- Seeking funding to grow a business involves navigating critical decisions and making tradeoffs between rapid expansion and retaining control.
- Inventory financing preserves ownership enabling more control over decision-making
- Venture capital provides large capital but requires giving up equity and/or authority.
- Flexible funding solutions become increasingly appealing as VC funds dry up
- Informed assessment of tradeoffs guides optimal funding decisions
Growth Capital Considerations in Times of Volatility
Venture capital is undergoing a reckoning after years of overzealous investments and inflated startup valuations. As detailed in a recent Business Insider article, rising interest rates in 2022 marked the start of a cooling trend still unfolding across the VC landscape. Investors are growing increasingly selective amid falling valuations, failures, and belt-tightening.
Venture capital valuations and deal flows plunge when interest rates rise, and as risky growth expectations get repriced at higher discount rates. Additionally, VC investors grow more selective with tightened liquidity. This volatility highlights the precariousness of venture capital for growing companies seeking funding. The potential for rapid, high-return growth comes alongside amplified risk exposure. As environments shift, reliance on external investors for capital can leave companies vulnerable if support dries up.
With continued VC tightening, companies that manufacture physical products can take advantage of inventory financing for flexible growth capital without the dilution of equity stakes. Inventory financing empowers growing businesses to secure funding based on assets rather than giving up significant equity to outside backers. By using inventory as collateral, companies can access flexible growth capital for sustainable scaling while retaining ownership over their vision.
Venture Capital vs. Inventory Financing:
What’s the Difference?
When seeking funding to scale their vision, entrepreneurs must weigh how different financing options align with their priorities. For high-growth branded product manufacturers, the choice between venture capital and inventory financing depends on the specific circumstances and needs of the company.
Traditional routes like venture capital can accelerate growth through major capital infusions. This form of equity financing can offer access to larger amounts of capital, expert business management assistance, networking opportunities, and assistance with hiring and building a team. However, the accompanying loss of ownership and decision-making authority may undermine a founder’s autonomy.
On the other hand, Inventory financing offers an alternative pathway to access necessary financing without surrendering equity or flexibility. A type of asset-based lending, inventory financing provides a revolving line of credit or a short-term loan and is used primarily by small to medium-sized retail businesses to purchase inventory. This type of financing can be used to meet increased customer demand, prepare for a busy season, or upgrade a product line. Because asset-based lending leverages inventory value rather than shares to secure funding, it can be easier to qualify for compared to other types of business loans. As such, inventory financing empowers entrepreneurs to maintain ownership interests while accessing growth capital matched to current operations and cash flows.
Which is the Better Option?
Evaluating the Pros and Cons
By comparing the benefits and limitations of both funding models, business leaders can make strategic financial decisions aligned with their entrepreneurial visions. An informed evaluation of these dynamics supports founders in charting the optimal course for their unique needs and priorities.
> Preserves ownership and decision-making authority
> Flexible funding matched to inventory assets
> Accessible even for early-stage companies
> Lower costs by avoiding equity dilution
> Managed risk and sustainable growth
> Approval depends on inventory health and processes
> Loan repayments can pressure cash flow
> Limited scalability for hypergrowth trajectories
> Large capital infusions to rapidly scale
> Investor expertise and industry connections
> Higher risk tolerance for disruptive innovations
> Surrender of equity and decision-making control
> Pressure for rapid, high-return growth
> Loss of flexibility and autonomy
Why Inventory Financing Empowers High-Growth Enterprises
For many companies, inventory financing strikes the ideal balance between accessing growth capital and preserving founders’ interests. Unlike venture capital, inventory financing allows entrepreneurs to maintain ownership, control, and strategic decision-making over their business vision. Companies can leverage their assets to secure financing that meets their current inventory and operations needs, with flexible repayment plans tailored to their cash flows.
Rather than chasing risky, rapid growth to satisfy external investors, inventory financing enables controlled, sustainable scaling on the entrepreneur’s terms. Founders retain autonomy over growth plans and can access funds on demand to capitalize on opportunities.
Entrepreneurs also avoid costly dilution of their ownership interests by using inventory as collateral instead of equity shares. This allows them to realize more of the future value they create as their company grows. Inventory lenders share the risks by absorbing losses if inventory underperforms, rather than the entrepreneurs themselves.
Though federal interest rates have risen, companies like MFD have kept their interest rates the same, which has provided stability to many SME’s in a volatile market. Steady inventory financing rates amidst VC volatility make it a compelling funding instrument for entrepreneurs seeking ownership and flexibility. The relative stability offers startups a port in the storm. Before giving up equity and control, entrepreneurs should consider inventory financing to propel their company forward on their terms
ARE YOU A BRAND MERCHANT LOOKING TO GROW YOUR BUSINESS?
Whether you need sourcing assistance, inventory optimization or financing, Manufactured’s end-to-end manufacturing support platform can help. Contact us to speak with one of the inventory experts at Manufactured. Our solutions specialists can help you navigate complex financing options while providing valuable information and insights, so you can choose the option that’s best for you.
Learn how to apply for vendor financing, and get help receiving purchase order financing. Manufactured helps customers in over 20 categories across 25 countries with product manufacturing and inventory financing.