Proud.Ventures has been a major shareholder in Knightscope for more than 18 months. Over this time, we have visited Knightscope Headquarters (KHQ) on numerous occasions, had staff assisting at the Knightscope pop-up store in New York City, witnessed hundreds of people interact with the company’s products and management, and forged a strong relationship with Knightscope’s CEO. We have spoken to family members, friends, colleagues, employees, taxi cab drivers, strangers on planes and virtually anyone whom we could get to listen to us, explaining why we think Knightscope is an enormous investment opportunity. It is our pleasure to coalesce these experiences into …
100% to 400% employee turnover rates (worse than the fast food industry). A fragmented industry with thousands of small companies leading to minimal use of technology. The result is an industry of manpower companies staffed by dissatisfied, poorly-trained employees performing monotonous job functions. Bad judgement by security guards can lead to significant liability, and loosely supervised security staff can become part of the problem, rather than the solution.
As a society we have come to accept pervasive use of cameras as a necessary safety feature. Cameras are simply everywhere. Security guards are widely deployed as well, though few people feel they make them safer. There is no doubt that physical security is here to stay (not like crime is going to disappear anytime soon), but supplemented by Knightscope’s technologies, security guards can become better informed, be relieved of the most monotonous tasks, and be given access to data and tools to perform their jobs more intelligently and effectively. Humans working with machines – imagine that!
A Knightscope robot drove itself into a fountain in July 2017, at a Washington DC office building. No one was hurt, and “Steve”, the robot who was deemed “suicidal” by some news reports, issued a press release regarding the hot summer weather and taking a dip in the fountain. The reality was a simple software glitch impacted by loose pavers caused a miscalculation and was an easy software bug fix.
What’s interesting to us is the dozens of news articles, written in many of the world’s major languages, about what was arguably a far from newsworthy or earth-shattering event. From the fear of a robot invasion, to fascination with emerging robotic technologies, to a desire by some to prove human superiority over machines, this meaningless glitch was covered widely by news outlets, most of whom referred to the robot having “drowned”, or some other humanized notion. The story went viral globally.
Companies, especially so for public companies, are valued more highly when they capture the public’s imagination. This simple event, coupled with Knightscope’s 6,000+ investors, is a good indication of the kind of attention we believe Knightscope will continue to generate as it expands. As a company with bleeding-edge technology virtually creating the emerging marketplace of autonomous security, Knightscope appears to us to have the potential to be a trailblazer in a huge market opportunity, all of which combines to create a very high ceiling for Knightscope’s potential valuation over time.
One of our biggest concerns prior to investing was acceptance, as the existence of Knightscope’s technologies in society is a dramatic change. Anecdotal evidence suggests that many clients anthropomorphize Knightscope’s robots by naming them, allowing them to write letters to their employees and celebrating their arrival with a ceremony and cake worthy of a foreign dignitary. Robot selfies, lipstick kisses and Jamie Foxx on TMZOnline, checking out Knightscope’s robot, all suggest that acceptance is happening daily.
Knightscope has built a suite of commercially deployed self-driving technology that functions in dynamic public spaces very effectively – both indoors and outdoors. A sophisticated set of robots in 3 form factors (stationary, indoors, outdoors) with robust artificial intelligence, Knightscope is not a science project, it’s a proven set of solutions that demanding corporate customers have deployed and renewed in numerous instances – actually Knightscope counts over ten of the Fortune 1000 as clients plus numerous crime-fighting wins.
While there are dramatic plans for future extensions of the product suite, Knightscope is very much an implementation and execution story at this point. It’s all about marketing and sales, having proven its value proposition repeatedly for demanding clients with diverse needs. We’d encourage you to read the April 3, 2018 press release from XPO Logistics, which is a dramatic example of customer benefits for a major logistics company that spends $450mm per year on technology. We believe logistics are merely one of Knightscope’s numerous and very substantial target markets.
Ask 3 friends how long Tesla has been in business. Ask yourself. Does 8 years feel about right? That’s the answer we get time and again from people we ask, and we’ve asked dozens of people. Tesla will be 16 years old in July. While we certainly aren’t experts on Tesla’s viability as a company, no one can argue that it’s been a spectacular success for its early investors. While it feels like an overnight success story to many, it’s actually a company heading into its 16th year with more than its share of existential challenges.
Knightscope isn’t Tesla, for a host of reasons. But having just celebrated its 6th anniversary, it too is no startup. While we believe Knightscope’s technology addresses a huge market opportunity with very difficult to develop technology, we also believe time is a great teacher. The lessons Knightscope has learned through its 6-year history, in a marketplace with very few direct competitors, are very valuable.
It is our expectation that over the next 12 to 24 months, Knightscope will continue to establish and grow the market for its technologies, and that at some p
oint, it too will be an “overnight success”. This success will be a function of many of the factors we’ve covered in this list, and all the hard-earned experience that they developed over their years in business. Imagine where Knightscope would be 10 year from now.
Small companies serving large companies as their clients can lead to disastrous consequences. Citizens Bank. XPO Logistics. Samsung. Faurecia. Westfield Malls. Dignity Health. Sacramento Kings. Those are just a few of the large organizations that Knightscope counts as clients. Many clients don’t allow Knightscope to disclose their customer relationship (read about ‘stealth clients’ here), though inevitably the robot shows up on social media. Two city governments, casinos, pharmaceutical companies, schools, corporate campuses and more, the audience of existing and potential clients is enormous, and the competitive landscape is sparse. Plus Knightscope just get themselves on the GSA schedule opening up opportunities in the federal government space.
Commercially deployed self-driving technology across 15 states, operating 24/7/365. Knightscope is far beyond proof-of-concept, as 700,000+ hours and 300,000 miles of customer deployments are a testament to the value of its technologies. And, as Knightscope deployments increase, so does their effectiveness, a natural outgrowth of their machine learning.
What is even more interesting, depending on how you do the math, $40 to $80 billion has been invested in self-driving technology with over 50 companies working on it – yet, Knightscope is literally the only company in the world operating 24/7/365 fully autonomous with a real product, generating real revenue, with real clients across an entire country. Talk about bleeding-edge technology execution.
Knightscope business model is Machine-as-a-Service (MaaS), as clients subscribe to the entire solution on a yearly contract. Each of the machines says “Designed and Built in Silicon Valley” and are literally manufactured by the Knightscope team. Costs to manufacture the robots are recovered in the first year, with projected profits per machine of $250k over the targeted 5 year life.
A clear example of how potent the business model is can be found in the previously mentioned XPO logistics press release, in which XPO Logistics announced that C3-XPO, as named by the client, eliminated on-site security incidents and realized $125k of cost savings in the first 6 months. With anecdotal evidence this strong, it is hard to imagine that competitors like DHL Express and Federal Express and UPS could be far behind as customers. Predictably, XPO, has already awarded Knightscope contracts for additional machines.
And as part of the subscription model, each client enjoys unlimited software and firmware upgrades and at times hardware upgrades. The Knightscope team releases new software every 2 weeks and new hardware several times a year, making the technology better and better over time.
A robust and expanding product base, which becomes more valuable over time, as the technology is deployed and “learns”. Four patents granted thus far, and others pending. A client base of Fortune 1000 companies, numerous of whom have added to their initial robot deployments and/or renewed their annual contracts. Enormous target markets, many of which Knightscope has strong reference clients already established. A scalable business model with margins projected to be at the high-end of technology companies. A marketplace that continues to become more “normal”, as robots are sure to become increasingly ubiquitous in our daily lives. All of this, and more, leads us to believe that the future for Knightscope is very bright indeed. Self-driving technology, robotics and artificial intelligence are going to make profound impacts on society over the coming years and Knightscope is right in the middle of it.
All the proceeding is why we are substantial investors in Knightscope, but none is nearly as significant as the jockey, Knightscope’s CEO, William Santana Li. We have had the privilege of developing a working relationship with Bill over the past 21 months, having picked his brain on issues time again as relates to Knightscope’s future. Bill’s attention to detail, vision and thoughtfulness, combined with a rare mix of technological expertise and evangelical zeal, leave us convinced he’s the right jockey, doubtlessly so.
On our first visit to Knightscope Headquarters, when discussing the process of raising Knightscope’s Seed round 6+ years ago — notoriously the most difficult money to raise — Bill mentioned that it had taken him “364 days to raise the money”. Not a year. Not 365 days…364 days. As we spent that first visit together, it became clear that he had counted the days. We would encourage potential investors to watch Bill’s TED Talk, What if a robot could save your life?, for a concise understanding of the mission he and Knightscope are on as company. Or check out his latest interview with Game Changers Silicon Valley for a more extended insight here. We are happy to be along for the ride, and look forward to continuing the journey as shareholders in Knightscope.
Sincerely,
Proud.Ventures
