Apptronik

Company Summary: Apptronik is a general purpose robotics company building machines to expand the human labor market. Their robotics stack offers the hardware, electronics and software for highly scalable fleets that can be deployed within a workforce. As a result, companies can access a group of mobile, articulate robots that operate in an open environment. Apptronik’s robotic stack uses the same core technology to produce robotic arms, humanoids and exoskeletons, each powered with advanced learning capabilities that adapt to a myriad of different working conditions. The Apptronik robots can be further specialized through third-party app developers, ensuring even broader labor applications. Companies can contract robotic labor as working capital, through a Robotics-as-a-Service model rather than making a significant upfront capex investment. In effect, it’s similar to hiring human labor. Companies can fill labor shortages caused by limited worker supply and dangerous working conditions. Depending on the job requirements, the company can employ durable arms for heavy object manipulation, exoskeletons for supplementing a workforce’s physical strength or outright humanoid robots to fill open positions. The main market for Apptronik is commercial labor but the path to critical scale adoption requires significant research and development plus high volume production to achieve a competitive long term cost per robotic labor hour. Apptronik has built the business around three different customer groups in order to fund early tests and scale up deployment. Early projects are done through their Labs unit, building one-off projects for universities or research groups that allow Apptronik to prototype and test while still monetizing the work. Their Defense unit has partnered with the US Army and several other cost-insensitive departments of the US military to fund scale up deployments. Together both units can set the Commercial business up for mass production at low cost pricing. Market Overview: Apptronik’s market is labor. There are currently over 10M unfilled job openings in the US with over 2M in supply chain and another 5M across a variety of service industries. Despite sustained hourly wage growth, companies are having difficulty attracting talent. Many of these roles are dangerous, monotonous or otherwise not cost competitive to fill. The three most immediate markets Apptronik plans to go after are: Logistics This is a $38B market with over 1.2M employed, paid on average $21/hr. Managing warehouse inventories, sorting packages and moving heavy, odd shaped objects are not well suited for humans. Their robotic arms are designed for repetitive sorting and heavy lifting without getting tired. This is especially true with explosive materials like the mortar shells and ammo that the US Army loads into their resupply trucks. Additionally, exoskeleton frames can supplement human strength, allowing a human to carry heavy objects a far distance without inducing extreme stress on the body. Construction $310B market with over 7.2M employed, paid on average $32/hr. Chronic lack of specialized skills like electricians and plumbers on job sites have created large project delays. Dangerous working conditions with exposed metal, risks of falling objects and heavy construction equipment posing risk of bodily injury or death all command wage premiums on top of a shortage of laborers. Humanoid robots can be trained to handle different specialized tasks on a construction site and fill the missing roles, all without risking human life on a dangerous job site. Additionally, exoskeletons can supplement the humans on site, allowing heavy objects to safely be moved around and reduce the likelihood of a fall. Manufacturing $486B market with 8.4M employed, paid on average $29/hr Tasks are often repetitive and done in uncomfortable working conditions that can be hot, toxic or expose workers to risks of electric shock. Large gaps in labor participation have contributed to manufacturing shortages and delays. Humanoid robots and arms can fill missing roles and handle these dangerous working conditions. They also see two additional opportunities long term: Medical - A $771B market with 17.3M employed, paid on average $26/hr. Food - A $181B market with 10M employed, paid on average $18/hr Team and Relationship with Capital Factory: The current CEO of the company (Jeff Cardenas) was a founder for a prior Capital Factory portfolio company that didn’t work out. He knew the Apptronik founders through mutual University of Texas affiliations and joined the company as co-founder and head of strategy and business development. From mid-2019 through most of 2021, Nick Paine (founder, inventor) served as CEO. In late 2021, Jeff took over as CEO to better reflect the transition of the company from a research company to one preparing for commercial launch of multiple products and the associated sales, marketing and business development efforts. In September 2018, Capital Factory engaged the team through our Partners Fund, the advisory model we run to help startups meet investors, customers and talent. That engagement led to multiple introductions and interactions with the US military, especially the US Army. Regular significant value was delivered from Capital Factory to Apptronik from the time they joined the portfolio. In November 2018, a Capital Factory Fund invested $200K in the company’s convertible note set on a $15M pre-money valuation. We were one of two investors in this round, the other team being Tiger 21, whom we introduced to Apptronik at Capital Factory. Largely, the company remained self funded, generating sufficient revenue from customers to require limited external investment. Several years later, in 2021, Capital Factory followed on with another $100K in a new convertible note set on a $35M pre-money cap. Additional investors in that round included robotics-focused Grit Ventures and family office Perot Jain. For the majority of our relationship with the company, our co-founder and chairman Gordon Daugherty has served, and continues to serve, on the board of Apptronik. He has been an instrumental point of access for Capital Factory and a very active advisor to the Apptronik team. He has overseen the change in CEO, multiple rounds of fundraising, and navigated the successful contracting of several million dollars in company engagements with commercial and defense contracts. Given our long history as an advisor, our access point on the board and our ongoing investment participation, we have had an unprecedented level of access and insights into the company, giving us strong confidence in the team and willingness to share this opportunity with our closest partners.

Executive Summary Apptronik represents the opportunity to invest into a fundamental shift in human labor, powered by advanced robotics that fill open positions and take on dangerous, undesirable roles. With over 10M open positions in the US alone, there are large, persistent gaps in labor participation. Often these roles are monotonous, pose health and safety risks and do not offer an attractive enough wage. There are also structural demographic patterns in mature economies that limit the number of young, able bodied workers to support a large, aging population that has exited the workforce. Unlike the early fears that robots would take people’s jobs, advanced economies have realized there are more jobs available than there are willing humans. This dilemma represents a $1T opportunity to augment labor forces across logistics, manufacturing and construction, serving commercial and government enterprises around the world. Apptronik could serve as the major robotics platform that powers fleets of on demand labor, in open, unstructured environments. They bring a single, fully integrated robotics stack that powers their advanced arms, exoskeletons and humanoid models. These machines can supplement human labor by providing added physical strength or fill open roles. While there are other robotics companies, Apptronik stands out for delivering both highly mobile and highly manipulative machines. Other companies optimize for one or the other trait. Both are required for generalized human labor. Additionally, the company has secured exclusive contracting agreements with the US Army, a $500M revenue opportunity and spent years self-funding their R&D projects through commercial contracts. The result is superior performance, a contractual moat and a sustainable capital structure. Capital Factory has already invested $300K in the company since the start of the relationship. We now have the opportunity to invest $1M+ in their $15M Series Seed-2, set on a $45M pre-money valuation. The round is oversubscribed, but the goodwill and reputation we have with the founding team has secured us an allocation. Given the large, greenfield market opportunity, strong competitive lead and existing financial traction, Apptronik stands out as a top investment we would like to bring to our closest partners. Deal Terms and Valuation Analysis Up to $15M Raise Priced Round (“Seed 2”), $45M Pre-money Up to $10M led by a Strategic Partner of Apptronik’s, that will additionally invest an additional $5M of non-recurring engineering (NRE) to further advance the humanoid robot towards commercialization. Approx $2M other Strategic Partners Remainder are venture funds The company is currently reserving $1M for Capital Factory March 1st, 2022 initial close [30 day close date] with the possibility of a second close Target of $150M pre-pre money for the Series A late in 2022 We see these terms as attractive, given the trillion dollar labor market opportunity, superior robotic arm capabilities and pathway to build an equally superior humanoid robot. The company has also won large, material contracts with the government and already demonstrated commercial demand, with 60% of revenue coming from private enterprises. Further, the team has beat out Sacros in multiple programs, yet this company went public via a SPAC for $1.3B. Even after discounting this comp to factor in recent market conditions, we believe a $45M pre-money valuation still offers a high likelihood of achieving a 10X return on investment or more, without even requiring the company to reach a $1B valuation.

Apptronik has already secured several near term opportunities that demonstrate their ability to win contracts and execute on them: US Army: $5.6M proof of concept with $500M in revenue upside. Secured SBIR Phase III contract, awarding exclusive contracting with Army for durable, outdoor arms that power defense resupply. NASA: $3M exclusive partnership to build the humanoid robots that will be placed on the lunar surface. Sanctuary: A $3M-$5M contract with an artificial general intelligence company. They are also the strategic leading the current financing with a $10M investment and will be granting $5M in non-recurring engineering costs to support humanoid development. This partner is additionally contemplating a purchase order in the magnitude of $10M-$15M for commercial delivery of the humanoid robot. Toyota Research Institute: Multi-million dollar contract and early adopter that could signal other significant automotive brands to contract with Apptronik. Traction Highlights: $16+ Million in Total Revenue, revenue since Day 1 2020 - $3.6M Revenue 2021 - $6.2 M Revenue 40% Department of Defense (DoD) / 60% Commercial 18 major customers & Partners (NASA, Lockheed Martin, CSIRO, National Science Foundation) 8 Patents (strong portfolio of core IP and deep pipeline of trade secrets) Competitive Positioning Early generations of robotic arms are expensive builds set in fixed positions, for repeat tasks that are pre-programmed. For example, the robotic arms on an automotive manufacturing floor are heavy and locked into a single task - attaching a car door or securing a portion of the chassis. Apptronik’s robotc arms are designed to be cheap, lightweight and adaptive to an open environment, putting them several orders of magnitude ahead of arms invented in the last 25 years. This makes Apptronik arms suitable for moving around a resupply truck, in the rain and loading different sized packages onboard. Usually there is a trade off between manipulation and mobility, allowing fixed robots to be highly articulated or for mobile robots to be highly agile but incapable of fine motor control. The opposite end of the spectrum, for example, is a Boston Dynamics robot, with strong mobility and balance but lacking an accurate gasp and detailed manipulation. These types of robots, such as Boston Dynamic’s four legged dog-like robot, are great at quickly running into a burning building to find survivors but wouldn’t be able to lift a person out from the rubble. Apptronik’s fully integrated hardware and software stack combines superior work in the mechanical structure of the robot while making it highly adaptive and continuously trained for open environments. Such an effort goes beyond just their arms and is even more apparent in their humanoid designs. They are one of only a handful of humanoid builds capable of walking and balancing on their own. By combining the learnings of the robotic arm, Apptronik is taking their advancements in mobility and manipulation and putting it into a human frame. We see this competitive advantage as enduring, with a moat built by the years of investment in the hardware, supplemented by a sustained rate of customer funding through their Labs business unit. Further, their contract with the US Army passed the three phases of the Small Business Innovation Research grant process, with Phase III securing Apptronik as the sole robotic arm provider to the Army. Passing all three phases of this process is incredibly difficult and contractually secures $500M+ in government revenue.