The Capacity Challenge in Manufacturing

And where venture funding is best poised to accelerate industry into the 21st Century

As hard tech gets more and more attention, we’re seeing founders pitch venture-backed solutions to "capacity problems" in manufacturing. But we think capacity expansion is a poor use of venture capital, and something better suited for other forms of private equity. Here’s why:

If demand outstrips supply, prices rise, making it profitable to expand using known methods and lower cost financing sources like corporate cash, debt, or private equity. The steel industry is a prime example. When demand spikes, new plants or expansions meet the need. No advanced tech required, just straightforward economics. If a true capacity issue existed, and the economics made sense, industries would simply build more capacity using existing technology.

Venture funding should instead target areas where technology offers a clear advantage, not just more capacity. Think of "creative destruction" from Schumpeter. VCs should back innovations that revolutionize processes or create entirely new markets. Here’s some examples:

• Robotic assembly lines

• AI-driven quality control systems that catch defects in real time

• 3D printing for custom parts manufacturing

These innovations offer more than just increased output; they have the potential transform industries. Solving capacity problems with venture-backed tech is usually impractical. Instead, delivering venture returns is about focusing on transformative innovations that deliver industry-wide cost savings or better performance.