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7 Places Manufacturers Should Raise Capital
1. Venture Capital
Advantage: They are the most obvious of capital providers, as they have shingles hung out in every major city.
Disadvantage: Most of them fear capital intensity and do not have the time, experience, or mandate from their limited partners to invest in manufacturing.
Bonus fact: There are some intrepid VCs, who, if you can find them (much like the "A-Team"), like backing makers as a mantra. For example, O'Reilly AlphaTech, Valor Equity Partners, Founders Fund, and Khosla.
2. Angel Investors
Advantage: This is perhaps the easiest to approach, as these angel investors have been there and done that, and they only have to consult themselves to make a decision.
Disadvantage: Often they do not have the investment size to take you the whole way, and they tend to be toughest on founders…after all, they are giving you use of their money. They made it and you haven't yet.
Bonus fact: Some of these folks have gotten together and pooled their resources. For example: Tech Stars, Beacon Angels, RedSwan, Y-Combinator, and even your wealthy neighbors.
3. Debt
Advantage: With this capital you don't have to give up ownership.
Disadvantage: Most debt providers require collateral or equity cushion in order to loan you money and terms can be expensive.
Bonus fact: There are a few early stage or venture-debt providers who are willing to talk. For example, Triple Point, Silicon Valley Bank, and Square 1 Bank.
4. Strategic
Advantage: These are corporations that have some business interest in what you do. For them, getting in early can be a huge innovation boost.
Disadvantage: You might think of them as the biggest potential competitor known to man: Goliath.
Bonus fact: Often you can find “strategics” who need what you do, but in a parallel industry (i.e. you make wheels for cars and they need the same technology for airplanes). Maybe you can share.
5. Private Equity
Advantage: These teams have great operating experience because they specialize in operating businesses and are completely comfortable with machinery and how much it costs.
Disadvantage: Usually these investors need you to have something like $30MM in last 12mo revenue before they will consider an investment.
Bonus fact: There are some who have multi-stage investment vehicles who can back you early and take you all the way through growth capital. For example: Bain Capital, Fidelity, and WR Hambrecht + Co.
6. Government
Advantage: Lately the US federal government has become the nation's largest start-up investor.
Disadvantage: You might become a public whipping-boy like Solyndra.
Bonus fact: It is not just the Feds; certain states are dying to attract businesses that employ blue-collar skilled workers. You could be their huckleberry and get some distinct perks.
7. Customers
Advantage: Absolutely the No. 1 preferred source of start-up capital if you are nimble enough to get the money before you have to deliver the product.
Disadvantage: Important reminder: it is not a good idea to spend un-earned revenue on research and development.
By: John B. Rogers
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Account Manager
