Knightscope Rockets To $20 Million FundingBy John Honovich, Published on Oct 03, 2017
Knightscope is celebrating.
That is a lot of money for this space, especially relative to their competitors.
In this note, we examine the competitive impact of this fund raising and the future of the security robot market.
$20 Million Fund Raising
Knightscope's SeedInvest campaign ended on October 10, 2017, being fully subscribed:
Note: it does not show the full $20 million but SeedInvest says $20 million was reached (being processed) plus more on a wait list.
$10 Million More Cash Estimated
We estimate Knightscope will have ~$10 million more cash to use in operations going forward, factoring out the $5.6 million that was already raised in H1 2017, the multi-million dollar marketing expenditure for fund raising and the cut going to SeedInvest. Entering Q3 2017, Knightscope reported ~$2.7 million cash on hand. See Knightscope's H1 2017 S1A.
Define The Security Robot Market Short Term
For better or worse, Knightscope has far more money, brand recognition and ambition than any other security robot provider. In particular, this money gives them the ability to continue to get the most coverage, send out the most sales people and try the most different things. This is especially important when almost all other security robot providers are still trying to figure out product / market fit with small number of robots operational.
Risks For Knightscope
At the same time, there are still significantly risks for Knightscope. Despite the $15+ million Knightscope has already burned through, Knightscope only has 45 machines contracted as of September 18, 2017. There could be hockey stick growth and Knightscope may approach, as it hopes, some 600 robots by the end of 2018. The risks include:
- $60,000 per year for a device that cannot climb stairs or carry on a conversation is a lot in a world where $15 per hour security guards are common
- They still have not proven that customers are ready to deploy numerous of these devices as more than just a novelty / social media gimmick
- Avoiding more social media 'incidents' that could strengthen the perception that these robots are not mature enough for real world use
More Than $20 Million Requires Ongoing Financial Reporting
While Knightscope said they would consider more than $20 million fund raising, they have one important reason not to exceed $20 million for the year - ongoing reporting requirements. The US SEC requires companies raising more then $20 million to file ongoing financial reports, as the SEC explains about Reg A fundraising:
Financial reporting for a small, high risk company like Knightscope can be risky, especially if they do not hit their numbers in the short term, as it would make it publicly very clear about their challenges.
We expect to see Knightscope continue to aggressively market, like they have done previously, and even perhaps more with this infusion of funds. While we still think significant risks remain for Knightscope, and especially their small investors, Knightscope has set itself up to be the clear leader in security robots, if they can prove product / market fit, which is still quite questionable.