According to a report by Fortune journalist Morgan Chittum, the significance of venture capital lies in identifying the next major trend as early as possible. However, when one institution bets on a popular startup, other institutions tend to follow quickly. Even more noteworthy, albeit riskier, are the investors who go against the trend—those willing to be the first to enter the market and bear the risks alone.

Ajay Agarwal made such a choice over 20 years ago, when he supported a robotics startup that was generally avoided by Silicon Valley investors. That company was Kiva Systems, which was later acquired by Amazon for $775 million.

Agarwal Recalling that in 2004, when he met with Kiva and co-founder Mick Mountz, the company had no revenue, no finished products, and no customers. At that time, software was considered the faster and cheaper path to commercialization. But Mountz's idea was simple: instead of having warehouse workers walk back and forth between shelves to pick up goods, why not have robots bring the shelves to them? Agarwal told me, "Five minutes after meeting Mick, I thought, 'This is the best meeting I've attended in 18 months.' I knew nothing about robots or hardware, but he explained the issues so clearly that he could explain them even to your grandmother."

However, it will take more effort to persuade the partners of Bain to invest. Agarwal said, "I don't blame them for their initial reaction, which was 'we know nothing about robots'."

Leveraging the network of Bain, Agarwal introduced the Kiva team to Don Ralph, the person in charge of North American e-commerce fulfillment operations at Staples, for further due diligence. What was originally scheduled to be a one-hour meeting lasted for three hours. The next day, Ralph called Agarwal and said, "I've been in this industry for 35 years. This is the most convincing technology I've ever seen. You must invest in it."

Subsequently, Bain led the first round of financing for Kiva, and Staples also became its first customer. Well-known companies such as Zappos, Gap, and Zara followed suit. Eight years later, Amazon acquired Kiva for $775 million. Bain told Fortune that its initial investment in Kiva yielded a return of 26.6 times.

Today, Agarwal has greater opportunities and a wider range of possibilities. He says, "We are in the golden age of hardware and physical AI." This technology enables robots and other machines to perceive the real world and act within it.

However, this time, other people from Silicon Valley also joined in.

PitchBook data shows that in 2025, robots and physical AI startups completed a total of 1,009 financings, with a total financing amount of $27.6 billion, which is more than twice the amount of the previous year. Among them was TerraFirma, a construction robotics company that received investment from Bain in 2024. In July, this company announced the completion of a $100 million Series A financing led by Kleiner Perkins, with Bain participating in the investment once again.

Agarwal Why do they think this momentum will continue? First and foremost, it's about talent. The founders of TerraFirma, Noah Schochet and Noah McGuinness, both come from SpaceX. Another leading robotics startup, Physical Intelligence, was founded by a robotics scholar from Berkeley, Sergey Levine, and a former researcher at Google DeepMind, Karol Hausman.

Agarwal said, "I think, to some extent, this is a reaction to people's weariness of workflow software after 20 years of using it. People might feel that this isn't ambitious enough. I want to do bigger things, I want to tackle more challenging tasks."

Hardware costs are also decreasing. Nowadays, the price of many key components is only a fraction of what it was years ago. This is partly due to economies of scale: smartphone and electric vehicle manufacturers purchase cameras, sensors, and batteries in large quantities, which also helps to reduce the cost of components used in robots. Agarwal says, "This means that the return on investment you can offer needs to be much more compelling."

Finally, more advanced AI means that machines are better equipped to handle scenarios in the real world. He said, "They can cope with situations they have never encountered before. They can adapt to and adjust to those edge cases that are inevitable in physical environments."

22 years ago, Agarwal still had to convince his partners to take robots seriously. Today, that’s no longer a challenge. The real difficulty lies in finding an opportunity to bet on something that no one else in Silicon Valley has yet flocked to pursue.

See you tomorrow,

Morgan Chittum

X: @morgan_chittum

Email: morgan.chittum @ fortune.com

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Today's communication's trading section is compiled by Joey Abrams.

Venture Capital

• Headquartered in San Jose, California, geniosAI is a financial intelligence platform provider that serves banks, investment teams, and CFO. The company has received a total of $19.1 million in seed round and Series A financing from FactSet, Zoom, and General Catalyst.
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• Physicl, headquartered in Paris, France, is a platform provider that generates targeted training data for physical and AI. The company has completed a seed financing round of $10 million. Inovia Capital led the investment, with U.S and Venture Partners also participating.
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Exit transaction

• Alfa Laval agrees to acquire NAVTOR, located in Egersund, Norway, from Accel-KKR for $700 million in cash. The latter is a provider of maritime navigation and ship performance software.

IPO

• vVardis, headquartered in Zug, Switzerland, is a healthcare and dental company that now plans to issue 9.5 million shares on the New York Stock Exchange, aiming to raise up to $228 million, with an offering price range of $21 to $24 per share.

Funds and Master Funds

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