Hard-technology investors rarely hand over the whole cheque at once. Money arrives in tranches, released against milestones written into the term sheet. The milestones are usually technical or commercial: a first flight, a first article, a signed offtake, a named customer. Few are written in terms of making.
The milestone
A milestone that measures what a company has done once rewards the prototype. The first article passes inspection, the tranche is released, and the next tranche funds the same story told at a larger scale. Nothing in the gate asks whether the company has become any better at making the thing.
That gap is expensive, because manufacturing spend is easy to see and hard to read. New equipment, a larger building and more engineers all appear on the books. Spending tells the investor the money has gone. It says nothing about what the money bought.
The ramp
Tesla’s Model 3 shows how far the two can diverge. Production began in July 2017 against a target of 5,000 cars a week by the end of that year, and Elon Musk warned at the outset of what he called manufacturing hell. The target was reached in the last week of June 2018, roughly six months late. In April 2018 Musk wrote that excessive automation at Tesla had been a mistake, and the company removed parts of the automated line it had paid for, including a conveyor system.
The capital bought equipment fast. The rate came later, and some of it came from taking equipment out. Tesla is a listed company and reported its weekly rate publicly as the ramp went on, so its investors could see the gap. Most privately funded hardware companies report spending between rounds and little else, and their investors see the money go without the rate that should follow it.
The re-score
A second score answers the question the first one cannot. The Coupling Gap, the distance between the highest technology gate a company has passed and the manufacturing gate it has demonstrably passed, either closes or it does not. The evidence that moves it is evidence of making, not of spending: a second source qualified, say, or scrap falling at rate, or unit cost falling on parts made in sequence rather than on the best batch. Headcount, floor space and a good factory tour do not move it.
The re-score can also go down. A gap that widens while the burn rises is among the earliest warnings an investor can get, and it can arrive well before the missed delivery that would otherwise announce it.
The wall
Re-scoring only works if the scorer does not do the fixing. Kaipability’s first score comes with a work order: what must close, who owns it and by when. The company closes the gap itself or appoints someone else to. Kaipability checks the evidence against the order and scores again.
The arrangement borrows the auditor’s separation of the check from the fix. It should not borrow the auditor’s weakness. The fee is agreed before the first score, does not depend on the result, and can be paid by the investor rather than the company being scored.
The gate
Placed at the tranche gate, the re-score sets a narrower question for the founder: what has closed since the last score, with evidence, and what has not. A plan that is on track should be able to answer it in an afternoon.
The work
Manufacturing Engineers write the work order a ramp needs. They check the evidence that each item has closed, on the floor and in the data, and they record plainly when it has not.
Kaipability scores a company before the first tranche and again before the second, and records both on its register. Investors who release money against milestones can make the next one a score.
If your next tranche is released against a milestone that does not measure making, that is the conversation to have.
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