Hardware Business

This article pertains only to what are known as hardware businesses. That is, businesses where physical devices need to be produced. This can be anything: components, parts, sensors, IoT devices, microchips, boards, cases, mechanical and electronic devices, etc. In other words, where a factory and modern production are necessary. Purely software businesses or computer games (where no physical toys are produced) cannot resort to this type of financing. Strange as it may seem, this is one of the most effective areas of investment.

Let’s consider project financing. Often, the development of a prototype costs 5-10-15% of the project cost. However, converting a prototype into a production model can account for 85-90-95%! So, the lion's share of investor funds will go into establishing production, not product development. If you cannot find investors to set up production, you will have problems. More precisely, your product may forever remain a prototype, and ultimately the project will close.

Keep in mind that only 10% of investors are willing to invest in hardware businesses. Moreover, the closer your product is to readiness, the fewer willing investors there are. This paradox is easily explained: the closer the product is to readiness, the lower the potential profits for investors. Such products only yield good returns when invested in during the early stages.

So, what’s the solution? It’s quite simple. Manufacturers themselves!

Strangely enough, factories are just as interested in producing commercially successful products as you are. Factories that produce high-tech products are constantly forced to look for what to manufacture. They are continuously investing money in such products. Typically, every factory has a design bureau or a group of engineers focused on new products. They can create and produce modifications of existing products. However, it often happens that no modifications will suit the business anymore. No improvements saved the VHS or CD business. The market has completely moved away from these technologies and devices and will not return to them. Design bureaus that have spent 20 years modifying VCRs are generally not ready for new technological trends and cannot create anything fundamentally new.

So here lies your huge opportunity to find both an investor and a manufacturer at the same time. Approach manufacturers. They will not only help you finance the refinement of your product into a production model but will also assist in producing the product and even with marketing by selling it through their distributors.

Thus, by asking the right questions, your investors will be the manufacturers themselves. You will no longer need to seek funding for production.

Of course, in this process, you must adhere to certain rules and precautions.

Find only profile enterprises that produce similar products (preferably those that are not in high demand). A chocolate factory will not appreciate your brilliant helicopter model. A motor factory will not recognize the genius of your microchip. Generally, no one will undertake a complete reconstruction or reorientation of a factory for your product. Although exceptions may exist. For example, if a VCR factory in a small town is shutting down entirely, and your product gives the enterprise a chance to survive, local authorities may provide the factory with loans or financial assistance to preserve jobs.

You will have to do quite a bit of "homework" to find the right manufacturer. Don’t approach too large factories. If you are not producing millions of devices, you will not interest them. Don’t approach too small manufacturers. They have neither the money nor the financial support to fund you. All they want is for you to pay them for production and refinement of the prototype.

Your potential "investor" is the medium-sized factories, with a workforce ranging from 200 to 10,000, which have good connections with local authorities and credit lines for business support.

You don’t need to rush to China or the USA right away. For several reasons. In the USA, over 60,000 factories closed between 2008 and 2016. So, in most cases, there is simply nowhere to go in the USA... China has its own problems. They will welcome you with open arms, promise you mountains of gold, but time will pass, and there will be no movement. You will start to worry, and they will promise that “tomorrow” or next week everything will miraculously be resolved. Then you will find out that a device very similar to yours has been produced by a neighboring factory for three months, and moreover, a patent has already been filed in China for it!!! And by the engineers of the factory that is right next to your potential manufacturer... What an interesting coincidence... Proving the theft of your intellectual property will now be impossible. The East is a delicate matter!

• So, PATENT IT. Never disclose all the details of your design or invention until you have filed for a patent. Engage in advertising, PR, and publications where you describe your future device. This is important in any legal case.
• Speak at conferences. Participate in exhibitions with your prototype. You need to assert that this is indeed your device and your design.
• A confirmed demand for your product from customers is extremely important for obtaining investments. After filing for a patent in your country or in the USA, make sure to file for a patent in the country where you plan to set up production or negotiate with the manufacturer-investor.
• Start with your own country. Especially if it’s Kazakhstan, Ukraine, Belarus, or others. There are also many small factories with relatively outdated products that are actively looking for new modern goods. They are particularly interested in products with export potential. Your chances of finding a manufacturing investor in your country are much higher than elsewhere.

Remember that the most important factor for an investor's decision to finance and establish production for your development is confirmed demand. Not just in words but in the form of documents. So, constantly and actively engage in marketing and PR. You and your product are only valuable if there is confirmed interest from buyers.

Our company's specialists will help you organize the search for a manufacturer – a potential investor and formulate your proposal to this manufacturer.