A founder called me a few years ago, three days after a meeting with a buyer at a large European retail chain. He was elated. The buyer had said the words every consumer hardware founder waits to hear: “We could see this in a few hundred stores.” He had already worked out the maths on a napkin. Units, landed cost, a purchase order that would take his company from a rounding error to a real business. He needed roughly a million to build the capacity, and he wanted to know which investors to call first.

I asked him one question. What has the buyer actually committed to in writing?

Silence. Then: “Well, they’re very enthusiastic.”

That is the trap, and I have watched it play out on both sides of the table. In China, building consumer hardware with the Jean-Michel Jarre venture, we grew one product into eight, and every single time a large distribution partner showed interest, the internal temptation was to treat that interest as capital that had already arrived. Later, working on lending models at HSBC in Hong Kong, I sat on the other side and saw how a credit committee actually reads a customer relationship. The gap between those two views is where most hardware companies die.

Investors are not pricing your demand

Here is the thing founders in this position consistently get wrong. They believe the hard part of their business is demand, and that they have just solved it. So they walk into a fundraise carrying a story about a major retailer and expect the money to be easy.

But nobody funding you is pricing demand. They are pricing execution risk. Specifically, they are pricing the probability that you can manufacture at spec, ship on time, land the goods at a cost that leaves margin, and get paid before you run out of cash. Demand is the input assumption they are least worried about, because in consumer hardware demand almost never kills a company. Cash timing does. Quality escapes do. A tooling delay of nine weeks that pushes you past the buyer’s on-shelf date and turns a purchase order into a cancellation does.

So when you present a CEO’s enthusiasm, a pilot in twelve stores, or a letter of intent that is shaped like a term sheet but binds nobody, you are handing over information that answers a question the investor was not asking. The letter of intent in particular is dangerous, because it looks like a document. It has a logo. It has numbers in it. In practice, most of the ones I have read contain a volume “estimate”, a non-binding intent to purchase, and a clause allowing the buyer to walk with thirty days’ notice. That instrument has almost no capital value. It cannot be assigned, it cannot be borrowed against, and a serious lender will tell you so in the first ten minutes.

What does have capital value is a purchase order with a stated quantity, a stated unit price, a delivery window and payment terms. That is a document a purchase order financier can work with. Everything else is a conversation.

The capacity leap nobody asked for

Now the more expensive mistake, and the reason I usually tell founders to shrink the ask before they raise a euro.

Most founders in this situation are not sizing their raise against the first order. They are sizing it against the retailer’s full potential. The buyer mentioned a few hundred stores, so the model assumes a few hundred stores, so the capex assumes tooling and inventory for a few hundred stores, so the raise becomes a million or more. Then that number gets defended in a pitch meeting as though the retailer had signed for it.

Go back and read what was actually said. In nearly every case I have seen, the buyer did not ask for a national rollout in month one. Retail buyers are risk-managing their own careers. A regional test, one SKU, one planogram slot, a seasonal window: that is what they usually want, and it is what they will usually agree to if you propose it with confidence. A first order at a fifth of the size is not a failure of ambition. It is the cheapest option you will ever be offered on the rest of the relationship.

The financial difference is enormous. Financing a capacity leap means equity, because no lender funds speculative capacity in an unproven consumer business. Equity at that stage, before you have proven you can deliver a retail programme, is priced brutally. Financing a specific, confirmed first order means working capital instruments: purchase order financing for startups exists precisely for this, along with supplier deposits, invoice discounting once the goods are delivered, and contract manufacturers who will hold some inventory risk if the relationship and the volumes justify it.

I have seen the same company raise at two completely different costs of capital six months apart, because the second time they had a real order, a delivered pilot and a payment history instead of a story. Capital raised against a de-risked order is cheap. Capital raised against the hope of one is the most expensive money you will ever take, and you take it at the exact moment you have the least leverage.

The five things I ask before you pitch anyone

When a founder tells me they need funding to scale manufacturing for a large retailer, I do not look at the deck. I ask five questions, and the answers usually reorganise the entire plan.

First, what does the buyer commit to in writing, and what are their cancellation and chargeback rights? Read the vendor agreement, not the email. Large retailers routinely include markdown allowances, returns provisions, late delivery penalties and listing fees. I have seen founders model gross margin at 40 percent and discover, after reading the vendor terms properly, that the effective margin after allowances and co-op marketing was closer to 25. That difference decides whether the deal is worth doing at all.

Second, what is the true landed cost at that specific volume? Not your prototype cost, not the factory’s optimistic quote for a volume you will not hit for two years. Landed cost at the actual first order quantity, including tooling amortisation, freight at current rates, duty, certification, packaging that meets the retailer’s requirements, and a realistic defect and rework allowance. In the China hardware work, the number that consistently surprised people was not the bill of materials. It was everything wrapped around it.

Third, who owns the tooling, and who pays for it? Tooling is where the cash goes first and where the leverage sits. If your contract manufacturer funds the tooling and amortises it into unit price, your upfront requirement drops sharply and you have shifted risk to a partner who understands manufacturing better than you do. The trade is that you are tied to that factory. Sometimes that trade is worth it, particularly on a first programme. If you pay for tooling yourself, get the ownership clause in writing and get the physical location of the tools documented, because that conversation is impossible to have later during a dispute.

Fourth, what are the payment terms, and how many months of cash sit between your outlay and their remittance? Write out the actual calendar. Deposit to the factory at order placement. Balance at shipment or on bill of lading. Ocean freight of several weeks. Delivery into the retailer’s distribution centre. Then payment terms that are commonly 60 or 90 days from delivery or from invoice, sometimes longer. Add it up honestly and you often find four to six months between your first cash outflow and their first cash inflow. That gap, multiplied by order value, is your real financing requirement. It is usually a different number from the one in the deck, and it is usually the number the deck should have been built on.

Fifth, what happens if they reorder twice as fast as you planned? Success is a cash event too, and it is the one founders never model.

What to do differently on Monday

Do not call an investor yet. Call the buyer.

Propose the smaller version: one region, one SKU, a phased first order, and lead times that are honest rather than heroic. Ask for the terms that cost the retailer nothing but change your financing profile completely, longer lead time being the most underrated of them. Get the purchase order issued for the phased quantity. Then take that document, with a clean landed cost model and a factory quote behind it, to a purchase order financier, to your bank, or to a strategic partner who will fund tooling against future volume.

Only after that, if there is still a real gap, raise equity. You will be raising a smaller amount, against a live order rather than an aspiration, with delivery risk that you have visibly reduced. That is how to raise capital after a big customer commitment without giving away the company to fund a rollout the buyer never asked for.

The retailer saying yes is not the finish line. It is the moment the operational work starts, and the moment your discipline about scope is worth more than your enthusiasm.

I write from twenty years of building businesses between Europe and Asia. If your company is facing this, start a conversation.