27 May 2022 |

Want to meet Just Raised IRL?

By Joe Sweeny

EVENTS

Want to meet Just Raised IRL?

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Rho recently raised a $75M Series B to expand its game-changing fintech.

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DEEP DIVE

Robots for All

Today 90% of American factories don’t have a single robot. I found that stat shocking given how much we hear about automation, but the reality is the bulk of American manufacturing is done by small businesses.

And if there’s one thing a small business can’t afford, it’s spending $100,000 or $1.5 million on a robot that may not work as expected when it reaches the factory floor.

That’s what Formic CEO Saman Farid set out to solve:

I think in Silicon Valley we’re obsessed with the things that are at the bleeding edge of technology.

But I kept getting frustrated when I saw that there are a lot of things that robots can do today that create a ton of value, especially in the manufacturing world, but also in other places like agriculture or construction. But despite the fact that the robots work well and are already capable of doing things and create a huge ROI, adoption has been extremely low.

– Saman Farid, CEO of Formic on the Just Raised Podcast

So how is Formic getting robots into American factories? Robots for hire. Formic pays the upfront costs to buy the robot, Formic installs it, and factories pay Formic $8 an hour when it’s working.

No purchase required. No CapEx necessary. Off the shelf robots for everything from welding to packing items onto pallets to cameras for visual inspection. It’s robots by the hour.

Rise of RaaS

Formic is at the vanguard of Robots as a Service (RaaS). It’s a business model tweak that empowers companies to lease out robots like you’d lease a car. It eliminates upfront costs in favor of more flexibility and lower barriers to adoption. I’ve seen a few RaaS startups over the years but none that do it as well as Formic.

Formic’s genius was to take advantage of the brief window of historically low interest rates and abundant cheap capital to build a financing platform for factories. As of March, Saman had lined up $150M in debt capacity. 

I think the technology is only. Maybe 50% of the full solution. The remaining 50% of that solution is mitigating the risk, mitigating the financing, mitigating the service and maintenance, mitigating the installation.

– Saman Farid, CEO of Formic on the Just Raised podcast

CapEx → Subscription

Turning massively expensive upfront cost into a subscription is a proven playbook for building a generational company.

Before Taiwan Semiconductor every computer company had to make their own silicon chips from scratch, which as you can imagine, created massive upfront costs and a huge barrier to entry for any company with ambitions to take on the computer industry. Post TSMC the number of personal computing startups exploded.

Before Amazon Web Services anyone who wanted to host a website had to build their own servers. You see the trend. Saman’s preferred comparison is solar.

When solar got started it wasn’t easy to put solar panels on your roof. You needed permits, an electrician, a roofing guy, an engineering firm to design the system, and then spend $20,000 to buy the actual solar panels.

So people didn’t do it.

Then Sunrun came around. Sunrun owns the solar panels and you rent them. They bundle everything together and make it really easy. You just buy electricity from them instead of buying it from the grid.

That’s what Formic does for robots.

Incentives

As a bonus, the Fomic model aligns incentives. When machines go down most robotics companies get paid. Emergency maintenance fees and repair costs are good for business.

Formic only gets paid when a machine is running.

As one of Formic’s customer’s said: “Formic has some skin in the game, because they’re only getting incentivized when the machine is running, not when it’s down.”

It also incentivizes Formic to train the factory’s employees to operate and troubleshoot the robot themselves, so that Formic won’t have to send out their own team. They’re onboarding a whole new cohort of American factory workers into the role of robot operator.

From Formic:

Automation = Jobs

The fear baked into automation is that it will eliminate jobs. Saman counter’s that automation helps companies grow, and actually creates better jobs.

Take Polar, one of Formic’s customers. Polar makes hinges. Like for doors. They’ve been around over 100 years and made parts for the original Ford Model T.

These guys have been trying to automate it for the last 10 years. And the direct quote from the owner to us was, “If we don’t automate, we won’t survive.

Yet despite that urgency and desperate need to automate, they hadn’t been able to get a single robot installed until we showed up.

– Saman Farid, CEO of Formic on the Just Raised podcast

When Formic started working with Polar, they were operating 8 hours a day, 200 to 250 days a year. That’s roughly 2000 hours a year of operation.

The best manufacturing facilities run over 8,000 production hours a year. So Polar was running at ~25% capacity.

With our robots installed, Polar is now been able to go from one shift a day up to two shifts a day, and they’re very soon planning on going up to three shifts a day. So as you can imagine that triples their output and all of their fixed costs get amortized over a lot more production.

Increased production hours, means they can offer lower prices on the items that they sell, which in turn makes them a lot more competitive, and allows them to win more business.

A lot of the manufacturing in the U S has suffered for the last 10 or 20 years because they can’t compete with global pricing. With automation now, finally, they’re actually able to compete with global supply chains

When robots can take over the job of loading boxes on to a pallet for shipping, human employees can move from loading boxes to managing robots, along with other higher order tasks that only humans can do. Combine that with the massive labor shortage in the US right now and you have a powerful cocktail.

Vision

Formic’s model has risks. The rising cost of capital is one of the most glaring. Formic is built on massive credit lines to finance the purchase of thousands of robots cheaply. Interest rates are going up which will make it much more expensive for Formic to buy robots.

But it also has tailwinds. De-Globalization is just beginning. For the last 50 years, the US has steadily moved manufacturing jobs overseas. Now they’re coming back. COVID, supply chain constraints, and great power competition are driving a demand for more built in the USA.

When I asked Saman for his vision for Formic he ended the show with this:

We want to provide an unlimited manufacturing capacity to every factory in the world. We want to be able, we want every factory to be able to scale up and scale down production as needed whenever they want.

– Saman Farid, CEO of Formic on the Just Raised podcast

Making American factories smarter, more productive, and more competitive. That’s a vision I can get behind.