Venture Capital Strategies for Additive Manufacturing (Part 4)
The long term success of any manufacturing technique is greatly coupled to users’ access and ability to make the most of the technique’s inherent advantages. Additive manufacturing / 3D printing is no different. So while the previous investment strategies outlined on Manufacturing Disruption (The (Printed) Full Stack, Reinventing the Hardware Startup and Innovating Internally – Corporate Venture Capital) focused on leveraging technological advantages, the final strategy is all about expanding access to additive manufacturing and helping users unleash its power. This strategy is approachable to many would-be entrepreneurs and is particularly attractive from the venture capitalist’s perspective as it is flexible, scalable and conforms to existing investment strategies already employed by many prominent VCs.
Examining the Value Chain
Growing the additive manufacturing ecosystem is about creating a more efficient and powerful path from idea to production. To understand the opportunities, one simply needs to look at the value chain associated with additive manufacturing:
idea -> digital design -> printer -> market place -> customer
Digitizing Ideas
idea -> digital design
The step from idea to digital file is often the most difficult, especially for entrepreneurs who are not experts in design. One option is to create the design using computer-aided design (CAD) software. Alternatively, one can copy /digitize existing physical objects and space. Either way, making this process as easy, intuitive and powerful as possible is critical to the success of the overall ecosystem and offers a number of interesting entrepreneurial opportunities:
Software
In the process of converting ideas to physical form, the software interface serves a hugely valuable link. Traditionally, CAD programs like Solidworks (Desault) and AutoCAD (Autodesk) have been the workhorses of digital design. However, these interfaces are complicated and not optimized specifically for additive manufacturing. New programs tailored towards additive manufacturing are beginning to become more popular, with new offerings both from the startup community and incumbent software companies. A recent trend has been the development of tablet-based design programs and mobile apps, reflecting an increasing outreach to the consumer market and those who would not otherwise be likely to use traditional CAD programs. This trend is typified by Autodesk’s 123D suite of software products, which features a variety of product offerings to suit a range of interests in PC/Mac format as well as a version designed specifically for tablets and smartphones. In addition to the consumer market, significant opportunities exist in the business software space, as new technologies come online and niche uses develop. While traditional players enjoy the advantage to iterate off of current products, there is certainly space for startups, as shown by MeshUp (Uformia) and the recently acquired Lagoa.
This digital design software space is especially fertile as it offers a wide range of opportunities, many of which apply to additive manufacturing but just as easily could be tailored towards other manufacturing techniques. As is the case with most software startups, the business model is inherently scalable, while at the same time there are lots of opportunities for niche wins in the business-to-business market. Again, the quick success and sale of Lagoa, is a prime example.
Scanners
While inspiration for many printed objects may come from the mind, the environment around us can be just as fertile. In order to convert our surroundings (and the objects within) into digital format, 3D scanners are needed. From hardware to software, there are numerous opportunities in this space and their use goes well beyond the additive manufacturing world. A recent KickStarter campaign by Volumental successfully raised $27k to develop a scan-to-print application allowing customers to use a depth scanner connected to a laptop to create fully 3D digital models.
Methodologies for 3D scanning are evolving away from expensive specialized scanning cameras and instead are trying to make use of existing consumer technology. With the imaging technology that we now have packed into our phones and tablets (along with the processing power that comes with it), 3D scanners don’t always need to be stand alone devices. Volumental’s push towards the use of Microsoft’s Kinect or Intel’s RealSense cameras is a good illustration of this trend.
Find the Printer, Talk to the Printer
digital design -> printer
After a digital design is created and optimized for printing, one still needs to have (or find) a printer capable of fabricating the piece. Once the printer is identified, the file then needs to be transmitted to the printer and the printer needs to be able to understand how to actually print the part.
This sounds easy, but most people don’t have a 3D printer at their disposal and even when they do, the printer may have limitations that prevent it from fabricating exactly the product they had envisioned. (This is especially true of desktop 3D printers, which typically can only print certain plastics.) Even when a suitable printer is found, it may take some additional work to get it to print exactly what the designer had in mind when creating the digital file. Making both pieces of this process straightforward and efficient for users represents a huge business opportunity.
Print Services
While additive manufacturing printers are becoming cheaper, access is still limited, particularly when it comes to the higher end of the market. Organizations like Fab Labs and TechShop allow local communities to work with sometimes sophisticated fabrication equipment (although the highest end printers are still a bit out of reach), but one of the most powerful aspects of digital manufacturing is the ability to create the digital design in one location and then send the file somewhere else completely. File creation and product fabrication need not be co-located.
Separation of design and fabrication is being exploited by a number of companies who have created ways for digital designers to simply upload their creations, pick the printer/location where they want their part fabricated, pay for the service (of course) and finally have the part printed and mailed to them. These print services can come in many forms, such as individual print shops like London-based 3DPrintUK, or decentralized services that make use of printer owners’ excess capacity like 3D Hubs. The disadvantage of the design / fabrication geographic disconnect is that there is a lot to be learned about optimizing design for production when one is actually involved in the manufacturing of a part. However, this knowledge gap also presents opportunities for those who can make the 100% conversion of digital file to product possible (or at least improve the process).
Of course, outsourcing manufacturing is not a new idea. Online platforms such as MFG.com afford access to countless vendors offering a huge range of manufacturing techniques, including additive manufacturing. That said, these services are still built upon the traditional request for quote (RFQ) procedure, which has a long way to go in terms of speed and user experience and is begging for disruptive modernization.
The Language of Interface
Just because a designer creates a digital file and succeeds in finding a capable printer, doesn’t mean that the job is done. One potential roadblock exists in the file conversion itself.
The interface between software and printers has long been the StL file (stereolithography or Standard Tesselation Language), which was pioneered by 3D Systems and breaks surfaces into tessellated triangles. The StL standard was developed in the 1980s and presents a number of technical limitations, especially as fabrication capabilities continue to develop. There are newer standards with improved capabilities, such as AMF (Additive Manufacturing Format) being proposed, however they have yet to gain real traction in the industry. As technology pushes towards radically new areas, such as incorporating multiple materials, new file formats will be needed, creating significant opportunities.
Going to Market(place)
printer -> market place -> customer
Platforms for the sharing (of files) and sale of additive manufactured goods can come in many forms. One platform, in particular, that has already emerged as a game-changing distribution channel for the pre-sale of printed products is KickStarter. By gauging customer demand before investing in expensive inventory, KickStarter (and other sites like it) have made hardware startups much more approachable. Of course, the advantages provided by KickStarter are not limited to 3D printed products, but the relationship between KickStarter and additive manufacturing is a very important one and will be explored in further depth in future articles.
While pre-sale and KickStarter are important developments, there is still a lot of room for innovation in the printed product market. Even established platforms, such as Amazon (in partnership with 3DLT), are creating marketplaces where consumers can purchase 3D printed goods. Other companies like Shapeways straddle both the service and marketplace arenas by allowing users to not only upload digital files (and have them printed), but also sell designs. The business model has proven very interesting to VCs, as evidenced by the $47.3million in equity financing that Shapeways has raised in the last four years.
Venture Capital Opportunity
The additive manufacturing ecosystem represents a highly profitable investment area with scalable markets (perfect for venture capital investment). That said, it will likely still prove a challenging and very competitive VC investment for a number of reasons:
- Existence of entrenched and strong competitors with positive track records on innovation: For each link of the value chain, there is the presence of at least one, if not many, strong technology firms with track records of strong innovation. Amazon in the marketplace sector and Autodesk in the software sector are perfect examples. While there are strong upsides (such as the opportunity for trade sale), the competitive landscape will likely be difficult to navigate.
- Very similar business models to existing VC space: While similarity to other portfolio companies might be very appealing to many VCs, it represents a significant challenge to any fund wishing to specialize in additive manufacturing ecosystem investments. Deals are likely to be highly competitive, driving up valuations and investment premiums. From the VC perspective, value capture is a difficult prospect in these areas and the large deals are likely to concentrate with a few very strong VCs. There is likely to be space for angel and seed deals, but later stage deals will command large premiums.
Deals in this category are well suited to venture capital funds with significant background and experience in the software, platform and even social network areas. Deals in the software space will likely be on the smaller side, favoring small to medium-sized funds, while platform deals will be best suited to large venture funds with substantial ability to provide follow-on funds.
Manufacturing Disruption 