Financing for a Start-up Distributor

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September 18, 2017

by a searcher from Rice University - Jesse H. Jones Graduate School of Business in Houston, TX, USA

Hello Searchfunder Community, 

I am helping with the evaluation of a business that would be a distributor for some very specialized hardware and electronics focused on the entertainment industry.  The opportunity is interesting in that there are currently no distributors in the U.S. and the market has grown and will continue to grow substantially.    

One of the questions we are struggling with is how a distribution business gets it's initial capital to purchase inventory.  What are the funding options, outside of self-funding, family, and friends? 

Thanks in advance! 

Cheers, 

Chad

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Reply by a searcher
from Rice University in Houston, TX, USA
Hello Musa, and thank you for the response! I can certainly see a path to commoditization for most distribution businesses. The one thing I like about this opportunity is a recurring revenue model. At a high-level ... Commercial operators/owners of the hardware have to use the software platform provided by the manufacturer to launch the software applications that leverage the hardware being distributed. That platform requires a constant refreshing of credits which must be purchased through the distributor. Thus the more units sold, the more potential for recurring revenue. That potential is what makes it interesting.
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Reply by a searcher
from IE Business School in Arusha, Tanzania
Hi Chad, let's assume the manufacturers of the specialised hardwares and electronics are keen in having their products displayed in many places and also that your distribution points could work as stock for them, Then I guess you could think about negotiating agreements whereby, they could use your shelf lines to display and sell their products, without you paying them. You could offer to pay the delivery to your outlets, it will be far cheaper than accumulating inventories, which will increase your payable and threaten your cash position.
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