3D Printing Companies Are Dying…

“More organizations die of indigestion than starvation” — David Packard

For the better part of a decade, 3D Printing companies have been foie gras-ed with Venture Capital and, more recently, SPAC $. An indigestible amount of money has been forced into the bowels of startups at irrationally stretched valuations - and they’re choking. The growth of these companies has failed to keep up with their appetites and it’s increasingly apparent that they won’t be getting fed much more. Unfortunately, feeding themselves (metaphorical profitability) is beyond their reach.

Many 3D Printing companies have already snapped out of their food comas and found religion — they are making deep cuts to extend their runway while desperately exploring additional financings, mergers, and acquisitions. But for most, it’s too late. They’re rearranging deck chairs on the Titanic.

How is this condition so incurable and widespread?

The 3D printing industry has serious structural problems:

• The market was over-hyped and businesses over-capitalized (sound familiar?)
• It’s now way too crowded: too many companies with too similar technologies chasing the same slice of the (too small) pie
• Business plans were fundamentally flawed: general-purpose manufacturing solutions in search of specific problems.

Many companies need a major reset which means there’s a high probability they enter the infamous startup death spiral:

What went wrong?

Over the last decade, more than $10 Billion of outside capital was injected into 3D printing companies. This doesn’t even include the significant internal funding at incumbents like Stratasys and 3D Systems, and big industrials like GE and HP who now make and sell 3D printers too. This is an overwhelming sum for a relatively small ~$16B, 40-year-old industry.

It hasn’t digested well… At current market valuations, most of this $10+ Billion from VCs and SPACs has been torched.

Take three of the most funded 3D printing startups of the recent era: Desktop Metal, Markforged, and Velo3D. About $2 Billion of capital was consumed by these companies. They all went public in the last few years and their current cumulative market cap is ~$470 Million (12/11/2023). About half of this is cash (minus debt), which leaves a meager total of ~$235 Million in Enterprise Value. Wall Street is giving this basket of deplorables less than a 1x EV/revenue multiple which signals they think there’s a high probability they go belly up. As of last quarter, all three companies were still unprofitable with revenues going backward, so they might be right.

Unfortunately, these three companies are not an anomaly. Looking across the landscape of the largest, most funded 3D printing companies, you’d be hard-pressed to find a single company that has achieved consistent profitability let alone sustainable revenue growth. Investors have taken notice and voted with their wallets. A fertile landscape that once supported a herd of beautiful unicorns is now a graveyard. Not a single unicorn still exists in 3D printing.

For the majority of 3D printing companies which are still private, ignorance is bliss (for now). Their valuations haven’t adjusted to the reality of current market conditions. They’re driving towards a cliff but most can’t see it coming. If seeing it would even make a difference… To be fair, some saw it and stomped on their 3D-printed brake pedal, but it cracked under the pressure and now they’re trying to exit a moving vehicle. Some caught it in their periphery as they gazed out the side window, enjoying the passing scenery. Some noticed an issue looming on the horizon but couldn’t quite resolve it through the stair-stepped 3D-printed lenses of their rose-colored glasses. Most are too distracted by their children (employees) fighting in the back seat. Or even worse, they’re driving with their eyes closed, singing along to the radio playing nostalgic classics, reminiscing about the simpler times of a bygone era.

How did capitalism not correct such reckless driving sooner? Aren’t markets efficient? In this unusual situation - where a large segment of the market has received an excessive amount of funding that likely exceeds their current value - most investors still prefer to extend life support to keep them alive. Why? VCs are trying to avoid big write-downs in their portfolio as it makes it harder to raise their next fund in this challenging environment. So they kick the can down the road. To give some benefit of the doubt, there may still be a sliver of hope that the company can turn it around. This phenomenon is not unique to 3D printing — note even startups — unfortunately, it’s consistent with a broader economic rise of “Zombie” companies.

There’s another insidious factor at play here. One that is not widely known and only privately whispered among the most informed startup employees. VC’s investments have liquidation preferences, meaning that if a company is sold, it gets paid back first, in full, no matter what the price (sometimes even at a multiple). Investors get “preferred shares” vs employees' “common shares”. Many 3D printing teams are now staring up at their towering “preference stack” — which their valuation must exceed if their (employee) equity is to be worth anything. This encourages a hail-mary mentality, as they won’t see a dime if they can’t achieve anything short of a big exit. (note: this does not apply in the case of an IPO)

So how many 3D Printing Zombies are out there?

The short answer is a lot. Over 1,000 businesses are making and selling 3D printers. This is a staggering amount of original equipment manufacturers (OEMs) for a ~$16B industry. As a comparison, the CNC Machining market is 10x the size with 10x less OEMs (two orders of magnitude). One rebuttal might be that 3D printing is comprised of many different manufacturing processes (illustrated below). But as you can see, some of these categories still contain 100+ companies competing with extremely similar technologies and product offerings. A small pie can only be sliced so thin.

On the flip side, lots of competition is good, right!? I’m sure we all agree that monopolies are bad for consumers, markets, and innovation. But the inverse taken to an extreme is also bad. Too many companies with similar product offerings competing for limited customers leads to dishonest marketing claims, inflated expectations (see SPAC investor decks…), customer and investor confusion, and ultimately dissatisfaction. If demand can’t expand to support a swollen supply base, then it’s a race to the bottom. Margins disappear and companies follow. Which is sadly what we’re starting to see now. Most 3D printing companies are dying. They’re Zombies. They’re the Walking Dead, even if they don’t know it yet.

So what created the 3D Printing Zombie apocalypse? Too much money.

Most VCs used to avoid hardware and manufacturing tech because it’s relatively slow and capital-intensive to develop and iterate, hard to scale, and even harder to diligence. Put another way, software has historically been a better bet. Over the last decade, the hype of 3D Printing coupled with an increase in the number and size of venture funds lured many large tier-1 investors into the space. These investors saw the potential to disrupt one of the largest ($10+ Trillion), oldest, most fragmented industries. They stopped asking questions and started writing big checks.

Growth at all costs

Tier-1 VCs aren’t interested in 2–3x returns, they‘re interested in the next Facebook. They swing for the fences, and the companies that want to play ball have to convince them that they can hit it out of the park.

Over-investment in 3D Printing companies created a perverse set of incentives. For some companies it has been as addictive as crack, and has also led to delusions and dangerous behaviors:

• VC-funded startups cannot take things slowly… and the more money raised, the faster they must chase higher revenue expectations.
• Raising a large round also gives a company a false sense of product-market-fit (PMF); validation that their product is ready and wanted.
• The pressures to achieve rapid growth along with a false sense of readiness, encourage companies to scale prematurely
• This typically leads to the aforementioned death spiral…

In addition to the creation of these dangerous dynamics, most VCs lack experience in hardware and manufacturing (which is also often true of the 3D printing companies themselves). In part, this has resulted in poor oversight and management from the board on down. Most attention and resources have been focused on growth without first finding and validating true PMF; the requisite foundation of any successful technology business. “The only thing that matters”, as Marc Andreessen says.

Many 3D printing companies have failed to find PMF because they weren’t really looking. Their business plans were flawed from the beginning…

Making a General-Purpose Manufacturing Machine

Many 3D printing founders took investor money, put on white coats, and disappeared into the back of their labs. They emerged every year or two to exchange an updated pitch deck for another briefcase of cash— a techno-drug deal. What were they even doing back there after all this time?

Developing the future of manufacturing of course... A 3D printer that could create virtually anything, for anyone, any time. Essentially a Star Trek Replicator. Surely every Fortune 1000 company would need them by the boatload to build new factories after redesigning their products and businesses around this next-gen manufacturing paradigm.

… years later, the engineering team finally wheeled their shiny new 3d printer out of the dark windowless lab and quickly scurried back in, overwhelmed by daylight and the newly hired sales and marketing team that the CEO had assembled for the big reveal.

The CEO proclaimed “WE’RE READY TO SHIP!”, then added a minor clarification that the printer was “hardware complete” but they were “still working on process control”. Nevertheless, they had to start selling it because investors were losing patience and there would be no more briefcases “pre-revenue”…

“HOORAY!” the sales and marketing team cheered. Then, after a long uncomfortable silence, one of them nervously asked, “Is there a product spec? Who are we selling it to? What problems does it solve?”

To which the CEO responded, “That’s your job! Get after it!”.

Let’s recap: Create New Tech -> Build Complex System / Solution -> Find Problems to Solve

Does this sound a little backward? It is. Unfortunately, it’s the 3D printing playbook. This is how it’s supposed to work (+ a whole lot of market research and customer feedback in between):

Most 3D printing companies started by developing a general-purpose manufacturing machine to maximize their addressable market. If any product specifications existed, they were based on uninformed and/or generalized product and market requirements — because they were never designed to solve specific problems. 3D Printing companies attempted to develop a Swiss-Army-Knife for manufacturing. Weird, haven’t seen one of those in a while… The knife or the army…

You won’t find many general-purpose manufacturing machines in a factory because volume manufacturing is a master exercise in multi-variable optimization: capability, cost, time, quality, efficiency, risk, scalability, etc. This requires equipment and tooling that’s optimized for specific product and program requirements — and many conventional manufacturing processes and machines have been optimized by really smart, inventive engineers for centuries. Manufacturing machines must also be simple enough to be repeatable, predictable, and controllable, in order to be optimized.

That said, general-purpose manufacturing machines are useful for rapid product development, which is where we’ve seen broad adoption (even saturation). But there‘s been virtually no adoption in production which is ~99% of the ~$10+ Trillion hardware manufacturing market. Some of the few great exceptions are highlighted and celebrated below.

So what happens next?

Good News, for some

After acceptance is achieved and sobriety returns, it’s time to look forward. As the saying goes:

The industry must get hyper-focused on solving problems. Hyper-focused on finding applications where there are massive competitive advantages vs the current alternative, conventional, status-quo approach. Hyper-focused on identifying the largest opportunities for value creation, and then partnering with the end-customer to optimize and implement solutions.

Business and incentive systems must be rearchitected around these goals and strategies. The executive team, employees, board, investors, partners, suppliers, and customers must all be aligned. Only then can the underlying 3D printing technologies be leveraged at scale to truly revolutionize manufacturing.

If you need any more inspiration and insights, I’m writing a series of articles highlighting some of the most impactful applications of advanced manufacturing technology, below.

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