Where is the investment side of the market heading in 2023? Rising interest rates, inflation, geopolitical uncertainty – these indicators do not look promising for emerging companies that need to raise capital, sell their products to cash-strapped companies or explore an exit. However, despite economic turbulences and the current monetary policy tightening, we remain optimistic as a VC in additive manufacturing (AM). Here are our thoughts on why there are plenty of opportunities for AM startups.
As the AM market continues to grow, there is no going back from adopting AM as a means of creating end-use applications. Whereas it is true that publicly-traded AM companies have not performed up to expectations fed by big promises, the fact that funding was largely unaffected in 2022 is significant and therefore a very good sign. Investors remained bullish about opportunities in the private 3D printing space. VC investments grew from $1.8 billion in 2021 to an all-time high of $2.1 billion in 2022. The average annual growth rate for startup investments has been 62% since 2013.
The recent decline in valuations will spark the appetite of 3D printing incumbents for new acquisitions to drive their inorganic growth as they keep looking to deliver on their promises. The macroeconomic turmoil of the past few quarters can lead to fantastic M&A opportunities as well as good opportunities for VC firms with large amounts of dry powder left to allocate.
Funds are available to provide further support to the most innovative AM startups that are solving major problems in legacy manufacturing. We firmly believe that startups with a working business model, a strong leadership team and a compelling offering will still raise capital, even though valuations will be different than what have seen in previous years. What the new “story” will be remains to be seen, but widespread valuations readjustments are to be expected. The value of an emerging company has so far been expressed by a multiple of its sales. Given the shift away from the “growth at all costs” attitude in the startup landscape, we expect that valuations will increasingly be geared towards profitability. VC firms will become highly selective, looking for deals that generate cash rather than consume it. Companies that raised money pre-crisis at sky-high valuations will face difficulties in finding additional funding. In contrast, we anticipate that it might be “easier” for newly-established companies to raise capital.
The most encouraging sign is that more than half of our deal flow last year was based on startups in the business of developing applications. This is a promising indicator since these startups are the justification for our industry’s existence. Whether heat exchangers, components of electric motors, antennas or membranes for filtration needs, the trend in 3D printing is clear: AM is being adopted by more and more industrial verticals. This shift has been visible on AM Ventures’ tech radar for about two years now: most of the identified startups are application-based.
We are convinced that industrial 3D printing is one of the beneficiaries amid the economic downturn and political tectonic shifts. There is a lot of pressure on companies to digitize their processes, tools and supply chains. Manufacturing cannot go digital without the help of AM technologies. We are convinced that there are many startups out there that are going to push AM to the next level: to evolve from a stabilized technology that does one thing right once, to ensuring that it does exactly this many million times and with every single new system built over generations of machines. This should provide promising funding opportunities in 2023.
Arno Held, Managing Partner at AM Ventures, will be participating at the Additive Manufacturing Strategies 2023 Business and Networking Summit, which takes place in New York City February 7 – 9, 2023. Arno will be participating in the Special Presentation: Future Investment in AM, taking place on February 9. AM Ventures is sponsoring the Networking Reception: Bavarian Beer & Pretzels on February 7. Register for AMS 2023 here.
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