Issue #14 - The Future of Manufacturing
👋 Welcome to Issue #14 👋
Topics this time: Lots of new financing rounds, the tough part of scaling factories and many learnings from the US.
💸 Funding Strategy for Industrial Startups
I recently published a post about funding strategies for industrial startups which you can read here. If you don't have time to read it, I also sat down with Santosh from Dynamo VC and recorded a podcast about it. You can listen to it here.
As always, I hope you enjoy reading it and if you do so, any feedback, shares or links are much appreciated!
Many thanks again for the feedback on the NL - I will work and iterate on it.
Disclaimer: thoughts and opinions expressed in the newsletter are my own.
What I enjoyed reading
#factories#
🏭Building a factory from scratch is hard, especially because of the high CAPEX and the dependency on a high utilization rate. You cannot scale up and down production compared to AWS for cloud computing. Foxconn just learned that first-hand and is cutting its growth plans by scaling back its $10bn planned factory in Wisconsin and $9bn factory in Guangzhou. Foxconn was probably better than anybody else to quickly scale up and down production with thousands of workers but doing this outside of China and with a new factory is way harder.
#adoption#
📟 The consulting firm Bain took a closer look at the adoption of the Industrial Internet of Things. The main result of the study is that European industrial companies have apparently stronger adoption and invested more in IoT than their US counterparts. Bain even states that “companies in the US are still struggling with implementation issues that the Europeans have mostly worked through”. From my conversation with both European and US founders, it’s hard for me to believe that. Many founders complain about European companies as being slow and inexperienced when it comes to buying Software. Maybe that is not applicable to IoT but for traditional SaaS, the US is usually the better market since US companies have more experience in buying software and are more eager to try it out compared to European companies. Obviously, it’s hard to question the data but it really doesn’t confirm my experience - I’m happy to get convinced and hopefully see this more in reality though. Here is one result of their survey, comparing EU and US:
#education#
🤓 Due to the complexity of the shop floor and a higher degree of customization in production, you have to increasingly train people. Therefore, I'm really excited about the idea of a "coursera for manufacturing" and haven't found a company in that area until today. EnterSkill-Lyncwhich I think comes close to the idea. The YC company is offering online training courses for mechanical engineers and tries to match them with master's degrees or employers directly. It originally started out as a YouTube channel. Last year they had 2500 students whereof 22% completed the courses. I'm pretty sure we will see more of these companies, specialized in certain skills.
#fund#
💰 btov Partners announced the second closing of their industrial tech fund of €80M. LPs in the fund consist of a broad range of family offices, strategic investors, the EIF and a various number of banks and foundations. One of their first investments was the Munich-based 3D printing startup DyeMansion. So, in general, this is great news for all the founders and the ecosystem.
However, I’m personally a bit skeptical that funds focused on this industry can achieve the same returns as traditional funds (independent of any industry).
About industrial Startups and Companies
#fundraising#
📦 Tulip, the manufacturing app platform, raised an additional $18M led by Vertex Ventures. The company is co-founded by Natan Linder, the co-founder of 3D printing unicorn Formlabs and is working on a customizable app platform that helps people on the shop floor to increase their productivity (something I have written before). Natan calls it “Salesforce for manufacturing”. The main benefits are an increase in yield, higher quality, and better manufacturing processes. This is how a workstation can look like:
#fundraising#
🤑 Konux, the predictive maintenance solution focused on railways, added Alibaba as a new investor to its Series B with an additional €11M. Having Alibaba on board should help the company to enter the Chinese market – which is the world’s largest and fastest-growing railway market. Recently Alibaba is paying more interest in German startups after acquiring Berlin-based Data Artisans for €90M.
#fundraising#
🤑 Augury is a very interesting player in the predictive maintenance sector and is strengthening its position by raising $25M Series C led by Insight Venture Partners while acquiringAlluviumat the same time (probably with part of the new investment). Why is this interesting?
So far, Augury was very focused on machine data and could grow nicely in the last years (tripling yearly revenue). However, to keep momentum and growing like that, they need to expand their offering and acquiring Alluvium is, therefore, a logical step. With the combination of Augury’s mechanical data and Alluvium’s operational data, they are able to provide a holistic view of the production line.
In addition, this acquisition is an early sign of consolidation in the market.
#fundraising#
🔒 Security is often a boring topic, yet there is a lot of budgets. With the increasing amount of industrial devices, we also need infrastructure that makes them secure and Xage is exactly working on this. The company wants to bring role-based access, Single-Sign-on, fingerprinting and remote access to industrial devices. For doing so the company secured $12m in funding and it’s one of few companies I have seen that is focused on the security layer for IoT devices so I’m very excited to see if they can crack it.
#fundraising#
🤖 I covered Veo Roboticsin one of my earlier newsletters already. Just a few months after announcing their first financing round they raised $15M from Baidu Ventures and some others to launch their product in May. The company uses lidar sensors to create real-time maps of factory workspaces, so that robots can slow or stop completely when human workers get too close. The hypothesis is that the biggest value is in assembly because each second the assembly line stops costs a lot of money so they want to focus on that part of the value chain. What's interesting is when I talked to Patrick (CEO) is that although the team has many years of experience in robotics, they still make sure to talk to 100s of potential customers to really build something that the market wants. This is how a robot looks like (they're big!):
Additional thoughts on recent development
Takeaways from my US trip (SF + Boston) #ecosystem#
1)There is a feeling of disillusionment among investors. A lot of money went into autonomous driving, drones, manufacturing - yet not so much has happened and development is slower than expected.
2)There are very, very few - if any - companies that followT2D3 logic(triple twice, double three times). The initial time to PMF and revenue growth takes on average more time than for traditional SaaS companies. I covered that here.
3)I think many companies can become profitable and successful businesses but not the outliers that are required for VCs. For many founders, it would be probably better not to raise from VCs if they can. See also Bill Gurley's Tweet.
4)Many incredible smart engineers and researchers are working on very hard technological problems. It's really amazing with what they come up with. However, doesn't mean that these will become great businesses. It's tough.
5)It's not extremely hard to raise a seed round at the moment, i.e. early-stage investors are excited about founders + opportunity + some early traction/pilots. The main challenge will be raising a Series A and B., see this study.
6)Overall, there is a lot to win and a lot to lose - Europe has to play offense and not a defense in order to ensure we maintain our place at the global table as Ben Blume and I put it here.
Industrial Landscape#landscape#
I'm working on a new update to my industrial startup landscape. There are now in total ca. 250+ companies in the landscape - here you can see the changes within one year:
Again, Thanks to everybody for supporting this newsletter and for sending me interesting links. As always, any input, shares, and feedback are always warmly welcome 🙏
Robin