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Manufacturing Facility, Capital Cost Planning

Posted by Matt Boynton in General - July 08, 2010

Now that more new ventures are developing cutting edge technologies, instead of software, capital costs are becoming a significant percentage of a start-up’s funding. Investment firms and government grantors are requiring more thorough capital cost evaluations for establishing manufacturing facilities. In particular, companies such as clean tech start-ups working in biofuels, photovoltaic production, energy storage, and green materials manufacturing can have significant initial capital costs and therefore must provide detailed explanations of both capital costs and the overall plan to bring their product to pilot scale manufacturing. We’ve worked with many government and VC funded clients (including Itaconix and Anellotech) on these comprehensive project proposals. By helping our clients develop their scale up plan, these clients have gained access to vital funding.

Key information outside funding sources look for:

• A clear process narrative with a good level of detail
• A capital plan for all stages of manufacturing
• A realistic schedule to reach commercialization for pilot production
• Project plan that includes where you plan to build and subcontractors you plan to work with
• Proof that you are working with an engineering firm with requisite experience

Venture capital firms and the government have similar concerns regarding what they need to see in these capital cost plans. In addition to detailed manufacturing processes and capital estimates funding providers want to see market research, industry demand, and economic forecasting to demonstrate not only how the company plans to manufacture their product, but also the need for it and why they have chosen a particular volume. These factors affect the size of the facility, the urgency with which they need to build it out, and thus the level of investment in capital costs the company actually requires.

A good example of the higher level of detail funding sources are requiring is the response the DOE had to a photovoltaic manufacturer’s application for funding. Specifically, the DOE had the following concerns:

• Capital cost plans for the Photovoltaic manufacturing facility showed a lack of analysis of the demand and therefore made it unclear if the output of the proposed facility was appropriate.
• Other operating factors such as stages of commercializing their product and a more thorough description of the technology were also lacking in detail.

Another common mistake start-ups can make is to simply use a generic multiplier to estimate costs. This type of estimating can result in very inaccurate budgets. And once your funding source realizes you have used this method of calculation, they will likely question your entire plan or request a more realistic budget.

Most experienced engineering firms know that the best way to arrive at a realistic budget is to develop preliminary scope documents that can be used to develop preliminary bids with vendors and subcontractors. A capital plan based on actual bids is far more likely to withstand scrutiny than one developed using a multiplier. Combining these other strategic elements of a business plan with the detailed manufacturing plan and capital cost planning can help win over most funding sources. And by hiring an engineering firm with experience in creating these capital cost plans for companies working in emerging technologies, these companies can gain the funding and investment they’re seeking much faster.

 

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