Capital-Raising Strategies for Hardware Manufacturers

As a tech hardware manufacturer, your business is more complicated than most. Compared to producing software or virtual products, you cope with extra layers of complexity, starting with developing and refining scalable physical product prototypes. The challenges carry on from prototyping through manufacturing, inventory management, marketing, distribution, and more.

Additionally, your need for capital is much different from software development firms. For hardware manufacturers, it is vital to develop various methods of raising money to expand and protect your growing business. As a leading provider of NJ Tech Insurance, we know relying on a single source of financing is a potentially crippling miscalculation to avoid whenever possible. As such, we produced this report on Capital-Raising Strategies for Hardware Manufacturers. 

There are many and varied methods of raising capital for your hardware manufacturing business, including:

• Self-Funding

Personal investment is the most accessible source of funds. Savings, lines of credit, and credit cards are options as long as they are used prudently. It may help other investors to see your commitment to the project. Bank loans secured by personal assets are viable possibilities.

• Personal Network

Mixing family and friends into one’s business is a challenging proposition to safeguard their investments in a potentially risky startup. Generally, it is an option that needs careful consideration for obvious reasons. You expect to have ongoing relationships with these people. Typically, pro investors understand the market, have a greater risk tolerance, and are impartial to your personal versus business relationships.

• Private Investors

Angel investors, as they are also known, may come from family and friends. Most often, an angel investor’s funding comes as a one-time investment in the early stage of the business in return for equity or convertible debt. Professional investors are high net worth individuals who may have valuable experience assisting startups or hardware manufacturing. 

• Venture Capital

VCs provide small business funding for the initial stages of a business. Usually, they seek a controlling part of the company in return for their more significant investments. These firms generally make their exit when there is an acquisition. Mentoring and evaluating a business for its sustainable practices are services they provide as part of their investment.

• Crowdfunding

It is also called Cloud Funding, and it is a way to tap a pool of investors to help finance the operation via the internet. It helps businesses raise funds from investor groups that offer a platform to pitch investing in your company. Depending on their model, the investment may be provided as debt funding or on an equity basis. Rewards are added as additional inducements to investors on some crowdfunding websites.

• Product Contests

Participating in product competitions can produce some seed money even if the prize is not enough to fund scaling; it is beneficial in other ways. You gain experience pitching, developing scalable prototypes, and seeing firsthand how other startups work to present. And the potential excitement about your hardware product can generate interest from other investors and help with recruiting for your team. 

• Partnering

Partnering with your customers or parts manufacturers is a potential source of funds. A parts manufacturer may provide valuable engineering assistance or support your financial conditions by amortizing your debt through advantageous payment terms. Customers can also invest by agreeing to shorten their regular payment periods. They can also place purchase orders that will help to secure other types of financing.

• Startup Accelerators

Besides help with funding, a startup accelerator is an excellent source to learn more about hardware manufacturing startups. It is a limited possibility because they are not easy to gain entry. A few examples of startup accelerators include Y-combinator, Techstars, AngelPad, and StartX. There is a helpful research entity. The Seed Accelerator Rankings Project is run by academics that rank startup or seed accelerators with a range of metrics. The look to guide entrepreneurs who seek funding through a seed accelerator.

• Purchase Order Financing and Factoring

These are both and after means of using revenue from purchase orders. In the former, money is lent based on the creditworthiness of vendors’ payments for future POs. Factoring is a lender paying you to take over some or all of your account receivables.

These are among the most popular methods of raising capital for your hardware manufacturing business. Each is worth investigating, depending on your needs and circumstances. A question virtually all potential lenders want to know is if your operations have adequate NJ Tech Insurance protection.

The Dickstein Associates Agency provides tech companies, including manufacturers of hardware and software developers of custom products and applications, with comprehensive, competitive coverage solutions. Our expertise and industry knowledge gives us access to the best insurance companies that create tailored insurance programs for these dynamic technology industry sectors.  

About Dickstein Associates Agency

Dickstein Associates Agency has distinguished itself as a leading provider of personal and business insurance in the tri-state area since 1965. We pride ourselves on being advocates for our clients and providing them with quality and affordable coverages. As Trusted Choice™ independent insurance agency, we partner with various national and regional carriers, allowing for flexible coverage for each client’s unique circumstances. For more information on how you can leverage all your insurance to work best for you, and how we can secure the best insurance in the marketplace suited to your specific needs and business objectives, contact us today at (800) 862-6662 or www.dicksteininsurance.com.