British Robotics Sidecar Fund
You’ve probably had dealings with a robot recently. Whether it’s contacting your mobile phone provider, having an online order picked for you, or even getting a prescription dispensed from a pharmacy, chances are a robot has been involved.
Across the globe, the robotics industry is reaching a tipping point. For the first time, it is becoming cheaper to own, operate and maintain a robotics system than it is to use manual labour. The global robotics industry is forecast to expand from $34.1 billion in 2016 to $226.2 billion by 2021, representing a compound annual growth rate of 46%.
What’s bad news for workers could be good news for investors, especially for those prepared to take some risk.
That’s what Dominic Keen thinks. He has recently launched the British Robotics Sidecar Fund, in conjunction with Sapphire Capital Partners LLP. It is an SEIS/EIS fund that invests in and supports UK robotic startups. It follows on from the British Robotics Funds which launched in 2016 and 2017.
The UK – alongside Canada, Japan, South Korean and the US – is at the forefront of robotics. UK universities are home to some of the best robotics labs and incubators in the world. This is a new fund in its second year; the first fund has deployed capital but there is no track record of exits. However, it does afford investors exposure to a fast-growing sector that is otherwise hard to access. Much of the development in British robotics to date has happened within universities or large corporations.
- Hybrid SEIS/EIS offer – with a minimum of 75% invested in SEIS-qualifying companies
- Targeting 3x return before tax relief – not guaranteed
- A portfolio of minimum five early-stage robotics companies, not guaranteed
- A fast-growing sector, capitalising on Britain’s strength in robotics development
- Minimum investment £10,000
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The fund is the brainchild of Dominic Keen, a successful British technology entrepreneur who holds a Masters in Engineering from Cambridge University. His company, High Growth Robotics ("HGR"), sources deals for the fund. He began his career in venture capital and in 2006 founded software business mPorium. This floated on AIM in 2013 and has a current market cap of £32 million (Nov 18). Dominic has experience both in robotics and in developing early-stage businesses.
Watch a video interview with Dominic Keen of Britbots:
This video was recorded in September 2018
Investors can expect a portfolio of five to seven early-stage robotics companies. The majority will be invested in new SEIS-qualifying opportunities, with the remainder used to provide scale-up funding to EIS companies from the first two funds’ portfolio or other eligible EIS-qualifying companies. Where possible, the fund will aim to mirror the British Robotics Seed Fund 2.
Investee companies will have an emphasis on Robotics as a Service (RaaS). RaaS is a relatively new concept. Historically, robots were built to perform a single task such as welding a car door. The hardware was costly and the robots could not develop beyond the task they were designed to perform. A company would buy, maintain and repair a robot and would ultimately be responsible for disposing of the equipment.
However, with the introduction of cloud computing and global open source code developers are now able to program and control robots remotely. This has brought about the concept of Robots as a Service. Instead of buying a robot or a fleet of robots, a company can now pay a monthly service fee or subscription to a robotics firm, based on the output they need to accomplish. The customer does not suffer from a capital-intensive outlay and can develop its own automatic processes rather than relying on pre-built solutions.
Falling hardware costs (thanks to 3D printing and improved modelling) coupled with more advanced cognitive computing technology have begun to deliver RaaS as a reality.
The fund will aim to make at least three-quarters of its investments in the 2018-19 tax year. The fund aims to deploy between £25,000 to £150,000 per investment. Note the hybrid nature of the fund means the tax relief should be a blend of mainly SEIS but some EIS relief.
The investment strategy can essentially be divided in three stages: pre-investment, post-investment and exit. Before investing, Mr Keen is looking for businesses with four characteristics:
- Passionate, competent entrepreneurial management teams
- Credible business concepts and strategy
- A reasonable level of business risk
- Potential for lucrative exits
The business model must have the potential to deliver at least 200% performance improvement versus existing solutions to the same problem.
Companies will be found mainly through the relationships Mr Keen has with over 14 universities, including Imperial College Dyson Robotics Laboratory, Oxford Robotics Research and Cambridge Computer Vision and Robotics. The arrangements they have are non-exclusive. Before finalising an investment, HGR must be satisfied the company will require minimum capital investment from a prospective buyer. The business must be able to generate revenues within twelve months of the first investment and aim to achieve an exit within eight years.
The investee companies are likely to be spread across a range of activities: healthcare, farming and agriculture, logistics, construction and civil engineering and low-volume manufacturing.
After investing, HGR will support and mentor the companies and help them with the commercial aspects of developing a business, allowing their technical skill and expertise to shine. A six-point plan aims to add extra value over and above the funding itself, giving investee companies the potential to thrive:
- Financial Discipline – the Company Mentor will review spending controls monthly alongside building realistic forecasts
- Efficient Operational Model – to ensure the startup team is focused on its core area of advantage: non-core activities may be outsourced and debt can be introduced to maximise the business model
- Commercial Management – the mentor will help each company ‘go to market’ nationally and internationally and negotiate commercial contracts and prospect for new leads
- Access to Networks – the mentor’s networks and connections should help to open doors for development
- Free Office Space and Workshops – if desired, the companies have access to free office space and well resourced workshops via a technology incubator in the East of England
- Showcasing and PR – each robot will be presented in a virtual showcase with video demonstrations.
Businesses that fail will be wound up or HGR will attempt to sell the IP. However, there is unlikely to be much value in the IP of the businesses which don’t pan out as expected.
There are several exit options, including a listing (Mr Keen has some experience here), trade sale or a sale of the entire portfolio.
As this is a new fund, there is no past performance. However, it’s worth highlighting some recent success stories within the sector. Note these are examples only and will not be held by the fund. They should not be regarded as an indication of the performance of future investments in the fund.
Australian Fastbrick Robotics has developed the Hadrian robot. The robot is capable of laying 1,000 bricks per hour or 150 homes a year. It takes its instructions from a 3D CAD representation. The machine doesn’t sleep, eat or take breaks. It’s around 20 times faster than a human bricklayer.
Intuitive Surgical develops, amongst others, the da Vinci Surgical System. The system allows surgery to be performed via robotic manipulators.
Zoa Robotics creates low-cost highly mobile four-legged robots. The robots have been designed to transport materials and inspect unmanned facilities. The team is currently preparing for tests with three industrial trial customers which should begin this year.
Fees and charges
A summary of the fees and charges is shown below. Please see the provider’s documents for more details.
|Full initial charge||3.9%|
|Annual administration charge||See details|
More detail on the charges
Risks – important
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.
EIS / SEIS investments are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks.
Tax rules can change and benefits depend on circumstances.
This EIS / SEIS fund invests in early-stage businesses which are more likely to fail than larger ones. So you should expect a number of failures in the portfolio.
Specific risks with this offer are as follows:
- High risk of losing capital – By definition, this is a high-risk investment which could result in a total loss, as well as having the potential to deliver high returns. In a portfolio of five companies, one might do very well (although there are no guarantees), but the others – or even all of them – might fail.
- No track record – As this a new offer, the team have not proven themselves capable of winding up a poor investment or capitalising on a good one. That said, the skill sets and resources at their disposal mitigate this concern to an extent.
- Follow-on funding – Investments of this nature often require follow-on funding. The additional funding rounds could carry dilution risk for existing investors.
- Key man risk – Whilst this may be a strength, the offer is heavily reliant on Dominic Keen. There is no investment committee so Sapphire Capital Partners must be able to scrutinise Dominic Keen’s work.
This fund is very much in the spirit of SEIS and EIS. Investors are backing young, innovative UK companies which should help fuel the wider economy. As a reward, they can benefit from generous tax reliefs and potentially lucrative tax-free returns, providing they can tolerate the risks.
This is undoubtedly an exciting and fast-growing space. Dominic Keen is an experienced operator who is well placed to make the opportunity a success, although please remember there are considerable risks. The investment criteria appear well thought through and there have been some real success stories in robotics to date – although past performance is not a guide to the future.
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Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
- Target return
- Funds raised / sought
- £2.0 million sought
- Minimum investment