Manufacturing Money – How Today’s Makers Can Raise Capital
Posted November 28th, 2012
With all the attention on tech start-ups these days, you’d think their founders would have the wealth market cornered. Not so fast – a CNN Money investigation recently revealed that eight of the ten wealthiest company founders in U.S. history were manufacturers. Over two-thirds of them started from scratch, without wealthy family backing to ease their way. Here’s how you can do the same.
Capital investing occurs at various stages of a company’s existence. Seed capital is given at the start-up stage, usually based on solid plans or a product prototype. Early-stage funding enters the picture once a company has been established and earned some revenue; it is often used for initial expansion opportunities. Finally, manufacturers can benefit from later-stage funding, which can be used for rapid growth or expansion, often in preparation for an IPO.
So where does all this cash come from? Manufacturers have a variety of resources to tap:
Venture Capital – While this may seem like an obvious source, VCs are not always the best choice for manufacturers due to their aversion to cash-heavy start-up costs, and/or a lack of patience in understanding the intricacies of manufacturing.
Angel Investors – These former entrepreneurs now look to help others. While it is definitely possible to secure some funding here, angel investors tend to have insufficient ability to fully support a manufacturing operation’s needs.
Parallel Companies – An established company who manufactures a product that could benefit from your technology can be a strategic ally. Since these relationships can easily cross from co-maker to competitor, however, you must be careful about the alliances you form.
Private Equity – Trading privately held shares of your company for cash is another route for raising funds. However, most private equity groups want a solid track record (at least a year) of significant revenue, so this option might be best saved for later-stage funding.
Borrowing Money – With straight debt, you don’t have to give up any control of your company. If you have the collateral and are willing to take the risk, this may be the way to go, especially early in the process of building your business.
Uncle Sam – For start-ups and small manufacturers, especially those that might not otherwise qualify for debt or equity financing, the government may be able to help. The Small Business Administration (SBA) guarantees loans made by banks, and Small Business Investment Companies (SBICs) guarantee monies that are invested by private companies.
Crowdsourcing – Potential customers have become a new financing trend. People who like a product’s potential can pool their money, usually via the Internet, to support a manufacturer. With small contributions, however, it can take a lot of believers to raise the necessary capital.
Of course, financial capital is only half the equation. Manufacturers also need human capital – and that’s where the specialty staffing experts at Bayside Solutions can help. Contact us today about fulfilling your need for experienced, top-notch manufacturing professionals.
