Disrupting The Aerospace Defense Industry with Additive Manufacturing | Kenneth Epstein

About Kenneth Epstein

Ken is a principal with NewCap Partners & brings 20+years of investment banking & venture management experience, including P&L responsibility for both major business units and startups. His diverse client base includes private & family-owned businesses, strategic equity investors, large corporate venture funds, & material, high-tech & life science firms. Ken’s transaction experience encompasses selling & buying companies, negotiating global marketing & production alliances & joint ventures (JVs), as well as providing advisory services for strategic planning, acquisition & valuation. With an extensive background in materials (ceramics, chemicals, metals, nanotechnology, plastics), Ken also advises clients aggressively seeking expansion opportunities into new material markets (e.g. pharmaceutical, aerospace, semiconductor, energy, etc.) on acquisition candidates as well as small companies seeking larger global partners or exit strategies.

Ken started his global, multi-functional career with the Dow Chemical Company. He spent the majority of his Dow career ( US , Singapore , Brazil ) in Dow’s Corporate Venture Group working with high tech & materials global companies & technologies. He also started businesses, bought and sold small companies, & negotiated a variety of JVs & strategic alliances in North America, Europe, & Asia . Ken has a BS in Chemical Engineering from the University of Rhode Island & an MBA in International Finance from the University of Michigan.

 

Interview Transcript:

Alan
Welcome back. I’m here today with Ken Epstein. He is a principal with new cap partners. Ken, welcome to today’s show.

Ken
Thank you for having me.

Alan
So can a little background for the listeners on your experience and what brought you up where you are today.

Ken
Okay, so I, I started as an engineer and work for a corporation, I worked for Dow Chemical and worked all over the world. That’s halfway through, decided I needed to be in the business side, not the engineering side, went back to business school, got tempted back to Dow, they promised to send me overseas and lo and behold, they did. So I worked on building new businesses in Brazil and Argentina, and then went over to Singapore, Malaysia and Thailand. So and then start was the second hire in their corporate venture group. So had a lot of experience for about 15 years in corporate ventures globally, are investing in all the new stuff, then 80s and 90s. Solar was started in the late late 80s. Fuel cells, which is now Toyota has a fuel cell car started in 1990. And that was one of the lead investors in Ballard, which was one of the fuel cell groups was Mercedes Benz and Ford co investing. So I followed a lot of that area, what’s called Clean Tech, some of those clean tech areas, Vance materials, all the lightweight materials we’re seeing for the Boeing 787 was started in the 90s. And I was involved early on with some of the early materials. So and then I left out and joined a boutique investment banking firm 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 corporates or private equity. So pretty much cross border in domestic and advanced materials like health care, lightweight materials, clean tech, anything but software. So I’m a little oddity in the in the in the valley.

Alan
So and my understanding is that your your sweet spot is transactions from five to 75 million.

Ken
Yes, that’s what we can do bigger. But you know, there’s bigger banks and investment banks to do that. So we specialize in working mostly private companies, family owned companies, mostly where they would be want to grow, and they can’t, and they want to go global. We find monies from overseas, we find partners that are global, that want to expand here, or private equity is where our two exits are.

Alan
So you know, it’s interesting in the western material science background, and in the in that was it was a chemical engineering. Okay, so yeah, I’m going to turn the page over to this 3d industrial manufacturing, we’ve seen a lot of news recently. It was the next greatest thing since sliced bread, but you know, bring us up to date where things are today.

Ken
Okay, so it was it’s one of those new niches, everything gets hot around 2012. That was the topic, one of the hot topics. And if you were an investor, boy, you jumped in and say, well, they’re making toys and guns all 3d, you can make it in a little machine in your backyard or in your, in your garage. And the stocks, like 3d and Stratasys took off and people were investing in it and, and they peaked around 2014. And 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 exit into a 14 made 5x And the people who stay in have lost 5x. So 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 that stuff, but the industrial part was going on and it takes a lot longer to get adopted and industrial. And it was mostly wear weight was a big deal. So as aerospace and defense, health care. So if you now look, a number of things that you buy, you don’t even think about dental implants. Spine components are 3d implants. They’re made of the doctor sends in the design measures the body sends it to a group that makes three Add parts in 72 hours, it’s between 72 hours and 96 hours, they have to deliver the part. And it’s delivered fit to the body. And so spine, jaw, teeth, knee. And now where it’s coming in 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 painkiller 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 is the original operation. Now it’s a time release, you don’t have to go in at all. So there’s some really neat stuff coming.

Alan
Amazing here today with Ken Epstein, his principal with new cap partners, and we’ve been talking about pays to the state of the industry, what’s hot 3d printing area, can I need to take a quick break, and we’ll be right back after these messages.

Alan
Welcome back and visiting here today with Ken Epstein. He’s a principal of new capital partners. In the first segment, we’re talking about 3d printing. And there’s been a transition in the industry. And so when, you know since you what happened, in a nutshell, that part of 3d fell off the bandwagon another was adopted quickly for the industry.

Ken
Okay, let’s talk about what is 3d. It’s called additive manufacturing. It’s just putting layers on material on to make a part. And there’s a lot of different ways to do that. And it was for originally done and it 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 want to make 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 instead of making $50,000 for a dye, they would make 10 parts this kind of way was a rapid prototyping. But that’s not a business. I mean, there is businesses, it’s a service business, but it’s not multibillion dollar businesses. 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 it’s a high cost, it was 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 materials. So where are you, when you make a part, you have to do all kinds of machining and all kinds of stuff. And you have a lot of waste and a lot of cost. This is where it’s going. So satellites, very complex parts. Aerospace. So, aerospace, if you think about an aerospace plane, you get on a Boeing plane, you go in your plane, it’s 150 to $500 every time you save a pound off a plane, you save 150 to $500 in fuel. If it’s a defense plane, you saving in the 1000s. So there’s a lot of incentive to replace parts. And when you make parts of metal, or composites that’s why the the 787 Boeing the Dreamliner, and the Airbus 380 have gone to composites because of weight, there’s a whole bunch of other way to what you don’t see is all the cables and the hookups. Those are all going 3d You’re going to the internet or they’re replacing the metals with thermoplastics that are lightweight, heavy engineering materials. But you’re cutting 1000s of pounds. So yeah, hundreds of pounds 2000 pounds and that’s translating to big savings.

Alan
You know, the 3d printing is a very broad term because you know, we go anywhere from the composite materials I use in the manufacturing all the way back down to the body parts that are sure you know, much different and I you know feel that the primary makeup for the composite says for 3d printing what what’s material, okay.

Ken
So you got actually it’s quite a few different materials now it’s changed. Okay, so we’re talking thermoplastic. 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 seeing aluminum. And that’s that’s where the exciting areas because you’re going to replace a lot of metal and metal machining, you’re wasting a lot. If you look at apart now used for auto, they make a part. And if you want to substitute material, they make the exactly the same shape. That’s not what 3d works well, what you do is you make engineered the part 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 to the shape. That means a hole to engineering design, so 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 seven to nine years of engineering going into it. And now we’re starting to see parts 2017 18 Going on the Airbus and Boeing and the satellites, they’re replacing complicated materials, really am was being mirrors are being partially replaced by, you know, 3d. And so you’re seeing high value, low volume, low volume is not five, we’re now starting to talk about 1000s. Okay, and it’s gonna move to 50,000 to a million. 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 you don’t need all the bolts. 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 of the way there.

Alan
We’re looking at who’s the leader in the 3d printing industry, you know, is there a certain company that has come out that they’re more popular and setting the standard than another?

Ken
Well, actually, it’s, that’s where the evolution is coming. It was printer driven for a long time. And now it’s being driven by the end user. So GE, has a lot of aerospace components bought a printer, so the printer company, because they’re going to integrate it. And so they they have their they saying that they could be seven to $22 billion worth of parts made with wind, it’s 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 integrated, because it’s going to be material driven, and use driven, the end user is going to drive it not the machine.

Alan
So can I need to take a quick break and visit here today with Ken FCDs principal with new cap partners and right back.

Alan
Welcome back. I’ve been visiting here today with Ken Epstein. He’s the principal new cap partners. And we’ve been talking about developments in the industry when areas that is 3d printing and and, you know, where exactly are we at in the process of 3d printing in the development stage?

Ken
Well, beyond the hype, now we’re getting into real development of the market. And we’re really early stage. If you wanted to look at the market, we’re still early adopters cannot even commercially close. And so is the market large yet no. So we’re you know, we’re in the three to 5 billion kind of sales of total equipment use parts being made that way. But the estimate is because some of there’s like two thirds 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 that valuable to them. So where you play from an investment standpoint, it’s 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. And so investments a little complicated, but the market size for 3d looking, it keeps getting increased. So you look at the GE numbers. And you say if even half of that to receive, the estimate is anywhere from 10 to 20 million 20 billion in 2020. What that number is we don’t know yet. It’s still growing. And we’re going to see a lot of applications we’ll never even think about one of the things IBM did a study a few years ago, and they said you could have lumbars in all your cars design 3d. So an individual gets their car sits in their seat and says I need He’s a, let me be measured, and they’ll just make it for you. And then it’ll be put in your seat. So 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, it’s still complicated.

Alan
And you see eventually that this AI, I mean, it’s this thing self driven with artificial intelligence automatically making their own designs and putting it through a manufacturing process that we still kind of early for that.

Ken
That’s it, 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 three, four 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 isn’t going to be there. And that’s gonna be a part of the tools. Yeah, but I’m where I would say, I wouldn’t, I wouldn’t wait next year for it.

Alan
Okay, so I want to move on to a different topic, the Internet of Things. And first of all, what, 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 envision that a universe, an environment where computers would understand the world and there’d 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 could think of it that way, if you want to think of the worst kind, but I mean, it’s really self learning equipment, everything integrates your your refrigerator calls the service person, and you haven’t even you’re not even in the loop. That’s the concept, okay, then everything is totally integrated, and you don’t need to do anything, you’re just a user. We’re far from that. But I mean, and that’s why you see all the horror stories 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 Internet thing is, everything is integrated. So every machine talks to every machine, we’re not there either. But that’s where we’re working on. So a smart building, you know, it’s, it’s sort of take the human element out of it, the control, the lights that control, the air conditioning, control, the cooling, all kinds of safety issues, for fire suppression, everything’s taken care of. So the building’s operated, totally inefficient, and efficiently with minimal human involvement. And you have to build all that in there was sensors and everything like that 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 tried to land in Mars, and we crashed, we had two sets of Integrated Electronics, one was developed in Europe, and one was developed in the US. One was the metrics. And one was in in English, they didn’t communicate. And when it went in, it crashed. Because they didn’t, they didn’t have the right dimension. So we’re still gonna see crashes of the autonomous car, there’s still a bunch of work being done there. To get that developed. So we’re ways away, but it’s moving more and more to everything being integrated. You hear about that all the time for your home, but in Ag, and some of the industrial stuff, you’re seeing more and more robotics, the drone is part of that related. So you’re the drone would then send the message to the fertilizing automations and then fertilize with a certain kind of fertilizer in a certain field. And there’s no human in the dialogue, it can almost be automated.

Alan
So what are the benefits to an individual or company or an industry as a whole with the Internet of Things?

Ken
Well, it will be more. Well, we have all these apps, they don’t relate, you know, we get we get we’re encumbered by so much information. We don’t know how to use it. So there’ll be more efficiency. We’ll get benefits and productivity, our own productivity, health productivity, it’ll have a lot of a lot of things on communications for doctors in medicine. And for us, you know, you’re getting more and more that electronics for medical, but it’s going to help us long term and being you know, one of the things is people seniors, they have the no doctors communicate, right so do you get pill polls, people are taking too many pills. And they’re they’re cross purposes. All that electronics will slowly take that away the risk and reduce that kind of problem. So we’re going to see a lot more of that.

Alan
So can a person that is looking to contact you, how would they go about do that?

Ken
Okay, so my email is Epstein at New cap.com. And my phone number is 650-631-0787.

Alan
And visiting here today with Ken Epstein. He is a principal with new cap partners and typically, material science or what is the ideal client.

Ken
So 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 I just don’t we just don’t use much software software is more of a service software, but we don’t do anything in apps.

Alan
Ken, thanks for being on today’s show. We’ll be right back after these messages.

 

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This transcript was generated by software and may not accurately reflect exactly what was said.

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