Manufacturing Investment

If you are you a manufacturer looking for equity investment, great, we are an investment firm looking for manufacturers with the potential to grow. We are a venture capital firm. Typically equity investments in manufacturers was a game for private equity only. Recent developments in the global robotics, automation and sensor industries is enabling manufacturers to grow rapidly, or sit idly by with poor outlooks.

At the core of our investment philosophy is combining income producing assets with technology, especially if technology can help us increase the rate at which income is produced. For example, manufacturing machinery is becoming much more flexible in terms of customizing products, changing over jobs and they don’t require operators at all times. We have seen success in building out websites with strategic SEO and adwords to better utilize this type of machinery.

Another example is in customization products where users can customize their product with software and then share their new creation in case friends want the same customized product or in case they want to customize it to their own preferences. We find this direction incredibly interesting in the Direct to Consumer space.

We have the belief that a manufacturing company can be started by one individual with one machine. The machine needs to be fairly automated, CNC, CAD type of machine. The individual needs to have some engineering background and some business background but we believe this is possible and we are betting on it.

While equity investment is not for everyone, below are a few of the types of things we are looking for:

Spin Out Investments

Spin-outs typically involve some sort of IP or research which has been shelved or left dormant due to existing business factors. Companies which are potential spin-out candidates usually have the one or all of the following characteristics:

  • An idea
  • IP
  • Potential Customers
  • Industry knowledge

But you don’t have one or all of the following:

  • Bandwidth for a new project
  • Young motivated leadership
  • Space
  • Free Cash Flow

We can help. Spin-outs, as advertised, entail creating a new entity that is separate from your existing company. The advantages of doing so involve creating separate risk thresholds (debt) and rewards (faster growth) for your personal wealth. Targeting and learning about markets which may be complementary to your existing business but without using your existing business name. Tapping into talent (young, technical) which may not otherwise be interested in getting involved with your legacy manufacturing operation.

Automation

You have a lot of equipment. Your competitors are loading up on robots and automation equipment. You need to compete. We have been there before and competition is difficult. It used to be that the competition simply bought an automated machine set up, now entire factories are automated and connected. Welcome to Industry 4.0. We are looking for manufacturers with established markets that are looking to upgrade equipment and processes.

At Capacity

Sometimes business makers need to get over the hump from a lifestyle business to a profitable growing business. Here is an example of a business at capacity which needed investment to grow. A friend of ours was stuck in a chocolate business that had plateuod. He had bootstrapped the company from scratch to slight profitability. He had a store, a decent clientele and he was at capacity. He knew he needed more equipment to take the business to the next level. He also knew that he only had about 5 to 10 years before he would want to sell the company. At the current rate, he would just be selling a job. A $50K to $70K job. Which we all know doesn’t command too much of a multiple on the sales block.

We were able to work with the chocolate maker to identify the equipment he needed to take the company to the next level. We helped buy the automated equipment and get to $500,000 dollars per year of EBITDA. The company ended up selling for a multiple of 5X on top of that due to the “fun” of the market and the potential for future growth. This was a turnaround in value of close to 50X ($2,500,000 vs. $50,000). With modernized equipment and automation we know how quickly companies can grow. The hardest part is creating a brand that can scale.

Inhouse vs. Outsourced Manufacturing

You have been outsourcing the production of a product and you would like to bring it in-house but don’t have the capital to do so. This happens all the time. Generally, this situation comes up when either your contract manufacturing suppliers aren’t able to keep up with your demand, they are charging too much, they are not good at communicating or quality has wained. We have successfully helped manufacturers buy equipment to set up their own operations in the past. The advantages to bringing manufacturing in house, can be cost savings but it can also be much greater. It enables manufacturers to go after new markets which might complement their existing business. It also allows you to bring more production engineering knowledge in house. Once you see the capabilities of a machine you may have new ideas.

We Are Not a Charity

Unfortunately, we aren’t a charity. We are similar to a private equity firm in that if we invest, we are typically looking for IRR of 20% or greater on our investment. Before we invest, we like to have a clear path to return for both ourselves and the manufacturer that we are working with. Our fund has investors who are looking for a return. We do have a network of banks, investors, mentors, entrepreneurs and engineers that are ready to help.

We are looking for limited partners interested in gaining access to manufacturing venture capital investments as well. We offer a tight manufacturing network with access to see the current trends and knowledge of where the market is going. We offer quarterly reports of our investments. We offer insight into tomorrows manufacturing leaders and tomorrows manufacturing technologies including automation, sensors, AI, IoT and robotics.

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