First British Robotics Fund to Strengthen Local Industry, Commercialization

The U.K.’s first robotics fund is looking to invest in a dozen startups over the coming year, helping them make the leap from seed rounds to commercially successful companies.

The U.K. has a strong academic and research base, but it has lagged behind other countries in Europe and beyond in terms of having a robotics fund for commercialization.

Last month, High Growth Robotics Ltd. launched the first investment fund for U.K.-based robotics startups.

High Growth Robotics cited a study by market research firm Tractica LLC that predicted the global robotics market will grow at 45 percent and “approach a quarter of a trillion dollars by 2021.”

The British Robotics Seed Fund is meant to encourage U.K. innovation and provide a means of support that complies with the Seed Enterprise Investment Scheme (SEIS) for tax benefits.

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Business Takeaways:

The British Robotics Seed Fund is the first dedicated robotics fund in the U.K. and is meant to help bridge the gap between R&D and commercialization.
Establishing the fund took time because of the need to comply with regulations and offer tax breaks, which could be complicated by the “Brexit.”
Dominic Keen, founder of High Growth Robotics, described the challenges faced in setting up the fund, which has drawn interest from investors in the U.K. and China.

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That’s not to say that robotics in the U.K. hasn’t received significant investment. Last summer, Icon Plastics in Stockton-on-Tees received £200,000 ($246,000) so that it could hire robotics staffers. London-based EY (formerly Ernst & Young) plans to reinvest its record revenue into artificial intelligence and robotics. And Demon Drillers Ltd. in October invested £120,000 ($148,000) in robotic demolition equipment.

But until now, there hasn’t been a robotics fund for investors to assess the risks and rewards of this technology. Startup incubators exist, but young companies still need help making the leap from prototype to commercialization.

The British Robotics Seed Fund will provide £300,000 to £400,000 (about $370,000 to $493,000) to up to 12 startups per year for robots that serve the agriculture, construction, household, and logistics industries.

Sapphire Capital Partners LLP will manage the $2.2 million fund with High Growth Robotics, which will find and mentor robotics entrepreneurs so that they can move beyond the seed stage to full commercialization.

The fund is open to investors with a minimum of £10,000 ($12,000) and to SEIS-qualified robotics companies. It closes on March 31, 2017.

Dominic Keen, founder of High Growth Robotics Ltd.

Dominic Keen, the founder of High Growth Robotics, is an engineer by training and responded to Robotics Business Review‘s questions below.

Why did take some time to organize this robotics fund? What sorts of challenges or obstacles did you encounter?

Keen: The key challenge has been to put in place an approved regulatory structure for the fund because raising an investment vehicle aimed an early-stage, unlisted businesses is tightly controlled by U.K. securities law.

It has been important to get the tax structuring correct so that investors in the fund can gain access to the very attractive tax incentives that are on offer for this type of investment.

I chose to work with Sapphire Capital Partners, [which is] authorized by the Financial Conduct Authority and could act as approved fund managers as well as set up an appropriate compliance structure for the fund. All this has taken time.

What levels of interest have you received from investors? Do you have any international partnerships?

Keen: Investors in the fund are private individuals and families who pay taxes in the U.K., and interest has been strong so far, as people increasingly want to include some robotics upside plays in their portfolios.

Whilst the focus is on technology created in the U.K., we are in early dialogue with prospective Chinese partners to open up some generic distribution channels there. I anticipate that this model may be recreated in other regions.

Why are there so few robotics funds so far? How is this an opportunity for High Growth Robotics and Sapphire?

Keen: Until recently, early-stage investors in Britain have treated hardware startups with a certain amount of skepticism due to the high level of costs traditionally associated with bringing products to market.

However, the rapid fall in the cost of low-run component production (using 3D printing, etc.) and the growing sophistication of widely available cognitive computing packages has meant that there is an emerging opportunity for much leaner startups to develop minimum viable products and establish commercial viability. This is the focus for the British Robotics Seed Fund.

Can you name some prominent laboratories and research institutions that readers in the U.S. or elsewhere may not know?

Keen: In my opinion, the two standout robotics laboratories are the Bristol Robotics Laboratory and the Dyson Laboratory at Imperial College.

Additionally, there’s a lot of cognitive computing action in London at present, with companies following the trail of Deep Mind.

What criteria will you be using to select the first 12 investment recipients? Have you been in talks with any robotics firms?

The robotics fund will typically invest in a robotics business with some of the following characteristics:

It provides a solution to a problem that requires physical manipulation of real-world objects (as opposed to fully virtualized systems);
The technology road map is likely to ultimately lead to autonomous system operations in time;
“Frugal robotics” sales models — such as robots as a service (RaaS) — which require minimal capital investment by the buyer, are likely to be preferred;
Where relevant, the business model should deliver at least a 200 percent performance improvement versus existing solutions to the same problem;
The business model should start to generate cash within 12 months of the initial investment and have a credible hypothesis on how it will create a return for investors; and
Investee companies will be chosen based on their potential for an attractive exit.

The fund is in preliminary dialogue with more than 20 potential investee companies across an extremely broad range of sectors.

What are the growth prospects for the robotics industry in the U.K.? Which sectors are likely to experience the most investment and adoption?

Keen: Over recent decades, the U.K. has become increasingly early-adopting and startup-friendly and, whilst the country is less likely to build large state-sponsored robotics ventures as might be seen in other developed countries, it is the home to large world-class talent pools in design and technology.

My belief is that the high levels of creativity of British technologists lend themselves to building lean, non-traditional robotics startups in sectors such as public and consumer services, environment, or construction, which are currently relatively un-automated.

The recent commencement of field trials of Amazon Prime Air in England demonstrates the current warm climate for innovation in autonomous technologies.

Did the so-called Brexit vote affect your plans, and if so, how? Will there be extra regulatory hurdles as the U.K. extricates itself from the EU?

Keen: The Brexit vote offers both opportunities and threats for U.K. robotics.

On one hand, restrictions on EU migration into the U.K. are likely to result in significant labor shortages in areas of the economy such as service sectors and care of the elderly, creating space for automated alternatives.

Furthermore in some industries, such as agriculture, EU policy has been seen to put a significant drag on innovation.

However, on the other hand, increased barriers to EU markets for robot exports and more general economic perils arising from the unraveling of free-trade arrangements are likely to be somewhat detrimental to the development of British-based robotics businesses.

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