Opportunity Zone Pitch Day - March 23rd
Venture Capital Investments In Robotics And AI, With Lisa Chai
Robotics, artificial intelligence and healthtech are sectors that have the potential to revolutionize human lifestyles (plus produce outsized returns for investors).
Lisa Chai, partner at ROBO Global, joins WealthChannel’s Andy Hagans to discuss what investors should know about VC investments in disruptive technology.
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- An overview of Lisa’s professional background, and how she came to manage a VC fund that invests in emerging technology.
- How ROBO Global was able to “spin off” a related venture capital fund, while supporting it with expertise and data from their core business.
- The thesis behind ROBO Global’s VC fund (plus, the plan to launch a subsequent fund to build upon this thesis).
- Why Lisa enjoys working in venture capital, and how it differs from the private equity environment.
- Lisa’s predictions for the venture capital and robotics industries in the coming years (and what investors should know).
Featured On This Episode
Today’s Guest: Lisa Chai, ROBO Global
About The Alternative Investment Podcast
The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.
Andy: Welcome to the “Alternative Investment Podcast.” I’m Andy Hagans. And today, we’re talking about venture capital in the area of robotics and AI. And joining me is Lisa Chai, a partner at ROBO Global. Lisa, welcome to the show.
Lisa: Thank you. Thanks for having me.
Andy: And I love that we’re talking about technology. Can I say nerdy stuff? I think it’s okay to say that because nerds are cool again, right?
Lisa: Definitely. I was definitely a nerd in high school.
Andy: I was, too. I hope that anybody coming on this podcast would say that they’re a nerd because it’s a good thing. It’s a good thing, for sure. Well, before we get into robotics and AI and this stuff, I have to ask you about your background. You know, how did you come to be a partner in a VC fund that’s investing in this kind of technology?
Lisa: No, that’s great. Well, I have 20 years plus experience investing in the field of disruptive technology companies having worked at both private equity firms and public equity firms as well. And I’ve always been passionate about technology. I was a nerd, geek, love science fiction movies, love little robots. I was always tinkering with a lot of things. And I think maybe my passion started from playing lots of video games. So, it’s really cool to have some knowledge and having that hands-on experience. And that really helps when you’re learning about Metaverse and AR, VR solutions, right?
So I think that passion allowed me to major in computer science and finance. And I left college with that in my hand. And that was really great to kind of go into the Wall Street field, investing and following the software and internet companies. So I started sort of covering that space working for a hedge fund, and then also a mutual fund and private equity. And that allowed me to join ROBO Global about five years ago, where this company is basically just entirely focused on the revolution of robotics and AI and healthcare innovation.
So I think that’s just been a really great kind of segue from my passion and education and experience, so having worked at investing field, and then into the ROBO Global platform. And a couple of years ago, we were able to launch a venture fund. So I would say ROBO Global, the index advisory firm is sort of a parent company and then a venture fund is a little bit of a sister company in that sense.
Andy: I see. Okay, so the VC firm here is almost a spin-off of a larger company. But, you know, we wanna talk about VC today. And, well, let’s go right to the… Actually, no, before I get to the fun, one more question. I’m not gonna ask a lady her age, but I do wanna ask what video games you played as a kid, right? Are we in the same video game generation? Was it like NES, Super NES, or you’re probably younger than me, maybe Nintendo 64?
Lisa: Yeah. Yeah, I have to really think about that because I don’t wanna say Pac-Man because I will date myself, right?
Lisa: I think Dungeons and Dragons and those types of, you know, games. So I really believed in that immersive, you know, experience. And I still play, by the way. You know, I have my PS4 and Nintendo, and I play, you know, pretty often. So I think that never changes. You know, if you’re crazy and passionate about technology, you will always be. And I think that kind of carries with me. But that’s a funny question.
Andy: Well, you know, it’s funny, I don’t think I’ve ever talked about that I’m a gamer. It’s almost like five years ago, I probably would have been embarrassed to say that. And then I’m like, “No, of course, I play video games. I mean, I have, you know, kids, of course, I play video games with my kids. Like, what? Are you crazy?” And I totally agree those immersive experiences. You know, I love the ’80s and ’90s games, but the games today are just totally a different animal and how they can immerse you. And I think that does kind of dovetail into what we’re talking about with AI, Metaverse, robotics, all of these things.
So, let’s talk about the fund. And I wanna actually read from this press release because I pulled up the press release. This is gonna be in our show notes about the fund launch. So the fund is “focused on investing in early-stage disruptive technology companies that align with the firm’s mission of helping investors capitalize on the robotics, AI, and healthcare technology revolution.” So, I mean, right off the bat, first of all, this is all super interesting. Like any time I hear about robots, robotics, I’m already, you know, riveted. But I would also think in the world of venture capital, is this a really competitive space? Are there a lot of VC funds investing in this type of thing?
Lisa: Yeah, I think there are a lot of VC funds covering technology as a whole, and because it is a very growing trend and industry that’s got a very large market opportunities. But I think we’re unique in that we are deep tech, and we do have some core competency and expertise around supply chain, logistics, and robotic systems. And I think that’s really important because I think robots are here, but so far, it’s been a very small kind of scale deployment and it’s really hard to tell what the business models gonna look like. How are they gonna scale into the customers? What are the margins gonna look like?
And I think because ROBO Global, the parent company has had years of experience, you know, we are the original founders of having an index fund tied to that robotic thing in 2013. So we’ve been doing this the longest, and we were the first to do so. And you’re taking that exact same expertise, and sort of the platform of our strategy uncovering that value chain of the robotic system, and we’re playing exactly the same way on the venture fund. So, yes, our companies are early stage, and we’re not the first check, but maybe we’re the second or third check. And we’re looking for a very strong team and it has to have a really good technology, a portfolio, and a roadmap. So those are some of the things that we look for.
And I think that many of the other VCs out there looking at people that they know that’s in the team and looking at the business model first and not really looking at the tech, we look at technology and business model equally. And I think that’s very important because I think that it allows the company to have an incredible moat around the business. And then we might actually find something that they need help in. We have a couple of companies that’s really trying to improve their sensing technologies or machine vision. And maybe in one of our technical advisors, maybe we have some experts and expertise around that topic. And maybe we could help them accelerate their technology development.
So we feel that if it’s a scenario that we understand well and we have the networking connections to help them and we have advisors that could really help them with some of their capabilities and features, we think we could help them grow faster. And that would be really great for all the investors for the venture fund as well as the ecosystem of the robotic system. So we do everything from mentoring, advising, helping them recruit the right people, especially the technology, the engineers. I think that’s a really hard area for a lot of the founders who are really struggling to kind of meet those talent needs. And we also help with strategic partnerships. And I think the companies and the knowledge of the ecosystem really comes into play here.
So I think having that kind of balance experience between the private world and the public world really helps because at the end of the day, our portfolio companies, customers, and partners are publicly traded, they’re very large, and all the information that you could read about is on their website, and you can listen to earnings calls. But we do a kind of a better job, I think, in understanding what that means when they’re increasing their R&D and CapEX, right? Because we’ve been doing this before. So we were able to tie that information in with, “Hey, you know what? Why don’t you look into this sector because this industry is really increasing their CapEx. There’s something there.”
Andy: So that’s where the parent company, the index provider, you know, involved with these other funds, that’s where it’s adding value to this related company that’s operating the VC fund because experience, connection, knowledge of these large corporations that are ultimately the customers. There are a couple of themes that I wanted to follow up on. One of them, you know, you kind of mentioned the value-add as GP is running a venture fund, adding value to the portfolio company. So I wanna get to that, but even before that, you know, you mentioned I think supply chains or logistics.
So when I hear robotics, I mean, my mind is going one of two places, either one like sexy rocket ships, you know, crazy sci-fi stuff, or I’m thinking an Amazon warehouse, and there’s a robot carrying, you know, little item and dropping it off into a package or whatever. So what kind of robotics are we talking…are these boring robotics? When I say boring, I almost mean it in a good way because I’m guessing that the TAM for that type of robotic is much, much larger.
Lisa: Yes. I think they could be perceived boring because you’re looking at factory floors and warehouse floors and, you know, logistics operations. But we think they’re kinda exciting because these are robots that are getting smaller and smaller in terms of form factor, it’s getting really fast. And what we’re seeing the biggest trend is the human in the loop. So robots not really replacing employees in the warehouse, but they’re actually working along with the workers, you know, the warehouse workers. And I think that’s really important because right now, there’s still a lot of jobs that only humans could do and humans do it better and faster.
But how about there are some areas where maybe humans can’t do or don’t wanna do? We’re looking at a company that has autonomous drones, the self-flying drones that fly in very high spaces. So you really don’t need to go climb a ladder to go up 70 feet to reach over something because somebody is getting hurt every day falling off the ladder. So those are jobs that you could say, “You know what? I’ll let the drone take care of anything above 10 feet. And I’ll just work down here in this station.” And then there’s some stations where especially handling and packing into boxes, people don’t really enjoy doing that. So maybe in that kind of, you know, in areas, you could have a robot sitting next to you in a station and all it does is just kind of packing the boxes.
So it really depends on the customer and the retailer as to how they want to employ those robots. But when I look at the robots, I think the first generation was always kind of bulky and heavy and didn’t move very well. These robots are super-fast, they’re very efficient, and it’s able to do things that you don’t wanna do. So you could actually become friends with them. And I think in the future, we’re actually gonna have robots, maybe they’ll have…you could maybe play music on, you know. You’re not gonna be able to talk to them, but you know what? Sometimes you really don’t wanna talk to anybody. So I think for us to have a drone that flies around, checking for any water leak in the ceiling, to, you know, looking at and scanning some inventory up on a shelf that you don’t wanna go up, I think those are super cool. I think these are emerging technologies.
Andy: Totally. Yeah. And, I mean, you kind of mentioned…to me, this is the interesting thing. There may be immediate applications and supply chain, logistics, warehouse, whatever. But then it may be that it’s almost like that subsidizes technology that’s ultimately gonna benefits consumers and kind of lead to those…I hate to say more exciting robots. I’m really waiting for a Roomba that actually works because I like giant breed dogs. I have a German Shepherd and an English Mastiff. And, you know, I got, like, the fourth generation Roomba, or whatever. I’m like, “This thing still can’t keep up with an English Mastiff, you know, I’m sorry.” But give it time, though, another 10 years.
Lisa: Yeah. And I think that, you know, my job is so much fun because I actually get to see the R&D labs and play with a lot of the prototype robotic solutions. And I can tell you that the next generation Roomba devices will be smarter and will be able to navigate better. And the form factor is gonna look even better. So I think you’re gonna be very happy that it’s not gonna, you know, reduce the performance and maybe probably enhance the performance that way. And also, you remember the generations of Roomba, right? Now, it could self-charge, and it can empty the bin. And now, how about if the next generation Roomba could also fly around? That’d be super cool, right?
Andy: Now, we’re talking. Now, we’re talking. Refill my red wine glass on a Friday evening, right? Now, we’re talking. Well, you know, I think this is interesting. I had Rami Cassis on the show recently. We’re talking about private equity. And you mentioned that you actually had a background in private equity. And then you were talking about how you run the VC fund. And it sounds to me like you’re adding a lot of value to the founders and the portfolio companies, their executive teams with, you know, connections, strategic advice, all those sorts of…
And I actually have to say, that seems very common in the VC world where GPs of the fund are connecting and advising and adding value versus private equity, you know, to be blonde and maybe has more of a reputation of, you know, not necessarily supporting an executive team, more coming in and having a more short-term mindset. Do you enjoy venture capital more? Well, actually, let me even ask, do you think there is a pretty big difference in mindset between venture capital fund GPs versus private equity fund GPs?
Lisa: Yes, definitely. And I think that’s a great question because a lot of people don’t understand the differences. Private equity, generally, are coming in when the business sometimes can’t be fixed. You know, you’ve hit a wall, you’ve tried many different things, and you’re still struggling. So private equity is great for that when you’re at that stage where is it about getting new management teams, or is it roll up into other divisions, and how do we continue to extract some of the markets?
Andy: You’re coming into a hard situation. You’re coming into a situation that’s already stressful that…and it’s almost like…I don’t know what metaphor to use, but it’s only it might be bitter medicine. It might be medicine that makes the patient healthy again, but it might not taste good, right?
Lisa: Yeah. Or in some cases, maybe you’ve just peaked, you know, you’ve been operating for 20 years. And, you know, you’re either gonna have to invest heavily to capture the next generation of innovation that’s happening, or you’re just gonna have to shut down. So that’s great for private equity to come and extract what’s really great about this company. Is it the people or is it the technology? What’s going…or is it the customer? And how do we, you know, improve this company?
Venture is very different in that sense. We’re coming in at a very early stages, almost like a toddler stage, and they need a lot of help. It’s a lot more fun for me because I get a lot more interaction with the management teams when they’re so excited. You know, a lot of them are visionary. They’re extremely passionate, extreme…a lot of hard work goes into finding, you know, the right people. Also, you know, putting together the first roadmap and it keeps on pivoting and changing. And you’ll be surprised that as visionaries as they are, as technical talent they have, sometimes there are a lot of simple things that are kind of missing and…
Andy: That wouldn’t surprise me at all. No, that’s…I mean, that totally fits with my experience. Yeah, it’s that type of leader…You know, the type of person who founds a startup is, in a way, a little bit crazy, right?
Andy: Or they’re gonna be good at some things, but why would they be good at everything? Certainly, you know, everyone has blind spots. And so, you know, do you kind of view it as your job to kind of see the blind spots? Maybe gently let them know where they need help?
Lisa: Yes, exactly. And we sit on multiple boards, and we are very active and hands-on. And then I think it’s because of our experience investing and following the public companies, we learned a lot. We learned…we watch them fail, we watch them pivot, and we got some best practices that we learned from that, and we try to apply it based on vertical. Now, I will tell you that sitting on the board, if I see that there are a couple of very active board members are very vocal and honest and very aggressive, then I take a little seat back and say, “Oh, okay, you know, I’m gonna take a different role here.” Or I sit on boards where everyone’s super quiet, no one’s saying anything. Everyone’s saying. “You’re doing great,” you know, and everyone’s very complimentary toward the management.
Andy: Then you have to be the bad cop. So it’s probably more fun if there’s a board where there’s a couple of bad cops. I mean, I know that’s not the right word, but, you know, you’re right. You need a balance. If everybody on the board is bad cop, that’s probably the wrong word, but, you know, you need people to tell you the truth as the founder, right? And hopefully, they can do it without destroying your confidence or destroying your self-esteem.
Lisa: Yes. And I think it’s good for us to challenge them a little bit and push back and say, “Have you thought about this?” But if you aren’t gonna be vocal and get your point across, you also have to be ready to help them because they do need a lot of help. And the more you help them, the more help they want. So you could really, you know, spend a ton of time if you spent too much time with one company. So we try to make sure that we give them enough advice and mentoring and then have them do it. And then when they come back and now you could say, “Okay, what have you learned from that? What didn’t work? I don’t think that was a good idea. It didn’t work. Look at the outcome here. Let’s try this way.” So those are some of the discussions that we have. And then…
Andy: Do you wanna be an advisor, you don’t wanna run the company, right? Like, you’re…
Lisa: Right, exactly.
Andy: As GPs, you don’t get paid to run the company, you can’t run every company. But that actually brings me to another question, which, well, number one, how big is your fund, or how much capital have you raised, are you planning to raise? And then what is the team within your VC fund look like if you’re investing in these companies and supporting them? Because we’ve had some other VCs on the show before and this is a question I’ve keep wanting to ask but I never quite get around to. You know, how does the business of the VC fund itself work? What is that team like? What are the roles? And, you know, how does that scale? So I know that’s probably a lot of questions, but, first, how much capital are you raising or have raised?
Lisa: Right. So, for us, we’re unique because we have a couple of different venture funds where we have the ROBO Global venture arm. And then we have the dedicated venture fund that we launched for external assets. So, combined, you know, all the funds, it’s under $100 million. And that’s very small…we’re easing into kind of the venture industry. And we’re very comfortable that we’re not looking for chasing massive amount of companies. We’re going after maybe, you know, 15 to 20 companies and take an active role, and then kind of grow from there. And this is sort of our ROBO Global style. And because most of our assets and advisory business is around the index funds, right?
So we’re looking at early-stage companies, they’re deep tech. We have three investment community partners. And we’re leveraging the research team for the index fund. And also, eight technical advisors that we have for the index fund we’re also leveraging. And then we have dedicated venture advisors for the venture fund. So we have…
Andy: You have all sorts of support from the larger organization, like a typical smaller VC fund wouldn’t necessarily have all those resources that you have. So I know, I get it, and actually, I love smaller funds that are, you know, starting with a scope, and you know what your scope is. And it sounds, you know, your mission or your thesis is very well defined. I love that, you know, because it’s like, you have to start with a thesis and start with, you know, what your niche is and where your best position to succeed. I love that. Is the capital base, is it mainly institutional investors or they’re individual investors or family offices?
Lisa: Yes, I think it’s a combination. We have some foundations, a family office, some institutions, and we haven’t been really active marketing. We’ll probably do that for the next fund that we’re gonna launch later this year. The reason is, we wanted to work in this mode where we could handle and manage and get the first one dedicated and launched. So now that we feel very comfortable, we closed our first fund, and now we’re gonna launch the second. And we have some incredible companies that’s gonna have some follow-on rounds. We’re gonna stick with the same investment theme and approach and strategy.
The second fund will be bigger, and it will be able to participate on the follow-on fund, follow-on rounds with these early-stage companies into the next couple of rounds, as well as some additional new companies. So we’re super excited. Obviously, as you know, the venture industry is a very kind of long-term investment vehicle. So everyone has to take a long view, this is not a hedge fund where you get a 30-day redemption notice, and you could pull your money. This is a very…
Andy: It’s not V rated. So what? A 5, 7, 10-year hold or, you know, it’s…
Lisa: Exactly, exactly, yes. So this is definitely…
Andy: So what is…sorry, I’m just curious, though, you know, because you mentioned, it sounds to me like the fund structure’s almost unique in that we’re on the GP side. Because I wanted to ask about the team makeup, but it sounds like you have almost like an army of support staff from the indexing side for the other side of the business who are helping support the fund. But how many people are just on core devoted to the VC only?
Lisa: Yeah, we have about three to four members, dedicated VC, and that’s a good number for the size. And then we could always use, like I said, the technical advisors, different people. We have the operational support. And that’s really great to be able to contact them and get their help when they need it. So I think that for now, for the fund size, I think that’s very, you know, kind of a good team structure.
Andy: Do you feel like, Lisa, you’re an entrepreneur? I mean, because you’re managing a small team, and, you know, you have all this support folks and resources. But at the end of the day, to me, the VC fund is almost a self-contained business, you know?
Lisa: Yes, exactly. I do. I do feel that it’s a spin-off of a very great established business. But the venture fund, as you know, has a different investment thesis, different approach, different team. And I’m 100% investing and immerse myself with all the founders. So I am definitely also, as a partner, running this business as a startup, and I’m in the startup community. So I can really relate to a lot of founders. And, you know, challenges growth, and really getting a balance, right? Because right now, we do have this massive labor shortage and talent shortage and people wanna work in a hybrid work environment.
So how do we navigate through all those challenges? I don’t think it’s about, you know, hiring dozens of people to be an investment fund and then having to, you know, reduce forces when the fund, you know, shifts in different directions. I think this is a really great team where we’ve worked together before and now some of us are working more on venture than the index fund. And for us, it works great.
Andy: I love that. And, I mean, I totally agree on, and really any startup, you know, the core team members, you wanna have a lean team, and if you can, everyone there is an all-star. If I’m running a startup personally, I’d rather have two partners, or, you know, three people total, or four people total, have them all be all-stars versus trying to expand to 10 or 15 people and, you know, frankly, not have them all. You know, it’s just hard. It’s a very competitive marketplace, you know, hiring is hard.
And on that note, and I know we’re running short on time, I want to respect your time, but, you know, do you have any predictions? You’ve mentioned some trends already kind of playing out in the world of robotics, in the world of VC. You know, what do you think is gonna kind of play out in the next few years, especially in venture capital and, you know, emerging managers, emerging funds?
Lisa: Yes, I think the venture capital industry is obviously right now going through a little bit of digesting period, but I think that was really healthy. This is definitely a buyers’ market. I’m super excited. Valuation has come down probably about 15 to 17-year low, so…
Andy: That’s great. That’s fantastic, right?
Lisa: No, we couldn’t have asked for a better time to actually launch a venture fund. So this is a great environment where at the same time, you’re seeing massive technology shifts happening with robotics and AI. So, businesses, enterprises, customers are really adapting to this new world. And we’re investing in these growth companies that’s actually disrupting and transforming. So it’s a very exciting time. I think that the industry is still trying to figure out what areas of, you know, the industry that you’re gonna put more bets on. We’re looking at areas that we’re seeing major labor challenges. So, traditional industries, construction, transportation, agriculture, the food industry, they’re really underinvested. So we think that those areas, we’re gonna see more automation and artificial intelligence and robotic capabilities that’s gonna be deployed.
In warehouses, you have less than 80% of warehouses, there’s no automation today. So you’re looking at a big TAM opportunity, right? So that’s 15% to 20% of some automation happening today, which is still a low number. And then there are areas of the supply chain where there’s zero automation. So we’re really excited about the fact that we’re just really in the early innings of deploying some of these amazing technology capabilities. And I think the venture industry and the venture managers that’s targeting and focusing on those areas really will benefit more.
Andy: Totally. And, you know, I love a couple of things you said, one, valuations are at 15 to 17-year low. That’s a great thing. You know, if you’re an institutional investor, if you’re a family office, if you’re thinking about getting into venture capital or maybe increasing your allocation, that’s great news. That’s fantastic news. But another thing you mentioned, you know, the fact that there’s a labor shortage and that might be a structural or continuing issue in this country for who knows? Decades, generations, whatever.
The fact that you’re investing in that without as part of your thesis, to me, that’s very, very attractive, right? Because that’s gonna be a pain point and a point of friction for many, you know, large corporations. And, you know, even what you mentioned, warehouses, most of them not having any automation. So the fact that you’re actually investing in that, you know, with that as a tailwind for your investments, I just think that’s fantastic. So, I know we’re short on time, but I wanna ask you where our audience of high-net-worth investors can go to learn more about ROBO Global and your investment offerings.
Lisa: Yes. Our website, www.roboglobal.com, is a great place to find us and reach out to us.
Andy: Awesome, and I’ll be sure to link to that in our show notes. Lisa, our time was short today. I wanna make sure to have you back on the show so we can talk some more.
Lisa: Definitely. Love to.
Andy: Thanks so much for joining the show today.
Lisa: Thank you.