SIP Capital, a venture firm with a mandate centered on Japanese economic and industrial needs, is taking a measured approach to additive manufacturing (AM) investments. According to Jeffrey Smith, General Partner at SIP, the firm’s strategy is guided by two macroeconomic trends: reindustrialization and decarbonization. These trends influence SIP’s selective approach, with Smith noting that, while important, additive manufacturing is not a core focus but fits into the broader thesis under specific circumstances. “Our mandate is to identify billion dollar markets, as opposed to technologies that are two to five years down the road, that have the exceptional connectivity to the Japanese ecosystem,” explained Smith.
Reindustrialization is critical for economies like Japan, the UK, and the US, all at various stages of grappling with supply chain issues stemming from extensive outsourcing. Smith emphasized the direct impact on AM, noting that Chinese firms are making “massive investments” in large-scale additive systems, a development shaping Japan’s response to industrial challenges.
SIP Capital’s performance-driven approach includes working with Japanese corporate VC’s such as NTT, Denso, and Fujitsu. Highlighting this focus, Smith pointed to SIP’s investment in Seurat, a metal additive manufacturing startup, as emblematic of their criteria, which aligns tightly with the emphasis on reindustrialization and decarbonization, making it a standout investment that could remain SIP’s only active bet in AM over the next three years.
Japan’s engagement with additive manufacturing has been mixed. While Nikon’s acquisition of SLM Solutions marked a high-profile move, Smith characterized the broader industry as constrained by perceptions of limited transformative potential. Smith explained that there’s a “significant first-wave additive industry” in Japan. However, as with the USA and UK, much of the broader basic production has been outsourced, leaving less impetus for large-scale domestic adoption.
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Scaling Challenges and Financing Gaps
Government-led initiatives for reindustrialization, however, are beginning to reinvigorate interest. Over the past twelve months, policies aimed at reshoring manufacturing have sparked a nascent resurgence in AM applications, particularly where they intersect with sustainability goals.
Another apparent shift is from over-priced enterprises to fairly valued ones. Since 2021, the investment landscape for hard tech, including AM, has remained “grossly underinvested” despite its strategic importance to supply chain resilience and decarbonization. Furthermore, according to Smith there are structural financing gaps, specifically in secondary and tertiary finance, and a mismatch between investor expectations and the realities of scaling complex technologies.
He pointed out the absence of established playbooks for financing and scaling physical technologies, a stark contrast to well-trodden paths in software investments. “If you’re investing in B2B SaaS, there’s a clear guide; it’s been done 50 times before. With additive manufacturing or advanced semiconductors, that playbook doesn’t exist,” he added.
Scaling hard tech companies requires financing structures unfamiliar to many early-stage investors. He described a scenario involving a hypothetical additive manufacturing firm needing to produce 190 machines, each costing $5 million. Building that number of machines would result in “a $2 billion bill like two years down the road” and needs non-dilutive financing. “If scaling isn’t clearly financed, there’s no conceivable way to make a return as an early-stage investor.”
The financing challenge extends to large-scale projects, such as hydrogen facilities, where initial proof-of-concept plants can cost upwards of $2 billion. Such costs are prohibitive for equity financing alone and risk crowding out early-stage investors. “The need for finance that’s not yet bankable is exceptionally large and critical,” Smith said.
Investor expectations around returns are another barrier. In software, traction and growth are often visible within the first year, while in hard tech, meaningful customer adoption can take seven to eight years. “Deep tech returns can be better, but the timelines are longer,” Smith explained, noting that this disparity often deters traditional venture investors accustomed to rapid growth trajectories.
However, Smith sees a positive change on the horizon. Cross-border initiatives foster creativity in project financing, including new methods to secure bankable finance for early-stage ventures. “It’s not geographically specific,” he said. “People are starting to devise products and methods for financing projects before they’re technically bankable.”
Network for success, investment discovery? Strategic Importance and Resilience
SIP Capital’s investment strategy, while appearing broad with a portfolio spanning energy storage, manufacturing automation, and semiconductors, is rooted in a highly structured and disciplined approach. The General Partner emphasized a rigorous 25-point qualification metric applied to every potential investment.
“We start with market size and work through everything from bankability to returns profiles and decarbonization potential and applicability to Japan,” Smith explained. This meticulous process narrows the pool of investable companies, ensuring a focused mandate. For instance, batteries were initially excluded due to supply chain concerns and volatility but were reconsidered with XL Batteries, a long-duration storage company. “You can make this stuff in your backyard. It’s non-volatile, unrelated to the volatile existing supply chain, and addresses a $4 trillion market over the next 20 years,” he noted.
The firm avoids component-level technologies in favor of near-complete solutions. Smith pointed to geothermal as an example of a sector that, despite its potential, fails their filter due to the longer timelines and high costs of production facilities. “We’re not going to invest in geothermal where a billion dollars of capex can crowd out early investors,” he said.
SIP’s network is another critical asset in its investment process. The firm engages with approximately 30 corporate venture capital (CVC) groups regularly, primarily in Europe and Japan, alongside 40 co-investors and leading accelerators such as Activate and Greentown Labs. This connectivity ensures access to high-quality deal flow and insights across industries.
The team’s background in IP-intensive engineering, not pure software, further informs its focus on technologies with tangible industrial applications. Reflecting on past missteps, Smith noted, “Where we made our biggest mistakes was on adoption curves that were slower than we anticipated.”
Three Dimensions of Risk
How does a firm like SIP Capital derisk investment? Smith described SIP’s first area of focus as ensuring fundamental technology risk is minimized. The VC doesn’t tend to take risks regarding whether the science works. “We look for third-party validation, whether academic, scientific or from a customer,” said Smith. This ensures that the technology is sound and operates as intended at the lab or bench scale.
The second area is go-to-market viability, with a focus on unit economics and industrial transparency. “We’re obsessed with whether something can be 40% cheaper than its alternative at scale,” Smith remarked. Transparent industries are particularly attractive because third-party validation spreads quickly, allowing the market to respond efficiently.
The final and perhaps most critical area is production scalability. “Scaling from several kilos of chemicals on a bench to 100,000 kilos a month in continuous batch is a completely different problem,” Smith explained. Similarly, in additive manufacturing, producing hundreds of machines requires solving significant engineering challenges. This, he noted, is often where SIP feels it can add significant value.
SIP is increasingly skeptical of traditional adoption models, particularly in selling advanced technologies to large corporations. “Selling technology to large companies is exceptionally hard, and it looks to me like it’s getting harder,” Smith said, citing long adoption timelines and complex purchasing processes as significant barriers.
Instead, SIP is focusing on companies that integrate advanced technologies into their own manufacturing to produce goods already in demand. Smith highlighted examples such as firms making small turbines for Tier One OEMs, medical device components, and sports equipment. “If the technology is that much better, use it to make things,” he urged. This approach ties directly to SIP’s financial strategy. “The only thing better than ARR is a 10-year supply contract,” Smith quipped, underscoring the appeal of companies that can turn technological advantages into long-term product sales.
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Featured image shows London’s Canary Wharf. Photo by Michael Petch.
