Direct to consumer – customized automated manufacturing

The future of manufacturing is here and it is (drumroll please) – Direct to consumer (DTC) customized automated manufacturing (CAM – has different meanings so we will hold off on giving this one an acronym).

We are living in an age of new possibilities. We have gone from one off manufacturing -> to mass standardization -> to mass customization. We are entering a time when customized components can be manufactured at the same speed as standardized components for individual consumers. Consumers want customized, individualized products, that they can order on-demand from their smartphones. And they want them yesterday.

There are ample examples of mass customization with both startups and large brands trying to get into the game. There are many examples of failed attempts at mass customization but they are paving the way for new opportunities.

Examples of individualized mass customization

  • Levi’s F.L.X. Finishing – “Consumers will be able to start with seven of Levi’s most popular fits, including the 501. From those seven fits, using a variety of design combinations, they’ll be able to design over a thousand combinations of their own personalized jeans”
  • Function of Beauty – Custom made hair products – Custom made for your type of hair. They use the term hyper-personalization.
  • Nike – NikeID brand https://www.nike.com/us/en_us/c/nikeid#iUSIGNGldC
  • Formaspace – https://formaspace.com/ – mass customized furniture to fit a certain area.
  • True Gault — the latest brand to crack the code on mass-producing personalized items. Use a phone to scan your foot. Then the heels are produced in Spain and shipped to your home

Pick any consumer industry and you will find manufacturers creating setups to mass customize products for individual consumers. Customized apparel, customized printed medical components that go in our bodies, customized automated food creation, custom furniture fit to your home, custom education, custom books.

The world of standardization will become more strained in markets which have mass customization options. The reason that mass customization will win is that there is pricing power for individualized products and data advantages to understanding customer wants.

Configured customization vs. individualized customization

Types of products which create personalization value tend to fall into two main categories, configured and individualized customization. Configured refers to your typical type of configurator or customizer type of application. The customer uses an application and they are able to choose their preferences based on configurable options. Nike shoes is an example of this. Pick the colors you like and the size and the materials. Individualized customization, on the other hand, is right-sized to the customer. In this case, the product is customized to the consumer based on unique characteristics of the consumer. Examples of this are 3-D body scanners that create clothes to custom size.

Individualized product creation is definitely within reach but building a unique product for each and every customer is not without its challenges.

Challenges to mass customization

  1. Creating enough value through customization to make the costs of implementation worth it
  2. Materials/inputs planning
  3. Materials and inputs movement
  4. Communicating customization options to customers
  5. Production location. Proponents of mass customization talk about mini-factories that operate within other businesses. For instance, an apparel mini-factory combined with a retail storefront.
  6. Maintaining manufacturing flexibility as complexity increases
  7. Configurator software

The streets are littered with failed attempts to create companies based on mass customization too. One recent example is shoes of prey. One of their findings was that while the model worked for fringe shoe designers, most people aren’t used to designing their own shoes. They had a good business at a small scale but weren’t able to scale up to a mass market.

Opportunities to mass customization

  1. Lack of skilled labor or difficulty keeping positions filled
  2. Personalized products create customer loyalty
  3. Pricing power for personalized products
  4. Digital enhancements, modular manufacturing frameworks, and flexible process create more personalization options

If you are working on a custom automated DTC company, reach out today. Some manufacturers also call this bespoke mass customization. We are trying to solve these challenges everyday and we are looking to invest. I am very interested in investing in technologies which enable mass customization so don’t hesitate to reach out if you are working on a system to enable this. I especially like Direct to Consumer automated manufacturing set-ups. Even if they are small, we like to tinker with systems over here. For instance, we have built applications with Raspberry Pi as a microcontroller to build products for Etsy. No system is too big or small.

Engineering to Entrepreneurship – Making the jump

As an engineer it’s easy to find a nice entry level 9-5 job and settle down, but is that what you really want? Making the jump from a well paid mechanical engineer to an entrepreneur can be a difficult leap for most. There are obvious tradeoffs and I don’t want to be a venture capitalist who tries to convince mechanical entrepreneurs to take unreasonable risks that myself as an investor might not be willing to take.

The current state of manufacturing automation and IIoT is creating many new opportunities which didn’t exist a few years ago. You get to decide whether to help move your current employer forward or whether to do it yourself!

One way that we help this is through our “starting out” program. Many times mechanical engineers don’t want to take the full leap right out of the gate and we don’t expect them to. They would rather moonlight on their product for a while first. This can be difficult if you need specialized and/or costly equipment. This is how we help, by providing the investment needed to buy manufacturing equipment and proving the space to store your equipment and dabble on your product. Many venture capital firms generate returns by extracting value, we look to help entrepreneurs create value and create companies. Here is a list of entrepreneurs who moonlit their way to large empires – https://www.cnbc.com/2017/07/06/these-billionaires-started-their-empires-while-working-day-jobs.html

Many younger engineers think maybe I am not old enough or don’t have the maturity yet to pull it off. We disagree, many younger entrepreneurs don’t yet have as many filters, which can be helpful when exploring new markets. Like MJ said…”I prefer to live in regret of failure than in regret of never trying!”.

I was reminded again in a recent article by Sam Altman (http://blog.samaltman.com/how-to-be-successful) one of the main reasons to consider starting your own company:

You get rich by owning things
The biggest economic misunderstanding of my childhood was that people got rich from high salaries. Though there are some exceptions—entertainers for example —almost no one in the history of the Forbes list has gotten there with a salary.
You get truly rich by owning things that increase rapidly in value.
This can be a piece of a business, real estate, natural resource, intellectual property, or other similar things. But somehow or other, you need to own equity in something, instead of just selling your time. Time only scales linearly.
The best way to make things that increase rapidly in value is by making things people want at scale.

Paying rents will eventually leave you without money and without assets. Collecting rents, charging people for products and saving money will help you achieve your goals. My goal is to find makers who want to run their own company and make their own products.

Forward Capital is at an intersection of two oxy morons. The first is Venture Capital Fund focused on manufacturing. The second is private equity focused on startups. We think that we have found a unique space and we are excited to see where it goes. We are crossroads of manufacturing. The off the shelf tools are becoming more impactful and less costly. We believe that there is a competitive advantage both in creating the tools and understanding how to use them.

We don’t like to plant flags in the ground in terms of which industrial revolution we are in. We do however believe strongly in the concept of mass-customization. Manufacturers are quickly adapting from a one size fits all model to an era of adaption, flexibility and automation.

Manufacturing – Venture Capital Want List

This website is mostly incoherent ramblings that I see or think about. Most of my day is spent trying to think through problems and how those can be turned into opportunities. Today I am going to walk through a few, just in case someone who is reading this happens to be trying to solve those problems.

1.) Digital Phone to PLC Communication tool.
We are building a system which communicates from a mobile app to a remote system. Think of it like Starbucks current mobile ordering platform. You enter your order on your mobile phone and you get a confirmation on your phone that the order was sent and the Starbucks that you are going to gets the order printed on a sticker which then gets placed on the cup.

Starbucks has managed to create this product incredibly well such that it looks easy. Its not easy. If anyone is working on a simple API to do this, I would love to talk. Perhaps its just a natural extension of Square, but I am just not aware of it.

What we are trying to do is send an order to remote PLC which sets off a chain of manufacturing operations which creates a custom product based on your order. It notifies you that the order was recieved and that the order is ready.

2.) NLG (Natural Language Generation). I am still amazed that there are only two main NLG companies in the world (Narrative Science) and Automated Insights as far as I can see. This is the type of product which, in theory, could be commoditized through an API but its not and I am not sure why.

If you are an NLG grad or PHD student with any sort of basic NLG idea, which could be just a copy of current technologies, I would love to talk.

3.) 3d Printing of medical products.
Looking for someone versed in manufacturing and the medical device FDA approval process, we can help with the rest.

Top 5 Venture Capital Robotic Investments of 2018

Since it is the top list time of year, we are going to make a list of our favorite robotic fundraises of 2018.

1.) Cruise Automation – $3.5 Billion Capital Raise
– Our vehicles are on the road in communities across the U.S. navigating some of the most challenging and unpredictable driving environments. We believe the best way to bring self-driving technology to the world is to expose them to the same unique and complex traffic scenarios human drivers face every day. We collect and analyze petabytes of data to ensure our vehicles operate safely and reliably.

2.) UBTech Robotics – $820 Million – Series C
Founded in 2012, UBTECH is a global leading AI and humanoid robotic company. UBTECH has successfully developed consumer humanoid robots, robots for business use, and JIMU Robot building kits following breakthroughs made in digital servos, the core part of humanoid robots. In 2018, UBTECH achieved a valuation of USD$5 billion following the single largest funding round ever for an artificial intelligence company, underscoring the company’s technological leadership

3.) Zoox – $500 Million – Series B
We are applying the latest in automotive, robotics and renewable energy to design a symmetrical, bidirectional, zero-emissions vehicle from the ground up to solve the unique challenges of autonomous mobility.

4.) Zymergen – $400 Million – Series C
Over the past century, the pace of industrial progress has declined as humans have exhausted the ways in which petrochemicals and traditional processes can be used to create new things. Instead, Zymergen uses biology as a source of new chemical building blocks that enable the development of novel products and materials. Importantly, we work at scale –– improving industrial economics while making new markets realizable.
To do this, Zymergen takes an atheoretic approach, leveraging machine learning to navigate the genomic search space to make discoveries far beyond the bounds of human intuition. This enables us to deliver material diversity and performance capabilities not previously possible, with applications across industries –– from agriculture, to chemicals and materials, to pharmaceuticals and more.

5.) Automation Anywhere – $300 Million – Series A
Automation Anywhere is a developer of robotic process automation software. The company’s product, Automation Anywhere Enterprise, caters to enterprises looking to deploy a digital workforce composed of software bots that complete business processes end-to-end.

Issue #2 – GE IoT, China VC, Exoskeletons

1.) GE forms separate venture for its industrial IoT software business

GE forms separate venture for its industrial IoT software business


GE (General Electric) is looking to form a separate and independent company for its industrial internet of things (IIoT) software business.Based in the US, GE provides products and services for several industries including aviation, healthcare, power, renewable energy, digital industry, additive manufacturing, venture capital and finance, lighting, transportation, and oil and gas.

2.) China VC has too much money to spend
https://www.bloomberg.com/opinion/articles/2018-12-16/china-s-856-billion-startup-juggernaut-is-getting-stuck
If you’re impressed by Masayoshi Son’s $100 billion Vision Fund, China’s $856 billion in “guidance funds” will blow your mind. The country is quickly becoming a major player in the venture capital world. This year, Chinese investors are involved in over $90 billion worth of deals, second only to the U.S. and up from only $11.5 billion five years ago.

3.) Industrial exoskeletons: new systems, improved technologies, increasing adoption.
The Robot Report
INFO: This article from The Robot Report is a summary of state of exoskeletons in the industry. The article covers an introduction to exoskeletons, adoption programmes and enabling technologies.

Cool Robotics Projects Happening Today

Whether you are looking for robotics for the home or office, here is the ultimate robot gift giving guide… for the billionaire in your house. In all seriousness, the robotic industry is evolving and we are very excited at how quickly this space is evolving.

1.) Moley Robotics – Robots for the kitchen.

2.) Endeavor Robotics – Robots for the battlefield

3.) Mayfield Robotics – Robots for the home

4.) Fetch Robotics – Robots for the warehouse

5.) Locus Robotics Autonomous Warehouse Automation

Advanced Manufacturing Weekly News

Welcome to the first ever edition of Advanced Manufacturing Weekly news. Our goal is to aggregate the most interesting moves in advanced manufacturing and deliver to your inboxes. This is an experiment, don’t hesitate to reach out if you have questions or ideas to improve this.

1.) MachineMetrics Raises $11.3 Million in Financing
https://advancedmanufacturing.org/machinemetrics-raises-11-3-million-in-financing/
MachineMetrics, which equips factories with the digital tools needed to increase productivity and win more business, raised $11.3 million in Series A financing, the company said this week.

2.)Hannover Fairs USA Announces New Event for IIoT, Industry 4.0
https://www.hydraulicspneumatics.com/community/hannover-fairs-usa-announces-new-event-iiot-industry-40
Details – This coming September, Deutsche Messe, through its U.S. affiliate, Hannover Fairs USA, will stage the biennial Digital Industry USA, an event for Industry 4.0 and the Industrial Internet of Things (IIoT) covering everything from proof-of-concept for factories to completely networked operations. Digital Industry USA will be held at the Kentucky International Convention Center, Louisville, Ky., Sept. 11 and 12, 2019.

3.)Robotics manufacturing firm Bright Machines expands to Seattle
https://www.geekwire.com/2018/robotics-manufacturing-firm-bright-machines-expands-seattle-hires-senior-amazon-engineer/
Details – San Francisco-based Bright Machines is coming to Seattle. The maker of software and robotics systems for manufacturing plans to open an office in 2019 and has hired Nick Ciubotariu as SVP of software engineering. Ciubotariu formerly worked as a senior software engineering leader on Amazon’s Alexa and Amazon Cloud Drive.

Manufacturing – Venture Capital vs. Private Equity

When I started planning my first venture capital fund, I really had a difficult time explaining to LPs how I was going to create a venture capital fund which invests in contract manufacturing. I really didn’t know what to call my unique brand of investing.

As I started to get out into the field I began to get more and more inbound inquiries from manufacturing, robotics, IIoT, and automation engineers that didn’t know where to start. If you are a software company its easy, you just find a local incubator or accelerator and drop in. If you are developing hardware, you might need $100,000 – $200,000 just for the equipment. This doesn’t fit the incubator model.

If a robotics startup gets to revenue and profitability, they have their choice of venture capital funds or private equity funds to choose from but when they are just starting out it is not as easy.

Venture Capital or Private Equity

Venture capital funds normally invest in fast-growing startups. Private equity firms normally invest in established manufacturing firms. There are quite a few “hardware” incubators, accelerators, prototypers, etc. but nothing remotely close to startup contract manufacturing. If you had to do a poll of how contract manufacturers get started, I think 99% have a machine in their garage or poll barn to build clients on the side. Who invests in manufacturing startups and why?

Financial Arbitrage

Private equity firms typically pay a multiple of EBITDA. Let’s generally call it 5x. When you purchase a manufacturing machine, you are strictly paying for the machine. A good rule of thumb for manufacturers is that you would like to get your machine paid off in 2 years. Granted EBITDA and the amount you pay for your machine are not the same thing but if you can put down 20% on your machine, pay it off in 2 years (5x) and then sell the company for a multiple above that, returns can rival those of a venture capital firm.

Manufacturing Platform

With manufacturing comes jobs. Most economic development groups are interested to help manufacturing operations get going. The fund will develop a platform to help startup manufacturers get off the ground. We will have small manufacturing suites available for low rents or for free with investment. We will have bank relationships that know how to work with startup manufacturers. We will have tool shop space and machines available to startups for standard equipment (mills, lathes). We will work with software and machinery providers to provide discounted prices to startups. We will work with manufacturing reps to identify markets and opportunities.

Why Now?

We feel that the current industry trends are creating fast mover advantages. Off the shelf automation components can help create a pardigm shift for even old and entrenched manufacturers. We stay on top of current trends in automation to help our portfolio companies grow.

Manufacturing Network

Several of the key players in the platform also help create the network. Banks, engineers, sales reps, economic development, investors (manufacturers) and most importantly the other manufacturing startups. By building a network of manufacturers with a common thread, we should be able to help each other grow through knowledge sharing, networking and job sub-contracting.

Manufacturing Startup Bank Loan

If you are a manufacturing startup, that cannot get a bank loan, even based on assets, don’t hesitate to reach out. We work with a handful of banks to help manufacturing startups get going. If you are in the Milwaukee area we also can help you find some space.

More to come… Do you have thoughts on this concept (good or bad) feel free to email me at research@forwardcapitalfund.com.

Manufacturing Investment

If you are you a manufacturer looking for equity investment, great, we are an investment firm looking for manufacturers with the potential to grow. We are a venture capital firm. Typically equity investments in manufacturers was a game for private equity only. Recent developments in the global robotics, automation and sensor industries is enabling manufacturers to grow rapidly, or sit idly by with poor outlooks.

At the core of our investment philosophy is combining income producing assets with technology, especially if technology can help us increase the rate at which income is produced. For example, manufacturing machinery is becoming much more flexible in terms of customizing products, changing over jobs and they don’t require operators at all times. We have seen success in building out websites with strategic SEO and adwords to better utilize this type of machinery.

Another example is in customization products where users can customize their product with software and then share their new creation in case friends want the same customized product or in case they want to customize it to their own preferences. We find this direction incredibly interesting in the Direct to Consumer space.

We have the belief that a manufacturing company can be started by one individual with one machine. The machine needs to be fairly automated, CNC, CAD type of machine. The individual needs to have some engineering background and some business background but we believe this is possible and we are betting on it.

While equity investment is not for everyone, below are a few of the types of things we are looking for:

Spin Out Investments

Spin-outs typically involve some sort of IP or research which has been shelved or left dormant due to existing business factors. Companies which are potential spin-out candidates usually have the one or all of the following characteristics:

  • An idea
  • IP
  • Potential Customers
  • Industry knowledge

But you don’t have one or all of the following:

  • Bandwidth for a new project
  • Young motivated leadership
  • Space
  • Free Cash Flow

We can help. Spin-outs, as advertised, entail creating a new entity that is separate from your existing company. The advantages of doing so involve creating separate risk thresholds (debt) and rewards (faster growth) for your personal wealth. Targeting and learning about markets which may be complementary to your existing business but without using your existing business name. Tapping into talent (young, technical) which may not otherwise be interested in getting involved with your legacy manufacturing operation.

Automation

You have a lot of equipment. Your competitors are loading up on robots and automation equipment. You need to compete. We have been there before and competition is difficult. It used to be that the competition simply bought an automated machine set up, now entire factories are automated and connected. Welcome to Industry 4.0. We are looking for manufacturers with established markets that are looking to upgrade equipment and processes.

At Capacity

Sometimes business makers need to get over the hump from a lifestyle business to a profitable growing business. Here is an example of a business at capacity which needed investment to grow. A friend of ours was stuck in a chocolate business that had plateuod. He had bootstrapped the company from scratch to slight profitability. He had a store, a decent clientele and he was at capacity. He knew he needed more equipment to take the business to the next level. He also knew that he only had about 5 to 10 years before he would want to sell the company. At the current rate, he would just be selling a job. A $50K to $70K job. Which we all know doesn’t command too much of a multiple on the sales block.

We were able to work with the chocolate maker to identify the equipment he needed to take the company to the next level. We helped buy the automated equipment and get to $500,000 dollars per year of EBITDA. The company ended up selling for a multiple of 5X on top of that due to the “fun” of the market and the potential for future growth. This was a turnaround in value of close to 50X ($2,500,000 vs. $50,000). With modernized equipment and automation we know how quickly companies can grow. The hardest part is creating a brand that can scale.

Inhouse vs. Outsourced Manufacturing

You have been outsourcing the production of a product and you would like to bring it in-house but don’t have the capital to do so. This happens all the time. Generally, this situation comes up when either your contract manufacturing suppliers aren’t able to keep up with your demand, they are charging too much, they are not good at communicating or quality has wained. We have successfully helped manufacturers buy equipment to set up their own operations in the past. The advantages to bringing manufacturing in house, can be cost savings but it can also be much greater. It enables manufacturers to go after new markets which might complement their existing business. It also allows you to bring more production engineering knowledge in house. Once you see the capabilities of a machine you may have new ideas.

We Are Not a Charity

Unfortunately, we aren’t a charity. We are similar to a private equity firm in that if we invest, we are typically looking for IRR of 20% or greater on our investment. Before we invest, we like to have a clear path to return for both ourselves and the manufacturer that we are working with. Our fund has investors who are looking for a return. We do have a network of banks, investors, mentors, entrepreneurs and engineers that are ready to help.

We are looking for limited partners interested in gaining access to manufacturing venture capital investments as well. We offer a tight manufacturing network with access to see the current trends and knowledge of where the market is going. We offer quarterly reports of our investments. We offer insight into tomorrows manufacturing leaders and tomorrows manufacturing technologies including automation, sensors, AI, IoT and robotics.

Issue #3 – 12-26-18 – Softbank, Servo, Solderwerks

A slow week this week with Christmas and New Years.

1.) SoftBank Vision Fund Pours $500M Into Cambridge Mobile Telematics
Cambridge Mobile Telematics said Wednesday morning it has pulled in half a billion dollars in an investment from—you guessed it—the SoftBank Vision Fund. That’s Japan-based SoftBank Group’s reportedly $100 billion fund that has made waves in the venture capital world by cutting massive checks to companies across a variety of sectors.

2.) What’s new with servo presses?
Servo press technology was first introduced on a global production scale in 2001. Since then the production and cost-saving benefits of servo technology have certainly been realized in the market.

Today some press manufacturers are adding more “refinements” to their systems to enhance these benefits to improve the efficiency and performance of the press.

3.) SolderWorks Acquires Technology Consulting Firm SmartSource Management
Last week SolderWorks LLC announced that it has signed a definitive agreement for the acquisition of SmartSource Management. The technology consulting firm’s acquisition will fortify SolderWorks endeavours to add valued partnerships as well as services to an ecosystem that enables the swift realization of innovation.