The R&D Tax Credit Aspects of the Entire 3D Printing Startup Business Lifecycle

3D printing has become the new alternative to advance product development, regardless of the intended product, consumer, or market. According to a Forbes 2017 report, 57% of all 3D printing efforts are incorporated in the first phases of the new product development lifecycle, and 47% of the companies engaging in it, consisting of an ample number of startups, see greater ROI on 3D printing investments in 2017 compared to 2016. The primary reason that startups are resorting to 3D printing is because of the ability to accelerate product development. In this regard, it is applicable to proof-of-concept (34%) and overall prototyping (23%), which are accomplished during the first phases of new product development.

It comes as no surprise that 3D printing is expected to grow more than 31% each year, and that by 2018, it will surpass $1.4 billion in revenue in just the United States. By 2025, total revenue on an international scale is anticipated to be above $50 billion. Now, startup companies are investing more in 3D printing technology. Some aspects of this new 3D printer business lifecycle phenomenon are now eligible for R&D federal and state tax credits, which startups can take advantage of.

The Research & Development Tax Credit

Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

• New or improved products, processes, or software
• Technological in nature
• Elimination of uncertainty
• Process of experimentation

Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent.  On December 18, 2015, President Obama signed the bill making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax and startup businesses can utilize the credit against $250,000 per year in payroll taxes.

What is the new 3D Print Business Lifecycle?

Because 3D printing changes the way we manufacture products, startups are investigating new procedures to manage product development processes. In other words, they are leapfrogging the more traditional approach to business lifecycles. A challenge for all startups is determining what business model it ought to utilize. It may be more common for startups to begin by creating a set of business model hypotheses and then creating the MVP, minimum viable product, to test those hypotheses. Once tested, the startup can create a more supported business plan. Some aspects of determining the MVP in 3D product development are now eligible for the R&D tax credits. In terms of product development, creating the MVP is equivalent to creating a rudimentary prototype containing just enough features that meet the needs of the customers in the intended market. Because the startup can present the consumer with a preliminary product, it can collect valuable feedback to make changes and produce a market-ready product. Creating the MVP enables the running use of resources and time on the part of the startup to produce something that will provide insightful feedback from the intended customer base. This is a form of prototyping made more possible by the use of 3D printing. After all, as previously mentioned, 3D printing accelerates the process of product development.

When determining the MVP, the technical examination and germination of ideas for prototyping becomes eligible for the R&D tax credits. This examination may include testing dimensions and actual functionality of the product. After the prototyping stage, when the startup is ready to move to producing thousands of units for the market, it will be required to test 3D printing materials that would achieve the most fundamental functionality of the product. Once the startup has the MVP, it undergoes immediate testing by introducing the beta version into the future marketplace. Collecting feedback from the consumers during this testing face is not eligible for the tax credit. According to the law, market research, including collecting data and surveys from users, is not entitled to the credit.

The startup can design the MVP by utilizing an inexpensive 3D printer. After all, the startup wants to create a fast and inexpensive version of the product that exhibits all its functionality. Market testing allows the startup to modify the prototype via iterations before investing in more resources to create the final product. As mentioned, this part of the lifecycle is not eligible for tax credits. After making necessary changes to the initial prototype based off market testing and research, the startup can develop a better sense of anticipated volume in commercial production. The startup most likely will invest in a more advanced 3D printer that is best suited to the production process and material selection. The startup will then be eligible to receive the R&D tax credit during this stage of the lifecycle, until it achieves a commercial level of production.

Project Lifecycle Management Solutions that Promote 3D Printing Startups

Since startups are struggling with the demand for a new project lifecycle process revolving around 3D printing, several established companies are beginning to offer services that alleviate these issues. Siemens, a leading global engineering and technology services company based in the UK, created a new platform to ease the process of 3D printing production. The platform is expected to be released by mid-2018, and is intended to let teams collaborate, despite distance and other barriers, in the design, engineering, innovative thinking, and testing of 3D printing during a product development lifecycle. Inspiring collaboration and co-innovation ought to “maximize resource utilization and expand business opportunity,” especially for startups that do not yet have clear business models or project lifecycle plans. Since the technology is intended to instantly connect “the people, technology, equipment, and expertise needed to efficiently address mutual business opportunities,” according to Tony Hemmelgarn, President and Chief Executive Officer, Siemens PLM Software, it makes the process of developing prototypes and MVPs less burdensome and ominous, thus promoting startups to fully immerse themselves in the process of 3D printing in a specific market.

In a similar regard, the 2013 3D print software startup ZVerse, based in South Carolina, offers solutions for every phase of the 3D print lifecycle to help other startups undergo the stages of development. The solutions address ideation, development, 3D design, printing, and many more aspects of the overall process. ZVerse understands that one of the most challenging aspects of the product development lifecycle is going from prototype concept to a printable 3D file that will be produced for wide market use. ZVerse alleviates this difficulty by offering a midway point for collaboration of designers, engineers, production managers, finance and legal teams, and even 3D printer operators. A service such as ZVerse will help startups transition to printing the prototype on a grander scale and with the high quality materials they seek.

One of the greatest pitfalls of startups is that the prototypes are all wonderful, but they never conceptualized or tested transferring the prototype into an actual consumer-ready product made from the desired materials. At this point, those projects would likely fail, or be brought back to the drawing board for more iterations. According to the CEO of ZVerse, John Carrington,

“We are moving a total digitization of manufacturing we have created the fastest path to go from ideation to finished manufactured products, and we provide a platform to manage those files for future use.”

This makes the use of 3D printing more attractive to startups just venturing into the market and uncertain about what business model or product development lifecycle to pursue. Whereas in its initial days 3D printing was incorporated into companies’ lifecycles merely to prototype, 3D printing is now being used to create the final 3D printed parts and products. This creates a new market within a new market, and thus is eligible during some development stages for R&D tax credits.

The Future of 3D Printing Prototypes for 3D Printed Products

3D printing is changing the product lifecycle in different ways. Incremental steps lead to a more on-demand fabrication of products. It helps eliminate some elements of waste inherent in the product development lifecycle itself. In terms of 3D printing, startups can go straight from the drawing board to production, which prompts a virtuous usage of materials and development waste elimination. 3D printing also changes the traditional view of manufacturing, which is the concept of “design for manufacturing.” With 3D printing, however, the emphasis is on “manufacturing of the design.” In this new perspective, manufacturers can profitably manufacture customizable designs that more directly achieve customers’ wants and needs. This helps eliminate much of the product development lifecycle pre-3D printing, in which market testing and analysis were key to determine what features and functionality are preferred by future customers. Incorporating additive manufacturing, or 3D printing, into the lifecycle ensures the creation of new design alternatives that require less investment, setup, and time on the part of the team. It enables the company to deliver new and improved components that might have been impossible or impractical to produce via traditional manufacturing and design phases. Incorporating 3D printing in the design process provides numerous benefits, including saving time and diminishing costs during the development cycle, and enhancing final product quality and design. Since 3D printing makes it easier to run more iterations of prototype testing, the team can most likely resolve discrepancies in design and functionality quicker and at a lower cost than with traditional methods of design and prototyping.

The benefits of 3D printing in manufacturing and design stages are plentiful. Namely, it reduces time and costs and improves design and quality of the final product. Moreover, it offers simplified manufacturing and reduced design constraints, both of which are attractive and invaluable to startups seeking to get a foot in a competitive marketplace. Now, 3D printing startups are eligible to receive R&D tax credits for the inclusion of 3D printing in the product development lifecycle and creation of MVPs.

Charles Goulding and Chloe Margulis of R+D Tax Savers discuss startups in 3D printing.