Venture capitalists investing in AI and robotics startups suggest they reassess their business plan amid economic uncertainty spreading alongside COVID-19.
Jocelyn Goldfein, managing director of Zetta Venture Partners, said the current climate might mean startups have to achieve higher proof points to raise their next round. Her company is helping startups think about whether to raise money now, make the money they have last longer, cut costs, or sprint to profitability.
“I think our advice to startups is now trending toward … if we have the opportunity to raise money now, let’s take it,” Goldfein said. “I think we’re optimizing and gearing a little more toward survival and a little less toward growth at all costs, but for the most part, if you’re an early stage company with a great invention trying to demonstrate product-market fit, you can do that.”
Goldfein spoke on a panel at an all-day AI and robotics conference held Tuesday at the University of California, Berkeley. She was joined onstage by Y Combinator partner Eric Migicovsky, Innovation Endeavors founding partner Dror Berman, and TechCrunch reporter Connie Loizos.
Goldfein said she’s no longer interested in investing in autonomous driving companies, calling the industry overhyped and dominated by “behemoth” companies. GM’s Cruise, for example, has a $19 billion valuation, while Google’s Waymo raised $2.25 billion in a funding round announced Monday.
All three VCs said they’re still taking meetings with startup founders, though Goldfein said she takes no offense to people converting an in-person meeting to a video call.
“We’ve started thinking what it took to survive and thrive in past economic recessions for startups,” Goldfein said. “And the good news for a seed stage startup or an early stage startup, if you’re trying to demonstrate product-market fit, if you need five to 10 design partners or enterprise customers, a recession makes absolutely no difference to you — you’re going to go find those five to 10. It may take you longer, you may have to work harder, you may face fiercer negotiation on pricing, but you can get them and you can raise series A funding.”
Innovation Endeavors founding partner Berman said he thinks robotics startups shouldn’t change much in response to COVID-19 because they need to be keeping an eye on long-term goals, and that requires discipline. Despite uncertainty, startups still have to prove there is a market for their use case because that’s what they’ll need to raise money and grow.
“So I wouldn’t panic,” he said, recommending that founders wait for “reasonable evaluations.”
Berman said he’s currently most interested in investing in robotics startups in structured or industrial settings, like life sciences, supply chain logistics, and construction, and less interested in, for example, robotic grasping systems for picking robots in ecommerce warehouses.
In other advice to startups feeling COVID-19 reverberations, on Thursday Sequoia Capital shared a letter to portfolio companies like Airbnb, Bird, and Drift. The letter advises them to prepare for a drop in business activity and supply-chain disruption, and to assess their cash runway, funding opportunities, capital spending, and whether they should lay off employees. It also says they should give employees clear-eyed assessments of how the quickly changing situation is impacting operations.
“False optimism can easily lead you astray and prevent you from making contingency plans or taking bold action. Avoid this trap by being clinically realistic and acting decisively as circumstances change. Demonstrate the leadership your team needs during this stressful time,” the letter reads.
The letter resembles Sequoia’s “RIP Good Times” presentation ahead of the economic downturn in 2008.
Migicovsky, Y Combinator general partner and startup school course facilitator, said robotic startups should be mindful not to underestimate long-term maintenance costs, since understanding those costs is important to figuring out how you fund and build a business.
“A lot of early-stage entrepreneurs haven’t actually worked in the industry that they’re building a device or a robot to work in. And so I think one of the things that we see is underestimating the impact of maintenance and wear and tear,” he said. “If you’re spending more on maintenance than you expect, that may actually sink in and ruin the unit economics you have been fighting so hard to pull off.”
Migicovsky sees more opportunities ahead to explore edge computing use cases.
“We’ve seen more and more people work on edge computing, specifically around AI applications on chip [or] on device. [We] haven’t seen as many great use cases pop out to actually use those chips. We’ve seen more chip companies doing that, so that would be one thing we’d love to see: more applications of edge computing,” Migicovsky said.
Goldfein wants to see more robots solve problems that humans cannot yet solve in health care, as well as helping reverse the impact of climate change.
Berman is interested in applications like Vicarious Surgical, which uses robotic virtual reality to beam a surgeon into a robot, or in moving robots from structured to unstructured environments with computer vision.
Migicovsky says he sees an opportunity to grow a financing company that enables a robot-as-a-service business model for AI startups.
“We’re realizing that robot-as-a-service is a fantastic business model. It’s really compelling for the end customer because they have a business need that they need to solve. And they recognize that there’s a specific ROI that they would get if they had this robot on staff,” he said. “Someone needs to put together a financing company that’s specifically designed for [a] robot-as-a-service business model. There already is venture debt, which kicks in if you’ve been able to raise a series A, but we’re looking before that stage when you’ve maybe raised a seed round from one of us.”