Issue #27 - The Future of Manufacturing

Jan 31, 2021

👋 Welcome to Issue #27 👋

Topics this time: three big exits, collaboration and the importance of processes, lots of new funding rounds, the future of the industrial automation tech stack, and some personal news.

🆕 Some personal news: As mentioned on LinkedIn and on Twitter, I left Point Nine at the end of the year. I'm super grateful to have worked with the amazing P9 team, the founders we backed, and the whole P9family.
I also want to thank all of you. I started this Newsletter exactly three years ago. Your positive feedback and the discussions with you helped me to grow personally and gave me the motivation for writing this newsletter.
So what’s next? I'm convinced that the biggest leverage to shape the future of manufacturing is to give people the necessary skills and knowledge. This also means empowering more people in the industry - something that is lacking today. This is where I will focus all my time now. I will continue to write this newsletter regularly (1x month) because I think it contributes to that mission.

👪 Community for Innovation Managers: On top of my Newsletter, I’m starting to build a community for innovation managers. This community is for people who work on the digital transformation in manufacturing companies, coordinate and drive digitization projects, and scout new ideas. Join the waitlist here or forward it to somebody you think should be part of this global community.
P.S. Building a diverse community is a key priority for me.

Got a friend or colleague interested in the future of manufacturing? Help me spread the word by sharing the newsletter if you like it!

🔮 What founders would love to change when working together with corporates: well-defined processes.

I ran a small survey with founders of manufacturing startups (n=13) to ask about their experience working together with corporates and what they would love to change. The majority underlined that they would like to have better and transparent processes in place. The lack of transparency can cause huge frustration for founders. Well-defined processes and the involvement of all important stakeholders are key to make projects successful. In the end, it’s all about the people pushing a project, i.e. educating digital leaders, providing them with enough responsibility, and c-level support.

Here are a few answers that I thought were interesting:

About a frustrating situation: “Doing endless, sometimes even multiple (wtf) pilots, a.k.a. pilot purgatory, was probably the #1 frustration for us. Not an original one but accurate.”
About a successful project: “The most successful one was when they had a real problem, budget set-aside for it, and senior (CEO) level support to engage with startups. “
About a potential solution: “I heard about training for corporates on how to work with startups. That’s good. It should be more processed. There should be themes such as: project definition, project management, business case definition, etc. “

👉 Personal opinion: From my work in the past the answers are not a big surprise. I think there is still a big expectation mismatch. Often corporates and startups do not talk the same language and have not same level of knowledge. This knowledge gap is something I would love to solve because we can achieve much more if both parties work more together. Lastly, I totally agree with the following commenent, which is also why I’m building a community for innovation managers: “The usual myth is to run away from corporate innovation teams and engage with business units. But if you plan the campaign well, a corporate innovation team might be your biggest supporter.”

📈 A look into the future of the industrial automation tech stack.

Levent from Paua Ventures summarized his thoughts about the future of the industrial automation tech stack in this post. The post gives people who are not very familiar with industrial automation a quick overview of the four levels (firm, factory, line, and machine level) and how he thinks it will change in the future. His definition of the stack is quite similar to the ‘automation pyramid’ that classifies the different IT layers of industrial automated production plants (click here to learn more about the automation pyramid).

This stack is highly complex with lots of moving parts and differs among factories which makes it so challenging for startups. One of the biggest bottlenecks is the limited information flow across the firm level (IT) and factory level (OT), the so-called “IT/OT Convergence problem”. In his eyes, these problems could be solved by startups that connect IT and OT through a data lake in the (industrial) cloud. Two trends could help to accelerate that: a) decentralized networks and b) data lakes.

I’m curious to see how this will develop because it also comes with new problems such as cyber-attacks.

🤝 The pilot purgatory and how to avoid it - as a startup and a corporate.

Carl Vause who is the ex-CEO of SoftRobotics and works with the WEF on advanced manufacturing and production thinks that it’s critical for every founder to understand the pilot purgatory. He lays out three questions that can help founders to better understand the situation when talking to enterprises:

Is your customer focused on a business problem/outcome or are they really interested in the technology?
What is your timeline and budget for deployment if this pilot is successful?
If I spoke with your CEO, are they aware of this pilot and timeline?

The third question depends on the context I think for really large enterprises. I agree with Carl that as a founder you should not be afraid of asking direct questions.

In his second post, he describes how corporates can avoid the pilot purgatory. The key to success is strategic, transparent, and cross-functional execution. The company needs to have a thesis on how to implement new technology or how it wants to expand the market. From my survey above, you could see how important transparency is for founders. To sum it up, a cross-functional team of finance, IT, and ops is necessary for success.

🤝 PTC has acquired Arena Solutions for $715M.

After announcing the acquisition of OnShape for $470M in October, PTC announced that it has acquired Arena Solutions for $715M just before the end of the year. John Tough sheds more light on this exit in his blog. Since Arena does around $50M in revenue, the acquisition price was ca. 14 x revenue. John argues - and I think he is right - that industrial firms rather purchase slower-growing companies for lower multiples rather than paying up for the market leader. Lastly and this is a very important point, these businesses take a long time, Arena was founded in 2000 and had its last venture round in 2014.

🤑 M&A activity in the manufacturing industry.

Speaking of M&A and in case you missed it, just before Christmas I published a new blog post where I take a closer look at the M&A activity in the manufacturing industry over the past five years. Here are the main results:

📅. By year: the amount of acquisitions per year has decreased every year since 2016 - with 275 acquisitions in 2016 to only 117 acquisitions in 2019.
🌍 By country: The surprising result is that there have been more acquisitions in the UK (27.2%) compared to Germany (16.5%).
ℹ️ By type: the immense majority of the acquisitions (87.3%) have been made in the “non-software” category, see below the development over the years:

🤝 Protolabs acquired 3D Hubs for $280M.

The US manufacturing service Protolabs acquired 3D Hubs, a manufacturing platform that got started in 2013 in the Netherlands. The deal will be funded with $130M in cash and $150M in Protolabs common stock. The 240 manufacturing partners from 3D Hubs will be added to the Protolabs network. In other words, Protolabs uses this acquisition to expand into new markets and to grow its supply base.

👉 Personal opinion: This is very interesting on two fronts. First, it's a big exit for the manufacturing industry. Great for the ecosystem, the founders, employees and investors. Second, it's another acquisition in the Manufacturing-as-a-Service (MaaS) area in Europe. In the last 14 months, Kreatize (DE) bought Fabrikado (DE) and Xometry (US) bought Shift (DE). I'm very curious how MaaS will continue to evolve in the next few years.

🤝 DesktopMetal paid $300M to buy 3D printing company EnvisionTEC.

Another big acquisition where a US company is buying a European one is Desktop Metal’s acquisition of EnvisionTEC (DE). EnvisionTEC has developed a technology with the ability to print in more than 190 materials. One of the main use cases is in the dental area where EnvisionTEC has seen huge growth over the last year. Desktop Metal wants to add these capabilities to ensure growth now that it’s a public company. The deal is a combination of cash and stock but the exact details were not revealed.

🤑 German Bionics has raised a $20M Series A.

German Bionics, a startup that is developing robotic exoskeletons, has raised $20M led by Samsung Catalyst Fund and MIG AG. The exoskeleton helps workers to increase productivity while reducing the risk of developing musculoskeletal disorders in the lower back. Workers at the Stuttgart Airport who have to lift a lot of heavy luggage or Mechanics at BMW are current examples of users. All devices are connected to the which allows people to monitor KPIs and communicate with other systems or machines. If you wonder how the exoskeleton looks, here is a picture:

🤑 AMP Robotics has raised a $55M Series B.

XN is leading a $55M Series B at AMP Robotics with participation from new investors Valor Equity Partners and GV and existing investors such as Sequoia. AMP robotics develops software to automatically sort recyclable materials. The software is used by its three-armed picker robots above a conveyor belt. The picker robot can pick 80 items per minute and is therefore much faster than current manual processes.

This is how the picker robot looks:

👉 Personal opinion: I think the manufacturing industry has a large role to play in environmental sustainability which is often overlooked when talking about the climate crisis. Innovations such as waste-sorting robots can contribute to increase the total amount of waste being recycled. I would love to see more companies at the intersection of sustainability and manufacturing in the future.

🤑 Earlybird led a €2M seed round at Energy Robotics.

Speaking of robots - the German-based startup Energy Robotics has raised a €2M for its mobile inspection robots. The robots are used for remote inspection and monitoring in rough and harsh environments such as oil & gas. Energy Robotics is hardware-independent and its software is generating insights gained from high-quality sensor data. Among the robot manufacturers the company partners with are Boston Dynamics.

Today, it has more than 20 robots in operations on 4 continents and counts Shell, Dow Chemical, E.ON, and Merck to its customers. Check out this video about one of its robots at Merck’s thermal exhaust treatment plant.

💸 Konux has raised an $80M Series C round.

The Munich-based startup that develops software to operate railway networks and minimize train delays has raised $80M led by Sanno Capital. Investors who participated in this round are NEA, Deutsche Invest Capital Partners, and the Struengmann brothers - who own almost half of Covid-19 vaccine maker BioNTech SE. Just shortly before the round, Konux won a tender and entered a long-term agreement with Deutsche Bahn (DB) to monitor 1,300 switches. Winning this tender was critical to raising such a big round.

To date, Konux has raised more than $130M since its inception in 2014. According to the CEO, Konux plans to triple staff to 300 and is working toward an initial public offering in 2024.

Additional thoughts on recent development

Reinventing organizations - Favi
I’m currently reading “Reinventing Organizations” by Frederic Laloux. In his book, he highlights Favi, a French manufacturer specialized in die casting. The company is a Tier 1 equipment supplier in the automotive area and employs 500 people.

So far so good. What gets me and Frederic excited is Favi’s unique organizational design and management philosophy. Most of the employees are organized in teams around a specific customer or customer type and called "mini-factories". Each team is self-organized - there is no middle management and the teams decide upon themselves. This is very different compared to most factories today and “Favi shows how powerful an organization can become once it unleashes the full potential of its employees.”

I’m convinced that we will see more manufacturing companies that will empower their employees in one way or another. Given the “skills-gap” and demanding labor force, this is also necessary to retain employees.

Industry 4.0 - Reinventing the Factory Stack

There are now in total 430+ companies in the landscape, which I just updated again, more to come soon:

Again, Thanks to everybody for supporting this newsletter and for sending me interesting links. Feedback is always welcome 🙏

Robin

The Future of Manufacturing