Toyota AI Ventures LLC last month announced its second $100 million fund to invest in artificial intelligence and robotics startups. Toyota AI Ventures is the venture capital subsidiary of the Toyota Research Institute, which does advanced research for Toyota Motor Corp.
Los Altos, Calif.-based Toyota AI Ventures said it is looking for companies that are developing “disruptive” technologies and business models for autonomous mobility and robotics. It has already funded several startups working on autonomous shuttles, companions for the aging, and “human-assistive” robots, among others.
Jim Adler, managing director of Toyota AI Ventures, recently spoke with The Robot Report about his organization’s methods and plans for the second fund.
How difficult has it been to find companies to invest in?
Adler: We went pretty quickly right out of the gate in July 2017. We invested in 22 companies, out of which we’ve announced 17. We see a lot of opportunity for robotics services that deliver real value. That’s the case in autonomous driving and all sorts of applications. We’re very excited about it, and we think there’s tremendous opportunity in the service space.
Is Toyota doing this to diversify its technologies beyond automotive? Must the recipient startups already be partners?
Adler: Part of the objective of the fund is to discover what’s next for Toyota. We’re certainly focused on strategic returns with startup founders and co-investors.
To encourage the startups, we have a platform team to connect to the portfolio at Toyota. Most are unannounced, but it’s important for relationships to grow among startups. A significant portion of the companies we’ve invested in are already engaged with Toyota in some way, but they’re not necessarily suppliers or clients to start with.
What portfolio services does Toyota AI Ventures offer?
Adler: We view our startup portfolio companies as our customers, and we look at how we can help them. Every startup needs talent, so we’ve launched a talent network. We can help connect them to marketing, public relations, and fundraising.
Portfolio companies can also connect to Toyota’s global network of manufacturing and supply chain partners.
Every startup needs help with executive team coaching or recruiting, or with product-market fit. We want to help them grow value as fast as possible. We have dedicated people, and with Fund 2, that staff will be growing.
What sort of criteria do you have for startups to fund?
Adler: We’re looking at everything — horizon technologies like the autonomy stack and applications. Fund 1 did quite a bit in the autonomy stack. We did a couple of deals around sensors and predictive analytics, such as Perceptive Automata and Realtime Robotics.
Once a company takes venture capital, their most important objective is finding a product-market fit. Finding customers that will pay real money for products is key to growing the [robotics, AI, and autonomous vehicles] market.
Speaking of markets, other than vacuum cleaners, the household robot market has struggled lately. Many social robot providers promised to teach children, care for the elderly, and more. What lessons should robotics developers take from that?
Adler: Don’t try to do what you don’t need to do. That’s why I was impressed by Dor [Schuler, CEO of Intuition Robotics]. He didn’t feel the need to vertically integrate or to copy things like Amazon Alexa or Google Home.
Intuition focused on its core competency — building cognitive AI and a proactive companion. Everything else they could buy through cloud services or embedded products.
Competitors that have failed with consumer robots have tried to do way too much. There’s a saying, “Startups don’t die of starvation but of indigestion.”
Step 1: Focus on your core competencies and the value that your product or service bring to the market. Step 2: Focus on a market that’s winnable, that’s big enough, and that’s worth winning.
Step 3 is introducing a product that the market is willing to pay for. In the case of ElliQ from Intuition Robotics, that’s older adults.
There are great technologists around robotics, but there’s not equivalent talent focused on business realities. We love the tech, but we get excited when we see a startup that has the humility, sensitivity, and experience to bring a product to market.
You mentioned the mobility space — is that a short-term or long-term investment?
Adler: On the service side, at the top of the stack, you can look across our portfolio and pull out four or five companies. For air mobility, Joby Aviation is a longer-term bet given FAA certification. We think there will be incredible demand, particularly in urban areas.
In the shorter term, May Mobility is already charging money from customers today. It’s the only autonomous shuttle that has moved beyond demoware to real services.
On the industrial side, there’s Third Wave Automation. That’s relatively near term, with tremendous opportunity in warehouses. Similarly, there’s a lack of pilots for ships, and there’s difficulty in certain missions or with certain workloads.
Sea Machines provides efficiency in long-haul merchant marine trips that could be helped by vigilant autonomous piloting systems.
We’re excited by the near-term, midterm, and long-term opportunities on the mobility side. All these companies are very much focused on the market, whether it’s air taxis, passenger shuttles, or on the seas. We know it’s hard [to develop such technologies]; unless you can apply it, that’s what matters.
Back in the late ’90s, Jeff Bezos said that Amazon is not a book company; it’s a retail company. He viewed the Internet as a conduit and didn’t let it define the business.
With the T-HR3 human support robot and ElliQ, Toyota has supported work in assistive technologies. What about other robots for healthcare?
Adler: We’ve looked at several companies in the assistive, healthcare, and agriculture markets. Embodied is closer to that space.
We’re a little gun-shy around regulations around the FDA, but there are opportunities for assistive autonomy. If we see a great team that has a go-to-market strategy that’s scalable, we could do something there.
Are there limits to acquisitions or doing research and development in-house? Is that one driver for working with robotics startups?
Adler: Corporate venture capital can serve the community better than it has. Some enterprises do it well, and some do it terribly. We need to understand that long-term relationships grow over time. You should never do it for the press release; do it for real business value.
Such deals have to be win-win to be sustainable in the long term; they can’t be forced or overly one-sided. Word gets around.
We’re quite proud of our relationships. Things don’t always work out — friends will quarrel — but it’s important to be open, honest, and respectful. This prepares the ground for fruitful relationships, and everybody’s got to make money.
Unlike some other big tech firms, we try to understand different corporate cultures. Every startup has one. If you’re going to invest in, partner with, or acquire a company, learn about each other’s corporate culture. Compatibility is the key to success. “Culture eats strategy for breakfast,” said Peter Drucker.
What’s the time frame for new recipients of Toyota AI Ventures funding?
Adler: We’re opportunistic if the opportunities are there at the share prices that make sense. We can move quickly for great teams that are innovating and disrupting markets. Twenty two in two years for Fund 1 was quite fast for VCs.
We’re not afraid to pull the trigger, but we want to deliver value to the portfolio companies that we invest in. We also need good matches for the Toyota ecosystem. While we don’t require startups to be customers, if they offer some value, that does weigh in our decision process.
It was more than a year between our investment in Intuition Robotics and any business deals between it and Toyota. It sends an important signal to startups to match investments with maturity and receptivity to customers.
We’ve been thinking over the past couple of years about where we see the world going. We see resonance with the idea that machines will amplify human capabilities. It’s part of Toyota’s 80-year connection between people and machines.
We’re delighted to work with innovators and see new business models. Warren Buffet said he dances to work every day, and I do too.