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Advice for Manufacturing Startups on How to Choose an Investor

Manufacturing startups have a few things to consider before choosing an investment partner, according to experts in the recent webinar “Raising Venture Capital for Industrial Technology Businesses 101.”
Feb 06, 2023

Tinicum Venture Partners and Goodwin Procter co-hosted an online panel discussion offering manufacturing startups advice on raising venture capital. The group discussed how the growing adoption of technology in the manufacturing industry is creating attractive investment opportunities.

“In the industrial space, modern technology is an opportunity to create massive transformation in their businesses with marginal improvements in the way they're running things,” says Jason Ray, CEO and co-founder at Paperless Parts.

Best practices for founders raising capital to tackle industrial markets:

1. Choose an investor who is prepared for a long-term partnership.

People in the industrial space think much more long term, so it’s an opportunity to build strong relationships over the long term.

“You need investors who have a long-term mentality,” says Heather Miles, Partner at Goodwin Procter. It's not about having a customer for months or years, it’s decades. Get great seed investors who will be patient and help you build.”

2. Educate your investor about the manufacturing industry.

Investors who are new to manufacturing need to understand that indicators, like sales cycles, may look different from other industries.

“An investor that truly understands the business and the customers can be a thought partner in building the business from the earliest stages, as well as providing the capital,” says Forest Flager CEO and co-founder of Parspec.

3. Don’t ask for more money than you need.

Accepting more capital than you need can set you up for failure. Founders might be overdiluted or raise at an inflated valuation that creates undue pressure to scale at all costs. It’s important to have enough funding to grow, but safe to stay slightly conservative.

“Sometimes taking less capital at a lower valuation is the better approach,” Miles says. “It's a little bit counterintuitive, but if your valuation's too high, then eventually you might have a down round. Instead, build the right company — get customers and really establish the business, which is what will ultimately make the company most successful.”

Ray adds, “As an early-stage entrepreneur, I would think about raising as little money as physically possible to prove out the next major milestone that you need in your business. It's not a time to really go and swing for the fences.”

Watch the entire panel discussion webinar recording.

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Author
Ryan Kelly
General Manager, San Francisco Tech Lab
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