With the rise of artificial intelligence, machine learning, and other automation technologies, there is increasing interest in investing in automated businesses that leverage these innovations. Automated businesses can operate more efficiently, improve quality control, and scale rapidly compared to traditional manual processes. However, investing in these companies also comes with risks as the technology and competitive landscape evolves quickly. This article outlines key considerations for investing in automated business startups or public companies specializing in industrial, service, and professional automation.
Assess the problem area and solution viability
When evaluating an automated business to invest in, carefully examine the problem they aim to solve and whether automation technology can effectively address that issue better than current solutions. For example, using AI and robotics to automate warehouse fulfillment and inventory management has clear benefits over human workers in terms of speed, accuracy and cost at scale. But not all business processes can be easily automated due to technological constraints or adoption challenges. Analyze if there is sufficient market validation and customer traction for the automated approach.
Evaluate the technology and IP protection
The competitive advantage of automated companies lies heavily in their proprietary systems, algorithms and data. So assess the uniqueness and defensibility of their core automation platform or software. Patented technologies and specialized datasets that are hard to replicate can serve as barriers to entry for rivals. Also review if the tech stack is flexible enough to expand into adjacent use cases over time or if it is too narrowly focused.
Analyze business model sustainability
In addition to assessing the product-market fit, evaluate the underlying business model and unit economics for the automated service or product. Many automation companies pursue a robotics-as-a-service (RaaS) model with recurring subscription revenues. This can provide stable, predictable cash flows especially for industrial applications. However, the cost structure should be examined to ensure healthy gross margins as automation scales. Hardware-centric automated businesses may face more volatility and capital expenditure costs upfront which impacts profitability.
Account for adoption and regulation risks
Automating certain business functions like security monitoring or loan underwriting raises complex ethical issues and regulatory oversight on AI decision making. Investors should pressure test if potential legal or social barriers could slow enterprise or consumer adoption of the automated offering even if the technology capabilities seem promising currently. All stakeholders including employees, customers and regulators will require education and transparency on automation deployments.
Investing in innovative automated businesses leveraging the latest AI and robotics advancements can be lucrative but comes with technology viability, adoption and competitive risks. Conduct thorough due diligence across these key areas when analyzing automated companies to add to your portfolio.