What Investors are looking for in new 3D Printing Businesses
Posted By Claire Chabaud on Nov 18, 2015 |
3D printing is changing the way that we manufacture and realize ideas, as a result it has become the prototyping technology that entrepreneurs prefer. Still, 3D printing can be more than a means for prototyping, it can be a method for final manufacturing as well. If you already know how to materialise your idea, the next step is to learn how to convince investors to believe in and financially back your project. This step is not an easy one, you must consider the fact that 3D printing is a blooming (but new) industry, so your biggest struggle is gaining the trust of your investors. Want to know how do you do this?
You’re in luck because that is the purpose of this article; with the advice of Cyril Bertrand, venture capitalist at XAnge, you will learn what investors are looking for in 3D printing companies whether you manufacture products made using 3D printing or provide a service.
The 3D printing market consists of products and services from around the world, and in 2014, the market was worth $4.1 billion, that is to say it grew at a compound annual growth rate (CAGR) of 35.2% compared to 2013. According to the Wohlers Report the industry grew $1 billion from 2013 to 2014,. You will often find different numbers about the additive manufacturing market, but keep in mind that the Wohlers Report is one of the most widely trusted sources available.
The additive facturing market has a strong growth rate, but do not forget that it is above all a new market. It is important to keep this in mind when you try to forecast growth, because even if the market has potential, it does not have an established track record.
Cyril underlines this idea at the very beginning of our interview, raising funds for a project in the 3D printing market is actually very similar to raising funds in other markets. Thus, this article is divided in 3 sections.
- The key determining factors to convince and investor
- A focus on KPIs
- Pitfalls you should avoid when seeking funding from investors
The key determining factors to convince an investor
- Yourself. A good entrepreneur should have 3 main qualities, according to Cyril, They should be smart, practical and enough of a rebel to think out of the box. “ When we make our mind on an entrepreneur, often 10% of our perception is based on his strategy and 90% on his ability of execution.”
- A Team. Often, you will heard that a you need to be two to be a convincing team. But M. Bertrand tempered this idea “ A lot of projects have at the beginning a unique team leader surrounded by a team, actually almost one third of the projects we fund. No, by experience what is more considered has a bad indicator is when its a team of 3 people. It implies a very good alliance in long therm to avoid a situation where two are opposed to the third one, creating an unbalanced dynamic.”
- A third party validation. An investor is looking for a tangible proof that your project is viable. The best testimony you can get is a prior investor ( such as a business angel or back up during a crowdfunding campaign), an active users base or the validation of your MVP, Minimum Viable Product.
- Successful previous personal experiences aren’t as important as they once were, according to Bertrand “10 years ago many of the investments were made into companies led by 40 year old and more businessmen and women; today, age and prior startup experience are less relevant. 20-30 year olds are receiving the bulk of investments, and this means that investors cannot always select based on previous startup experience but instead investors find KPI’s more important.”
A focus on KPIs
KPIs are key indicators in the process of decision making. They are evaluation tools that indicate how the company has evolved, against the strategic goals that have been set. There are a number of KPIs and the once you choose is contingent on your industry, and the nature of your business. To be certain that you picked a relevant KPI to evaluate your strategy we strongly recommend that you follow the SMART strategy.
This means the measure has a Specific purpose for the business, it is Measurable to get a real value of the criteria, the defined criteria need to be Achievable, Relevant to the success of the organization, and finally it must be Time phased, which means the value or outcomes are shown for a predefined and relevant period of time.
When considering a potential investment, Cyril focuses on 3 kinds of KPI: User, Growth and Turnover KPIs. We have listed KPIs from the User, Market and Growth groups to give you a better idea of what Bertrand would typically focus on.
- User KPIs: They describe the engagement of customers. How much time does he spend by day/week on the app? How many times he uses the service? The sample size doesn’t really matter as long as there is a strong customer engagement.
- Growth KPIs: They describe the development speed before the first real turnover. Number of active users, of logons, projects or even proof of concepts. Thanks to these KPIs we can start to track the Customer retention.
- Turnover KPIs: They are the monetary expression of the previous KPIs. Net Profit, Net Profit Margin, Gross Profit Margin, Compound annual growth rate (CAGR) Operating Profit Margin, Live Time Value, Cost of acquisition. All the tools to figure out the cost of acquisition are defined by these KPIs: Cost per Lead, Conversion Rate, Customer Online Engagement Level, Revenue Growth Rate, Return on Investment (ROI), Return on Capital Employed (ROCE), Return on Equity (ROE)… At this moment, the investors can check if the business model is viable by analyzing the Macro indicators ( P&L datas) and Micro indicators ( by comparing the cost of acquisition of a customer and its value)
Pitfalls you should avoid when seeking funding from investors
- If your project is not directly related to the 3D printing industry. For example if the core business of your future company is related to the game industry but use 3D printing to produce figurines, then be careful not to make the 3D printing too central and the only mean of distinction. It can be the mean of the production but not the end of your project.
- In an highly innovative and technological sector as 3D printing, you might think that having an Intellectual Property is key to make your project viable and convincing. But it is not true, as soon as your project respond to a real need and is not only based on the “ hype” surrounding 3D printing it might convince your interlocutor.
- 3D printing is the perfect technology to create your prototype. Don’t miss this opportunity and asset to convince investors. A prototype will help you to make a more tangible MVP to show to validate your project.
- If you launch a product or a service which need to use SLS, SLA or DMLS technologies, you are not doomed to invest directly in these very expensive printers. For example, you can rely on Sculpteo 3D printing online service to launch your business without having to take care of this step inhouse. If you do so, it will help your forecast and KPIs to be more positive, and your initial investment will be less important. It might be a good option to consider before introducing a project to a venture capitalist, then do not hesitate to contact us to know more about our collaboration opportunities!
Is there any tips to know if you succeed to convince the investor?
Well, Cyril has a tips for you. A good first interview should be the exact representation of how the entrepreneur leads his team and company: by being objective-driven, effective and even a little strict “ When an entrepreneur introduce you his project and succeed not to drift from his goal, it’s a telltale example of his will. To me, if he does not hesitate to bring me back to his project as soon as I try to wander its a sign of practical efficiency.”