In this article, I would like to review several companies that are known as unicorns. The stocks of two of them are already available on the New York Stock Exchange. There is a certain pattern to their stories — they all started off in the Greater Boston metropolitan area. While Silicon Valley is a Mecca for software startups, Boston — especially Massachusetts Institute of Technology (MIT) — is a Medina for manufacturing innovation.
To begin with, I’m not going to analyze the entire 3D printing market, but will focus on some of the most prominent representatives from the desktop 3D printing segment. This division is tentative though, because as the technology evolves, products may migrate smoothly from one category to another; roughly, there are three main categories: desktop, professional, and industrial. So, here is the story.
In 2011, three American students founded a company called Formlabs in a garage. Max Lobovsky became its CEO. Lobovsky came from a family of engineers who had emigrated from Ukraine. He was passionate about robotics and new technology since his teenage years and took various specialized courses in high school. After earning a bachelor’s degree from Cornell University, he enrolled for his masters in MIT where he started developing a desktop 3D printer that could be highly productive and affordable at the same time.
The three friends managed to find an angel investor and launched their first product in 2013, a printer they named Formlabs Form 1. They also raised almost $3 mio in crowdfunding from over 2,000 backers via Kickstarter who were excited about the new product and its promise that 3D printing would be available to anybody. At the time, the market offered 3D printer models based on stereolithography (SLA), or curing liquid resin into hardened plastic using a light source. Other printers started from $100,000 but Formlabs released a printer that cost only $1,500. Although the company had to go through many challenges to produce its first batch, Formlabs successfully delivered its printers to all customers. The devices were still far from perfection but the company attracted $19 mio in the series A of investment and paid back the angel funds.
The company continued to improve the product and create an ecosystem similar to Apple, comprising the 3D printers themselves, expendable supplies (resins for different tasks), pre-printing processing software and post-production equipment.
In 2019, the company’s business was worth $100 mio and in May 2021, Formlabs raised $150 mio in series E from SoftBank Investment Advisers, doubling its valuation to $2 bln. There has been a talk about potential IPO, which would be completely logical as investment funds plan IPOs seven to ten years into a project and the time was up for the series A investors. However, despite the market’s huge expectations, Max Lobovsky said, in an interview with BizJournals, that he was in no hurry to make the company public:
“We’d rather take our time and be really ready to be an excellent public company, to be large enough to be a successful public company, and then go public at that point. We’re larger in revenue than all those SPAC* 3D printing companies combined, so we’re certainly large enough and mature enough to do something like that. That being said, when I look at the real big, successful, long-term sustainable public tech companies that we want to be, they are in entirely another tier in terms of being much more predictable and profitable.”
*special-purpose acquisition company, a strategy that helps startups reach IPO by merging with a shell corporation.
This sounds serious but it seems that the company leader has his reasons. By all appearances, it depends on the company’s capitalization forecast of some $4-6 bln if the IPO is successful, which will make it the largest company on the market. The capitalization of 3DSystems, a veteran and many-year market leader, is no more than $3.5 bln as of August 2021.
Unlike the students from Formlabs, the creators of Markforged were older people, but MIT was also involved here. Greg Mark, an MIT graduate, first encountered 3D printing when the company he worked for got a contract with the US Navy. Experiments in improving the quality of the products inspired him to create a printer that could print with reinforced carbon fiber filament to make the model strong and able to endure loads.
Markforged was founded in 2013, and in 2014 the startup presented its first product, the Mark One printer with two extruders that could reinforce the models with nylon, glass fiber and even Kevlar, at the Solidworks World expo. Later on, they presented a cloud platform The Digital Forge, and as soon as in 2017, Markforged announced the launch of a desktop metal 3D printer called Metal X that cost $100 K, while similar products by competitors were priced at $1 mio. In 2020, the company turnover reached $70 mio; the leaders decided to launch an IPO using SPAC. The company presented a concept of Additive Manufacturing 2.0 that allowed for producing end-use parts, not prototypes, which opens the way for 3D printing to manufacturing goods. The volume of this market is estimated at $13 tln.
Using the Wholers Report, in 2020, the company predicted the growth of the additive technology market at an average of 27%, which means that in the next eight years the market will grow from $18 bln to $118 bln by 2029 and decuple its revenue to $700 mio as soon as in 2025.
On July 15, 2021, Markforged commenced trading on the New York Stock Exchange under the ticker symbol “MKFG.” The company’s valuation was $2 bln but a month later, its shares went down slightly. The current capitalization of the company is some $1.5 bln. The question remains, should investors purchase the shares of a company that will deliberately remain loss making for at least two years (the company expects a turnover of $100 mio this year)?
On one hand, there are many companies on the market that are trading with bigger multiples, and on the other hand, 3D printing technology is not developed enough to be sure that the concept proposed by Markforged will be 100 percent successful. Actually, the company itself considers the appearance of new technologies that might undermine its current technological dominance a risk. Overall, investors are currently well disposed towards the future of 3D printing.
They were impressed by how the technology showed its worth in the first and the hardest months of the pandemic when production chains were disrupted and many transport corridors were dysfunctional. 3D printing made it possible to promptly launch the production of ventilator parts, masks and many other things. The concept of distributed manufacturing transformed from an interesting idea into a real necessity. So, as always, the coin has two sides, but if you are interested in highly promising investment options, you should at least take a look at this company and the additive manufacturing market in general.
The last company to mention is Desktop Metal. While Formlabs was founded by MIT students and Markforged by MIT alumni, Desktop Metal was launched by experienced entrepreneurs Ric Fulop and Jonah Myerberg, as well as four MIT professors. While pursuing his goal, Ric Fulop founded six different companies and headed an investment fund; Jonah Myerberg worked as a leading engineer at various companies and became CTO at Desktop Metal.
The company’s initial goal was creating an affordable desktop 3D printer that prints metal models. The company instantly became a favorite with investors and managed to attract investment rounds on a constant basis; its donors included BMW, Ford Motor, Stratasys (a pioneer in 3D printing technology), Saudi Aramco investment fund, General Electric, and others. The company’s total value in the last round reached $2.4 bln, with a meager turnover of $26 mio in 2019. The obtained finances went for the company’s research and development as well as for attracting best engineers and developers. In 2017, Desktop Metal presented a three-component metal printing system based on fused deposition modeling (FDM), a 3D printing technology that uses a continuous filament of a thermoplastic material. The system turned out to be ‘half-baked,’ with only a small amount of materials available for printing, which had a rather limited range, and the final products looking rough and having considerable size inaccuracies. Yet, Desktop Metal continued its efforts to develop the project, and later on the company announced Production System, its potential flagship model for producing complex, high-performance metal parts at high volumes — which, however, can hardly be called a desktop one. The company claims that the Single Pass Jetting process is 100 times faster than other traditional methods; however, printer deliveries are expected to begin only at the end of this year, so we have to take their word for it.
Desktop Metal made its stock market debut with an initial public offering on December 10, 2020 via the same SPAC scheme. The company’s presentation, aimed at potential investors, outlined the following parameters: expecting the planned turnover of $942 mio by 2025 and reaching operating revenue in 2023, and mentioned the company’s plans to spend a significant part of obtained finances on acquisition transactions in the 3D printing industry.
At the moment of the company’s IPO in 2020, the capitalization on the New York Stock Exchange stood at an impressive amount of $6 bln. During the stock placement, $580 mio was raised, with the company receiving a laconic stock ticker DM. In February 2021, the company’s stock price was further up, with its capitalization exceeding $8 bln. Desktop Metal announced it would become the first company in the history of 3D printing with a capitalization over $10 bln. After receiving massive funds, Desktop Metal announced its first acquisition as early as in January 2021: German manufacturer of professional photopolymer 3D printers EnvisionTEC, one of the market’s oldest companies founded in 2002, was bought for $300 mio.
For me, this choice was hardly evident: DM and EnvisionTEC have very little in common, and the deal is unlikely to produce any significant synergetic effect. EnvisionTEC has continued to operate under its brand as DM’s wholly owned subsidiary, and plans to release a number of new models for its key consumers — dental clinics and jewelry companies.
This year, Desktop Metal has also acquired several small companies specializing in production of materials and software development. This has allowed DM to expand its patent database and attract the best ideas and professionals under its wing. The largest acquisition was the purchase of another public company, the US-based ExOne, announced in August for $575 mio. ExOne was founded in Pittsburgh in 2005 and specializes in production of industrial 3D printers for creating custom-designed injection molds using metal, sand, or ceramic materials. It is also noteworthy that the company managed to commercialize a patent for this technology, issued by MIT back in 1993. In this case, we can say that the product ranges of DM and ExOne are more similar to each other; the two companies have already presented a joint portfolio featuring their products which complement each other.
It would be logical to assume that DM’s stock would skyrocket following such high-profile acquisitions — but in fact the opposite has occurred: since its February peak, the shares have fallen four-fold and are now trading at $8 apiece, with the capitalization slightly exceeding $2 bln. Apparently, investors’ initial euphoria has turned into a more sober look at the company’s current outcome. This may have been factored by dissatisfaction of certain ExOne’s shareholders, who considered the company’s acquisition price as unfair and are now drawing up a class-action lawsuit against the management in order to block the deal.
So should one purchase DM shares now that they have dropped so much, or is it better to await a further decline? I would say their current level is very comfortable for entry — yet, of course, such investments pose a certain risk, despite the company’s having reported successful results in this year’s first six months, claiming it expects this year’s revenues to exceed $100 mio.
In conclusion, I would like to note that a number of stock analysts consider current trends in the additive technologies market a ‘renaissance’. The market was stimulated amidst the pandemic, which offered hope that the technology has become mature enough for serious challenges, and that the 2013–2014 situation in the industry would not repeat itself. At the time, the method was still rather ‘half-cooked’ — but it was attracting a lot of attention from the press as well as from potential investors, which massively boosted shares of the market leaders — 3DSystems and Stratasys, and later on, when people became disappointed with the outcome, a 20-time drop in peak values occurred. Startups were bought up in batches, without actual awareness of further actions. Most of these deals only complicated companies’ operations, preventing them from focusing on their core business. Hopefully, this all will serve as a good lesson for new industry giants. This year, a number 3D printing companies has already gone public via SPAC, with several more major placements planned for the end of the year. In case you are interested in this sector, follow the news.
By Alexander Kornveits, expert in additive technologies, founder and CEO of Tsvetnoi Mir company