Good Times for Manufacturers Seeking Capital

By Bridget McCrea for Office.com January 3, 2001

Manufacturers with solid revenue streams have become increasingly attractive. 

As chairman and CEO of a company that had invented a new method of low-intensity X-ray imaging, Larry Grossman, assumed that attracting venture-capital investments would be a fairly simple process. After all, the technology was developed by NASA and reigns as the organization’s top technology-transfer success story of all time. Plus, Grossman had a track record: He had previously - and successfully - taken another company public. 

This time, getting the necessary funding to take this new technology - which provided a safe way to X-ray patients without the use of lead aprons and gloves - proved difficult for Grossman. The process uses a night-vision image intensifier to magnify X-ray images 10,000 times and subsequently reduced radiation exposure by 99 percent over traditional methods.

“I got turned down by 70 different firms,” says Grossman, who was seeking a $3.5 million investment. “The 71st firm gave us $3.5 million in exchange for 25 percent of the company, which we wound up selling a few years later for $71 million.”

That was in 1985. In today’s venture-capital environment, Grossman probably wouldn’t have knocked on so many doors before getting to “yes.” After struggling through a tough 2000 that saw many investors lose money-over the dot-com stock plummet, a growing number of investors - venture-capital firms included - are giving manufacturing firms a second look.

Grossman, who is now chairman of Thunderbolt Capital Corp. in Northbrook, Ill., is now on the other side of the fence. His venture-capital firm invests in early-stage companies with unique, patented technologies and noncomplex manufacturing needs. “Ever since the decline of the dot-com stocks,” Grossman says, “companies have realized that they’ve got to go back to the old fashioned way of making money and posting profits.” 

It’s a strategy that most manufacturers have been using all along. Selling “real” products that are produced in “real” brick-and-mortar locations, those with solid revenue streams have become increasingly attractive to investors - as long as they have the right product.

“It depends on your product and how good you are at Thunderbolt Capital Corp. making it, marketing it and selling it,” says Grossman. “It’s all about having a unique product that you can sell, market and use to generate good revenue streams of profits. Manufacturers have always been up there on the list, as long as they have the right product to manufacture.”

The manufacturing sectors that investors are finding attractive vary. For example, Grossman says medical and biotech are high on his own desirables list. Manufacturers that Thunderbolt Capital has invested in recently include: Aqua Trend of Orlando, Fla., a manufacturer of a workout station that gives people a thorough cardiovascular workout via aquatic exercise; Norzyme, a California firm that produces a technology that Grossman says will “revolutionize the discovery and measurement of proteinase and proteinase inhibitors,” two biologically active compounds that can be used in the treatment of various diseases, including AIDS; and Chicago-based WriteWalls, which makes a patented machine that puts letters or logos on the sides of tires.

In addition to venture capital, Grossman says other financing avenues are sure to open up for the manufacturer with a strong bottom line and high-quality, useful products. From secured bank loans to collateralized loans to equipment leases, the options are varied and should be discussed with a business or financial consultant before signing on the dotted line. 

For the early-stage startup companies, Grossman says options include second home mortgages and “friends-and-family” financing from angel investor-types who believe in you and/or your product. But regardless of which route you choose, the facts are clear: Investors of all types are seeking solid companies with proven track records (either of the company itself, or in the case of a startup, of the executives running it) and great products that are in demand.

And with the dot-com hype long gone, the door is open for manufacturers who want capital to start new firms or grow their existing companies. “A couple of years ago it was easy for someone with a dot-com business working out of their home to raise millions and millions of dollars,” says Grossman. “You’re never going to see that again.” 

Copyright 1999-2000 Office.com Inc. All Rights Reserved.