Over the past few years, the internet has democratized the creation and the funding of start-up ventures. One sector benefiting greatly from the rise of alternative funding mediums is the 3D Printing and Additive Manufacturing sector (“sector”), which has experienced a recent transformation. Historically, sourcing entrepreneurial capital has proved to be the most difficult capital formation aspect. However, online crowdfunding communities, specifically Kickstarter, have been extremely successful for 3D ventures by allowing access to a wide community of enthusiasts that provide contributions and help determine market demand greatly assists procuring the next capital funding stage. Another important financing trend is online equity-based crowdfunding that supplements Series A investments by matching accredited private investors with direct investment opportunities available from individual real estate, i.e. Reality Mogul, to ground-floor start-ups, i.e. AngelList and EquityNet. Much of the growth driving the 3D printing industry is a result of individual entrepreneurs that lack experience and sophistication within primary and secondary markets, defined by complex regulation. By filling a void and brokering initial equity investments, online equity crowdfunding has allowed traditional venture capital to strategically move further up the “funding stack, focusing on later-stage rounds,” lowering their investment risk and required rates of return. Also, concentrating on more sophisticated capital investment rounds within more developed companies allows venture capital firms to add more immediate strategic value, especially considering the increased sector attention among public capital markets. Specifically, public 3D companies, led by 3D Systems and Stratasys, are generating significant attention from the major investment banks, including Goldman Sachs and Credit Suisse, and being viewed as a unique sector, with a new sector mutual fund (TDPIX). Increased sector legitimacy and interest have driven significantly growing market caps encouraging firms to seek acquisition targets, which, importantly, generates another viable exit strategy for Series A capital investors. Moreover, increasing public market interest in the sector encourages a potential influx of IPO’s, thus, providing another exit for Series A investors. Increasing equity capital exit strategies is vital for Series A investors because, being focused in multiple early-stage company high-risk/return profiles, they seek to redeploy its capital to fund the next group of start-ups. Equity-based, publicly advertised crowdfunding online platforms currently allowed via IPONet and Title II of the JOBS Act, as well as an eventual regulation removing the investor accreditation requirement, should continue to have significantly positive effect on successful capital finance strategies that start-ups, specifically 3D printing ventures, are able to...Read More »
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