spent, you know, pushing two decades in the world of building early stage companies and building strong networks around us.
JK: Yeah, no, that's wonderful. I love that. We love to do the segment with our guests called hyper hopeful. So we're at that juncture now. Basically, I'm gonna pick a trending topic, or two and I will make a statement that is hyper-hopeful and then I would love your quickfire thoughts. And if there's anything to unpack there, then we'll go ahead and do that. AI-based solutions. AI is kind of the buzzword right now. But they're often proposed in the context of the climate crisis and climate issues given the multi-dimensional nature of these problems. Do you think AI integration of the climate fight is hype or hopeful?
AM: Absolutely hopeful. I'll start by saying that AI includes the things we were doing 10 and 15 years ago. When people say AI now they often mean generative AI. Not just the fun stuff, but there's workhorse AI that got going decades ago that really became almost tried and true a decade ago and is everywhere now. You know, that's not software that unleashes the hardware. So I know you looked at Earth Force. We're excited about them. They're out there helping prevent forest fires. What does that mean? That means that they have to identify and remove based on a forest or prescription in compliance with regulations to prevent hurting endangered species and so on. They have to remove a whole bunch of vegetation. From forests so that when the fires burn, you don't get these massive over burns and huge co2 releases. Well, today we're doing this on such small scale because humans have to show up and walk the forest and work trees with spray paint and string and it's crazy and what we're doing is showing up with AI that will have a forestry prescription given by a forester that will automatically identify the appropriate trees to tell the guy in the forest or on the ground “get rid of this one, not that one.” And at the scale of, you know, climate, which is hundreds and hundreds of 1000s of acres that need to be treated in this way. Give us proof about what happened, and let us run algorithms and show like, if we do this, here's what happens. So I see it in every one of our companies using AI to do what they do. They are tackling climate in various ways, and could not do what they're doing without AI techniques. GPT and MLMs. Maybe more on the hype side for robotics, but sure, I would love it to be hopeful. I'm an optimist. So therefore I hold my breath and cross my fingers and I know once these companies show what's possible and what works every one of my companies will incorporate and apply these techniques and just get better
JK: The fun of doing this show is I'm learning how many optimists there really are out there. We got a lot of hopefuls with very, very little hype. On the topic of call it you know, human labor and blue collar industries, agricultural transportation, manufacturing. They all promise to reduce waste and efficiency when it comes to integrating robotics. But then there's also real concerns about robots taking, you know, good-paying human jobs. So on the whole, do you see this trend of robotics and blue collar industries as hopeful progress or potentially detrimental hype?
AM: Gotta be hopeful all day long. And a really great specific example, which is working in a greenhouse is not always a fun job. Right? These greenhouses can get to 110-120 degrees Fahrenheit, extremely humid, and it's hard labor. And as a result, as you'd imagine, people running greenhouses are labor constrained. And greenhouses generate a lot of our, you know, healthy food to produce vegetables. And by the way, when an Amazon warehouse shows up across the street from the greenhouse, almost every worker in that greenhouse runs across the street to work in the Amazon warehouse, which is maybe only 90 degrees and, you know, slightly less terrible. The fact is that there are a large number of jobs that humans don't want to do the moment they don't have to do them. They choose not to do them with their feet. And everybody is chasing this labor, whether it's highly educated or blue collar labor. So I think that we just see, as we automate jobs, people go work, the next job, hopefully pays more. Hopefully, it's a better work environment.
JK: Yeah, yeah. And I think the added sort of component to that is, you know, where is robotics augmenting human labor versus outright replacing it right? And if and if those folks can still be working in the same industry, but don't have to be in the 120 degree, you know, greenhouse then that ultimately that's that's probably a better outcome for them and the folks in the industry.
AM: To jump in on that note, we have a huge thesis on human in the loop robots, right. I think AI, I'll actually toss out hype. AI is hype if people think it's going to completely replace humans, and we'll have fully automated robots doing everything everywhere. We are so far from that. And I think even the shiniest AI is not going to enable that anytime soon. So I believe that it will make this robotic machinery easier to manage and more capable, but we will still need humans for decades and decades mining it, controlling it, directing it, correcting it. And those can actually be fun jobs. Certainly they can be jobs done in climate conditioned environments. Much better than a job in a hot dusty field or even frankly, in a dangerous, you know, remote forest location where if a fire does come up, it's hard to escape. And another really great example is in janitorial robots, where I've talked to people who have just stories of happy janitors who get to become robot minders. They're no longer pushing vacuums around, they're minding a robot fleet, and they still can't hire enough people for these jobs. So I just think across the board, super hopeful about that human in the loop robots making jobs better.
JK: Let's end our hyper-hopeful talk about business models because this is something that I know you have some thoughts on robotics as a service as a viable business model to unlock robots in more of these industries. So sounds like a great idea first, then you realize that actually, there's an additional layer of change management and not just how the customer is integrating the solution into their day-to-day, but also, you know, they're used to paying for something upfront and having a budget for it on an annual basis. And now we have to convince them to pay for it, you know, as a service on an ongoing basis. So, looking at the next decade ahead, do we think we're going to see more robot robotics as a service company? Is that hype or hopeful?
AM: I'll call this one hype. So the hype piece of it is there are industries where you're never going to sell them off x right? And here I have a company selling to utilities. And this is just a virtue of law, how we regulate utilities, the fact that they're not trying to sort of really private companies, utilities get to take CapEx spend and charge all of us for it. So if my local electric utility has a choice between buying a piece of robotic equipment outright and paying a RAS service fee, even if that RAS fee is cheaper for them, they'd actually rather pay a lot of CapEx, reduce their profits accordingly and then go gouge me for it later. If not gouge certainly put it into my you know, rate increases. So I think that that's not going to change. This is where I'm a pragmatic optimist. I don't think you're going to change how utilities are regulated in the next decade or two. There's huge money to be made selling to utilities. They're gonna buy callbacks in almost every situation. On the other hand, oil and natural gas, other of these like energy generators, they love our backs because they're under a different regulatory regime, and they will happily buy RAS right. So I think the answer is yes to both of them. And from my perspective, the key question for our companies is, are you capturing value, right, so the challenge with the capex sale is you might not capture all the value that you create, you don't want to become a commodity producer of hardware. One is, it's less fun as a business owner, right, that pushes down margins and makes it a less interesting business to invest in. So you can say selfishly Of course, I'd say that, but actually think is larger than that. These are not hardware businesses, right. A robotics business is not a hardware business today. It is a software business and software, it rots. And that's why the entire software industry moved away from shrinkwrapped places and software to software as a service and that makes sense because you need that software maintained. You need security updates needed to work with the new database that has to come out and it just has to keep improving year on year. And if it's not a business, you probably don't want to bet on it. And I think we're all totally accustomed to paying subscription fees for core pieces of our businesses. I think that these robotic solutions will become that as well. And that's where you're paying a service fee for this part of your workflow, the right part of your workforce is now this robotic system. You want that thing to get better every year and you certainly don't want it to break and you don't want the company to go out of business. You get that by supporting these, these are as business models. So even on the CapEx side, you have to make sure that you do have a meaningful, you know, maintenance contract that enables that.
JK: Yeah, it's been one of the most interesting things for me as an investor in this category. Coming from I'd say doing mostly software, to now you know, integrating more of these into my portfolio in having those customer conversations, you know, prospective and current customers is so important to just realize, like, you can want everything that a company is selling and yet if you're not aligned on the business model, then that sale becomes so much harde. And the utility's example was fantastic for that. You know, one of the things I really love about following you on social media is how many cool reports and newsletters and things that I see you reading and sharing in the robotics world. Where do you go to find these things? How do you stay up to date, given all the advancements that are happening?
AM: A call for people who know. What I should be reading that I'm not because I'm absolutely missing things. I actually think that this is an underreported under-stored part of the market. I think it's NASA and An Early Day for Robotics and Automation. And I think we need more people showing up and helping tell the stories and getting stuff out there. So it's great to have Jay and your team at VSC take notice. Certainly there are some classics Brian Heaters, phenomenal at TechCrunch. The robot reports great so I just go read the obvious stuff. And then I'm collecting a list of all the cool kids on Twitter on LinkedIn playing with the new threads. I hear we have to do that and just see what they're up to. But also just talking to academia, right? It's kind of cool what's happening in robotics in an academic setting. That doesn't mean that that's what we're gonna put into our, you know, startups tomorrow, but it's interesting to see what they're working on, and what they're publishing and writing about. So, I'd say, you know, one of my secret weapons is I love reading and I get so deep into the spaces I get excited about. So I'm just always looking around.
JK: Yeah, yeah, look, I think that's the most fun aspect of sort of being in this category now is I think a lot of investors are realizing there isn't a ton of differentiation when it comes to standard SaaS. Right? The era of SaaS that we were all in for so many years is kind of past us. And so for those of us that are a little bit earlier to this and recognizing, hey, actually the really cool stuff is happening in the world of atoms, not bits and hardware and robotics and hard industry. It's really cool to kind of follow some of these writers and be a part of you know, creating content that elevates these conversations.
AM: I will compete all day long with our robotics content against SaaS content, right? You know, there's only so many ways you can talk about a shiny CRM and I love my CRM and it really works. But boy, a robot that's inspecting an electric pipeline under New York makes a really cool video, right?
JK: It's a great point too, because I think from a visual content standpoint, and a visual storytelling standpoint, that's definitely one thing that robotics companies have going for them. So well. We'll close like I said, where we'd love to close with all of our guests. There's a lot of doom and gloom out there when it comes to climate anxiety, lack of climate action. But as you've shared you're quite optimistic, you're quite hopeful guy. So help me understand what is one thing that gives you open optimism about this fight against climate.
AM: I just fundamentally believe that humans will work on problems that need to be solved and fix them. I think we rise to the challenges we are given, and it doesn't mean they will be pretty or fund, but believe that we will, and we will because we must, so there’s a little bit of a tautology in this, but I’ve chosen to put a lot of energy into this. I talk to people who solve these problems, and there is nothing like an anti-doomerist pill you can take than talking to a couple hundred of these founders who are building companies. And you look at what their building and you realize, if a third of them succeed, we put a dent into the problem. And if we all succeed, we are moving the right way. Because nobody is telling the story about someone who is working now on building something that is going to matter in 10 or 20 years. And we really can’t imagine that. I truly believe that the people we are talking to now, some of them are going to make it work, and that is going to matter.
JK: You are so right, and even if we can’t fund all of the companies out there, the hope that each one of those injects, it makes us want to keep finding more founders. And I know that because we share a portfolio company and we have looked at companies together, and it is so evident out of every company in the Alley Robotics portfolio. Thank you so much for joinin me on Climb today, and for sharing your perspectives and lessons, and here’s to us finding more deals to do together in the near future.
AM: You got it, it’s a pleasure Jay. Thanks so much for the time.
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Vijay Chattha & Jay Kapoor