Top Deal: Innovative 3D Printing Technology

Key Stats:

Summary

The R3 Printing team has been selected as a “Top Deal” by KingsCrowd. This distinction is reserved for deals selected into the top 10% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology please reach out to hello@kingscrowd.com.

Problem

Additive manufacturing, or 3D printing, has many advantages over traditional manufacturing, and early investors expected that it would create a manufacturing renaissance. In particular, there’s the benefit of creating specialized, on-demand products that might otherwise take days, weeks, or even months to procure if acquired from third-parties. Where the industry falls short, though, is when it comes to economies of scale, and this weakness may be why 3D printing has not reached the heights previously expected of it. High labor costs, in particular, are a barrier that prevents firms from more widely adopting the process. Another issue is that machines can be cumbersome and the proprietary materials many device manufacturers require customers to use can be costly. Despite these hurdles, additive manufacturing has continued to develop into a sizable and growing space, and there is still plenty of room for innovation.

Solution

R3 Printing believes that its innovations will solve many of the issues plaguing the Additive Manufacturing space. At its core, the firm’s big change is physically small but impactful. It has worked to create a small, durable printhead. This reduced size, which weighs about 80% less than the competition out there, fixes a great number of issues in the industry as they stand today. For instance, the smaller printhead allows its printer to operate at up to 90% faster than the competition out there. Because the printhead is smaller, it also leaves more room on an otherwise identically-sized device to print objects from. This change can lead to the creation of objects that are up to 200% larger than what a normal printhead would permit. 

Modifying the printhead isn’t the only change that R3 Printing has made for customers. It has also built into its system an Active Overheat Prevention system, which prevents, or at least mitigates, jamming of the materials used. Because thermally-induced jams can take up to 45 minutes to fix, R3’s new system reduces downtime and the associated labor costs. Another change made is that users of its printer technology are not locked into buying and using proprietary materials. They can, instead, use their own preferred materials in many cases, further reducing costs.

At this time, management still is not done innovating. Its first incarnation of the device was created with a stainless steel chassis, but R3 is planning to make future incarnations with an aluminum chassis instead. Using aluminum would help to reduce the cost of its printers by around 25%. In addition, the firm intends to turn this product into a platform. They will do this, in part, by offering cloud-based monitoring and other related services. For firms that have strict security requirements and that do not use the cloud because of it, R3 Printing has another solution. The company is making its technology operable to them in a way that does not require cloud connectivity. It can, instead, operate on private networks or on no network at all.

Right now, the company is not generating any revenue. Its sales in both 2018 and 2019 were $0, but as it goes to market, it intends to tackle the space in phases. Phase 1 will involve catering to niche, on-demand manufacturers who are experts in the field of additive manufacturing. In Phase 2, it wants to tackle architecture and engineering firms that don’t yet have significant experience with the technology. These firms could easily benefit from it, but many of them are deterred by the costs plaguing the market today. Phase 3 will see the firm finally expand its platform to work with large enterprises. All customers, at least for now, will be located in North America.

Though R3 Printing did not generate any revenue over the past two years, it has generated plenty of losses and cash outflows due to the firm’s status as an early-stage entity. Last year, its losses totaled $172,172, while the year prior its losses were $79,396. Cash outflows matched losses in each year.

An Attractive Market

The industry that R3 Printing operates in is fairly small, but it’s growing rapidly. Despite the fact that technological issues, low adoption rates, and an absence of economies of scale have prevented additive manufacturing from becoming the panacea that many manufacturing firms have hoped for, it does still offer plenty of upside in the years to come. To see this, we need only look at what analysts in the space are saying.

According to one source, the global market for additive manufacturing is estimated to stand at about $11.69 billion this year. Between now and 2027, it’s forecasted to grow by 17.7%, which will take it up to $36.61 billion in size. Not every source supports the same forecast though. A different source, for instance, claims the market’s a bit smaller today at $10.43 billion. If it’s right, the industry should grow at around 14.4% through 2026, at which point it will be $23.33 billion in size. A third firm suggested that the current market was even smaller at $8.44 billion, but it pegs the annualized growth rate through 2026 at about 31.4%. If this holds true, the market potential by the end of the forecast period would be $44.52 billion.

Such significant disparities create some uncertainty for investors, but what’s most important to take away is the fact that the industry is growing rapidly. Even if we take the most bearish of these forecasts, the outlook for investors and firms in this space is appealing. For years, some of the companies in this market have struggled. Proto Labs, the largest pure-play in the additive manufacturing market, has done really well. Sales have risen almost 74% over the past five years, and net profit margins have ranged between 10% and nearly 20% each year. However, its focus is a little different. Its emphasis is on creating prototypes and custom-printed products for customers. The actual sellers of additive manufacturing technology and components have been a different story. Take 3D Systems Corporation as an example. Over the past five years, its revenue has basically flatlined. Not only that, but its aggregate net loss over the last four of those five years has been $219.48 million with not a single positive year under its belt. These examples may provide a word of warning for prospective investors. However, if management at R3 Printing is right about the quality of the company’s technology, then it’s not unreasonable to think that it might do very well against the competition.

Terms of the Deal

In order to take its business to the next level, R3 Printing is offering up a piece of their business to prospective shareholders. They are doing this through a convertible note. Investors who buy into the note will be able to convert into non-voting common shares upon a defined triggering event. This conversion will be at the company’s future valuation, subject to an 18% discount and an $8 million valuation cap. In the meantime, the firm will accrue an interest rate of 5% per annum. The goal of management is to raise between $10,000 and $635,000. As of this writing, the company has received commitments for $59,429, and the minimum investment required per participant is set at a very accessible $100.

An Eye on Management

There are two core members of the R3 Printing team as it stands today. The first of these is Paul Sieradzki, the company’s CEO, Head of Product, and one of its two co-founders. Prior to his time working on R3 Printing, Sieradzki was an Associate of Critical Technology Infrastructure at Bridgewater Associates. Before that, he was an Associate of Wealth Management Operations at Morgan Stanley. 

The other top member and co-founder of R3 Printing is Petra Wood. She currently serves as the entity’s COO and Head of Growth. Her experience includes a role in Digital Marketing at Amnet Group. She was also once a Production Associate at Lincoln Square Productions, a Disney/ABC Television Group company.

Rating

After a careful review of the company and its prospects, we have decided to rate R3 Printing a Top Deal. While the firm is pre-revenue, its innovation is appealing and could be a game-changer for the space. Such changes would obviously help to reduce costs for additive manufacturing users while also establishing R3 at the forefront of a strongly growing space. It’s also a simple enough concept that it would be difficult to miss gaping holes in the value proposition put forth by the firm. Our analysis has yielded no such gaps, and R3 Printing is poised to be promising investment in the additive manufacturing world.