Industrial Finance for the Twenty-First Century

The United States has outsourced so much of its expertise and industrial capabilities that it is unable to produce even basic materials, such as face masks, at the height of the Covid-19 pandemic.¹ This outsourcing was done under the assumption that freer trade would not only promote closer ties between rising powers but also yield greater productivity for businesses, new jobs for workers, and sustainable economic growth.² Yet, as seen recently with China’s trillion-dollar trade surplus being leveraged to block critical minerals and basic semiconductor exports, this proved to be wishful thinking.³ Instead of the promised economic golden age, the country saw a depleted industrial base and an aging skilled workforce. Deindustrialization has been a poor choice, but reindustrialization will be a greater challenge.

Many entrepreneurs are taking this challenge head-on and have started impressive firms, building everything from autonomous factories for component manufacturing to autonomous ships. Yet despite the serious potential many of these start-ups hold, these new industrialists will need to access sufficient capital to scale their businesses. Take semiconductor reshoring as an example: a new semiconductor fabrication plant can cost between $10 billion and $25 billion, with Intel’s Arizona fabs projected at $15 billion each and Samsung’s Texas facility at $25 billion.⁴ Advanced battery manufacturing facilities, which are critical for energy and autonomous systems, are also expensive: a full-scale gigafactory may require $2 billion to $5 billion before it starts operations.⁵ Start-ups may not require such capital, but even smaller-scale precision manufacturing operations, such as machine tools, engines, or drones, require hundreds of millions of dollars for the up-to-date equipment.

Traditional financial institutions have been unable to finance these needs, as most bankers are accustomed to investing in less capital-intensive sectors, such as software or real estate, rather than manufacturing. This has left these firms in a difficult middle spot where they need far more capital than what private markets like venture capital typically fund, but their valuations are too low and credit risk is too high for traditional financial markets to finance at an affordable rate. With higher Treasury rates and concerns over an AI bubble, the economic landscape is relatively unforgiving for new industrialists seeking capital.⁶

Thankfully, there is a growing cohort of capitalists who are focused on providing the capital and operational leverage needed to drive growth. These new investors, like the American financiers of the nineteenth century, have been creating new avenues to finance start-ups that need more capital to scale. Some are focusing on the defense market, providing funding to firms through SBIR grants from the Department of Defense. Others, like JPMorgan, are restructuring their business models to do business with these new industrialists.

The most innovative, however, are new firms, such as the New Industrial Corporation (NIC), which combine the traditional practices of merchant banking with the innovation of special purpose vehicles to serve future national champions. Though it is still a developing model, it has the potential—if successfully deployed—to cater to the new indus­trial enterprises, a client base that traditional finance has been reluctant to serve. The following essay will explore how this model works and make the case for its adoption as a catalyst to reviving manufacturing on a national scale. But first, it is worth looking back at how finance lost its way in the postindustrial era, if only to get a better sense of the existing problems that any new financing model must resolve.

How the Financial Sector Used to Work

In most introductory macroeconomics classes, undergraduate students are taught that when they deposit savings in either a savings account or, if they are fortunate, a 401(k), they are entrusting those funds to the care of the financial sector, which ranges from local credit unions to major private equity firms. In theory, the financial sector will ensure an efficient allocation of capital to firms at an interest rate that both yields a reasonable rate of return for lenders and a fair cost of debt for borrowers.

This model held well in practice for approximately two centuries since the American founding. Thanks to the guidance of Alexander Hamilton and the developmental tradition he spawned, successive generations of U.S. leaders understood that the key to economic growth was the nascent industrial sector. Physical capital, coupled with innovation, required financial capital to scale operations effectively. The government encouraged industrialization through infrastructure devel­opment, cheap loans, and tariffs on manufactured goods, notably chartering the First and Second Banks of the United States.

The First Bank of the United States was more like the government’s “fiscal agent,” but it did operate as a commercial bank lending to private citizens and businesses. While the first federally chartered bank did create a relatively stable currency and helped fund the country’s westward expansion, the private sector provided more direct capital to borrowers.⁷ In fact, over the course of the nineteenth century, the progress of American industrialization was tied to the growth of the country’s financial sector.

The Civil War, despite tearing the country in half, did not stop this growth. Bankers became eager to serve the Union and its expanding industrial economy, helping to fund the war effort while at the same time laying the foundations for the boom that followed the development of the steel, railroad, and oil industries.

This tremendous pace of development, however, was consistently interrupted by financial panics, bank runs, and overinvestment. Periodically, the financial sector encouraged valuation bubbles as entrepreneurs overbuilt capacity with rosy predictions. One notable crash was the Panic of 1873, in which overinvestment in railroads led a major bank to declare bankruptcy and caused a severe economic recession. These panics came before the United States developed regulatory guardrails, leaving many families ruined if they were unlucky enough to put their savings in the wrong bank.

Yet despite these serious setbacks, the economy grew by an average of roughly 3.9 to 4.1 percent across the nineteenth century.⁸ The United States went from a frontier economy with a small industrial base to an industrial giant that held half of the world’s manufacturing capacity, easily dwarfing the European powers. By the time Theodore Roosevelt was sworn in as president, the United States produced approximately ten million tons of steel, 270 million short tons of coal, and laid more than a cumulative of 200,000 miles of railroad track.⁹ Credit should be given to the hard workers and visionary business leaders for their labors, though most of that growth would not have been realized without a few enterprising bankers financing their businesses.

Emblematic of the financial class of this era was J. P. Morgan, whose namesake firm excelled in the practices of merchant banking. Unlike banks that simply provided loans, Morgan perfected what would be called “relationship banking,” combining equity investment, debt financing, operational restructuring, and hands-on management oversight. When Morgan financed a railroad or industrial enterprise, he took equity, secured board seats, replaced management, and remained deeply involved for years or decades until the enterprise achieved sustainable profitability. In a way, this is similar to how private equity does business, though unlike the modern firms that focus more on short‑term carry, J. P. Morgan focused on consolidation and longer-term wealth generation.

This approach earned its own term: “Morganization.”¹⁰ When Morgan reorganized bankrupt railroads between the 1870s and 1900s, his firm would acquire the distressed property, inject fresh capital, install professional management, and negotiate agreements with competing lines to end destructive rate wars. He sometimes created voting trusts, giving him effective control over multiple railroads. The goal was consolidation through merging smaller competitors into larger regional systems that could operate profitably without self-destructive competition.

By 1902, Morgan controlled over five thousand miles of track through active management and strategic consolidation.¹¹ This was industrial organization at continental scale, requiring multidecade commitments, and patient capital.

Morgan applied these principles beyond railroads. He created General Electric by merging Edison General Electric and Thomson-Houston Electric in 1891, combining complementary technologies and management teams. In 1901, he purchased Andrew Carnegie’s steel empire for $500 million and combined it with competitors to create U.S. Steel, the world’s first billion-dollar corporation.¹² In both cases, Morgan provided not just capital but the operational expertise and a long-term vision to build enduring industrial enterprises.

This merchant banking model succeeded because it aligned Morgan’s interests with his clients’ long-term success. His board seats and equity stakes meant he profited only when enterprises achieved genuine operational improvements and sustained growth. It was a riskier exposure than other forms of finance, but this patient capital approach enabled the massive fixed-asset investments that built America’s industrial infrastructure.

Despite his reputation as a ruthless robber baron, J. P. Morgan, along with the other financiers of the industrial age, never forgot that they were, first and foremost, American bankers; they understood full well that their ambitions and destinies were always tied to the nation. Morgan, after all, singlehandedly saved the United States from going bankrupt by serving as its lender of last resort during the Panic of 1893 and by rescuing banks during the Panic of 1907.¹³ These episodes later persuaded the government to establish the Federal Reserve.

Morgan was followed later in the twentieth century by the likes of Bernard Baruch, Sidney Weinberg, and David Rockefeller, all of whom were representatives of a model of American finance that was highly dynamic in its effect on national development as well as patient, patriotic, and conscientious. Their capital quite literally helped to build the American Century, financing the industries that won the World Wars and the growth that made the middle class possible. But their way of finance did not last; succeeding generations pursued a different and less wholesome path, one that American capitalism is still stranded on to this day.

The Decline of American Finance

As the American economy transitioned to peacetime footing after 1945, the financial industry underwent several technological and institutional changes. Some of those trends, such as the advent of the credit card and the ATM, were helpful, though others proved harmful. What started to turn finance from a driver of American manufacturing and innovation into a rent-seeking industry were three main changes: the rise of leveraged buyouts, the decline of partnerships, and the advent of financialization.

Over the past three decades, the private equity industry has grown exponentially, receiving substantial capital from qualified investors and career interest from young investment bankers seeking higher incomes and social prestige among their peers. Most of these firms generate returns through the leveraged buyout (LBO) model, that is, by raising capital for a managed fund and then identifying firms that meet their investment criteria.¹⁴ Once a target company has been identified and agreed to be sold, the PE firm finances most of the transaction by borrowing heavily at (ideally) an attractive rate; the firm holds the company for a few years while (ideally) improving its operations and paying down the debt. Eventually, the firm is sold, and if the investment goes as expected, investors receive a healthy return, the portfolio company operates more efficiently, and the PE operators are generously rewarded from both their fees and carry.

According to the Daily Upside, there are approximately nineteen thousand PE firms in the United States alone, surpassing the fourteen thousand McDonald’s franchises.¹⁵ Yet the proliferation of firms conducting LBOs has not led to higher investor returns or improved corporate performance. The think tank American Compass, as part of its special series investigating private markets, found that most of these firms do not consistently outperform the public market.¹⁶ Part of the reason for this lack of returns is that investing in these firms is expensive, as they generally charge a 2 percent management fee on invested capital and keep 20 percent of any realized profits.

But the industry’s disappointing returns primarily stem from its business model. The LBO business model can only work if firms leverage their target companies cheaply, and the valuation rises further. This was the case in the 2010s, with low interest rates and a trend toward rising asset prices. Since Covid-19, however, many PE firms have spent heavily on portfolio company acquisitions, particularly in 2020 and 2021, limiting potential upside because valuations cannot realistically grow as quickly as before. This has left many firms in the unenviable position of holding these companies for longer than anticipated, unable to refinance their debt or sell at an attractive price.¹⁷ Such issues have disappointed investors and have also harmed their returns.

Additionally, private equity has a poor reputation for how it manages its portfolios. There have been several case studies of marquee firms falling prey to private equity, which leveraged them with too much debt and made poor management decisions.

One notable case study is the retailer Toys “R” Us, which Bain Capital, KKR, and Vornado acquired in 2005 for $6.6 billion, using over $5 billion in debt.¹⁸ The company was operationally profitable with $792 million in ebitda (earnings before interest, taxes, depreciation, and amortization), but with its $400 million in annual interest payments, it had almost no operating income left.¹⁹ Unable to invest in store up­grades or e-commerce, Toys “R” Us filed for bankruptcy in 2017 and liquidated in 2018, eliminating thirty-three thousand jobs. Toys “R” Us represents a broader pattern: between 2015 and 2020, PE-owned retailers accounted for 56 percent of all retail bankruptcies and eliminated over 540,000 jobs.²⁰ A 2019 study found that 20 percent of private equity takeovers end in bankruptcy, ten times higher than companies without PE ownership.²¹ Not all investments end this way, and some firms are more careful with their portfolios. Yet stories like Toys “R” Us have become too familiar among investors whose claims of investment discipline allow them to raise billions from investors looking to beat the market.

Another flaw within the financial sector lies between the middlemen, namely the investment bankers. Before the 1990s, most investment banks were governed as partnerships, with partners having a stake in the business similar to a management consultancy or law firm. This encour­aged a culture of what a senior Goldman partner would call “long-term greedy,” where short-term losses are acceptable so long as money is made in the long term.²² The partners focused on building new products and fostering long-term client relationships, while discouraging reckless risk-taking that could bankrupt the company.

For the most part, this partnership model worked effectively as partners collaborated to lead their respective firms and ensure their legacy continued from generation to generation. It also kept the firms relatively small both in terms of headcount and their balance sheets. For instance, there were only sixty-three partners at Goldman Sachs.²³ And these partners had proven themselves to be good stewards of the firm’s capital and reputation. This size limited the amount of additional capital banks can borrow and prevented them from rapidly expanding into other markets.

Starting in the 1990s, however, deregulation of the financial sector and globalization encouraged firms to adopt the governance structure of a publicly traded corporation. Several investment banks went public, with Goldman Sachs among the last major investment banks to do so in 1999.²⁴ This led to both their headcount and balance sheets growing exponentially throughout the 1990s and early 2000s as they led IPOs, advised on several mergers, and, infamously, packaged mortgages into asset-backed securities. It also led to a culture change for the worse, as banks shifted from building long-term relationships to generating as much short-term income as possible, even if it did not benefit clients.

In a 2012 New York Times op-ed, a former Goldman Sachs investment banker decried a toxic environment where clients were seen as “muppets” and bankers as salesmen for services or products they wanted off their balance sheets.²⁵ While most bankers in this era did not break the law, their short-term greed led to the 2008 Financial Crisis and a wave of populism that the world is still experiencing. It also created a new package of regulations, such as the Markets in Financial Instruments Directive II in the European Union and the Dodd-Frank Act in the United States, that prevented financial institutions from engaging in risky behavior that wrecked their competitors.²⁶ Such restrictions kept the major banks central to the financial industry, but these firms have become focused on finding stable sources of income to replace the loss of profitable services, such as proprietary trading. This has led to a culture of risk minimization, in which large investment banks can no longer engage in some of the activities they could have taken up when they were a smaller partnership.

Lastly, another “innovation” that harmed American finance didn’t originate from the banks, but from American corporations themselves. American industries turned to financialization, shifting corporate revenue and profits from producing goods and services toward financial activities such as lending, currency trading, and investment. This was apparent with most industries since the 1980s, but within the manufacturing sector, the percentage of finance revenue to profit has reached as high as 60 percent since 2000.²⁷ Manufacturing companies were generating more profit from financial activities instead of generating the profits from productive activities and investment.

This transformation fundamentally altered how corporations allocated capital and the nature of GDP in most advanced economies. The financial sector’s share of GDP doubled from 10 percent in 1970 to 20 percent by 2010, while Wall Street profits surged from less than 10 percent of all corporate profits in 1982 to 40 percent by 2003. As finance critic and IndustryWeek columnist Michael Collins observed, “the focus of the economy was no longer on making things; it was on making money from paper.”²⁸ Firms and their executives were rewarded for their financialization pivot, with executives receiving larger bonuses and firms seeing their stock prices rise in the 1990s and early 2000s.

The poster child of this financialization was the blue chip firm General Electric under CEO Jack Welch, who dramatically expanded its financial services arm, GE Capital. Under his watch, GE Capital grew from a marginal operation supporting appliance sales into a behemoth that at its peak accounted for nearly 60 percent of GE’s profits.²⁹ Its total assets swelled from $371 billion in 2001 to almost $700 billion by 2008. This left the company vulnerable when the 2008 Financial Crisis hit, requiring a $139 billion bailout in FDIC-guaranteed loans. The company never recovered its profit-making highs in the 2000s; GE Capital effectively became a millstone around the firm’s neck, leading to even more losses in the 2010s. In addition to other poor investments, the company was forced to spin off several divisions and was even dropped from the Dow Jones Index after being in the 30-stock index since 1896.³⁰

The consequences for American manufacturing were severe. Blue chip companies are now optimized for short-term financial returns rather than long-term productive investment. Their management is dominated by executives with finance or management consulting backgrounds rather than engineering or operations, bringing what former GM vice chairman Bob Lutz called a “financial control mentality” that treated manufacturing divisions as cost centers to be minimized rather than capabilities to be developed.³¹ Because of this, many manufacturing companies have had difficulty increasing production, as many lost engineering talent and capital after underinvesting in those capabilities. Another representative example of a great industrial firm being hollowed out by finance in this way is Boeing, which saw its balance sheets and reputation in tatters as evidence of underinvestment in core products and services became glaringly evident after the door fell out of an Alaska Airlines plane midflight in 2024. Wall Street bears some blame for encouraging this transformation over the past forty years, but one of the main reasons manufacturers cannot build a plane on time and under budget is not the banks, but manufacturers abandoning manufacturing themselves.

The Market Failures of the Financial Sector

Because of these trends, the U.S. financial sector is not well quipped to support new industrial investment at scale. To understand how industrialists are trapped by this situation, it is helpful to examine how Wall Street and Silicon Valley fall short.

In the case of traditional finance, most of Wall Street may write reports on reindustrialization and the need to invest trillions in the effort, but the primary services they can provide to industrialists remain mostly in wealth management. The major investment banks tend to prioritize serving Fortune 500 companies through raising capital, M&A advisory, and, occasionally, shareholder defense. Most investment banks will not meaningfully consider providing corporate banking services to clients with a small valuation. The significant exceptions are private companies that have garnered high valuations, such as Palantir, or have achieved technological breakthroughs, such as OpenAI. Yet even if valuations are sufficient to merit services from Wall Street, investment banks can provide only limited access to funding through the traditional equity or debt capital markets.

In the equity capital markets, industrialists could pursue an initial public offering (IPO) to raise equity capital, but this option is available only if the company has sufficient investor interest or is generally profitable. Additionally, entering the public markets brings additional regulatory and investor pressure that start-ups cannot handle, such as stock exchange pricing requirements and SEC regulations. Some companies have attempted to circumvent the IPO process by being acquired by a Special Purpose Acquisition Company (SPAC), a publicly traded fund that acquires a target company.³² These SPACs gained notoriety in the late 2010s for acquiring companies at higher valuations, only for most of the newly publicly traded firms to file for bankruptcy, or even be investigated for securities fraud, as was the case with Nikola Motors.³³ Accessing equity markets can be a good option for established companies, but public equity markets remain inaccessible to most start-ups.

In terms of debt, start-ups could access the leveraged finance market, but given their lack of robust credit ratings, this market can be expensive and stringent, placing several restrictive covenants that prevent them from raising more capital without steady returns. Start-ups may be able to negotiate lines of credit or term loans directly, as firms still lend to clients on a case-by-case basis. Yet more stringent capital requirements imposed after 2008 limit how much investment banks can lend.³⁴ Investment banks are reluctant to lend the full amount required, given that the loans increase the company’s leverage and are not as profitable. The main reason investment banks provide these term loans is to build a business relationship that leads to future banking mandates, such as serving as lead underwriter for an IPO or providing M&A advisory services. But it is difficult to make that assessment when a firm has just raised its Series A round, leaving this option unavailable as well.

If industrialists cannot do business with the investment banks on Wall Street, their other alternative is the private markets, such as private equity or venture capital. On the surface, venture capital appears to be the better partner, as its business model is to finance start-ups in the hope that they will grow into unicorns and even new household names. Most venture capital firms, however, are not structured to write the extensive checks necessary for scaling industrial firms. VCs are designed to invest small amounts of capital in several early-stage firms, assuming that their equity values will rise quickly and exponentially.³⁵ Writing these small checks allows for the potential for significant returns while also diversifying risk, as most firms will either fail or grow less than expected. The model works for companies that require low capital, such as software companies, but it does not work for hard-tech companies with high capital requirements and long, slow buildouts.

Industrialists may leverage venture capital for seed funding, but if they have impractically high valuations, they can raise only the capital they need to build the physical infrastructure. This may have been possible before 2022, though investors are more skeptical of valuations now, making it difficult for them to realize high returns at this price point. Some investors may highlight firms like Anduril or Palantir that have broken through, yet these examples are the exceptions that prove the rule. These firms are mainly software-driven and were founded as money-losing enterprises that couldn’t access traditional markets. For other start-ups, it remains challenging to launch a capital intensive project without access to reliable and affordable capital.

Offshoots in Manufacturing Financing

Fortunately, several bankers and institutions are recognizing this problem and revamping their services to support the new industrialists. The loudest institution in this field has been the behemoth investment bank JPMorgan Chase. In October of last year, the firm announced its Security and Resiliency Initiative, a $1.5 trillion ten-year plan to invest directly in industries it deems “critical to national economic security and resiliency.”³⁶ The initiative will invest up to $10 billion in select U.S. companies, focusing on at least one of four key areas: advanced manufacturing, aerospace and defense, energy independence, and frontier technologies. The firm recently placed Jay Horine, who previously served as cohead of the firm’s investment banking division and has covered the energy sector, to oversee this initiative, indicating this is not a PR campaign.³⁷

The U.S. government is also providing additional avenues for firms to access capital. Within the Department of Defense, the Office of Strategic Capital (OSC) provides capital to both investment managers and companies focusing on critical supply chains. The OSC has made notable investments in MP Materials and Vulcan Elements, with additional announcements expected. Additionally, the Trump administration has proposed a sovereign wealth fund empowered to make strategic investments.³⁸ So far, progress has been slow in establishing the fund with little indication of its proposed governance, but it carries significant upsides if properly managed.

Lastly, some financiers provide capital through other means. Some firms offer lines of credit or term loans secured by future cash flows or government contracts, allowing the company to have the cash needed for capital expenditures immediately. One of those firms is Leonid Capital Partners, which focuses on start-ups in the national security space. What Leonid does is provide loans and lines of credit to firms that are looking to expand while serving the Department of Defense.³⁹ The company’s contracts with the DoD secure some of these loans. The loans provide the cash needed to expand operations or cover operating expenses while Leonid generates income from interest, ensuring a win-win situation.

All of these efforts are beneficial to reindustrialization, though most initiatives are generally within the traditional business models of finance. To fully scale these industries into national champions, there needs to be what Gregory Bernstein, William Godfrey, and Brett Bivens of the New Industrial Corporation describe as “Production Capital.”⁴⁰ Most start-ups cannot carry much debt on their balance sheets directly, nor can they afford continuous equity fundraising, which drives valuations to ridiculous levels. What is needed most is for companies to be able to raise capital while providing flexibility for their balance sheets so they are not constrained for future development. There is one mechanism within project finance that can meet industrialists’ needs if done correctly: the special purpose vehicle.

The Best Alternative: The Special Purpose Vehicle

A Special Purpose Vehicle (SPV) is a legally distinct subsidiary created by a parent company to raise capital in order to build and own assets.⁴¹ The SPV, while majority-owned by the parent company, would have its own balance sheet and be legally separated from the parent company’s financial condition. This legal separation allows the SPV to be established as bankruptcy-remote, meaning its assets and obligations remain separate from the parent company if either the parent company or the SPV faces insolvency.

SPVs are not a new concept, as they have been used frequently in securitization, venture capital, and project finance. Investors have built industrial parks, solar projects, and even special economic zones worldwide, using SPVs to raise funds from various public and private sources.⁴² What is new is that start-ups are using this model to raise capital for specific projects without severe equity dilution. For industrialists, SPVs are a compelling financial tool to acquire capital for large projects.

An SPV’s mechanics center on asset securitization and ringfencing.⁴³ A manufacturing company transfers specific assets or future revenue streams into the SPV. These might include manufacturing equipment, real estate, intellectual property rights, or long-term supply contracts. The SPV then uses these assets as collateral to raise capital through debt issuance or equity investment. Because the SPV’s assets and cash flows are dedicated to servicing this subsidiary’s obligations, investors face lower risk than they would if lending directly to the parent company. If the assets are insufficient to meet its commitments, they can be used to make the investors whole during bankruptcy proceedings, without placing the parent company’s assets at risk. This risk segmentation translates into more favorable financing terms, lower interest rates, and ensures that the capital raised matches the assets held and cash flow generated.

To see how this would work, consider a new manufacturing company looking to start a facility. When they create an SPV to finance a new production facility, the debt or equity issued by the SPV does not appear as a liability on the parent company’s balance sheet, provided that it is correctly accounted for under consolidation rules. The parent company can therefore raise capital without proportionally increasing its apparent leverage. The new facility would generate operating cash flow once operational, so SPV financing matches the asset’s liabilities directly to its revenue-generating capacity, rather than burdening the parent company’s entire capital structure.

Additionally, SPVs allow industrialists to market their projects to specialized investors that seek specific risk-return profiles but do not want equity or debt in the parent company. Infrastructure investors, sovereign wealth funds, and pension funds, which tend to have sufficient cash available to invest in these projects, often prefer the predictable, asset-backed cash flows that SPVs provide over the volatility of start-up equity or the risk profile of unsecured corporate bonds. A manufacturing company creating an SPV to finance a production facility with a thirty-year lifespan can attract long-term institutional capital that aligns with the asset’s economic life. This ensures the company receives investment from “patient” capital that appreciates over a longer investment horizon, remains secure, and provides consistent cash flow.

The structure also facilitates project-specific partnerships and joint ventures. When multiple stakeholders, such as an established manufacturer, a technology provider, or even the federal government, wish to collaborate on a new manufacturing venture, an SPV provides clean separation of this specific project from each partner’s other operations. Each party contributes assets, expertise, or capital to the SPV and receives returns directly tied to the venture’s success, without entangling their broader corporate finances.

Lastly, SPVs offer capital efficiency for capital intensive manufacturing investments with clear, separable cash flows, such as contract manufacturing facilities with long-term customer commitments or specialized equipment purchased for dedicated production runs. The parent company can leverage the specific project more aggressively than would be prudent for its overall corporate balance sheet, extracting maximum value from strong individual projects without risking financial distress if other corporate divisions underperform.

Yet SPVs are not without substantial drawbacks that limit their accessibility. To begin, establishing a properly structured SPV can be costly. For venture capital and private equity applications, setup costs typically range from $5,000 to $15,000 for initial formation, with ongoing administrative expenses ranging between 1 to 2 percent depending on complexity and reporting requirements.⁴⁴ It is relatively affordable to set up such an SPV for common occurrences. But for manufacturing applications requiring bankruptcy-remote structures with sophisticated asset transfers and lender documentation, legal fees for entity formation, drafting appropriate transfer documents, and ensuring bankruptcy remoteness can easily exceed hundreds of thousands of dollars. An SPV will also require ongoing accounting and tax structuring costs, as it requires sophisticated expertise to ensure regulatory compliance and to optimize treatment under consolidation rules.⁴⁵ There are additional monetary costs beyond establishing the SPV: credit rating agencies must be paid to evaluate the structure, all the documentation must satisfy lender requirements, and ongoing reporting requirements create permanent overhead.

Beyond monetary cost, SPVs require financial sophistication that most start-up founders lack. Understanding whether an SPV structure is appropriate, structuring asset transfers, identifying which assets can be isolated, negotiating with specialized lenders, and maintaining the legal separation require expertise typically available only to large corporations with dedicated treasury teams or access to elite financial advisory services. Start-ups, as talented as their founding teams may be, do not always possess that knowledge.

These limitations create a catch-22: SPVs offer advantages to smaller manufacturers who most need balance sheet-efficient financing for growth, yet these same companies face the highest barriers to accessing such structures. Large corporations with ample internal resources and deep relationships with investment banks can readily establish SPVs; struggling midsized manufacturers with compelling investment opportunities but limited financial infrastructure cannot.

This is precisely where a merchant bank that specializes in SPVs can come into play. By providing financial expertise, legal frameworks, and capital to structure SPVs specifically for manufacturing investment, a firm can democratize access to sophisticated financing structures that are currently accessible only to corporate giants. Fortunately, there is one firm that is a pioneer in this field, and it already has traction with their business model: the New Industrial Corporation.

Merchant Banking for a Reindustrialized America

The New Industrial Corporation’s (NIC) offices on New York’s Park Avenue sit right above the luxury stores and busy Midtown streets. Inside their new offices, a small team of bankers with decades of experience work at their cubicles and corner offices, putting forward a genuinely novel institutional response to the capital formation challenges facing American manufacturing.

The idea came to its main principal founders simultaneously, particularly Gregory Bernstein, who developed this approach while at the European firm EQT.⁴⁶ Joined by Matthew Coady and Peter Meijer, the NIC takes the SPV structures and builds an entire investment platform around deploying them systematically for early-stage manufacturing companies with significant capital requirements. Rather than operating as either a traditional venture capital fund or a conventional project finance firm, the NIC has created a hybrid model that combines the classical merchant banking ethos with twenty-first-century industrial needs.

The firm’s founding thesis is straightforward: there exists a significant opportunity gap between venture capital’s typical check sizes and manufacturing’s capital requirements. A deep tech start-up developing advanced manufacturing technology might raise $5 to 10 million in Series A funding from venture capital, but it might then require $100 to $500 million to build a competitive production facility. Traditional venture capital cannot write checks of that magnitude without either taking complete ownership or forcing valuations so high that future returns become impossible. The NIC’s solution is to separate the company’s equity financing from its project financing through a deliberately structured three-fund architecture.

The NIC’s structure comprises three distinct investment vehicles: the NIC entity itself, the NIC Corporate Fund LP, and the NIC Co-Investment Fund LP. Investors commit capital across all three simultaneously in a fixed allocation. This mandatory bundling ensures that each component of the investment thesis receives sufficient capital and that investors capture returns from multiple stages of the value chain.

The Corporate Fund operates as the first stage in investing in the portfolio companies. It makes relatively traditional venture capital investments in early-stage manufacturing companies, but only if they will likely need massive capital to commercialize their technology through manufacturing projects. These investments are explicitly characterized as “toe-hold positions” that provide the NIC with its first level of engagement with a company. The fund operates consistently like a traditional VC fund, but its thesis anticipates that returns will only materialize when the company successfully develops projects through the NIC’s platform.

The Co-Investment Fund represents the NIC’s second stage, serving as the capital deployment vehicle for the actual development of SPVs. With a seven-year investment period (extendable to eight years), this fund provides equity capital specifically to Project Vehicles, the SPVs that own and operate the large-scale manufacturing facilities the NIC develops. Notably, the Co-Investment Fund charges no performance fee; distributions flow entirely to investors based on their capital commitments. This structure reflects the fund’s role as a project finance vehicle rather than a traditional venture capital fund, with economics more similar to an infrastructure investment fund than high-growth equity.

The NIC entity itself operates as the orchestrator and manager of this ecosystem. When a Corporate Fund portfolio company decides to pursue a major manufacturing project, the NIC creates a Project Vehicle (SPV) to own that specific project. Both the NIC and the Co-Investment Fund may take equity stakes in this Project Vehicle, and the Vehicle itself pays the NIC management fees for ongoing project development and operational services. These management fees are how the NICs generate revenue, a crucial structural difference from typical venture capital, where funds pay management fees to the general partner rather than the other way around.

This inverted fee structure creates a strong incentive to invest and develop these SPVs. The NIC must successfully develop operating projects to generate revenue for its own operations, as neither the Corporate Fund nor the Co-Investment Fund pays traditional management fees. Extracting 20 percent of committed capital over a ten-year fund life, even if investments fail, the NIC receives fees only from Project Vehicles that reach operational status. If the NIC cannot structure and execute viable projects, it cannot sustain itself.

The Project Development Process

The typical NIC engagement begins when the Corporate Fund identifies a technology company with significant manufacturing potential, such as advanced materials, precision manufacturing equipment, or specialized production processes.⁴⁷ The Corporate Fund makes an initial equity investment, providing the company with capital to complete product development and prepare for commercialization. This investment also establishes the relationship and positions the NIC to understand the company’s technology, market opportunity, and capital requirements.

As the company approaches the point where it needs to scale manufacturing capacity, the NIC begins developing the project. This involves comprehensive operational due diligence on manufacturing requirements, facility design, equipment procurement, site selection, supply chain development, and customer contracts. The NIC maintains what it describes as an “Operations Group”: a team of noninvestment professionals, either employees or independent contractors, providing expertise in several areas, including finance and tax, legal, and human resources. This operational support addresses a critical gap: most early-stage companies lack the expertise to develop large-scale manufacturing projects, and hiring such expertise permanently would be prohibitively expensive.

Once the project structure is defined, the NIC creates the Project Vehicle as a bankruptcy-remote SPV that will own the manufacturing facility. The Co-Investment Fund provides equity capital to this Project Vehicle. But critically, the Co-Investment Fund’s equity is designed to serve as the foundation for attracting substantial third-party debt financing. The NIC may seek third-party financing for projects, and either the Co-Investment Fund or the NIC itself anticipates independently anchoring each project to improve terms with lenders.

This is where the SPV structure described previously becomes operationally critical. The Project Vehicle, as a bankruptcy-remote entity with ring-fenced assets and cash flows, can support project-level debt that the underlying technology company could never obtain on its balance sheet. If the Project Vehicle is structured around long-term supply contracts or government purchase commitments that provide consistent cash flows, institutional lenders can underwrite debt explicitly based on the project’s economics rather than the uncertain prospects of an early-stage company. The result is total leverage that can reach 60 to 70 percent of project cost, similar to infrastructure financing, creating a balance sheet far larger than venture equity alone could provide.

Throughout this process, the portfolio company would benefit from manufacturing capacity worth multiples of what it could have developed using only venture equity, without proportionally burdening its corporate balance sheet with project-level debt. The company might pay the Project Vehicle for production services, license intellectual property to it, or structure an eventual acquisition once the project proves successful. The separation of project finance from corporate finance allows the company to pursue aggressive manufacturing expansion while preserving balance sheet capacity for ongoing R&D, working capital, and future equity fundraising.

Revenue Generation and Returns

The NIC’s revenue model operates at multiple levels, creating diverse pathways to generate returns. For the NIC entity itself, management fees from Project Vehicles provide operational revenue. These fees compensate the NIC for project development services, ongoing facility management, supply chain coordination, and operational optimization. Unlike conventional venture capital management fees, which are paid by investors regardless of portfolio performance, the NIC’s fees come from operating projects that generate real cash flow, tying the NIC’s institutional success directly to project execution.

For investors in the Corporate Fund, returns follow a conventional venture capital distribution: 20 percent to the general partner on profits. The path to those returns differs substantially from traditional venture capital, however. The Corporate Fund returns likely come from strategic exits, such as the acquisition of portfolio companies, their mergers with their Project Vehicles, or their reaching sufficient scale and profitability to pursue public markets. The investment thesis accepts that these exits may take longer than conventional venture capital because value realization depends not just on technology validation but on successful project development and commercialization at scale.

The Co-Investment Fund’s economics are simpler and more infrastructure-like: no performance fee, with all distributions flowing to partners in proportion to their capital commitment. Returns come from Project Vehicle cash flows, either through regular distributions as facilities generate profits, or through eventual sale or refinancing of mature projects. The Co-Investment Fund effectively provides equity capital to manufacturing infrastructure projects, capturing equity returns on those assets without the performance-fee layer typical in venture capital.

This multitiered structure creates several attractive features for investors willing to commit capital across the entire platform. First, there is diversification across several funds: the Corporate Fund provides venture-style equity exposure to early-stage companies, the Co‑Investment Fund offers infrastructure-style exposure to operating manufacturing assets, and both benefit from the NIC’s operational leverage through its fee revenue. Second, the absence of traditional management fees on both funds eliminates a significant drag on returns, with investors paying only 20 percent of all gains to the general partners. Third, investors capture value at multiple points in the development cycle: from initial company equity appreciation to project-level cash flows and asset value.

While there is an attractive value proposition for investors, it is also equally clear for manufacturing companies. They gain access to the SPV structure and infrastructure-level capital that early-stage ventures typically cannot obtain. They benefit from deep operational expertise in manufacturing project development without having to expand their organizations permanently. They can pursue aggressive commercialization and scale without proportionally burdening their main balance sheets with project-level debt. And they receive patient capital from investors whose returns depend on successful long-term development rather than quick exits that might not align with manufacturing’s longer timelines.

New Protein International and the NIC

The NIC model is already being tested in its first project: Origin North, a joint venture with New Protein International (NPI) that exemplifies the type of manufacturing reindustrialization the NIC supports. The Origin North case demonstrates how the NIC’s three-fund structure and SPV approach can transform a promising company with massive capital requirements into an operating manufacturing platform that would otherwise remain unrealized.

New Protein International spent seven years developing BioPur extraction technology: a hexane-free, mechanical CO₂ cold press process for producing soy protein isolate (SPI). The technology addresses a significant market opportunity: virtually all current SPI production relies on hexane, a petrochemical solvent classified as both a neurotoxin and carcinogen. In 2024, the European Food Safety Authority issued a technical report calling for reevaluation of hexane use in food systems, citing “data gaps, potential toxicity concerns, and lack of transparency in current use.” This regulatory pressure, combined with growing consumer demand for clean-label ingredients, creates a substantial opportunity for hexane-free alternatives. The global plant protein market is projected to reach $14.5 billion by 2025, with soy protein accounting for 67 percent of the market.

NPI had validated its technology at pilot scale, established a state-of-the-art innovation lab in Benmiller, Ontario, and secured both supply agreements with non-GMO soybean providers and offtake commitments from major food ingredient distributors. The company identified an ideal site in Sarnia, Ontario, adjacent to the U.S. border, with onsite power generation capability and direct access to raw materials and distribution infrastructure. It negotiated land leases, utility agreements, and preliminary customer contracts. In essence, NPI had accomplished what most early-stage companies rarely achieve: derisking the project to the point where commercial viability was demonstrable rather than theoretical.

Despite this progress, NPI could not secure the capital required to build the facility. The first commercial plant requires a 140,000 square foot facility capable of processing seventy thousand metric tons of soybeans annually to produce 17,250 metric tons of SPI. The total expenditure for this facility could exceed $400 million. This capital requirement far exceeds what venture capital typically provides to companies at NPI’s stage. The company might have raised $10 to 20 million in venture funding based on its technology and market validation, but that represents roughly 5 percent of the total capital needed. Traditional project finance was equally inaccessible; infrastructure lenders prefer established companies with proven business models and extensive operating history rather than early-stage technology companies commercializing novel processes.

The NIC partnership, formalized in 2025, completely restructured the financing problem. Rather than NPI attempting to raise the capital against its corporate balance sheet, the NIC created Origin North as a distinct Project Vehicle, one structured as a joint venture between NPI and the NIC. This SPV structure immediately transformed the financing proposition for third-party lenders and investors. Afterwards, Origin North raised over $250 million in senior debt from lenders who could underwrite specifically against the facility’s projected cash flows, contracted customer offtake agreements, and ring-fenced assets rather than against NPI’s limited corporate history. The SPV’s bankruptcy-remote structure meant lenders faced project-level risk with clear collateral rather than corporate risk intertwined with NPI’s other activities and obligations.

The structure also included $40 million in government grants, reflecting both Canadian federal support for food processing infrastructure and provincial incentives for manufacturing investment. These grants reduce the effective cost of capital but typically flow to established operators or projects with substantial private capital already committed.

Beyond government support, Origin North raised over $30 million in preferred equity structured as subordinated debt, providing a cushion that makes senior debt more secure. The remaining capital came through equity investment, likely combining capital from the NIC’s Co-Investment Fund with strategic investors who could provide both capital and industry relationships.

From NPI’s perspective, this structure provides several crucial advantages. The company maintains equity ownership in Origin North without having taken project-level debt onto its corporate balance sheet. NPI can continue pursuing additional technology development, licensing opportunities, and future facilities without being constrained by Origin North’s debt obligations. The company receives ongoing fees for its intellectual property and potentially for technical services to the facility, creating revenue streams that strengthen its corporate finances. And perhaps most importantly, NPI successfully commercialized its technology at a meaningful scale, transforming from a company with promising pilot results to one with an operating manufacturing platform that will eventually produce revenue.

For the NIC, Origin North represents the model’s intended operation. As the Sarnia facility moved toward construction readiness, the NIC’s operational team supported project development by assisting with site selection, negotiating utility agreements, structuring customer contracts, and preparing the materials necessary for debt financing. The Co-Investment Fund provided equity to the Origin North SPV, anchoring the project and giving senior lenders confidence to provide the bulk of the funding. And the NIC entity receives management fees from Origin North for ongoing project oversight and operational support, generating the revenue that sustains the NIC’s institutional operations.

The Origin North facility is expected to generate $250 million in annual revenue and $73 million in ebitda by year five of operations, with projected returns to equity investors exceeding 25 percent. These economics reflect the fundamental strength of the underlying business: strong market demand for clean-label protein ingredients, contracted customer relationships covering 41 percent of SPI production, technological differentiation through hexane-free processing, and cost-competitive production enabled by Canadian soybean sourcing and efficient facility design. The project reduces carbon emissions by approximately fifty-six thousand metric tons per year, provides verified supply chain traceability through government-recognized certification systems, and establishes infrastructure for onshoring critical food ingredient production to North America.

Perhaps most tellingly, the Origin North project includes explicit plans for replication and scale. The Sarnia facility is only the company’s “first plant,” with expansion plans for “other soy proteins, new facilities in the US and Europe.” This scalability reflects the NIC model’s ultimate objective: not funding individual one-off projects but creating repeatable platforms that can be deployed across multiple sites and applications. Origin North represents not just a single manufacturing facility but a template for bringing clean-label protein production to North America at scale. This is precisely the type of manufacturing reindustrialization that requires new financing models rather than conventional approaches.

Challenges and Execution Risks

The NIC model poses substantial execution challenges if implemented incorrectly. The structure requires simultaneous success across multiple disciplines that typically remain separate for good reason: venture capital investment, project development, infrastructure finance, and ongoing operational management require different skills, different time horizons, and different risk management approaches. The NIC must excel at identifying promising early-stage companies (venture capital skill), structuring economically viable manufacturing projects (project finance skill), negotiating with specialized lenders (infrastructure finance skill), and ensuring those projects operate efficiently (operational management skill). In essence, the firm has to be a jack of all trades and at least a master of some. Failure at any point can cascade through the interconnected structure.

The Corporate Fund faces venture capital’s typical risks but amplified by structural complexity. Its investments provide “toe-hold positions” whose value is realized only when projects develop successfully. If a portfolio company succeeds but pursues commercialization through a different path, for example, by licensing technology to an established manufacturer or being acquired by a strategic buyer that handles manufacturing in-house, the investment thesis breaks down. Returns depend not just on technology validation but specifically on the company engaging the NIC for project development. Moreover, with 20 percent carry and no management fees, the Corporate Fund must generate substantial gross returns to provide attractive net returns after accounting for costs borne by Project Vehicles.

The Co-Investment Fund accepts concentrated exposure to the NIC’s project selection and development capabilities. The fund invests exclusively in Project Vehicles in which the NIC is involved, so it lacks the diversification typical of broader infrastructure funds. If a project the NIC is engaged in doesn’t develop as planned, which could be due to underestimating construction costs, overestimating market demand, or failing to execute operationally, the Co-Investment Fund bears direct consequences. Furthermore, while the structure anticipates third-party debt providing 60 to 70 percent leverage, there is no guarantee institutional lenders will actually provide anticipated capital, particularly for projects involving novel technologies or untested business models. Without expected leverage, equity returns deteriorate significantly.

Additionally, skeptics may point out that the NIC has several conflicts of interest, even though they are addressed through limited partner advisory committee approval requirements. The NIC receives fees from Project Vehicles, creating an incentive to develop projects even when they might not represent optimal investments for the Co-Investment Fund. The Corporate Fund invests in companies that subsequently require the NIC’s services, potentially creating pressure to recommend project development even when alternative strategies might better serve portfolio companies. While the term sheets require advisory committee approval for related party transactions, and such incentives are prevalent within large investment banks, the fundamental interconnection means that some level of conflict cannot be eliminated.

Lastly, the model also faces external risks beyond management’s control. Manufacturing project development typically requires eighteen to thirty-six months from groundbreaking to operations. These timelines can see market conditions, input costs, customer demand, and the competitive landscape shift dramatically. Projects structured around specific customer contracts or government commitments face concentration risk if those relationships deteriorate. Supply-chain disruptions, regulatory changes, and geopolitical developments create uncertainty that no amount of operational expertise can fully mitigate. The NIC’s success depends partly on manufacturing revival remaining a policy priority and market opportunity; if broader enthusiasm for American reindustrialization wanes, deal flow and investor appetite could both contract.

Why This Model Matters for American Manufacturing

Despite these challenges, the NIC model represents an important institutional innovation for industrialists. The firm directly addresses the capital formation gap that conventional finance leaves unfilled: companies that have moved beyond seed-stage venture capital but require far more capital than typical venture rounds can provide, and whose capital needs take the form of hard assets that traditional venture returns cannot support.

By applying SPV structures to early-stage manufacturing companies, the NIC gives new industrialists access to financing techniques previously available only to multinational corporations. A start-up with breakthrough manufacturing technology can access project-level financing and infrastructure expertise it could never develop internally, accelerating its path to commercial scale.

The structure also creates better alignment than available alternatives. Unlike private equity’s leveraged buyouts that load companies with debt to generate returns, the NIC’s SPV approach isolates project debt at the Vehicle level, protecting the parent company’s balance sheet. Unlike venture capital’s pressure for rapid exits that may not align with manufacturing timelines, the Co-Investment Fund’s infrastructure-like economics accommodates longer development periods. And unlike traditional project finance that requires established companies with proven business models, the NIC model engages with early-stage companies while they still need support for commercialization.

Perhaps most importantly, the model creates institutional sustainability through its fee structure. The NIC earns management fees from operating Project Vehicles rather than extracting fees from investors regardless of performance. This alignment means the firm’s long-term viability depends on successfully developing projects that generate real cash flows. This focus on performance presents a fundamentally different incentive structure than conventional venture capital or private equity, which prioritize paper returns with little regard for genuine performance. If the model can scale, the NIC can become an institutional pioneer supporting American manufacturing development.

The model is in many ways a return to the nineteenth century’s merchant banking practices where firms like J. P. Morgan provided capital and operational expertise, project management, and ongoing relationship management to industrial companies. Those merchant banks helped finance America’s first industrial revolution by combining equity investment, debt arrangement, and hands-on operational involvement. The NIC continues these principles and adapts them for contemporary manufacturing, using modern financial structures and regulatory frameworks while continuing the merchant banking approach to company and project development.

For the NIC’s model to fulfill its potential, several conditions must hold. First, the founding team must successfully recruit and develop the multidisciplinary capabilities required to make these projects take off, from venture capital investment skills to operational management talent. Pure financiers cannot accomplish this; it requires combining financial sophistication with deep domain knowledge in manufacturing.

Second, the model requires patient, committed capital from investors who understand the longer timelines and accept the mandatory allocation. The investors most likely to be interested in this will be family offices, endowments, pension funds, or high-net-worth individuals and accept ten- to fifteen-year liquidity horizons. This investor base exists but is smaller than the broad pool pursuing conventional venture capital returns, potentially limiting the firm’s ultimate scale.

Third, the model depends on the continuing availability of project-level debt from specialized infrastructure lenders willing to finance manufacturing projects backed by early-stage technology companies. The SPV structure reduces risk for these lenders, but they must still be convinced that the projects are viable, the technologies are proven, and the customer contracts are reliable. Building these lender relationships and maintaining their confidence through successful project execution will be critical to the model’s scalability.

Lastly, the NIC must be able to develop a steady pipeline of companies and projects that wish to work with the NIC’s structure rather than pursuing alternative paths to commercialization. This deal flow depends partly on entrepreneurs’ understanding of the model’s benefits and partly on the Corporate Fund’s successful competition for early-stage investments against conventional venture capital. Yet given the serious interest in reindustrialization, the problem may be sifting through the firms that can truly deliver on the proposed project and whose technological breakthroughs are genuinely innovative.

American reindustrialization will require trillions in investment over decades, retraining an entire generation of skilled labor, and a cultural shift toward patient investment over quarterly gains. The NIC provides a persuasive answer to the question of how to finance American reindustrialization when conventional finance falls short. To be clear, the broader financial sector must play a role in helping industrialists build factories at scale, but the NIC provides an important institutional innovation that addresses a real market gap.

In some ways, the NIC is merely bringing finance back to its roots: helping American businesses receive capital to grow. If the NIC is successful, it could join the list of firms that use their innovation for patriotic and lucrative ends. American reindustrialization requires pa­tient capital, operational expertise, and sophisticated financial structures that can be systematically combined to support the transition through a new period of development and dynamism. That transition has long been a valley of death for American manufacturing. Institutions, like the NIC, that can bridge it effectively will play an outsized role in turning the institutional enthusiasm for American industrial renewal into sustained economic growth.

This article originally appeared in American Affairs Volume X, Number 1 (Spring 2026): 96–121.

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Notes