I’ve been trying to chat with Will for a while, and I finally caught his attention after I published the Capital Stack Tool. Will runs Tangible, helping hard tech companies raise the kind of capital that hardware businesses need.
What I like about Will is that he doesn’t romanticize either side. His thesis is that the two worlds are wildly under-married, and that the founders who figure out how to speak both languages are the ones who end up building something that looks like a real industrial company.
Path towards credit obsession
Jacopo: Walk me through what actually got you here. Not the LinkedIn version.
Will: My university studies and early career were all in hardware. Industrial design. I love building physical things, there’s a different kind of craft to it that you just don’t get from software. I was working at a 3D printing company that ended up getting acquired, and that pulled me deeper into the software interface around the hardware, and then deeper into startups. After that I spent a long time at a venture builder.
The whole time, I kept watching the same thing happen. The venture market, with its VC math and its emphasis on B2B SaaS, treated hardware as this fringe thing that shouldn’t really be invested in. There were funds with explicit zero-hardware mandates. And the way I see business building is through the lens of big problems. The biggest problems are all hardware problems. There’s no energy, transport, robotics transition without hardware. Even AI is a hardware problem.
The companies I worked on or with all struggled with the same thing: capital structuring. And many had unknowingly gone to Series A or B unknowingly designing a company that could never raise institutional debt capital without huge changes. Everybody gets told, in very simple terms, that debt matters if you’re a hardware company. But there are so many options, so much nuance. People will sell you products you don’t need or want. And debt isn’t a good thing by default. It needs to be the right debt for your company and your assets.
The more I looked at it, the more I realized that the biggest hardware companies in the world do what they do through financial engineering that just isn’t available to smaller venture-backed companies. And it’s not that it couldn’t be available. It’s that the bridge is broken, because companies don’t mould themselves for it. There are massive pools of capital, much larger than VC, that startups could access. The collaboration between those two markets is awful right now, slow, costly. Through better technology we believe it can get much more efficient.
Everybody’s convinced themselves they need Project Finance
Jacopo: When a hard tech founder walks in your door, what’s the single most common misdiagnosis they bring about their own capital situation?
Will: So many. The one that annoys me off the most: everybody’s convinced themselves they need Project Finance. That’s one of literally thousands of available structures. So they’ll come in and say “I need Project Finance,” and the answer is, I don’t know that you do, for a bunch of reasons. The downstream effect is worse than the bad diagnosis. They go ask Project Finance funds, get a no, and then conclude “I can’t raise debt.” This is the equivalent of saying “I need an app” to a design studio in 2010. The better question is what do you need it for?
A fund is trying to fit you into their mandate, a box of rules that apply to you. Same as in VC. If you go and ask a Series D follow-on fund to lead your pre-seed, they’re not going to tell you no, they’re not going to reply at all. The same thing happens here. Wrong structure, wrong capital provider, no answer, and the founder walks away thinking the market rejected them. The size and spectrum of debt makes this misdiagnosis more frustrating. And the answer for most companies is that you need to be proactive in designing something that one of these funders want. Not shopping around in reverse, you’re selling and buying.
The other one that happens constantly: people in early stage companies talk to banks and get long, friendly answers, and they read that as interest. You have to understand where banks are coming from. They’re regulated deposit-taking entities, and they have incentives other than giving you a line of credit. The relationship managers are well-paid people whose job is to chat to interesting companies and show them a good time. That doesn’t mean they’re the right people to do the deal. Definitely not quickly. Now not all banks are the same, and there’s a stage where they become relevant.
There’s also a structural confusion that almost every founder has. They don’t distinguish between being a lender yourself (running the lending operation, operating the facility) versus partnering with someone who does it for you. A robotics business might “work with a bank” that funds projects and does the equipment finance. The relationship with the end customer gets handed off to the bank. That is a completely different thing from running the lending yourself . But in most founders’ heads the difference isn’t there, and they don’t see the value.
The way I describe it: go look at Enpal and tell me that adding a lending business isn’t valuable. Or look at the captive finance arms of the big automakers. Mercedes-Benz Mobility earns a higher return on equity than the cars business does. The financing operation is the most reliably profitable part of the company, and that’s been true for the Ford/GMAC generation of these businesses all the way through. The goal of a hard tech company is to build an asset that’s financeable, so you can use financial engineering to bring revenue forward.
The last misdiagnosis: people think this stuff is simple because they’ve been offered a simple deal. Our industry is full of venture debt, which is genuinely an easy structure. “Did you raise 20? I’ll give you 5. Who led? Cool, I’m in.” I don’t want to oversimplify, there’s a time and place for it. But that debt is not equal to the other debt available in the market. And it’s not scalable. Venture debt is typically capped at something like 25 to 35% of your last equity round. So to get to $25m of venture debt you’re realistically looking at $75 to $100m of equity raised. It’s tied to your equity, by design. And it often does not encourage the kind of discipline, reporting, contractual changes, counterparties that will help you unlock AB debt. Which will help you escape this discount on equity raised.
Every decision you make at pre-seed affects which avenues are available later
Jacopo: What I hear in all of this is that most of these founders are reactive. They hear a name, they associate it with something they might need, they skip the X-ray of their own capital structure, and they just trust whatever friend or uncle told them this is how it works. That’s extremely reactive behavior with respect to an open market.
Will: You’d never do it for your equity raise. The misconception, and a lot of VCs reinforce this, is that you can’t think about this kind of funding too early. That’s just wrong. People will tell you company killing advice “don’t worry about this until Series B” The reality is that, whether you know it or not, every decision you make at pre-seed affects which debt avenues are available later. And unpicking these core tenants of a business later on can be incredibly painful.
The exit clauses in your contracts. The transferability of those contracts so they can be assigned into an SPV. Your supply chain, and how solid and reliable it looks to institutional credit. All of this is the input that determines which debt providers will even talk to you at Series B. People try to turn it on at Series B and then ask why nothing works.
Jacopo: This is something I do try to track from the equity side. Inside our founder evaluation framework at Foundamental there’s something I call financial judgment. But the point is: does this founder have a real grip on where their company sits financially, and where it’s going? You pick up signals fast. And the earlier a founder is thinking about this, the more confident I get.
Will: And the core thing people misunderstand about debt is the framing. Founders I talk to treat debt as a burden. They’ve been taught to think of it as something that constrains them. In reality, with the working capital and asset backed structures we work on, the whole point is to make money come back to you faster. If you’re a hard tech company and contract revenue comes in over four years, debt lets you get that money on day one to pay for the asset. You recycle capital faster. It’s the ultimate growth tool. The VC trope that “you do a little venture debt when you can’t close your round” has poisoned how the whole category gets perceived. But with huge winners in our space all winning with financial engineering at their core, this mindset is changing.
What asset backed finance does to a company
I think this is the part most readers won’t have a clean mental model for. Will recently put out a piece I really liked called Capital Stack Parallax. Worth reading. But I wanted him to walk through, concretely, what an asset backed transaction does to a company.
Will: Start with what these deals actually are. At a high level, setting up an asset backed transaction is about creating statistical certainty and a defined amount of risk. You do that by taking a lot of data out of the business and making sure it’s well recorded. You put policies and frameworks in place, at the corporate level around the SPVs, and at the operational level around how assets are valued, serviced, and sold off in distress. What happens if the company falls into bankruptcy? Is there a backup service? Every one of these questions has to be answered to a known standard.
The reason it’s called structured finance is exactly that. You’re building a structure that can house the transaction. An algorithm that knows where money and data moves and can manage risk.
The other thing that links these deals is that the threshold of customization is very high. Every company’s operations are different. The residual values are different, the servicing logic is different, the underwriting questions are different. That’s actually the whole reason we built a platform around it: it’s a sketchpad for transactions. You can do anything on it. We’re not prescriptive, we just think it’s inefficient to put this together in Excel and email chains.
Now the before and after.
Most of the companies that come to us either have zero debt or they have some on-balance-sheet debt. On-balance-sheet usually means a venture debt facility or some equipment finance. Something simple, something they could actually get. The problem with those structures is that the size is constrained by your equity. Equipment finance won’t go meaningfully above what you’ve raised in equity, because the math doesn’t stack up. Venture debt won’t either: no venture debt provider is giving you $50m if you’ve raised $25m.
Asset backed finance breaks that constraint. Because we’ve done the work to algorithmically prove that the assets are valuable on their own, the cash flows are secure, and the assets themselves have collateral value, we can raise more than the equity threshold. The equity is still there to support the advance rate. But the ceiling moves up. Enpal is a good example of how far this can scale. Cumulatively, they’ve raised something like 5x or more in debt than they’ve ever raised in equity, across multiple facilities. (Worth checking the exact ratio, but the order of magnitude is the point.)
Jacopo: Speaking of Enpal. I saw they recently did the first public residential solar and heat pump securitization. €300m. That’s essentially the public market endpoint of the same machinery, right?
Will: Right. In the private markets it’s called asset backed finance. When it goes public and trades on a market, it becomes a securitization. The naming changes but the underlying thing is the same. Enpal hitting public market rates is the endgame for this kind of work. A lot of founders look at it and say “I want those rates.” Sure. They also did the work, originated hundreds of millions, and showed an incredible track record. When you do that you will get offered the same rates, because the risk will be the same.
The exercise itself is the value
Jacopo: What I find really interesting about this, beyond the financial engineering and the obvious upside, is that to even get the company there, you have to go into extreme detail to justify the residual value of every piece of asset and the cash flow attached to it. And what that makes you do is get insights about what you actually do that you would otherwise never get to.
Will: I’d say that should be the goal of any hard tech seed round. Get to a point where you can raise this type of money. All the benefits aren’t just about financing. They’re just good things to do in your business.
Jacopo: And I think it also repositions that knowledge at the center of the org. Concrete example: you have a CEO and a Chief Manufacturing Officer. The CMO is the one tracking every component, every piece of logistics, every failure mode in the supply chain. The CEO might have a high-level view but rarely the full one. The moment you decide to build an asset backed product, the CEO is suddenly the one who needs to go back to the deepest weeds and understand “okay, this pin goes in this piece of the machine, and if I strip it out then I have less residual value at the end of the cycle, which means I can’t price the product this way.” I’m simplifying. But you see where I’m going.
Will: 100%. And it’s such a useful exercise, because at the end of the day, your critical path to becoming a unicorn as a hard tech company involves debt. I don’t know a single one that didn’t. You can ignore it all you want. You’re not getting over the threshold of “successful in the eyes of venture” as a hardware company without, specifically, asset backed debt. Why not lean into it earlier?
Why debt investors look completely different from equity investors
Jacopo: Walk me through what a debt investor looks for on day one versus what an equity investor looks for on day one.
Will: In a VC conversation you can talk about the vision all day. You will not get asked about vision in a debt conversation. It will be about the audited numbers, the data being collected, the certainty. Tomorrow isn’t going to have changed anything. “If we can just get a bit more venture funding, we’ll really achieve the vision” is not a sentence that should exists in this room. It’s a lot more of a downer of a conversation if we’re being honest! And people don’t and can’t cut checks after a quick coffee!
Even the VCs that brand themselves as allergic to BS, the “I just want the numbers” types, are still part of an asset class that rewards big risks. They’re part of portfolio math whether they admit it or not. They don’t need you to win at all costs. For a debt investor, any loss across the portfolio is unacceptable. The moment you start speaking to them, the framing has to be different. The assets you’re stripping out have to be ironclad. They have to meet a much higher bar for certainty than you’ve ever been asked to describe to a VC.
It affects who these people are, too. They’re lovely. They’re just not up for a coffee to talk about the vision and the agony of building the company. They want to know how much you’ll originate next quarter.
Jacopo: They don’t show up for the chocolate-coffee chat and “tell me about your trauma.”
Will: Exactly. Both asset classes are valuable. VC has to exist or there’s no debt. The more reputable the VCs on the cap table, the better for the debt provider. They’re just very different products you’re selling, and you have to know which is which. The founders who do really well raising both are rare but not impossible. And if you look at the really big hard tech companies right now, the breakout ones, at least one of the founders almost always has serious capital markets exposure. They’re financially sophisticated in a way the average VC-backed founder just isn’t.
Jacopo: That’s a connection I’d honestly never made. Chase Lochmiller at Crusoe came out of Jump Trading, GETCO, then Polychain. Zach Dell at Base Power spent time at Blackstone before Thrive. It’s not classical private credit in either case, but it’s structured-finance literacy and credit-style underwriting culture baked in from day one. It’s not a coincidence.
Will: The reason most founders are bad at this is that we all do what’s worked for us. Founders go into debt conversations with the same intention and pitch they use for equity, because nobody told them they’re selling a different product. In equity you’re selling a piece of the company. In debt you’re selling the assets and the cash flows. They’re different sales. The founders who are good at both know exactly which one they’re in. They also know when to raise debt versus when to raise equity, which is its own skill.
Jacopo: Even at Foundamental, in our investment committee discussions, we take this into account. Where does our judgment lie on this founder’s capability to raise debt later, if they need it? And the proxy we use is honestly as simple as: does this person speak the language?
“Fuck equity, debt is the answer” is not the takeaway
Jacopo: I’ll be honest, I wish I could disagree with you more in this conversation to make it more animated. But I really can’t. I come at this from a similar place. What I want to avoid is some founder reading this and walking away with “debt is the answer, fuck equity, sharpen the debt brain or die.” That’s not the point at all.
Will: Right. You need both, in a structure. Same as your mortgage. The bank doesn’t fund 100% of the house, they fund 80 or 90. The advance rate in asset backed finance works the same way. You need equity to cover the rest. You also need equity for all the things that aren’t CapEx: building new product lines, making your manufacturing more efficient, the stuff that isn’t a debt problem.
The story you tell the debt investors also needs the right amount of support from the equity story. Debt funds don’t want to do a deal for $10m that stays at $10m. They’re doing all that work for a $10m loan. They want to put $100m into you over three or four facilities. They need to believe you can keep raising equity to support the growth they’re funding.
The skill isn’t picking a side. The skill is merging the two worlds. That’s what I’m trying to push: bring the VC innovation economy closer to private credit, hedge funds, pension funds, the people doing fixed-income style lending. It’s a good marriage. It’s just painful at the start, when someone’s pre-seed and doesn’t yet know what they’re doing on the credit side.
“VCs are telling us they won’t sign the Series A until you can prove you can raise asset backed”
Jacopo: If there’s one thing you could change about how hard tech founders get financed, what would it be?
Will: I’m actually seeing the thing I’d want to change starting to happen. In the last two months, I’ve had maybe 15 messages from VCs (not exaggerating), and three live customers at Series A or B who’ve been told explicitly that the equity term sheet isn’t getting signed until there’s some proof the company can raise a scalable asset backed facility. That is enormously positive. It means investors at that stage have understood that the returns model from Series A onward is largely determined by the company’s ability to raise structured finance alongside the equity. They’ve seen the wins, they’ve seen what the model looks like.
The other thing I want to see more of: sometimes you have to do unscalable things in debt to build the track record that then unlocks scalable debt. We’re working with VCs who are stepping up for esoteric products, putting a million pounds of kit into the field along with a small data trail that can then be taken to a debt fund. For products that have literally never been financed before, that’s the only way it happens. I love seeing VCs find creative structuring around early hardware businesses, because historically a lot of debt products in this space have been roads to nowhere. Venture debt especially. You get some debt, but it doesn’t unlock anything more scalable.
The other half of the story is brutal math. If you raise a really big Series A, you can spend $3-10m on CapEx out of equity and refinance later, and you’ll be fine. The less equity cushion a company has to transition into a more scalable financial structure, the smaller the ring becomes around which companies can succeed. And I don’t think most of the assumptions baked into that ring are necessarily true. There’s room to widen it.
What a slow-motion capital disaster looks like in your port co’s reporting
Jacopo: Take the archetype of a well-funded, well-known hard tech company whose capital stack you’d describe as a slow-motion disaster. (Don’t name them.) What should I be looking for in their 10-K, their audit, their public materials, that would tell me they’re heading there?
Will: It’s all about capital recycling rate and where the exposures to severe working capital constraints sit.
To make it concrete: I’m about to get on a call with a robotics company we’re launching an as-a-service program for. The difference, on a balance sheet, between someone who buys £100,000 of robotics, deploys it, and gets paid back slowly over 18 months on their own balance sheet versus someone who has that financed off-balance-sheet from day one is dramatic. The first version eats your runway. You’re making slightly more margin because there’s no facility interest, but you can’t recycle the cash into new products. The capital intensity is a problem if it’s badly treated, and an asset if it’s structured for early.
So the first thing I look at is the company’s strategy around working capital. Is it on their balance sheet, or is there a plan to get it off? When it’s badly structured, capital intensity quietly kills you. When it’s well-structured, that capital intensity becomes a bottomless pool of capital you can pour into your moat. As long as you don’t over leverage yourself.
A stage earlier, at seed, you’re trying to figure out whether they have the chops to do this later. You go look at the data they’re recording about each asset. And the test I use is: if I were the most paranoid person in the world, and I gave them money to buy these assets, how confident would I be, based on their data, that they could repay 100% of the time?
If there are spotty gaps. If customer names are misspelled, held together by badly formatted spreadsheets. If they haven’t run credit checks on counterparties, signed wildly inconsistent contracts. If they don’t have the records of their customer conversations. If their servicing history is in a janky spreadsheet nobody maintains. You’d be worried. That’s the mindset.
I see this all the time with the big failures. I don’t think many hardtech failures would disagree that there were warning signs visible to investors well before the wheels came off. When you’re a VC darling you’re always going to be offered more equity. That doesn’t mean you have to take it. Equity can feel like it comes without obligations, but when it’s from VC’s there’s usually one: a board-level expectation that you grow aggressively. Big pools of capital, deployed against that expectation, are easy to spend inefficiently. That’s what creates the problems downstream. In an attempt to optimise only for speed.
Founders right now will tell me “I just raised $30m,” and they’ll say it like the tap is permanently on. You don’t know if the next geopolitical event changes how VCs see your sector. You don’t know if X or Y. You should build a capital-efficient company because it’s the right thing to do, and because it gives you the most diverse pool of capital to draw on. If you isolate yourself to being VC-cash-dependent, you’ve shrunk the optionality you need to survive. All while taking a massive hit in dilution that you didn’t have too.
Bet-taking machines
The frame I keep coming back to, on the equity side, is that what we want to fund is a bet-taking machine. A company that can keep placing bold, sometimes money-losing bets, over and over, without flinching. That’s actually only possible if the capital structure underneath it lets you do that. If you can’t, you’re in panic mode by default. Panic mode rewires founder behavior in ways that are well documented and bad for everyone holding equity.
Will: Right. And that’s the whole point. Capital efficiency isn’t a virtue signal. It’s what lets you keep taking the swings the equity is paying for.
Will runs Tangible. If you’re a hard tech founder and any of this resonated, that’s probably your sign. The article he wrote that pulled me into this conversation is called Capital Stack Parallax. Worth reading.
From what I’ve been seeing on our side: the founders who are starting to grip this are the ones who’ll be on the cap tables that matter five years from now. The ones still waiting until Series B to figure it out are the ones we’re going to be writing post-mortems about.
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