Analysis and Commentary

Manufacturing is becoming more attractive to venture capital investors – by Neil Bourne

Analysis and Commentary

Traditionally manufacturing has failed to gain a share of venture and even development capital. But the development of ‘capital light’ manufacturing utilising robotics and digital design is changing thinking. Here, Neil Bourne discusses how manufacturers can become investment-ready.

The business press is full of stories about new SaaS and Fintech companies receiving venture finance and enjoying success on the ASX; but what about the manufacturing and engineering sectors?

Few if any venture capital firms focus on the manufacturing or engineering sector. Placing large bets in capital-industries industries has proven less attractive than investing in software or online business that offer the potential of very rapid growth with relatively little investment.

But things are starting to improve. The recent emergence of number of venture funds that concentrate on ‘Deep Tech’ is a welcome development.

We are also seeking a new generation of ‘capital-light’ manufacturing and engineering businesses that are taking advantage of robotics, digital design and contract manufacturing to create business models that are starting to offer investors the levels of scalability and return previously only available in software/digital businesses.

For more established companies, we are seeing a strong resurgence in interest from local and international private equity to invest in manufacturing and engineering. Private equity love companies with proven businesses and stable cash flows.

In addition we are also seeing renewed interest from international companies from most major international market in acquiring complementary businesses.

If you are thinking about exploring your options, our experience suggests that companies that spend the time to get themselves ‘investor ready’ usually do better in terms of attracting more interest; are more likely to get offers reflecting the upper range of the value spectrum and they generally waste less time scrambling to get information together and are less likely to have deals fall over.

When trying to understand the readiness of your organisation to transact, it may be helpful to consider the following 4 top-level questions:

  • Is there a clear growth strategy or is the organisation making do with a budgeting process masquerading as a strategy? Hint – Adding 10-20 per cent to last year’s numbers isn’t a strategy.
  • Are there new market, new products that are under development that can sustain the company’s future growth?
  • Is there a governance structure and management team in place that will allow the organisation to continue to succeed in the event the founders are no longer involved?
  • And are the company’s financial records, controls systems and forecasts in good shape and are all the corporate and business records organised for electronic sharing?

Neil Bourne is a Managing Principal with Eaton Square, a cross-border corporate advisory group. Based in Sydney, with a background in venture capital, management consulting and IT, Neil holds a BSc in Electronic Engineering from Reading (UK) and an MBA from the Australia Graduate School of Management.

Picture: Neil Bourne

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