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Venture leasing: The unsung hero for hardware startups struggling to raise capital

Global Funding in February 2023 fell 63% compared to the previous year, with only $18 billion in investment. For robotics startups, it wasn’t any better: 2022 was the second worst year for funding in the last five years, and the 2023 numbers are trending in the same direction.

This behavior of investors is justified in the face of uncertainty and frugality, especially when hardware companies burn cash faster than SaaS. Therefore, founders of robotics startups and other equipment-heavy businesses are left wondering whether they’ll be able to close their next funding round or if they’ll have to resort to acquisitions.

But there’s a happy medium between expensive debt loans and VC funding that works especially well for hardware startups: venture leasing.

There is a happy medium between costly debt loans and VC funding that works especially well for hardware startups: Venture Leasing.

Hardware startups are better suited than software companies for this type of financing because they have solid assets, balancing the high-risk nature of the industry with liability.

As the CEO of a robotics startup that recently secured a $10 million venture leasing deal, I’ll outline the benefits of this type of deal for hardware companies and how to make a win-win deal when you close a round. How to get off is not an option.

Why Are Venture Leasing Deals Favoring Hardware Startups?

Unlike some developers here and there in SaaS, hardware companies require intensive research and development (R&D), capital expenditure (CapEx) and manual labor to manufacture their products. Therefore, it comes as no surprise that the cash burn rate of the latter is two and a half times higher than that of the former.

Hardware startups are constantly trying to avoid dilution when raising money due to their capital-heavy operations. Hence, venture leasing can be a relief for the founders as it gives them the necessary funds without compromising on the equity of their company.

Instead of taking a piece of a company’s shares or equity, venture leasing takes the physical assets of the business as an obligation to secure the loan – making it easier for startups to obtain. It is also a low-risk investment and allows the company to keep its 100% ownership.

These deals work like a car lease, where the bank technically owns the car (the manufactured product), while the startup pays monthly installments to keep it and in most cases operate it as they Want to Lenders are often more flexible with the terms of their agreement than other funders.

In addition to avoiding dilution, in theory leasing takes the company’s equipment out of its capital assets, allowing for more efficient margins in terms of profitability.

Added Plus: Boosting Equipment-as-a-Service

With venture leasing, a startup can lease assets such as equipment, real estate, or even intellectual property from a particular leasing company. They acquire the property in exchange for monthly lease payments over a specified period, usually for less than traditional financing.

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