VELO3D has unexpectedly received an investment of US$12M.
VELO3D’s founder and CEO, Benny Buller, issued a statement today saying:
“I am proud to announce that we have successfully completed fundraising with the addition of new strategic investors. We are very excited to see this level of interest from multiple industry leaders that use our solution to overcome complex challenges for their businesses and will be announcing more about this in the coming weeks.”
The new investment, according to Buller, brings the current fundraising to US$40M. This figure includes the recently announced raise of US$28M in April of this year, and now leads to a current total of US$150M external investment.
What will VELO3D do with this money? I think there’s two things. First, Buller explains how the money could be used internally at VELO3D:
“In this unprecedented time of uncertainty, this raise enables us to grow our product portfolio with new machines and alloys and to continue providing world-class support to our customers.”
That makes much sense, as we suspect the company could be working on new 3D printing systems in addition to their new “stretch” Sapphire metal 3D printer discussed in our recent interview with VELO3D representatives.
The second function for this cash is a bit subtle.
VELO3D raised US$28M only a few weeks ago, and you might wonder why they didn’t simply tack on the additional US$12M at that time and raise US$40M. It would certainly save some paperwork and legal costs.
There’s another reason, and it has to do with company valuation. More than likely the second raise this year was done at a different valuation. Let me explain how this works with a hypothetical example using made-up numbers.
VELO3D Valuation Example
Let’s say the company earlier this year was valued in total at US$100M. This is literally the private share price multiplied by the number of existing shares. Suppose there are 100M shares, each with a value of US$1.
Now April rolls along and we have a new investment round. In this round, the investor pays US$28M for, say, 15% of the company. This effectively means a purchase of around 18M new shares, and by simple arithmetic this means they are worth about US$1.60 each.
Wait, that’s higher than the original US$1.00 per share price! We just demonstrated the shares are worth more than they were before because someone literally paid that amount for them.
Also the total value of the company changes, because we still multiply the new share price by the total number of outstanding shares. Using this new calculation, the company is suddenly worth US$187M. That’s a new valuation that shows the strength of the company, at least in the eyes of investors.
For those who previously held shares it’s not a bad deal even though their percentage of ownership of the company was slightly diluted. While their percentage dropped, their per-share value rose, leading to an increased total value of their holdings. This is how investment rounds work.
Now June arrives and we now have an addition to their investment, this time US$12M. Let’s continue the calculations on our example from above, and assume the only 5% of the company is being sold. Note that the April investors will have their percentage diluted to a slightly smaller value from their recently acquired 15%.
Continuing the arithmetic, we find that 6.2M new shares are created, and the share price rises to almost US$2. Suddenly the company is valued at US$240M, when earlier this year it was valued at only US$100M in our example. Individual investors saw their share prices nearly double to US$2.
Again, these are totally made-up numbers, but a scenario of this type is what might be happening behind the scenes at VELO3D.
This is why multiple investment rounds occur: at each stage the share prices take another step upwards, raising the total value of the company and also individual holdings.
This is why there were two investment announcements this year; it’s not because VELO3D required additional money for a project, although they certainly will make good use of it. No, it likely has more to do with ramping up the share price. That’s a good thing for all investors of VELO3D.
Nevertheless, this is happening because investors truly believe in VELO3D’s business model and future prospects in metal 3D printing. They clearly think VELO3D will continue to grow, and this is my thinking as well. The company has continually demonstrated they can tackle complex problems and grow strategically. There is no reason to believe that will stop.