What the Struggles of Pizza and Coffee-Making Robots Mean for Investors

Robots that make pizzas and cappuccinos are having a tough new year.

In recent weeks, two high-profile robotics startups specializing in food preparation, have both significantly slashed costs. Automated coffee shop Café X shut down three San Francisco-based stores, laid off some staff, and is now focusing on two robotic cafes in airports, Axios reported. Meanwhile, Zume Pizza fired over 200 employees and has pivoted from pizza-making robots to creating sustainable packaging for food, Business Insider reported.

Both startups were reportedly attempting to raise additional funding. 

The troubles at the two companies are noteworthy because they come at a time when expectations for cutting-edge robotics are high. The rise of machine learning and the declining cost of robotic components like actuators and sensors have led to startups more easily and cheaply building robots that can perform tasks like pick-and-grasp certain objects. Investors and businesses had high hopes that this dual rise of A.I. and cheaper hardware would usher a new robotics age.

So does the problems with these two startups mean that the robot industry is about to go bust?

No, said Remy Glaisner, an analyst at research firm International Data Corporation. The worldwide market for robotics, including sales and related services, will grow 17.8% year-over-year to $112.4 billion in 2020, according to IDC. Manufacturers such as auto makers and aerospace companies will spend more money on robots because advances in A.I. have made it possible for the machines to do more critical jobs, like recognizing which objects they need to pick up and which ones they should avoid, Glaisner explained.

Andra Keay, the managing director of industry group Silicon Valley Robotics, agreed that it’s the more boring uses of robots in industrial or warehouse settings that are on the rise. These kinds of robots can follow warehouse workers, helping them save time zig-zagging around buildings retrieving and restocking inventory. 

But some venture capitalists, Keay lamented, like funding sexier robotic startups that they believe will generate news buzz, which they use to lift the valuation of the companies. Indeed, Zume Pizza was valued at $1 billion, according to deal-tracking service Pitchbook.

Keay is critical of the venture capital model, in which startups receive massive amounts of cash in order to grow quickly so that investors can cash out with massive returns after just a few years. This model, she believes, is generally ill-suited for robotics because it takes far longer to develop robots and a business model to go with them.

“Most startups think when they get funded they are getting married, but for most investors it’s just a hookup,” Keay said.

Keay said she urges robot startups to consider funding from universities or industry consortiums instead of venture capitalists. And if they do take money from venture capitalists, they need to “interview investors carefully and make sure that visions are aligned.” 

“Sadly the stories so far have focused on robotics not being ready for the real world, when every ‘failed’ robotics company that I know has a story to tell of venture investors screwing them over,” Keay said.

Jonathan Vanian