Shapeways – Thoughts on a pioneering investment

I’m delighted to announce that after long discussions and a lot of hard work on the part of Philips, our co-investors Union Square Ventures and Simon Levene and most specifically Peter Weijmarshausen and his team at Shapeways, that we have finalised our investment in the company. The New York Times coverage is here and Shapeways commentary here. What I thought might be interesting is to give some context on the company and why we are so excited about it.

Background to the deal

Shapeways has been funded since inception by Philips within their incubator programme. If 3D printing seems like science fiction now, this was even more the case three years ago so they deserve a ton of credit for taking a view back then as to how this technology would develop, identifying a valuable space to occupy in the ecosystem and executing brilliantly to build a real business with thousands of happy customers. Greg Marsh, a former colleague at Index Ventures met them a couple of years ago and was impressed by the concept. When we spent more time with them this year, the traction we witnessed validated the concept and persuaded us now was the right time to invest. While Philips is not investing in this round, they will remain a material shareholder alongside founders and employees and the new investors.

What is 3D printing?

3d Printing is the fabrication of tangible objects in 3 dimensions. Items can be produced in various forms of plastics, resins, metal alloys and even glass. There are a few different technological approaches, but I would crudely describe the two principal techniques as

  • Deposition – building up an object layer by layer with the material being deposited by a device conceptually similar to an inkjet printer
  • Laser sintering – Here a volume of powder is enclosed in something the size of a large fish tank. Lasers are then selectively fired at locations within this space causing the material to fuse. After a print run the excess, unfused powder is shaken away for reuse and the printed objects can be removed and cleaned.

If you are interested the Shapeways Youtube page has various videos of the machines and techniques they use. The interesting factors about this technology with respect to the Shapeways business model are

  • Enables new types of production. Certain complex geometries (e.g. below) which couldn’t be produced by extrusion or moulding process can be printed by these new printing technologies. This has made the service very popular with puzzle designers and enabled beautiful objects with fascinating mathematical properties to be made for the first time.
  • Enables cost-effective production of single or low volume items. The cheapest way to produce a metal or plastic item at volume is still to injection mould it. However there are very high setup costs to make a mould and deploy the associated machinery which probably only get covered when thousands or millions of items are going to be produced.
  • Democratises production. All that is needed to produce an item is data (a 3D model) so essentially any consumer can produce an item and printing can be centralised and completely isolated from design, enabling an internet service bureau model

Image of Gyroid from Bathsheba/Shapeways – http://www.shapeways.com/model/24470/gyroid.html?gid=mg

What was the investment rationale?

Proven Business Model. Many other  companies such as eBay, ETSY*, Notonthehighstreet.com* and Moo* have all become very successful by tapping into people’s creative instinct and providing a marketplace for the long tail of designers to access production capacity or by exposing the small producer to mass market online. In this sense, Shapeways is operating a model which had substantial prior validation and where many network effects can help rapidly build a big business. Some of the effects are already coming into play for Shapeways, yet there is great opportunity to learn more from the success of other great companies and harness the network and scale effects to our advantage.

Market Timing. A key external factor which will impact the success of the Company will be how 3D technology develops both in terms of the quality of the output (resolution of printing, range of materials and finishes which can be produced, colours) and critically the price. Shapeways itself doesn’t develop the machines although it does work in very close collaboration with machine producers and operators to maximise product quality and minimise costs passing these savings onto the consumer. Our sense was that both on quality and price there were already many interesting applications for 3D printing (e.g. Puzzles, Jewellery, Homewares, etc.) but that the universe of potential applications could explode if prices and quality continue to progress in their current direction over the next few years.

Team. As with every investment a founding team with passion, determination, insight and openness to learn and experiment is what we look for and these guys have that in spades.

Traction. While the concept might be compelling, it is always nice to see a bunch of graphs heading up to the right. Whether it is community size, printing volumes, or revenue we saw a lot evidence that consumers were like engaging, buying, and referring this service to others.

There will be many risks and challenges ahead for the Company, but we look forward to help them with these as best we can, however long the journey.

*Index Ventures investments

Games – is there a repeatable formula for success in games investing?

I was lucky enough to be on a panel with a bunch of great game companies at an event hosted by Investec. At Index we have probably done as many investments in online games as any other firm in Europe with King.com, Stardoll, Moshi Monsters, Playfish and Betfair.

So a few decent companies and no real flame-outs to speak of…yet :) But how in an industry which people often classify as “hit-driven” can a VC make a decent return? That’s exactly the question I try to tackle in the following video (links to external site). Thanks to Investec for inviting me to participate and putting on a great event.

iPhone OS 4: The Winners and Losers

One of the most impressive aspects of Apple product launches is that even though the announcements themselves are usually fairly accurately predicted, there is always some element of surprise that remains.

The iPhone OS announcement which followed quickly on from the iPad launch was no exception. Multitasking was a heavily demanded feature and the main competitive weakness of Apple mobile devices versus Android. However the way Apple implemented it was unique and has lots of ramifications on the ecosystem partners.

By mandating that applications write to a multitasking API which is part of the OS, the only background processes which are running are under Apple’s control. While this will require some extra steps from the developers, it seems like a good compromise which will allow Apple to be confident of delivering a good user experience but also retaining a broad ecosystem of developers.

Here’s some of my thoughts on various aspects of the announcement and who the winners and losers will be.

1.  Multitasking – Music

Winners: Pandora, Spotify, Rhapsody, Napster, etc.

Loser: iTunes

Until now only Apple native music applications could run in the background. Other music applications although downloaded in great numbers were at a big disadvantage by only running in the foreground. At the event, Apple presented Pandora as complementary to the iTunes. I don’t think it is or perhaps there is more to this relationship between Pandora and Apple than meets the eye. I’m convinced that people will listen to more streamed music at the expense of downloaded music and by making these services run more smoothly Apple is accelerating the industry towards a future where music is predominantly network based (e.g. Spotify) rather than locally stored. I suspect Apple can see this and will need to own a music streaming service of their own. I think they will build not buy here. Apple always likes to launch a consumer service with a proprietary slant/innovation and you can’t do that if you are just buying a service people are already familiar with.

2.  Multitasking – Voice / Calling

Winners: Rebtel, Skype

Losers: Carriers

Wow, this really can’t have been a popular move with AT&T and the carriers with big iPhone subscriber base. Lack of multitasking for third-party voice services obviously made inbound calling essentially impossible. For IP-based mobile services like Skype and Rebtel (Index investment), enabling multi-tasking is a real godsend. Particularly for international calls and video calling applications I can see people abandon the overpriced tariffs of the mobile operators for third party applications which leverage the phone’s contacts and native calling UI.

3.  Gamecenter

Winners: Small independent App Developers

Losers: Openfeint, Scoreloop, ngmoco’s Plus+ network

The biggest problem however in the iPhone gaming ecosystem is lack of social discovery which was obviously vital to the growth of gaming on Facebook. The other key difference between Facebook and iPhone as gaming platforms is that Facebook is server-based and assumes a permanent connection whereas iPhone games are downloads which are generally designed for offline play or for a play mode where they are only sporadically connected. This makes it much harder to build the “mini-virtual-world” type of game which monetizes so heavily online (e.g. Pet Society, Farmville, Acquarium, Moshi Monsters). While the Apple ecosystem offers lots of games that offer quickfire entertainment, few titles build real emotional connection and engagement with users and hence the monetization per paying user is much lower e.g. $3 bucks versus $30+ LTV for paying users on the leading Facebook games.

The Gamecenter is Apple’s answer to some of these challenges. Apple was pretty fuzzy about what would be released and when but the key elements were a network-based high score table, a “quickmatch” engine for multiplayer gaming and basic social discovery. What they didn’t state was which social graph would power this social discovery. These features are directly competitive with the Openfeint, Scoreloop, Plus+ despite their claims otherwise. Directionally therefore the Gamecenter initiative is a big positive for developers. Will it give rise to a major new player as big as Zynga or Playfish or will these social gaming companies themselves attack the iPhone with more firepower? Watch this space…

That’s already a long post… I’ll call it quits there and well done for getting to the end.

All the best.

VC in 2010 – Video Interview with Unquote Magazine

Many thanks to Rikke Eckhoff for giving me the opportunity to share thoughts and ideas on the Venture Capital industry. Currently to view it, you need to visit the Unquote site HEREWhen I get the chance i’ll try and embed it here also.

Big news for me and my family this week was birth of a second child – Henry Lars Holmes. Comments may therefore go unanswered for a while…