How to invest in robotics in a tax efficient way How to invest in robotics in a tax efficient way

Dominic Keen, founder of Britbots.com writes exclusively for What Investment on how investors can invest in robotics in a tax-efficient way

 How to invest in robotics in a tax efficient way

Wade sees economic troubles ahead

The promise of robotisation within many areas of life represents a new industrial revolution that will spur on the global economy over future years.  Consequently, robotics looks likely to emerge as one of the hottest areas of early-stage investing in 2017.

For years seed-stage investors have treated hardware start-ups with a certain amount of scepticism due to the high level of cost associated with bringing products to market.  However, recent falls in the cost of low-run component production (by use of 3D printing etc) and the growing sophistication of widely available cognitive computing packages (from IBM, Google and others) have created a new opportunity for much leaner hardware start-ups to develop their  ‘minimum viable product’ and demonstrate initial commercial viability.

Until recently the vast majority of robots were sold to automate high-volume manufacturing tasks, however much of the excitement around the new generation of robotics start-ups appears to be focused on applications outside the factory.  Robotics increasingly is becoming a general-purpose category which can be applied to a wide variety of activities across a broad range of business sectors such as logistics; agriculture; construction & civil engineering; domestic appliances; security; or specialist medical equipment.

There is some initial evidence to suggest that a vibrant scene for robotics innovation is beginning to emerge in the UK.  Robotics and Autonomous Systems has recently become a focus area for government-backed innovation grants which also is driving greater investment in this area. British universities are also home to some of the best robotics and artificial intelligence labs in the world and, as the pool of national expertise grows, we are starting to see this spill out into commercial activities.  For example: Amazon Prime Air, in the last month, has commenced in East Anglia the first ever field tests of its autonomous drone-based parcel delivery service;  London’s Google DeepMind continues to pioneer the application of cognitive computing to real-world problems; and Dyson released its first commercial robot in 2016 – the 360 Eye vacuum-cleaner.

Alongside headline-grabbing developments within institutions and large corporations, we have seen increasing numbers of robotics start-ups being born over recent years.  The first incubator programmes, such as the one at the Bristol Robotics Laboratory, are now acting as a springboard for some exciting companies like Open Bionics and Reach Robotics.

Additionally, the recent launch of the British Robotics Seed Fund offers investors an opportunity to participate in a mixed basket of the most innovative businesses that are exploiting the new generation of robotic technologies.  The fund will allow promising businesses to finance their formative activities and become investment-ready for the larger amounts of later-stage capital. To the benefit of investors, the fund reduces the level of risk associated with investing in robotics start-ups by taking advantage of the significant tax efficiencies available through the Seed Enterprise Investment Scheme (SEIS).

 

There are also a number of ETF products aimed at providing robotics coverage in the public markets such as ROBO Global and Robocap.

In terms of the specific investment themes that to look out for in 2017, there are three which really stand out: (1) Frugal robotics; (2) Addressing labour shortages; and (3) Stepping stones to autonomy.

1.     Frugal robotics is a trend looking to find ways to aggressively reduce the cost of robotics components and platforms so that the amount of upfront capital investment that a user is required to make can be minimised or, in some cases, be completely substituted by a monthly service payment.  This approach is sometimes known as “robotics-as-a-service”.  London-based start-up Automata Technologies, a maker of low-cost robotic arms, won ABB’s global innovation challenge and is heading down this route by charging its customers a sub-£300 monthly fee for an arm, where currently an equivalently specified alternative would cost in excess of £25,000.

 

2.     Addressing labour shortages that have arisen from of a lack of human appetite for particular types of work is an obvious application-area for robotics.  In recent times agricultural work has been done by workers from Eastern and Southern Europe but since Brexit, they may be are less inclined to come to the UK.  Without this pool of labour, farmers are considering robotic substitutes.  Dogtooth Technologies, the developer of a strawberry-picking robot, is undergoing trials with several major fruit-growers with an automated picker that promises to deliver price improvements versus human labourers and substantially improved levels of quality.

 

3.     Robots are perceived to be sophisticated, multi-functional and anthropomorphised, however, the current realty is quite different.  Successful robotics start-ups must be laser-focused on addressing a very specific task or problem-type.  Eventually, robots are likely to become largely autonomous (i.e. to work by themselves without needing a human operator).  However, the technical challenges of reaching high levels of autonomy are significant.  In the early iterations of a robot’s design it is sensible to build in hybrid-controls.  This means that in routine, well-understood environments the robot can operate on its own, but when more complexity arises, control is transferred to a manual operator.  Building stepping stones to autonomy into the product roadmap is essential to managing the cost of robot development.

As the tools and expertise required to build a robotics business become more widely available, expect in 2017 to see an explosion of creative start-ups, all hunting for early-stage investors. With the substantial tax benefits available under SEIS, there are likely to be some extremely attractive investment opportunities available and there’s every reason to believe that some of this new crop of British robots will become world-leaders in this new robotic industrial revolution.

For more information on the British Robotics Seed Fund, please visit www.britbots.com

Comments (0)