Last week was a 3-for-1 win for me.
Between being at the Total Wealth Symposium in Las Vegas, presenting with a guard robot named K5 and meeting all of you in attendance, this year’s event was definitely one for the books.
However, as an added bonus, I had the pleasure of sitting down to interview the CEO of Knightscope (K5’s maker) and ex-Ford Motor Company executive, William Santana Li.
In this interview, we talked about everything from how Knightscope came up with the design concept for its K5 guard robot, how the tragedy that struck on 9/11 inspired Li’s passion for making the U.S. the safest country in the world and why now is the perfect time to invest in robotics.
Check out the interview below:
Knightscope Robotics Aims for a Safer U.S. with Guard Robots
Paul Mampilly: Hi, this is Paul and we are in Las Vegas again. We had the most incredible thing at my presentation — a real-life, 400-pound, 5-foot robot come. And we are lucky enough that we have the CEO of Knightscope with us today. Knightscope is the company that makes this K5 robot. Will, welcome.
William Santana Li: Thanks for having us! We appreciate it.
Paul Mampilly: Thanks for coming. And thanks for bringing K5!
William Santana Li: Absolutely!
Paul Mampilly: This 400-pounds of muscle — big boy!
William Santana Li: Yeah, I’ve got some folks that are like: “Hey, just come bring it on the plane with you!” I’m like: “I don’t think you understand.”
Paul Mampilly: Yeah, I was telling the people in the presentation that it’s the perfect size for a security robot, because you would want something that you couldn’t really move physically.
William Santana Li: We actually have it kind of set up like a police officer. It needs to stand up straight, command respect and authority.
But you can’t scare grandma or the child, right? You have to have just the right balance of: “Hmm. Maybe I’m going to do a double-take before I do something silly.” So that’s the way it is.
Paul Mampilly: Many of the readers have heard about robots and robotics. And obviously, I gave a presentation on robots and robotics being a great investment opportunity.
But tell us a little bit about robots and K5 that our readers would be interested in.
William Santana Li: Sure. So, I think in the next 10 years, the world is going to change more than the last 100 years combined. We started Knightscope about five years ago — out of personal and professional motivation.
On the professional side, I’m an ex-Ford Motors company executive. I think autonomous technology is going to turn the world completely upside down.
All that self-driving technology, it’s been about $80 billion worth invested in the sector, nearly 50 companies working on it. And have you seen any self-driving cars generating revenue anywhere around here?
Paul Mampilly: No.
William Santana Li: Right. Knightscope is the worldwide leader in commercializing self-driving technology. We’re operating in 16 states running 24/7 across four time zones. So we’ve taken a completely different path to commercializing a very profound technology.
On the personal side, I was born in New York City. Someone hit my town on 9/11. I’m still really upset about it, so I’m dedicating the rest of my life to better securing our country.
Paul Mampilly: I was in New York for 9/11 too. And yeah that was brutal. So was that the inspiration for creating Knightscope?
William Santana Li: Yeah, I love my country, but it’s structurally flawed in trying to stop all of the crime and violence. So most people don’t realize that crime has a $1 trillion negative economic impact on the U.S. every single year.
So if you add up all the handcuffs, prisons, judges and ambulances — it’s a hidden tax that we all pay in blood, tears and treasure. And every time something goes wrong, our political leaders on both sides of the aisle stand up and say: “Oh, we extend our thoughts and prayers.”
Hey buddy, that’s not going to fix the problem. So structurally, if you want to look at it from a macro-political economic perspective, there’s a $700 billion budget the U.S. Department of Defense manages.
There’s one person in charge of the Secretary of Defense. And there’s a huge military complex to build whatever widget you want: Northrop, Lockheed, Raytheon and Boeing. Right?
There’s a process. And if you want to build a new submarine, widget or tank there’s a way to deliver that.
What’s structurally flawed in a huge economic opportunity and an opportunity to make a big positive impact on society? The U.S. Department of Homeland Security and the U.S. Department of Justice have no federal jurisdiction of over 8,000 private security firms and 19,000 law enforcement agencies. There’s literally no one in charge.
That’s why over the last 100 years there’s been no innovation in that security space, because there’s no capital going into the sector. No leadership, no process — there’s nothing.
And what we see is “gold in them hills”. There is a huge problem, and here’s a new technology we’re able to use to help society fix it. And our longtime ambition is to make the United States of America the safest country in the world, changing everything for everyone.
If we’re able to do that, the volatility of financial markets, safety of your family, viability of someone’s local business, housing prices, and insurance rates will change. Everything literally changes for everyone.
Paul Mampilly: So, we had K5, which is your biggest robot. You were kind enough to bring it to my presentation. It was spectacular.
What are the economics of having a K5 robot? Say a neighborhood wanted to have it — is that something that’s viable today?
William Santana Li: Yeah, absolutely, we have clients. So, the economics — loosely speaking because this ranges across the country, but if you want an armed off-duty law enforcement officer to stand out your office or your home — it’s about $85 an hour.
If you want a security guard to patrol your premises — what the client gets paid, not what the guard gets paid — it’ll be around $25 an hour, and it ranges widely depending on what you want them to do.
We offer our machines as a service business model at an effective price of $6 to $12 an hour. So it’s a massive cost reduction for a lot of our clients who spend $50 to $100 million a year on security guards.
The security guard industry is a bit broken, so the employee turnover rates are about 100% to 400%. Awful customer service. Awful focus on technology. Awful margins as a one-staffing business. And it’s a very difficult commodity.
Paul Mampilly: It’s a brutal job. I mean your job is just to walk around endlessly.
William Santana Li: But the intersection’s really important. So, now you’ve got a profound set of technologies. You’ve got a price point that’s really attractive for a client. So why does an investor care?
Well, the investor cares because our clients sign one-, two- and three-year long contracts. Roughly, there’s $70,000 to $100,000 a year of revenue that comes in per machine.
And let’s just round up to make it easy numbers. I’m an ex-auto executive, so you expect me to make sure that machine lasts for five years, yeah?
Paul Mampilly: Right.
William Santana Li: So, five years in service, $100,000 a year of revenue comes into the company — that’s half a million dollars of revenue per machine over the next five years. And then, there’s operating costs. It costs us money to build the machine, etc. But you’re going to probably net out around a quarter million dollars of profit per machine over the next five years.
That’s why economically, it gets really attractive. So you’ve got the kind of hardware, automotive per unit economics, meaning the dollar per unit is really high, but you’ve got software as a service margins.
And when I was back in Detroit, I mean we could barely cover our costs of capital. I mean, you look at the after tax return on sales, and it’s kind of hanging on by 1%, 2% or 3%. Not a viable business.
Paul Mampilly: This is why Elon Musk was saying there’s only two auto companies that’s never gone bankrupt — Tesla and Ford. And they both barely made it by the skin of their teeth in 2008.
William Santana Li: Yep.
Paul Mampilly: So where are the growth prospects in your business? Like, where is Knightscope going? Are you going to stay in security? You know, it’s a large market. However, it’s a difficult market, but that also makes it where no one is likely to come.
William Santana Li: Right. So 95% of startups fail and 85% never make it past the third anniversary. Fifty percent fail the first year. One of the problems is that the CEO is not willing to say: “No.”
We’ve got a lot of investors pushing us this way and that way. We’ve got nearly 6,000 folks who’ve backed the company. We have to be able to laser focus on the mission. What is it that we’re trying to accomplish?
We’re trying to make the U.S. the safest country in the world. Going off and working on mapping, or going off and doing delivery services — that’s not going to help.
If you add up globally how much the private and public sectors spend annually on security, it’s half a trillion dollars. So when someone says to me: “Hey, you should go work on delivery.” I don’t think that’s probably a good use of time.
Paul Mampilly: And you’re in four countries, right?
William Santana Li: No, no. We’re operating in four time zones — U.S. only. We’re in 16 states right now and primarily growing in the logistics space and healthcare. We’re at LaGuardia International Airport, so that’s starting to grow. We’re in casinos, Westview Malls, corporate canvases like Citizen’s Bank and BlackRock.
BlackRock manages $16 million — including big money managers, Samsung and Seagate’s as clients. And now we’re starting to grow significantly. That’s why we’re raising our pre-IPO financing now.
So a few years ago, the federal government changed the rules that allow private companies to do public offerings but remain private. So the stock doesn’t trade. You could literally go to Knightscope.com and buy-in at $8 a share for credited investors.
Paul Mampilly: Well, it’s been great conversation. Thanks so much for coming here and bringing K5.
William Santana Li: Thanks so much for having us!
Paul Mampilly: It’s been great. Thank you so much! So that was the CEO of Knightscope. You’ve got to check the robot on www.knightscope.com.
I’ve already begun researching the robotics market to look for stocks to add in my Profits Unlimited service.
If you haven’t subscribed yet and are looking to gain exposure to the sector, Robo Global Robotics & Automation ETF (NYSE: ROBO) is a good place to start.
And if you missed out on last week’s Winning Investor Daily where I recapped my presentation with the help of K5, you can watch it here.
Editor, Profits Unlimited