For projects requiring hundreds of millions, fundraising should be split into phases. The initial "pre-industrialization" phase, focused on proving technology, is suited for venture capital. Later phases for manufacturing and scaling should target project finance structures with debt/equity combinations and strategic partners.

The massive capital required for AI infrastructure is pushing tech to adopt debt financing models historically seen in capital-intensive sectors like oil and gas. This marks a major shift from tech's traditional equity-focused, capex-light approach, where value was derived from software, not physical assets.

CoreWeave's co-founder explains their innovative financing strategy: bundling GPU infrastructure with long-term revenue contracts to create a financeable asset. This approach, common for power plants, allowed them to raise $8.5B in investment-grade debt for their capital-intensive business.

Founders often see venture debt as cheap runway extension. However, it introduces restrictive covenants and a fixed repayment schedule, making it harder to pivot when necessary. This fragility is a high price to pay, as debt holders' incentives are misaligned with long-term equity growth.

Profitable manufacturer SendCutSend raised $110M not for operations, but to fund growth that can't be financed with traditional debt, such as hiring software engineers and securing buildings. They continue to use loans for hard assets like machinery, demonstrating a sophisticated, hybrid capital strategy.

To finance AI infrastructure without massive equity dilution, firms use debt collateralized by guaranteed, long-term purchase contracts from investment-grade customers. The rapidly depreciating GPUs are only secondary collateral, making the financing far less risky than it appears and debunking common criticisms about its speculative nature.

Unlike the asset-light software era dominated by venture equity, the current AI and defense tech cycle is asset-heavy, requiring massive capital for hardware and infrastructure. This fundamental shift makes private credit a necessary financing tool for growth companies, forcing a mental model change away from Silicon Valley's traditional debt aversion.

There's a critical financing gap for early-stage hardware companies. Venture debt firms avoid CapEx-heavy, unprofitable startups, while traditional banks require positive cash flow. This forces founders to either dilute themselves with expensive equity for equipment or risk their personal assets.

For asset-heavy hard tech companies, debt is most effective not as a bridge to the next equity round, but to finance long-lived assets (e.g., machinery) that are directly tied to contracted revenue. This approach de-risks the loan and supports scalable growth without excessive equity dilution, a sharp contrast to SaaS venture debt norms.