Feature first published in the January/February 2022 issue of 3D ADEPT Mag. Interviews, roles and examples reflect that period.
Financing is often a decisive step in the growth of an additive manufacturing company. This feature examines the expectations that accompany venture capital funding, with the perspective of Arno Held, AM Ventures’ co-founder and managing partner at the time of this interview.
Some entrepreneurs initially rely on their own resources and personal network to develop a product and test a business model. As development, hiring or commercial needs grow, they may seek outside capital.
An equity investment gives the investor an ownership stake. Debt and convertible instruments are other financing routes: raising external capital does not always mean issuing shares immediately.
AM funding announcements in 2021 provide the backdrop to this 2022 feature. AM Ventures reported participating in around a dozen funding rounds that year; this describes its reported activity, not a complete industry count.
What does the process involve? Which objectives should founders define, how should they choose an investor, and how can they prepare for subsequent stages?
The challenge is to align a company’s needs with investor expectations by examining the specific terms of the investment.
Despite the challenges that a company may face in being qualified for a loan, it should be noted that companies have so many routes to explore when they look for options to fund their start-up. In the AM industry, in addition to founders’ financial resources, we have seen companies benefit from support from incubators, angel investors, and Venture Capital (VC) companies.
Replique for instance, is a Mannheim based venture of the BASF business incubator Chemovator. Spanish metal 3D printing company Triditive took part in the Stanley+Techstars program before raising money from Stanley Ventures. This feature focuses on venture capital without claiming that it represents most industry financing.
“What does it mean to acquire VC money”?
This is the question AM Ventures first asks entrepreneurs who are looking for financing. This might sound trivial, yet is very crucial when exploring the VC route.
Bootstrapping may precede an external raise, but it is not a universal route. Held describes the impact of venture capital as follows: “VC funding is a game-changing process. It can be a dramatic acceleration of the business and it comes with certain expectations. A partner from a VC firm will not only invest his/her own money, they will invest money that they borrow from their investors”, Arno Held, co-founder and Managing Partner of AM Ventures states from the outset.
A venture fund generally invests capital committed by its investors, rather than simply money “borrowed” as a bank loan. The SEC glossary distinguishes the fund’s investors from its manager. Performance objectives do not guarantee returns. Founders need evidence-based targets, a funding requirement and measurable milestones.
In the end, having a win-win deal for both parties – the funder and the funded – requires the right investor and the right expectations/objectives.
“Especially in early stage funding, it is highly important to align expectations very early in the process. But we at AM Ventures are convinced that we have the knowhow and the competences to help founders define clear, and measurable objectives that they can achieve with a specific amount of money”, Held adds. Remember how AM Ventures started. Before co-founding AM Ventures, Held built extensive experience within Additive Manufacturing company EOS. Therefore, he and his team know a thing or two on product development, commercialization and R&D.
“We know it takes at least 6 years to develop a good hardware for AM, so we know how to help founders build realistic plans when it comes to product development. Furthermore, there should be a good timing between funding rounds. It’s much more important to deliver a well-thought promise and ensure that your organization grows healthily. We saw some investments that have been made around a certain hype; investments that are made based on unreasonable expectations. And overpromising is easy to make when you have an investor who believes that promise. On the contrary, an investor who understands the game will not only help build a promise that you can deliver, but he/she will have the patience to go through difficult times”, Held explains.
Held’s six-year figure reflects his assessment of AM hardware development at the time of the interview; it is not a universal minimum.
In what scenario do AM companies often find themselves when they want to raise funds (series A, B, C, D)?
Timelines depend on product maturity, cash requirements, the team, the market and investors. A promising innovation guarantees neither a quick raise nor a successful one.
Pre-seed, seed and Series A, B or C describe common stages, not a mandatory sequence or universal revenue and valuation thresholds.
Pre-seed capital supports the earliest stages. Founders, their personal network and professional investors may participate. Even friends-and-family funding may take the form of equity, loans or convertible instruments, as described in the SEC’s overview of early-stage investors.
Seed funding may support market validation, product development, equipment or initial commercial work. It is not necessarily the first external investment or exclusively an equity round: startup financing instruments may also be convertible. The feature cites MetShape among AM companies raising funds in 2021.
Series A funding often supports the growth of an offering with initial evidence of adoption; criteria vary by business and investor. Historical examples include DyeMansion’s US$5 million round in 2018, Kumovis’ €3.6 million round in 2020 and Conflux Technology’s A$8.5 million round in 2021.
Series B funding may accelerate commercial or industrial expansion. Valuation depends on prospects, assets and negotiated terms; this stage does not guarantee lower investment risk. In 2021, Mantle announced US$25 million and ICON US$207 million in Series B funding. ICON’s release therefore gives a higher figure than the US$200 million originally rounded in this feature.
Series C funding may support new products, expansion or acquisitions without itself establishing profitability. Investor types and targeted returns vary; no return multiple is guaranteed. In 2021, LightForce Orthodontics announced US$50 million and ARRIS US$88.5 million in Series C funding.
Funding rounds can continue with series D or E. Companies that look for more capital at this level, may do so to achieve certain objectives before going public or may be looking to achieve the goals they failed to achieve in their previous funding round.
Before another round, founders also need to examine shareholder dilution, voting rights, exit terms and investor involvement in governance. The SEC’s later-stage financing guide outlines these questions; contractual terms and the applicable framework remain decisive.
According to Arno Held, “AM companies that secure money for the first time in seed funding often look for capital that is between 700 000 and 2 million euros. In a series A, they often secure between 3M and 7M€ while series B funding rounds target a volume that is between 8 to 15 million €”. Interestingly, the expert outlines that these figures are just typical for Europe. In the USA, they can easily multiply. In the end, parameters that define the amount of money a company can get in funding rounds include the technology segment, the targeted industries or the geography.
These ranges and the Europe–US comparison reflect Held’s assessment in early 2022. They are not guaranteed benchmarks for a present-day raise.
The “valuation” question
A valuation can rise, remain unchanged or fall. A company’s age or a new round alone does not guarantee an increase. Held emphasises the assumptions and objectives behind the assessment:
“Normally, a funding round increases the company’s value. Indeed, with one funding round, you often acquire money to reach a certain target. You use the funds to achieve that target; you grow the organization as a whole. If things go as planned, the valuation will grow. If the plan is missed by a lot without good reason, this means that the last valuation was not justified.” The possibility of a “low valuation” refocuses the debate on performance and promise set at the beginning of the investment (and this article). Held points out that at some point, the promise must be re-evaluated, if the company performs well, and most importantly, if it did not perform well. He then insists on the fact that “early-stage start-ups are not cash-flow generating organizations. Therefore, each valuation a founder makes is based on hypotheses. Since they work on these hypotheses, it’s of paramount importance to set a realistic valuation so that in the end, both parties should not find themselves arguing on an unrealistic promise that can’t be achieved.”
Where is the market heading?
3D ADEPT Media’s cited 2021 coverage counted more than 53 acquisitions and referred to 16 public-market transactions, through SPACs or traditional IPOs, in a September 2021 tally. These indicators have different coverage and observation dates; they are neither exhaustive market statistics nor a guarantee of future growth.
While these changes can be described as a sign of maturity and/or a sign of recovery for the AM market, the most impressive observation in Held’s opinion is the growing number of applications-based companies that receive fundings.
“It is a clear sign that people have realized what they can do with AM. We are finding ourselves at a major inflection point. There are hundreds of applications in the making right now, 50% of the startups scouted by AM Ventures in 2021 are based on additively manufactured products. Moving forward, I am very optimistic about the first half of the year. All teams in our portfolio have successfully raised funds or are about to close rounds. We could not be more proud of these entrepreneurs and it is very exciting to see how all companies are performing very well. The second half of the year is very hard to predict but we remain very bullish about the overall outlook for our industry. ”, he concludes.
This feature was first published in the January/February 2022 issue of 3D ADEPT Mag.
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