Innovating Internally – Corporate Venture Capital

Venture Capital Strategies for Additive Manufacturing (Part 3)

After examining the Full Stack and Reinventing the Hardware Startup, Manufacturing Disruption continues to explore emerging venture capital opportunities in the additive manufacturing space by taking a look inside traditional manufacturing companies.  A number of large companies, such as Lockheed Martin and GE Aviation, are already embracing the technology, but countless others are still waiting.  

Investment Strategy: Innovating Internally – Corporate Venture Capital

An area where additive manufacturing technology will potentially make its greatest mark is within traditional manufacturing companies. The use of additive manufacturing is already widespread in prototyping, driving down the time from concept to testable product and contracting product development cycles. However, there are also other less obvious uses, which applied on large scales will save significant costs for producers:

  1. Decentralized part manufacturing – long before we start to see completely local manufacturing plants, companies will be shortening their logistics chains by printing some parts locally. Beyond fuel saving, etc., the real value will be in time-saving. This is especially true when it comes to high-end, small production runs, for instance in the aerospace and defense industries.
  2. On-demand inventory – a corollary to decentralized part manufacturing is the ability to print inventory on demand. While this is not likely to have much effect in the mass-production space, it could make huge differences for manufacturers that need to have replacement parts scattered across the country or world. Companies can drastically reduce their spare inventory footprint by printing what they need on-demand. In the case of consumer facing businesses, with the right printers a customer can have a custom spare part made in hours. For companies with long product histories, this could dramatically increase the efficiency of their warranty replacements. This presents opportunities for startups with solutions relating to digitizing inventory, databases and 3D scanning.
  3. On-demand tooling – even when additive manufacturing lacks the materials palette to make some essential products, it can play an important role in the creation of tooling that can. With the ability to make otherwise expensive one-off molds, tooling for high-end products requiring significant customization may become economically viable.
  4. Facilitating simplicity – in circumstances when many parts need to be assembled, additive manufacturing can fill the gap, in some cases, with just one part. By simplifying the process, savings can be achieved in terms of assembly, but more importantly reliability and testing. The GE LEAP engine fuel nozzle is a perfect example of this.
  5. Reduced weight – especially important in the aviation industry, additive manufacturing has the possibility of creating parts that perform better, weigh less and use less raw materials than their traditionally manufactured brethren.  Heck and Rogers describe this principle brilliantly in their recently published book, Resource Revolution. Creating complex inner structures, full of voids and structural beams, is relatively easy with additive manufacturing techniques.  Thus, parts that once had to be made as continuous blocks can now be made significantly lighter, at no additional cost.  Airbus is already starting to make use of this principle in a number of its planes.

Materials Opportunities

Whereas the consumer market has been focused on lowering costs and making the technology accessible, large business needs are clearly different. Consumer printing is focused on cheaper plastics, whereas the manufacturing market values high quality metals, ceramics and composites (as well as some higher quality plastics).

Potential Drawbacks

Especially when addressing the need for replacement parts, mechanical properties of additive manufactured parts must be considered (in comparison to traditionally manufactured pieces). Replacement pieces must undergo the same rigorous testing that the original parts underwent and many times will have different values for strength, toughness, etc. compared to the original pieces. These differences could require redesign or a tradeoff in the overall system performance if not considered carefully.  Additionally, even if mechanical properties prove acceptable, corrosion and thermal properties may need to be examined.  Such considerations may prove too costly for manufacturers to consider additive manufacturing as a viable solution for historical replacement parts and may restrict its use to instances where the system has been specifically designed to incorporate these new manufacturing techniques.

The Role of Corporate Venture Capital

“Because failure is intrinsic to the process of finding new markets for disruptive technologies, the inability or unwillingness of individual managers to put their careers at risk acts as a powerful deterrent to the movement of established firms into the value networks created by those technologies.”[1]

Given the potential advantages of additive manufacturing, it seems obvious for manufacturing firms to push the technology. However, in the above quote, Clayton Christensen outlines why embracing new technologies is so difficult for established firms. This trend is why corporate venture capital firms, in combination with key acquisitions, will be critical for injecting novel additive manufacturing technology into traditional manufacturing firms.

Leading the way for corporate VC are traditional powers like SiemensGE and Intel, who have launched advanced manufacturing areas within their ventures groups.  Each of these companies also feature renowned R&D labs, underscoring the need for both internal and external innovation to remain competitive.

While simply acquiring companies with useful technology is certainly a strategy for injecting innovation, the corporate venture route offers a number of advantages.  Depending on their sector and products, each manufacturing company faces its own set of unique challenges and needs that additive manufacturing can potentially address. Through corporate VC, startup companies working in the area can be “seeded” along directions of interest, with the freedom to address the problem in new and innovative ways and with a feedback mechanism (through the parent company) to iterate in a meaningful and productive fashion. While this is true across the corporate VC industry, it is especially important in manufacturing, where challenges can be very specific in terms of materials or processing method.

While there has only been modest corporate VC engagement thus far, I expect this trend to accelerate in the future as manufacturing companies further embrace additive manufacturing and push its technical limits.

It’s worth noting that I’ve intentionally avoided discussion of additive manufacturing within the healthcare industry, as it deserves its own article.  That said, given the substantial track record of corporate venture capital in healthcare, this application space could certainly prove to be one of, if not the, most important areas for determining additive manufacturing’s overall venture capital success.

 [1] Clayton Christensen, “The Innovator’s Dilemma” Harvard Business Review Press, Boston (2000) (Location 2902 of 4221 in Kindle Edition)

For those interested in a more in-depth discussion on additive manufacturing as it applies to aerospace and defense, Deloitte University Press published a nice article back in June.  They come to very similar conclusions to those I arrived at through my work at London Business School (submitted in May), so I hope we both end up being correct!