3D Printing used to look like it was going to be the biggest thing since sliced bread- that was before all the industry stock tanked of course. However, the Aero Space Defense Industry has been quietly implementing this technology In the background and is now revealing how it will disrupt their industry.
Alan: Welcome back I'm here today with Ken Epstein. He is a principal with NewCap Partners. Ken welcome to today's show.
Ken: Thank you for having me.
Alan: So Ken, a little background for the listeners on your experience and what brought you up to where you are today...
Ken: Okay, so I started as an engineer, and worked for a corporation, I worked for Dow Chemical and worked all over the world. I got halfway through and decided that I needed to be in the business side, not the engineering side. So I went back to business school. Got tempted back the Dow, they they promised to send me overseas and lo and behold they did. So I worked on building new businesses in Brazil and Argentina. Then I went over to Singapore, Malaysia and Thailand. So and then I was what the second hire in their corporate venture group. So I had a lot of experience for about 15 years in corporate ventures globally. Investing in all the new stuff then. In the eighties and nineties solar was started in late in the late eighties. Fuel cells, which is now Toyota has fuel cell car, started 1990. And Dow was one of the lead investors in Ballard, which was one of the fuel cell groups with Mercedes Benz and Ford co-investing. So I followed a lot of that area, what's call it clean tech, some of those clean tech areas. Vance materials, all the light weight materials we're seeing for the Boeing 787 was started in the nineties and I was involved early on with some of the early materials. So, and then I left Dow and joined a boutique investment banking firm in '97 and I've been doing working with small companies. Primarily selling or going global. Or working with exits to large corporates or funding from corporate or private equity. Pretty much a: cross border and domestic and advanced materials like healthcare, lightweight materials, clean tech, anything but software, so I'm a little oddity in the in the in the valley.
Alan: So, my understanding is that your your sweet spot is transactions from $5-75 million?
Ken: Yes. We can do bigger, but you know there's bigger banks, investment banks, to do that. So we specialize working with mostly private companies, family owned companies. Mostly where they would want to grow and they can't and they want to go global. We find monies for them overseas we find partners that are global, that want to expand there, or private equity is where our two exits are.
Alan: So you know it's interesting in that you have with your material science background, was it as a chemical engineer?
Ken: Yeah, it was chemical engineering.
Alan: I'm gonna turn the page over to this 3D industrial manufacturing. We've seen a lot in news recently, it was the next greatest thing since sliced bread. But could you bring us up to date to where things are today.
Ken: Okay, so it was a it's one of those new niches everything gets hot. Around 2012, it was the topic, one of the hot topics, and if you're an investor, boy you jumped in. They're making toy using guns all 3D. You can make it on a little machine in your backyard, or in your garage. The stocks like 3D and Stratasys, took off and people were investing in it and, they peaked around 2014. Then the hype became reality, how do you translate that to growth in earnings and how...not prototypes, but how do you make real stuff on a regular basis and make enough revenue, and that's when the bubble burst. And today if you look at most of the 3D stocks they're like 13 to $15 so they went up. They're basically where they were when they started and so people who exited in '14 made 5x and the people who stayed in it have lost 5x. But while all that was going on that was consumer related mostly. So you heard about the toys and you heard about the guns and all those stuff but, the industrial part was going on and it takes a lot longer to get adopted in industrial and it was mostly where weight was a big deal. So it was in aerospace and defense, healthcare. So if you now look a number of things that you buy, that you don't even to think about, dental implants, spine components, are 3D implants. They're made of, the doctor sends in the design that measures the body sends it to a group that makes 3 parts and in 72 hours is between 72 hours and 96 hours they have to deliver part. And it's delivered fit to the body.
Ken: And so, spine, jaw, teeth, knee...and now where it where it's coming, where it's getting really exciting is if you have a knee surgery. You do a 3D. implant they can make the implant with little places where they can put the pain killer as a time release. Because one of the problems with some of these medical things is you have to go in for pain relief all the time, and that's as hard as the original operation. Now is a time release you not going at all. So there's some really neat stuff coming.
Alan: I'm visiting here today with Ken Epstein, he's a principle with NewCap Partners and we've been talking about basically the state of the industry what's hot in the 3D printing area. Ken I need to take a quick break.
Alan: And we'll be right back after these messages.
Alan: Welcome back and visiting here today with Ken Epstein, he's a principle with NewCap Partners. In the first segment we were talking about the 3D printing. And there's been a transition in the industry. So what you know, essentially, what happened it in a nut shell part of 3D fell off the bandwagon and another was adopted quickly for the industry..
Ken: Ok let's talk about what is 3D. It's called additive manufacturing, it's it's just putting layers of material on to make a part and there's a lot of different ways to do that. It was originally done, and started, it's old it's you know it's 30 years old it was done for rapid prototyping so you want to make a new shoe you make three styles. If you wanna make a something for your back for adjustment in your seat you know for the lumbar seat, you make 10 parts and they were using that kind of technique to make it. Instead of paying $50,000 for a die, they'd make 10 parts this kind of way it was a rapid prototyping but that's not a business. I mean there is businesses for it... it's a service business but it's not multi-billion dollar business. What happened was that people started to see this as a tool that they can use to cut costs. And so where we're seeing it is where a high cost, the biggest problem with 3D was volume. Can you make enough volume. Because it was really geared to small parts. And they've figured out that there's high value parts that they can make with 3D and save material. So where you make a part you have to do all kinds of machining in all kinds of stuff and a lot of waste in a lot of cost, this is where it's going. So satellites, very complex parts, aerospace. So, Aerospace if you think about Aerospace, a plane to get on a Boeing plane, going on your plane it's $150-500, every time you save of a pound off the plane you save $150-500 in fuel. If its a defense plane, you're saving in the thousands. So there's a lot of incentive to replace parts, if one you make parts of metal, or composites. That's why the the 787 Boeing Dreamliner and the Airbus 380 have gone to composites because of weight. There's a whole bunch other weight. So what you don't see is all the cables and the hook ups. Those are all going 3D. You're gonna, in the internal they're replacing the metals with thermoplastics that are lightweight heavy engineered materials. But, you're cutting thousands of pounds. So yeah hundreds of pounds to thousands and that's translating to big savings.
Alan: You know is the the the 3 D. printing is a very broad term, because you know we go anywhere from the composite materials we used in the manufacturing, all the way back down to the body parts that are much different. You know I feel that with... the primary make up for the composite for 3D printing, what's the material.
Ken: Okay so you got actually is quite a few different materials now, it's changed.
Alan: Okay so we're talking thermoplastics, so polycarbonate, which is a common material, but they're making more exotic when the medical grade materials are a little bit higher temperature thermoplastics. But we're seeing metals we're seeing alloys we're seeing titanium we're seen aluminum. And that's that's where the exciting areas, because you get to replace a lot of metal and metal machining waste. If you look at a part now used, for auto, they make a part. If you want a substitute material, they make exactly the same shape. That's not where 3D works well. What you do is you make engineered the parts to the exact size, cut away all the waste because you don't have to make waste. There's no machining to speak of, or very little, make it the shape. That means a whole new to engineering design, because it can't be dropped in. So that complicates it, and that's why it's taken so long to get to the market. I think in the aerospace parts that are starting to get in 7-9 years of engineering going into it. And now we're starting to see parts 2017-18 going on the Airbus and Boeing. In the satellites they're replacing complicated materials, beryllium in mirrors are being partially replaced by you know 3D. And so now you're seeing high value, low volume. Low volume is not 5, we're now starting to talk about thousands. Okay and it's gonna move to 50,000 to 1,000,000. So there'll be a number of things that are going to come in, even for auto components. Although that's a little ways away, that you're going to replace, that it you don't need all the molds. So it's getting really really exciting. It's still, if you look at the curve of where it is in maturity, we're still only one quarter the way there. We're looking at...
Alan: Who's the leader in the have 3D printing industry. Is there a certain company that has come out that they're more popular setting the standard than another?
Ken: Well actually it's that that's where the evolutions coming. It was printer driven, for a long time, and now it's being driven by the end user. So now GE who has a lot aerospace components bought a printer, so the printer company, because they're gonna integrate it. So they're saying that they could be $7-22 billion worth of parts made with...it's a called a LEAP Component. And they're looking at it and saying "it could be huge". But that's one of the reasons they want to post it and integrate it. Because it's gonna be material driven, end use driven. The end user is going to drive it, not the machine company.
Alan: So Ken I need to take a quick break, I'm visiting here today with Ken Epstein he's a principal with NewCap Partners, and we'll be right back after these messages.
Alan: Welcome back I visiting here today with Ken Epstein. He is a principle with Newcap Partners, and we've been talking about that developments in the industry. One area of that is 3D printing. Ken where exactly are we at in the process of 3D printing in the development stage?
Ken: Well behind the hype, now we're getting to real development of the market and we're really an early stage. If you want to look at the market we're still in early adopters. We're not even commercially close. And so is the market large yet? No. So we're in the $3-5 billion kind of sales of total equipment, use, parts being made that way. But the estimate is because there's like 2/3 of industrial companies in the material space are looking at 3D, for all kinds of parts. It's just another tool for them to make parts but in the value of those parts become valuable to them. So where you play from an investment standpoint is not clear, because the equipment companies aren't going to be the key. They're going to be tools. And the driver is going to be the end user and the material user. So investment is a little complicated, but the market size for 3D, keeps getting increased. So you look at the GE numbers and you say if even half of that's received, the estimate is anywhere from $10-20 billion in 2020. What that number is, we don't know yet, it's still growing and we're gonna see a lot of applications will never even think about. One of the things IBM did a study a few years ago, they said you could have lumbar in all your cars design 3D. So an individual gets their car, sits on the seat, and says " let me be measured" and they'll just make it for you and then it'll be put in your seat and that could be a 3D. Shoes would be another area. So there's a lot of things still open here. It's still early. From an investment standpoint still complicated.
Alan: And do you see eventually that this AI, I mean will this thing be self driven with artificial intelligence automatically, making their own designs and putting it through a manufacturing process, or are we still kind of early for?
Ken: There's so much engineering to make it repetitive and safe. I mean to do the parts that they did for aerospace, GE did ceramics for some of their motors. It took 3-4 years to get the engineering data down so the reliability of designing with a material to make it 3D would work. We're a long way away from that. is it going to be there, and that's gonna be a part of the tools, yeah. But what I would say is I wouldn't wait next year for it.
Alan: Ok so I want to move on to a different topic that Internet of Things. So first of all, what is the Internet of Things?
Ken: Okay so the name actually was created by MIT. And they created that name in 1999. And it was a vision that the universe environment where computers would understand the world and there would be no human beings. I mean, if you want to take it to the far end of that if you go to the Arnold Schwarzenegger movies, Terminator, that was machine run world. I mean you can think of it that way, if you want to think of the worst kind, but I mean it's really self warning equipment. Everything integrates. Your refrigerator calls the service person and you don't even, you're not even in the loop. That that's the concept. Okay that everything is totally integrated and you don't need to do anything you're just a user. We are far from that but I mean and that's why you see all the horror stories of of the potential for that.
Alan: What's so special about it, that it actually has a name given to it?
Ken: What we have is, we have a lot of tools and a lot of things that aren't integrated. And so what you're really talking about in the Internet of Things is everything is integrated, so every machine talks every machine. We're not there either, but that's what we're working on. So a smart building. You know it sort of takes the human element out of it. It would control the lights, it controls the air conditioning, control the cooling...all kinds of safety issues from fires to fresh air. Everything's taken care of so the buildings operated totally efficiently with minimal human involvement. They have to build all that in there with sensors and everything like that. The same thing for the vehicles, autonomous vehicles. I mean we're talking about autonomous vehicles, smart vehicle. No humans involved. It's another, but we're not there because everything's not integrated. Just like way back when, when we try to land in Mars we crashed we had 2 sets of integrated electronics one was developed in Europe what was developed in the U. S.. One was in metrics and one was in English. They didn't communicate and when it went it in it a crashed because they didn't have the right dimensions. So we're still seeing crashes of the start of the autonomous car. There's still much work being done there to get that develop. So we're a ways away but it's moving more more to everything being integrated. You hear about that all time for your home but it in Ag and some of the industrial stuff you're seeing more robotics. The drone is part of that related. So the drone would then send the message to the fertilizing. automation system to then fertilize with a certain kind of fertilizer in a certain field, and there's no human. The dialogue it almost be automated.
Alan: So what are the benefits to an individual or company or an the industry as a whole with the Internet of Things?
Ken: Well it will be more...well we have all these apps, and they don't relate. You know we get encumbered by so much information we don't know how to use it. So there will be more efficiency. We'll get benefits and productivity, our own productivity. Health productivity. It will have a lot of things on communications for doctors and in medicine. And for us you know, you're getting more and more of that electronics for your medical, but it's going to help us long term. One of the things is people, seniors, they have the no doctors communicate right, so you get pills. People are taking too many pills. And they're cross purposes all that electronics will slowly take that away, the risk, and and and reduce that kind of problem. So we're gonna see a lot more that.
Alan: So Ken, if a person is looking to contact you, how would they go about and do that?
Ken: Ok so my email is epstein@NewCap.com. And my phone number is 650-631-0787.
Alan: I've been visiting here today with Ken Epstein. He's a principle at New Cap Partners and typically, Material science? Or what's the idea client for you?
Ken: So typically we do mostly anything that's capital intensive. Distribution formulation. We do a lot of cross border. We take US companies and partner, with Europeans and Asian companies. So we try to help tech companies, but we just don't use much software. Software is more a service software but we don't do anything in apps and that kind of thing.
Alan: Ken thanks for being on today's show. We'll be right back after these messages.