Robots, once the stuff of science fiction, have become big business. Fewer places have been as instrumental in the development of robots as Pittsburgh, home to Carnegie Mellon University and its Robotics Institute, founded in 1979. One of the companies at the forefront of the community is Innovation Works, a venture capital firm that has backed a wide away of high-tech startups, including: Bossa Nova Robotics, CivicScience, JazzHR, Wombat Security and 4Moms. Exits have included:Modcloth (acquired by Walmart), NoWait (acquired by Yelp) and Vivisimo (acquired by IBM). IW and CMU recently teamed up to host the 1st Annual AI/Robotics Venture Fair. The event showcased 20 of the area’s artificial intelligence and robotics developers and attracted more than 100 investors. It was held at IW’s headquarters in Nova Place, a multi-million dollar urban redevelopment of the former Allegheny Center Pittsburgh.
Rich Lunak, the president and CEO of IW and a graduate of CMU, joined the firm in 2005 after a storied career as an entrepreneur and executive. He helped grow Automated Healthcare, a company that pioneered the use of robots to dispense drugs in hospitals, from a three-person shop into a $65 million acquisition by McKesson Corp. (NYSE: MCK). After the sale, Lunak served as group president of McKesson Automation for a decade. Eventually, Francisco Partners bought McKesson Automation and renamed it Aesynt (pronounced ascent), and then Omnicell Inc. (Nasdaq: OMCL) bought Aesynt for $275 million in 2016. Mergers & Acquisitions asked Lunak to share his perspective on the investment opportunities for middle-market dealmakers in robotics.
What are robots doing today, and what will they do tomorrow?
As the cost of electrical-mechanical systems has come down, computer processing has improved, and enabling technologies, like artificial intelligence, machine learning and sensor platforms have advanced. Robotics solutions have become more practical and commonplace across many industries. Today, robotics solutions are disrupting markets as diverse as healthcare and agriculture to transportation and manufacturing. On any given day, a robot may be responsible for dispensing the medications you receive from your pharmacy, distribute the packages you purchase online or assist a surgeon with the medical procedure for a family member. With continued advances in the enabling technologies and support industries, these solutions will continue to proliferate by performing useful activities cheaper, faster, and more accurately than prior methods.
What are the opportunities for middle-market dealmakers to invest in robotics?
As the robotics market grows, it will create increasing opportunities for middle-market dealmakers. In the Pittsburgh-area alone, Pittsburgh-based robotics/AI startups have attracted over $325 million in investment in 2017. Some of the recent M&A transactions include: Blue Belt Technologies, which was acquired by Smith & Nephew for $275 million, Aesynt, which was acquired by Omnicell for $275 million, Ottomatika, which was acquired by Delphi, and Aethon, which was acquired by ST Engineering. On a national level, tech giants like Google, Amazon, Uber and Ford have made high profile acquisitions of robotics companies. The momentum will continue to grow.
Why are growth-stage private equity firms backing robots, and what types of companies are they backing?
As with many high-growth, emerging technologies, robotics companies will continue to create opportunities for private equity investors. Robotics solutions have the ability to create a differentiated product offering that can help companies disrupt established markets and produce attractive returns for investors. Whether it’s enabling jobs to be done cheaper, faster and more accurately than ever before, or creating fundamental shifts in established industries, robotics solutions have the ability to generate strong returns and exit multiples.
How does your background as a robotics entrepreneur affect your investment strategy?
My experience as a robotics entrepreneur running several robotics-enabled healthcare companies has definitely shaped my views on the potential to build companies with lasting value. A common view on robotics technology is that it is best suited for dirty, dull and dangerous activities. And while that may be the case, I get most excited about those applications which focus more on high-value activities which can profoundly change the way markets have typically operated. I think that’s why you see a company like Intuitive Surgical Inc. create a market cap of $50+ billion versus companies that focus on automating rote and repetitive tasks.
Why is Pittsburgh the birthplace of many robotics developers?
Pittsburgh has unparalleled assets for robotic startup companies. In addition to having world-class robotics talent, we are blessed with the supply chain, infrastructure and a growing community of companies unlike any other region. Carnegie Mellon University is consistently one of the top robotics research universities in the world. Major technology firms are building out Pittsburgh-based research and technical offices in robotics. Pittsburgh is the home of the Advanced Robotics for Manufacturing (ARM) Institute, a $250 million initiative focused on accelerating the advancement of robotics technologies and education to the advanced manufacturing industry. Lastly, Innovation Works, the nation’s most active early-stage robotics investor (according to CB Insight), helps launch Pittsburgh-area startups with funding, know-how and networks of other investors, mentors and industry experts. Our program and nationally-ranked accelerator, AlphaLab Gear, provides design and manufacturing expertise, and contacts so robotics and hardware startups can get from a prototype to market quickly and effectively. Our region has a growing number of high-growth robotics startups and all the ingredients needed to scale them successfully.