Stratasys to invest in the future; Bolt raises new fund, expands and partners
Up and down news from the advanced manufacturing funding realm this week: Stratasys came out with a press release regarding its preliminary FY 2014 financial results indicating an impairment of $100-110 million on MakerBot while making plans for future investment across a number of areas. Meanwhile, Bolt – an early-stage venture capital firm specializing in startups at the hardware/software interface – announced a new $25 million fund (Fund II) and expansion to a second facility in San Francisco. As if that wasn’t enough, a few days later, Bolt and well-known seed accelerator Y Combinator jointly announced a partnership that will see Bolt’s partners and engineering staff added to Y Combinator’s already impressive list of mentors, while offering access to Bolt’s workshop facility to YC hardware startups.
Stratasys determined to keep pace in the rapidly evolving additive manufacturing space
Stratasys’ FY 2014 earnings won’t be released until March, but they did offer a press release on Monday (February 2nd) to prepare investors for what was in store. Along with revenue and income forecasts, there were two pieces of very interesting news that reflect on the future of Stratasys, as well as the additive manufacturing / 3D printing industry as a whole.
Issues with MakerBot – Too early for mainstream?
First, despite expanding sales by over 600% from 2012 to 2014 and selling over 80,000 units, MakerBot’s growth in the desktop printer space has been slower than anticipated (at the time of acquisition), causing Stratasys to take an impairment of $100-110 million on the goodwill generated by the original deal. According to their FY13 20-F, Stratasys paid $372 million in goodwill (the major component of the $493.7 million purchase price), stemming from the “strategic and synergistic opportunities in the entry level portion of the additive manufacturing spectrum, expected corporate synergies and the assembled workforce”. Goodwill typically accounts for large percentages of technology startup acquisitions, owing to the long term promise of said technology and the relative immaturity of the startup / absence of developed assets. Because predicting the future is never an exact science, impairments of this type are not uncommon, but such a large impairment (close to 30%) does warrant an in-depth examination.
Stratasys cites a slow fourth quarter for the MakerBot line owing to two significant issues. First, the newest line of MakerBot printers experienced reliability issues due to problems with the extruder. Second, and probably more important, in the latter part of 2014, MakerBot attempted to engage traditional distribution channels, such as Staples, Home Depot, Sam’s Club and Dell, with limited success.
The strategy of trying to develop desktop 3D printers in traditional distribution channels only makes sense if mainstream consumers are ready to embrace the technology. Up until now, desktop 3D printing has found success operating through non-traditional distribution channels, such as KickStarter. As discussed in previous articles (Is Additive Manufacturing really a disruptive technology? and Growing the Additive Manufacturing Ecosystem), disruptive technologies arise in parallel with new distribution channels (see Clayton Christensen’s “The Innovator’s Dilemma“) as it offers access to new customers. By attempting to sell desktop 3D printers through traditional distribution channels, MakerBot is pursuing a whole new class of customers, who operate very differently. Previous sales success (through non-traditional channels) has very little predictive power as to how mainstream customers will react, so extrapolating previous success is likely to be troublesome.
It will be interesting to watch how MakerBot fares using traditional distribution channels, as it will serve as a litmus test as to whether mainstream consumers are ready to embrace 3D printing at home. Early returns indicate we may be in for a long wait.
Shifting focus; opening the ecosystem
The other major announcement by Stratasys is an investment plan targeting four areas: industry focus, services, products, and sales/marketing infrastructure. The first three are particularly interesting in light of topics that I have previously highlighted in earlier posts.
First, when describing “industry focus”, Stratasys emphasizes “accelerated efforts around vertical applications”, especially aerospace, automotive, healthcare and education. Aerospace and healthcare are particularly ripe for innovation in additive manufacturing technology, as discussed in The (Printed) Full Stack. High margins, low volumes and a premium for customization are perfect for additive manufacturing and by putting a higher priority on these markets, Stratasys should have greater near-term success than it would directing that effort toward the desktop consumer market.
The second area, “services”, refers to an expansion of Stratasys Direct Manufacturing services (in part, grown from the acquisition of Solid Concepts and Harvest Technologies) as well as the professional services offered by Stratasys to help customers make better use of additive manufacturing technology. The third, “products”, includes “enhancing ease of use” of printing technology. These priority areas affirm that for additive manufacturing to grow it must be as easy to use as possible (as discussed in Growing the Additive Manufacturing Ecosystem) and customers may require expert assistance to leverage the power of the technology. Furthermore, the market for selling printers themselves is limited, so by offering manufacturing and consulting services, Stratasys can take a bite out of the much larger overall manufacturing market.
These investments show that Stratasys understands the additive manufacturing market is still in its early stages and is constantly evolving. Although the desktop market has received a great deal of hype from the media, the investment strategy puts emphasis on the industrial market, where additive manufacturing is more likely to have a near-term impact.
The strategy also presents acquisition opportunities for startups operating in the targeted investment areas. Stratasys has shown over the past years that it is happy to grow through acquisition, and that should buoy the hopes of a trade sale for VCs and startups currently operating in those waters.
A big week for Bolt
On Tuesday (February 3rd), Bolt announced their next chapter. The early-stage venture capital firm has made a name for itself in Boston by focusing on hardware startups. By providing funding, guidance on how to scale (both literally and figuratively) and access to prototyping shops, Bolt has developed a hybrid VC/accelerator model that is proving to be successful, as demonstrated by their announcement of a second $25 million fund (Fund II). Although technology is shrinking the (capital requirements) gap between software and hardware startups, Bolt acknowledges that there is still a difference and has increased the investment cap (per startup) to $500k.
Expanding upon the existing relationship with Autodesk (a limited partner), Bolt also announced that they will be opening an additional workshop facility in San Francisco at Autodesk’s Pier 9 location. The partnership looks to be a win for both sides. A presence on the West Coast (especially in San Francisco) offers Bolt significantly extended reach and improved deal flow. Meanwhile, Autodesk obviously felt they had received a positive return from their first investment with Bolt and the new arrangement brings innovative hardware startups into close working distance, which is likely to push Autodesk in their own product development. There is nothing like working alongside your future (and maybe present) customers to help you understand their needs.
If all of that wasn’t enough good news, two days later, Bolt and Y Combinator jointly announced a partnership deal. Bolt will provide facilities, mentorship and expertise to YC startups, making use of their new presence on the West Coast. The move shows an increased emphasis on tools for hardware startups within the YC experience and will guarantee plenty of deal flow for Bolt to make use of their second fund.