Silicon Valley’s new answer to the labor shortage in smaller U.S.

By Jane Lanhee Lee

LIVERMORE, Calif. (Reuters) – Silicon Valley has a new pitch to persuade small companies to automate: rent-a-robot.

Better technology and the need to pay higher wages to humans have produced a surge in sales of robots to big companies all across America. But few of these automatons are making it into smaller factories, which are wary of big upfront costs and lacking robot engineering talent.

So venture capitalists are backing a new financial model: lease robots, install and maintain them, charge factories by the hour or month, cut the risk and initial costs.

Saman Farid, a former venture capitalist who invested in robots for over a decade and saw the challenges of getting robots into factories, set up rent-a-robot Formic Technologies with backing from Lux Capital and Initialized Capital, an early investor in self-driving tech startup Cruise.

Initialized Capital partner Garry Tan sees a confluence of cheaper and better robot computer vision and artificial intelligence technology, low interest rates, and the threat of U.S.-China tensions on supply chains stoking interest in robot subscriptions.

“It’s at the center of three of the largest mega trends that are driving all of society now,” said Tan.

Techies and small business owners do not always understand each other, a dilemma that led an industry group, the Association for Manufacturing Technology, to set up a San Francisco office a couple of years ago, to bring the two together.

The lease model puts much of the financial burden on robot startups which carry the risk of a manufacturer losing a contract or changing a product. Smaller factories often have small runs of more tailored products that are not worth a robot. And Silicon Valley Robotics, an industry group supporting robot startups, says that in the past, funding has been a challenge.

Still, some high-profile investors are on board.

Tiger Global, the biggest funder of tech startups this year, has backed three robot firms offering subscription in seven months.

MELVIN THE ROBOT

Bob Albert, whose family owns Polar Hardware Manufacturing, a 105-year-old metal stamping factory in Chicago, bought Formic’s pitch to pay less than $10 an hour for a robot, compared with over $20 an hour for his average human worker. He watched this month as a robot arm picked up a metal bar from a bin, spun around, and placed it in an older machine that bent it into a 42-inch (107 cm) door handle.

“If the robot works really well, we’ll use it a lot,” said Albert, who was pleased with the initial results. “And if it doesn’t work out, neither one of us comes out very well. We have less skin in the game and they have some skin in the game.”

Westec Plastics Corp, a family-owned plastic molding factory in Livermore,…