October 25, 2021 – On today’s podcast we welcome special guest, Sarcos CEO Ben Wolff. Sarcos Technology and Robotics Corporation is a leader in the development of robots that augment humans to enhance productivity and safety.

On the show, Ben discusses:

  • Why Time Magazine named the Sarcos Guardian exoskeleton one of the “Best Inventions of 2020”
  • Their “Robot as a Service” business model
  • How robotics are going to change the future of work
  • Key insights from the recent going-public process and advice for CEOs considering taking their company public
  • And more

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Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate financial technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.

Julian Klymochko: We have Ben from Sarcos Technology and Robotics Corporation on the podcast today. And I’m super excited because it’s like we’re talking to the real-life Tony Stark, that’s right. Sarcos manufactures exoskeletons, these really cool robotic machines that look to unlock human potential and help with a number of various tasks. And we’re going to get into the products and the exoskeletons today. But Ben, prior to getting into that, I did want to give our listeners a sense of your wide-ranging career. You started out as a lawyer in the 1990s prior to transitioning to business and entrepreneurship. You were a co-founder and CEO of Clearwire, CEO of Pendrell and now co-founder and CEO of Sarcos. Can you walk us through your background and career history?

Ben Wolff: Sure, you know, I actually started my first company when I was 17 years old. So had an early taste for entrepreneurship. Loved business, loved everything about business and decided to go to law school so that I can learn how to be a better businessperson. You know, obviously a lot of what you do in business has legal underpinnings and negotiations and all that kind of stuff. So, I thought I was only going to be a lawyer for a few years. I wound up being a partner in a major national law firm and did that for 10 years. But along the path of being a lawyer, my practice focused on again, business, M&A transactions, securities transactions, all that kind of stuff. And that really, I think, positioned me well to then transition into running a private equity firm.

It was a rather large private equity firm. We did everything from small investments to very large acquisitions from majority stakes. And it was in the context of running that private equity firm in 2012 that I first came across Sarcos. At that time, Sarcos was the robotics division of Raytheon. Raytheon had bought the business in 2007. And I tried hard to buy the business back then. We couldn’t come to terms back then. And then I retired from running the private equity firm both the public and the private side of it in late 2014. And within about a week I had a call from Raytheon and we were talking again about Sarcos. And so, my wife and I then participated in a management buyout. We acquired the business from Raytheon, with my co-founders and prior to that time, Sarcos had really been an R&D firm.

And so, got a rich history in developing both prosthetics and robotic systems. But mostly in the R&D context and my vision for the business back in 2012. And again, in early to 2015 was to take all of this technology around robotics that the Pentagon and others had funded to develop and to pivot the business, to focus on commercial product applications that are robotic systems. So that’s, getting into a little bit about Sarcos, but that’s my history. Lawyer, M&A, private equity guy, and then also entrepreneur. During the kind of the in-between periods, I started Clearwire, as you mentioned. We built that company up as the first 4g wireless carrier across eight different nations. And then ultimately sold that business to Sprint for 14 billion.

Julian Klymochko: Thanks for that summary and the background on Sarcos. And if our listeners haven’t seen some of the videos of what Sarcos does, I encourage them to check them out and you can find a bunch on YouTube, but to the extent they haven’t, can you describe what Sarcos offers?

Ben Wolff: We are focused on highly dexterous, mobile robotic systems. And what that means is when we talk about dexterity, we’re talking about robots that can do things with arms. If you’ve been thinking about the human body, we’ve got legs that we use for transporting us from one place to another, and then we’ve got our upper bodies that are used to interface with the real world and to manipulate things in the real world. So, our whole focus as a robotics company is not on the transport side. There are a lot of robotics companies that are focused on taking people or goods from one place to another. We’re focused on what you can do with the upper body to be able to replicate the kind of movement that humans can, but to do it in a way that the robot is doing all of the dangerous or difficult or demanding work.

So, in the case of the exoskeleton, this is a full body wearable humanoid robot that you get into. And you’re able to start doing things with super human strength. So, you or I could get into the robot and start lifting up to 200 pounds with no stress or strain on your body at all. And it’s not just lifting it vertically like a forklift. It’s actually being able to manipulate, you know, with your arms and your wrist and your hands, the way we humans do just with superhuman strength. So that is an industrial strength machine intended for use across a wide range of industries that involve physically demanding work. And then we’ve also came up with a variation of the exoskeleton, which is what we call a robotic avatar, where we take the upper body of the exoskeleton, the torso, the arms, the hands, the wrist, and apply it to different kinds of mobile basis.

So, think about it being on top of a scissor lift or a bucket truck. And in that instance, the robot is controlled by the human, but remote from the robot. So, think about it either being wireless connected, or wired connected, and it can do things like cutting trees, managing power line, maintenance applications, or cutting, welding and sanding and height, all kinds of things where humans probably couldn’t, or shouldn’t be in the direct environment because of risk of injury. And in this case, the robot is a surrogate or an avatar for the human. And again, it can lift up to 200 pounds and do highly dexterous tests.

Julian Klymochko: So, Time Magazine named the Sarcos guardian exoskeleton as one of the best inventions of 2020, what makes this invention so great? Besides obviously the ability to have superhuman strength?

Ben Wolff: I think one of the things that’s great about it is it gives people whether they’re young or old, big or small, male or female, young or old, it gives them the ability to do physically demanding work in a way they wouldn’t be able to do otherwise. So, the fact that we can, you know, particularly in these days where we have these significant labor shortages, I mean, we’ve all heard about the labor shortages that are particularly affecting the traditional, you know, manual labor type of jobs. The fact that we can recruit a whole new generation of people that might not otherwise want to do physically demanding work into these jobs. And it doesn’t matter what their body composition is. Some of these jobs, historically had to be built like a college football linebacker or else you couldn’t do the job. And that’s just not going to be the case anymore when we launch our commercial product.

So, I think that’s what makes it such an innovative and compelling product. It’s easy to use, it’s intuitive, quick to get in and out of, safety use, and it allows you to have superhuman strength and to avoid injury. So that’s a pretty novel concept. The other thing that makes it very different Julian, and then so many other robotic systems is robotics engineers typically identify a problem, and then they make the machine to solve that specific problem. And that creates often a fairly limited set of use cases and customers. We’ve tried to flip that whole paradigm on its head and instead build robotic platforms that have a wide variety of uses across a wide variety of industries, almost as flexible as we humans are ourselves.

Julian Klymochko: So, this technology it’s really cutting edge, like I can only imagine all the various applications that can be resolved or assisted with this technology, but in innovating this technology over the past six years, developing. What is been the biggest challenge with developing these exoskeletons?

Ben Wolff: One of the biggest issues we had to overcome was power. When you talk about having a mobile robot, you know, the question is, how do you power it? 

Julian Klymochko: Right. 

Ben Wolff: Because it can’t be tethered to a power cable or else you can’t completely defeat the utility of the machine. And you know, the very first version of the exoskeleton that we developed was using about 6,800 Watts of power on average an hour. To give you a comparable concept, you know, a DJI drum for example, uses about 4,000 Watts of power to stay aloft. And they can only operate for 20 or 30 minutes because there’s, you know, the weight to the machine requires a lot of power to stay aloft. And therefore, there’s only so much battery can carry. We have the same kinds of challenges with the exoskeleton, not dissimilar to the challenges that Tesla first had in trying to produce an electric vehicle. Where you’re trying to get enough power on board to make it have real utility.

So, we’ve been able to take that 6,800 Watts of power, which would only give us about 10 minutes of battery life. And we’re now able to produce a machine that’s using less than 500 Watts of power while walking three miles an hour and carrying 160 pounds of payload. What that means is we’ve been able to convert the machine to a full battery-operated using lithium-ion technology that has hours of battery life per use. And that makes it viable for the first time. All walking robots use a lot of power, you know, you’ve seen cool videos of robots that dance in [Inaudible 00:08:53] and do all those cool things. Those use five or 6,000 Watts of power, which means from a battery life perspective, humanoid robots are a real challenge. So that’s one of the single biggest technology challenges that we had to overcome.

Julian Klymochko: That makes sense because these while cool, they have to be practical as well. And no one wants to be constantly having to charge this or running out of batteries while you’re in the middle of a task. So that is good to know. I did want to touch on the Sarcos business model. Now, going through the investor presentation, I came across robot as a service. This rasp business model that you guys are running. Can you discuss how that works and who your typical customer would be?

Ben Wolff: Yeah, so our approach to our customers is to say, think of us as a next generation of staffing firm or a labor contractor. We’re providing next generation units of labor. In our case, instead of human labor, it’s robotic core mechanical labor. And so, we tell our customers to put our robot on their payroll, just like they would a human. We service and maintain it, make sure it shows up for work every day with a smile on or else you don’t have to pay me. As long as it shows up for work, it will generate. And most of the use cases that we’ve looked at with our customers, it’ll generate a productivity level that allows one human operator plus our robot to do the work of three, four, or five or even more humans. So, for the cost of effectively, one fully burdened, $25 an hour employee, which is what we charge our customers. Fully burdened, they get the productivity of multiple things. So, it’s an immediate ROI to our customers. And you asked who are our customers? We’ve announced that we have development partnerships to trial and deploy our machines with companies like Caterpillar, Delta Airlines, Bechtel in construction, a whole myriad of different fortune 500 companies that are across a wide range of industries with the common theme being, they rely on workers to do physically demanding work. So, for the exoskeleton, the initial target markets that we see kind of the lowest hanging fruit are in manufacturing of all types. And then also in warehousing and logistics. For the avatar version of the machine, the initial markets that we have a lot of traction with our construction, repair and maintenance of physical facilities and plants. And then the last one that we’re focused on is the power generation industry.

Michael Kesslering: You had mentioned earlier, your previous experience in private equity. Can you talk a little bit about what some of your takeaways from working with the operating companies and your investments in the private equity world in a very different structure that you’ve been able to leverage in the management of Sarcos?

Ben Wolff: No, I think what I learned from my days in private equity and investing was how to create a return on investment with the dollars that are invested. And to me, it’s as much about identifying the right opportunity as it is then executing on that opportunity. And what gets me excited as an investor generally speaking, is when you see a very, very large market opportunity or what marketplace refers to as a tam with unique a unique moat around the business, whether it’s intellectual property or know-how of some kind that allows you to have a lead in the market. And then what does the competitive landscape look like? And when I apply those factors to Sarcos, you know, we’ve got a massive multi-billion-dollar market opportunity. We have no direct competition today. And then we have a pretty good moat around our business because we have a very large body of patents and other technologies that we’ve developed over the years, coupled with a team that I would say, you know, in the context of highly dexterous mobile robots, I would say is second to none. I mean, we have a team that has decades of experience in these types of robotic systems, that’s hard to replicate. So, you know, coupling of massive market opportunity, clear market demand with very little or no competition, that’s as an investor, it doesn’t get any better.

Julian Klymochko: Yeah, I did want to drill down on the competitive environment. You indicated there isn’t much for competition, but is there anyone, you know, trying to develop exoskeletons? Are there any, call it less expensive, but less applicable potential alternatives to utilizing an exoskeleton?

Ben Wolff: Great question, Julian. So, start with the prospect that the word exoskeleton is a very, very broad term. 

Julian Klymochko: Right. 

Ben Wolff: Exoskeleton is used to refer to any kind of a mechanical device that attaches to your body to enhance endurance or strength or whatever else it might be, you know, enhance human capabilities. Exoskeletons, there are a number of exoskeletons in the market today. Some are focused on rehabilitation activities, so where somebody has some kind of a walking infirmity or impairment to be able to help somebody walk again, there’s a whole category of rehabilitation exoskeletons. There are other exoskeletons that are designed for the industrial workspace that are either not powered or are likely powered and think of them like a brace that allow you to have more endurance holding a tool over your head, for example, overhead. In all cases, these exoskeletons that are in the market, don’t try and do what we try and do.

So, if, exoskeleton is a broad word, think of it like vehicle, there are all kinds of different vehicles that transport goods or people from one place to another, a skateboard could be considered a vehicle. A bicycle could be considered a vehicle. A Ford F150 pickup could be considered a vehicle and F35 could be considered a vehicle. What I’d tell you is that from our perspective, we have no competition in our full body wearable, industrial powered exoskeleton. There’s nothing else out that they can come close to lifting 200 pounds. There’s nothing else, it’s full body robotic like ours is. So, if we’re an F-150 pickup, we might describe these other exoskeletons as being the bicycle or the state board. And there’s nothing wrong with that. We all know there’s markets for all of those different types of transportation. And there are markets for all these different types of exoskeletons, but we are uniquely positioned in terms of our wearable full body robot with no other competition in the space

Michael Kesslering: That a more macro level, how are robotics going to change the future of work in your opinion?

Ben Wolff: You know, I think everything that can be automated will be automated. The dynamics of the efficiencies, the economics and the labor shortage means that there is an absolute imperative to automate everything can be automated, but keep in mind, we’re a different type of robotics company. We’re not focused on automation, automation. I define most basically as a repetitive task that a robot can do over and over again, instead of a human doing that dull, boring tasks. In our case, we’re trying to augment humans with robotics in all of those jobs that are too dynamic or diversified, and they kind of defy repetition. And as a result, we’re trying to bring the economic efficiencies of automation. For all those jobs where human intelligence is still required for making decisions. I think that both automation and human augmentation robots are going to play an increasingly important role in the industrial workplace over the next 5, 10 years.

And that’s really driven by these trends that we see in industrialized world about labor shortages. We have an aging workforce across most of the industrialized world, and we have fewer and fewer young people that want to go into physically demanding jobs. They’d rather sit behind computers like you and I are doing right now. And so, you know, most kids coming out of high school or college, don’t aspire to go into these jobs that require heavy lifting or backbreaking work. Well, now we can reverse that trend because instead of being a warehouse worker, you can be the pilot of the coolest robot on the planet.

Julian Klymochko: It sounds pretty appealing, especially you come across a guys who work for moving companies, and it seems like they’re always messing up their back. So, to the extent that they can afford an exoskeleton, I’d definitely recommend one. Now, a recent big news at the company. Sarcos going public which happened a few months back. So, you guys are up and trading as a public company. You went public via SPAC versus traditional IPO. What was the thinking behind that? And, you know, how was that whole experience?

Ben Wolff: So, the real driver for a company that is at our stage, which is effectively a pre-revenue company, where we have yet to launch our products, the appeal of a SPAC is that we get to tell the public, our vision of the future for Sarcos in a way that the IPO rules don’t really allow. When I took Clearwire public, we went through the more traditional IPO approach. And what you notice about the traditional IPO approach is that almost the entire focus is backward looking.

Julian Klymochko: Right. 

Ben Wolff: What are the financials for the last three years? You know, what are the trends over the last three years look like? And for us, our story is not about the history. Our story is about what the next five years are going to look like. And that’s why I think going public through a SPAC as a unique opportunity for a company that is more in the development stage like we are.

Julian Klymochko: Yeah, we hear that a lot, the ability or lack of ability to give any sort of forecast or guidance through the traditional S-1 IPO structure, and then the SPAC enabling a company that’s going public to generate and communicate these forecasts and projections to their investors. Because as you indicated for prevent revenue company, you don’t have a lot to show in the S-1, but you do have a big growth opportunity for investors. Now, that being said, going through this process, you chose to merge with the SPAC Rotor Acquisition Court. How did that come about? You know, did you talk to multiple SPACs and what set Rotor apart? 

Ben Wolff: We did talk to multiple SPACs and we decided that Rotor was the right fit for us in parts of, because of the principles behind the Rotor, you know, there are a lot of SPACs out there obviously, and they come in all different shapes and sizes and flavors and different sponsors. The sponsors behind Rotor, I think are some of the top that we could hope for, you know, the former CEO of credit Suisse U.S., the former vice chair of Bank of America. These are people with incredible integrity and great track records and somebody that Wall Street knows and recognizes as credible people. So, I think, you know, it was really about the people, and the terms and everything else. I mean, they were able to move quickly, just a great group of folks at Rotor.

Julian Klymochko: And you went through this going public SPAC merger process earlier this year, must’ve been a ton of work, but that’s now behind you, I’m sure you went through a lot of challenges and opportunities, learn a lot of lessons. So, there’s a CEO of a private company considering going public. They are thinking about a SPAC. Were there any learnings tips that you could offer for those considering?

Ben Wolff: You know, I think number one, it is expensive. There’s a lot of bankers and lawyers that expect to get paid through this kind of a process. So, if anybody says it’s cheaper to go the SPAC route than the traditional IPO route, I might question the statistic and encourage you to look at the statistics on that. There’s also rumors out there that it can be faster. I don’t know that it’s really faster, you know, the due diligence that is done despite what you hear about from the media, it’s extensive due diligence that gets done. And you know, a lot of the same aspects that are involved in an IPO are also involved in a SPAC. So, I don’t think it’s necessarily cheaper. I don’t think it’s necessarily faster. And it is a ton of work, you know, you need to be prepared to have your management team dedicate a lot of their time to getting ready for this.

I think that it is important overall, if you’re just thinking about going public, whether it’s through an IPO or a SPAC, to really get your arms around what it’s going to mean to be a public company. You know, this is honestly my third time to be a public company CEO, but your world changes pretty dramatically and the responsibilities for quarterly reporting and transparency and all of that, I think it has caught some deSPAC management teams a bit by surprise. And so, I would say if you’re a CEO of a private company. Thinking about going public, just spend all the time you can with other public company CEOs that have gone through it and understand what really is going to be involved.

Julian Klymochko: Yeah, those are some good tips for those considering going public via a SPAC or an IPO direct listing, whatever it is, going public entails a ton of work. And obviously it is expensive for whichever route you go. Now, given this is cutting edge technology, what you guys are up to at Sarcos, it would be interesting to be a fly on the wall of your R&D facilities. I’m wondering what’s in store for the future of Sarcos products. Anything cool you’re working on? Are we going to get iron man like robotic suits?

Ben Wolff: You know, I was asked to whether we’re going to get iron man by a senior official and my off the cuff response was as soon as somebody can get me to the arc reactor, then we can start talking about it because it gets back to this power source. 

Julian Klymochko: Right. 

Ben Wolff: Right, so that’s kind of my quick hook on that. The future for these kinds of technologies about augmenting humans is exciting because as we start embedding artificial intelligence capabilities into these machines, the productivity between a human and the machine can just exponentially increase. Imagine being able to wear the robot, to train it, to perform certain tasks so that instead of having to have the humans manage each and every movement of the machine, the human moves more into a supervisory role, and the robot can then perform some of these more rudimentary tasks on its own, because we’re starting to live here with a full body wearable robot.

I mean, this is a robot that can actually walk on its own if you asked it to. You have the ability to wear it, to teach it how to do things perfectly the first time, the way we humans do things, we’ve been learning how to manipulate the real world since we were infants. And so, to be able to meld in effect our human wisdom and judgment and intuition and instinct with these machines to train them, to be able to perform tasks, it’s kind of short-cutting the traditional way that AI has done. And that’s where I think, you know, when we’re 5, 6, 7 years down the road, we’ll have an opportunity to see these machines doing tasks that they’ve learned how to do on their own, to recognize objects and to interface in the real world so that we might get to the point that one human can manage a small fleet of these machines instead of just one human managing one. And so, we have a very robust brilliant AI team that is working on these kinds of advanced technologies to just continue to iterate what the machines are capable of. Again, to draw an analogy, hopefully it’s not too simplistic, but as you think about an EV that is increasingly learning how to become an autonomous driving machine, we have that same kind of capability with these machines.

Julian Klymochko: Okay, well, as long as they don’t turn into some of the bad robots from the Terminator series, I’m on board with that. But Ben, thanks for coming on the podcast today. Super exciting stuff happening at Sarcos and it is up and trading on the NASDAQ under the ticker symbol, STRC. If investors are interested in checking out the stock, looking more into the story, definitely check out all of their filings as well. Do your due diligence prior to investing. So, Ben, thanks so much. I wish you the best of luck and super interesting stuff happening at Sarcos. Thank you for sharing with us today. 

Ben Wolff: Thanks for having me. 

Julian Klymochko: All right, take care. Bye everybody.

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