Venture capital built the technology. Asset-based finance can scale it

The defining challenges of this decade, including the race to compute, securing energy and food systems and building advanced manufacturing lines, require physical assets as well as software i.e. data centres, batteries, robotics, electrolyzers, transmission lines and production facilities.

Much of this technology already exists today. The bottleneck is increasingly one of deployment.

At the same time, available capital worldwide is expanding. Private credit assets under management are projected to approach $3 trillion by 2028, according to estimates by Preqin, reflecting rapid growth in non-bank lending over the past decade.

Institutional investors, including pension funds and insurers, continue to expand allocations to infrastructure and private debt in search of yield, duration and diversification.

Yet despite both technological readiness and capital availability, many hardtech startups face a familiar problem: once their technology works, early customers are secured and unit economics are proven, the financing playbook for transitioning to large-scale deployment is unclear.

Most turn to the familiar allure of venture capital and the equity markets, rather than recognizing the similarities between the assets they are trying to fund and the trillions of assets (such as real estate and cars) that are already funded through the debt capital markets via securitization structures.

Venture capital has been highly effective at financing early-stage innovation and absorbing technology risk. It is well-suited to funding research and development, product iteration and market entry

However, once a hardware company begins deploying repeatable, revenue-generating assets, continued reliance on successive equity rounds is inefficient and dilutive. The “hyperscaler” model that works for software – where the marginal costs approach zero – does not translate to capital-intensive industries.

Scaling physical infrastructure requires upfront capital for each additional unit. As deployment accelerates, so does the capital requirement. Meanwhile, many institutional investors have mandates specifically designed for cash-generating, asset-backed exposures. Infrastructure debt, equipment leasing, project finance and structured credit all provide frameworks for financing predictable cash flows tied to tangible assets.

The paradox goes as follows: large pools of capital are seeking stable, asset-backed returns, while companies building physical infrastructure struggle to access non-dilutive growth capital.

Asset-based financing is not new. It has long been used in sectors such as transportation, real estate and energy infrastructure. Solar developers securitize power purchase agreements. Auto lenders package vehicle loans into asset-backed securities. Infrastructure projects are financed against contracted revenues.

At its core, asset-based financing shifts the underwriting focus from enterprise-level growth projections to the cash flows and collateral value of specific assets.

For scaling hardtech startups, this can be transformative. Instead of raising equity to fund each wave of deployment, companies can finance assets through structured debt facilities tied to contracted revenues, equipment performance and residual value.

For investors, the proposition is different from venture equity. Returns are typically contractual rather than speculative, with downside protection anchored in physical assets and cash flow predictability.

However, applying these tools to emerging technologies deployed in more granular ways has proven more complex than in mature infrastructure sectors with large-scale deployment of assets, such as bridges, toll roads, railways etc.

Until now, three structural barriers have limited broader adoption.

As a result, many hardtech companies remain reliant on equity financing longer than is economically optimal, even after their assets begin generating predictable contracted offtake revenues.

Several developments are shifting this equation.

The higher interest rate environment has compressed venture valuations while making credit investors more discerning in their demand for yield-generating assets. Institutional allocators are reassessing portfolio construction. They're prioritizing reliable cash flows, assets that retain value over time and protecting their initial investment from losses.

At the same time, industrial policy in multiple regions – from the US Inflation Reduction Act to the European Union’s (EU) Green Deal Industrial Plan and advanced manufacturing incentives across Asia – is accelerating deployment of energy, semiconductor and manufacturing infrastructure. Public policy is increasing the pipeline of revenue-backed projects.

Finally, digital tools and improved data infrastructure are starting to reduce the friction associated with structuring and monitoring asset-backed facilities. Standardized reporting and performance tracking are helping compress timelines and improve lender confidence.

Taken together, these shifts make it more feasible to extend asset-based structures earlier into a company’s growth trajectory, provided certain conditions are met.

Asset-based financing is not a universal solution. It works best when several criteria align:

Introducing debt prematurely can constrain growth through covenants and repayment obligations. But delaying too long can result in unnecessary dilution and slower expansion.

For investors, understanding these inflection points is critical. Properly structured facilities can provide exposure to growth in strategic sectors while maintaining risk parameters aligned with private credit or infrastructure mandates.

For pension funds and insurers, asset-based hardtech financing offers the potential to align long-duration liabilities with income-generating physical infrastructure. For sovereign wealth funds, it can combine financial return with strategic exposure to critical industrial capacity.

For development finance institutions, structured facilities can crowd in private capital once early technology risk has been reduced.

More broadly, the speed at which economies deploy energy systems, compute infrastructure and advanced manufacturing capacity will shape competitiveness and resilience in the coming decade.

To this end, there are powerful levers for government and external actors to play. These include supra or sovereign guarantees, as well as insurance solutions that make capital allocators more comfortable taking early-stage or novel asset risk.

Additionally, incentive schemes, grants and protective regulatory frameworks – for example, the EU’s solar incentives widely used to accelerate solar penetration or the UK’s Boiler Upgrade Scheme grant for cleaner heating systems – can improve the economic case for deploying hard tech.

Therefore, the constraint is not purely technological nor purely financial. It lies in how effectively capital markets translate innovation into investable, standardized instruments.

Asset-based financing, applied thoughtfully, can serve as that translation mechanism. The question for investors is not whether capital is available but whether mandates, underwriting frameworks and partnerships are evolving quickly enough to meet the demands of industrial scale-up.

As reindustrialization accelerates, those who adapt capital structures to match physical deployment will not only capture attractive risk-adjusted returns but also materially influence the pace at which this shift in critical infrastructure takes shape.