The (Printed) Full Stack

Venture Capital Strategies for Additive Manufacturing (Part 1)

Despite all the media hype that has been associated with 3D printing, news stories alone do not create good venture capital opportunities and although the area can boast a few notable exits, it ranks far behind the VC bread-and-butter investment areas, such as software and social networks.  As part of my MBA at London Business School, I investigated the venture capital opportunity associated with additive manufacturing and I believe there are four themes with significant VC/startup promise that will emerge from additive manufacturing in the coming years.

In the coming series of posts, I’ll overview each strategy, starting with going after Chris Dixon’s full stack:

Investment Strategy: Printing the Full Stack

In his 15 March 2014 blog entry, venture capitalist Chris Dixon predicts the rise of the full stack business model, by which new technology companies can extract value by “build[ing] a complete, end-to-end product or service that bypasses existing companies.”[1]  Dixon explains that by controlling the entire vertical, a startup can:

  1. Control the product experience
  2. Avoid cultural resistance that may exist in traditional downstream partners
  3. Avoid having margins squeezed by powerful downstream players

Dixon predicts that this model has the potential to become increasingly important for startups and consequently the venture capital firms investing in them. It certainly is very applicable to startups in the additive manufacturing space, whereby a company would develop novel printing technologies specifically tailored to a high-value end product.  The end product would be the source of revenue, while the printing technology is simply the key to unlocking the opportunity (and could be held in-house as a competitive advantage or licensed out to other companies operating in parallel spaces).

As I’ve discussed in other posts, there is still significant technological development needed in the printing space. New printing capabilities are likely to unlock access to new classes of products, which have the possibility to be more profitable (or at much larger scales) than the printing technology that they are derived from. Although Dixon astutely points out that there are substantial challenges associated with adopting a full-stack model (distribution, marketing, etc), this strategy will allow additive printer startups to bypass the currently fledging $3+ billion printer market (according to Wohlers Associates).

High value products

Likely candidate product classes include defense, aerospace, biotech and medical, as this approach is only suitable where the products themselves are very sophisticated and require pushing the boundaries of printing technology while offering high margins as a commensurate reward. These product classes may be produced on very limited scales and demand substantial iteration or customization.  An emerging example is found in the biological printing market, where companies like Organovo are targeting the near $1 trillion pharmaceutical market.  This type of move is likely to be a long haul and startups following this path will not only require significant capital over a long ramping period, but also will need to have impeccable timing, as being too early to market (a big risk for a pharmaceutical play – for instance, before regulatory bodies are willing to allow for their use), could be more risky than being too late.

A new type of manufacturing company

A particularly interesting wrinkle on the full stack approach (I’ll take up in more depth in future posts) is the idea of creating a new type of manufacturing company based on additive manufacturing technology (most likely combined with other complementary manufacturing processes as well).    While most of the players in the industry have focused on developing new types of printers and selling them to customers, the “big play” may be to challenge manufacturing outright. As I have stated perviously, I don’t think additive manufacturing will displace traditional mass production methods as a whole, but there are a number of areas where complete customization combined with on demand and local production trump scale.  Rather than trying to be the company that provides printers, a startup orienting themselves as the production service could open a huge market opportunity.

This idea is already getting some traction, as the recent $4.5 million Series A raised by 3D Hubs shows.  However, 3D Hubs’ (as well as Shapeways) printing capacity is more geared towards the consumer (to include hobby and gadgets) and prototyping market, as shown by their own trend reports.  Given the nature of the network, the relative lack of access to higher level printers and materials, this should be expected, but it does limit 3D Hubs from being a resource to the larger industrial community.

A company targeted towards providing additive manufacturing resources to the industrial community, pushing the technology to meet tougher standards with more complex and advanced materials, could unlock large, scalable opportunities.  In some respects, GE’s acquisition of Morris Technologies and Rapid Quality Manufacturing already shows the viability of such a play, albeit at a limited scale.  While this strategy presents significant opportunity of an exit via acquisition within a small niche space, it also provides the possibility of creating something much larger: a company that provides local, customized manufacturing for the world through a network of worldwide branches.  That truly would be the home run investment to cement additive manufacturing on the venture capital map.

[1] Chris Dixon, “Full stack startups”,, 15 Mar 2014