Capital intensity gets a bad rep, but structured finance can turn it into an advantage for hard tech startups.
Tangible’s William Godfrey and Not Boring’s Ben Evans explain why many hard tech companies don’t sufficiently utilise structured finance and asset-backed financing, and why this often leads to huge dilution for equity investors.
To scale in later stages, hard tech companies need to raise cheaper debt from asset-backed securities and institutional debt rather than purely depending on expensive equity capital.
Structuring cash flows to appeal to investors and lower dilution is vital and implies understanding asset-backed financing and securitisation early in a company’s life.
Successful capital-intensive companies remove themselves from balance sheets and package their assets for sale to institutional investors, backed by predictable returns.
The companies that first master these techniques will gain significant advantages in their respective sectors and gain natural monopolies while slowing down the competition.
