Do Contract Manufacturers Invest in Their Customers?

Traditionally, the role of a contract manufacturer has been straightforward: build the product, ship it on time, and get paid. But over the last few years, there’s been a noticeable shift. A small but growing number of contract manufacturers have started stepping into the investment world. Instead of just being the supplier, they’re becoming shareholders in the brands they help bring to life.

This trend is becoming more visible in early-stage startups where companies need capital and a capable manufacturing partner.  For some contract manufacturers, this creates an opportunity to deepen the partnership and participate in the brand’s upside if it succeeds.

But this isn’t a common or simple path. Most contract manufacturers are not structured like venture funds. They may have the capital to invest, but they often lack the financial sophistication, legal frameworks, and long-term investment mindset that experienced investors bring. As a result, while some of these investments work out well, many can lead to misalignment or unnecessary complexity for both sides.

Forms of Investment a Contract Manufacturer Might Make

When people think of investment, they often imagine a cash injection in exchange for equity. But in manufacturing, investment can take several different forms. A contract manufacturer is uniquely positioned to support brands not only with capital but also with operational resources, and that flexibility is often how these deals start.

Capital Investment (Equity Stakes)

This is the most direct form of investment. A contract manufacturer may put cash into the company in exchange for equity. For the brand, this can provide much-needed funding to support product development, marketing, or inventory. For the contract manufacturer, it creates a deeper partnership with the potential to benefit financially if the company grows or is acquired.

Tooling and Production Investment

Instead of the brand paying for tooling upfront, the contract manufacturer may cover some or all of the tooling costs. This is a common strategy for early-stage brands that don’t have the capital for expensive molds or production fixtures. In return, the contract manufacturer might secure a long-term production agreement or recoup the cost through future purchase orders.

Engineering and Development Support

Some contract manufacturers offer upfront engineering work, DFM, and prototyping without charging. This is effectively an investment of time and resources. It allows the brand to move faster while the contract manufacturer builds a pipeline of future orders.

Extended Payment Terms or Financing

In some cases, contract manufacturers provide financial flexibility instead of cash. This can include extended payment terms or financing the first production run. While not technically equity, it can be viewed more as PO financing that can help brands to manage their cash flow. 

These forms of investment can be standalone or layered together. Often, a contract manufacturer starts by covering tooling costs or offering better payment terms, and if the relationship matures, it can evolve into an equity discussion.

Why Some Contract Manufacturers Are Investing in Brands

Traditionally, contract manufacturers have played a behind-the-scenes role. Their success depended on securing consistent purchase orders, running production efficiently, and building long-term relationships. But as more early-stage brands enter the market, the dynamics have started to shift. Many of these brands need capital as much as they need a reliable production partner, and that has opened the door for contract manufacturers to step in as investors.

Aligning Incentives

When a contract manufacturer holds equity in a brand, their interests become more closely aligned. They’re not just making a margin on production; they’re invested in the brand’s growth. This creates a stronger partnership and can increase the manufacturer’s willingness to support the brand in the early, riskier stages.

Capturing Upside Potential

Manufacturers traditionally have tight margins, regardless of how big a brand becomes. Investing changes that. By holding shares, a contract manufacturer can benefit from the brand’s future valuation, acquisitions, or IPO. For them, this is a chance to participate in the upside rather than staying on the sidelines.

Locking in Long-Term Production

Investment can also serve as a way to secure future business. If a manufacturer invests in a company early on, they often become the exclusive production partner as the brand scales. This helps stabilize capacity planning and provides predictable future revenue.

Standing Out from Competitors

If a contract manufacturer offers capital or investment support, this can differentiate one supplier from another. For a brand weighing multiple manufacturing options, a contract manufacturer that’s willing to invest can signal commitment and long-term partnership.

In short, contract manufacturers see investment as a way to deepen relationships, secure production, and share in the brand’s potential growth. But while the motivations are clear, the execution isn’t always straightforward.

Real-World Examples of Contract Manufacturers Investing in Brands

While the idea of a contract manufacturer investing in its customer may sound unusual, it’s already happening, and some of the world’s largest contract manufacturers are leading the way. These examples highlight how investment can strengthen commercial partnerships, but they also show how complex these deals can become.

Foxconn and Its Strategic Investments

Foxconn, best known as Apple’s largest contract manufacturer, has made several high-profile investments in startups and emerging brands. Foxconn has taken equity stakes in companies like Fisker (EV), Lordstown Motors, and other technology ventures as part of its strategy to expand beyond assembly and become a strategic manufacturing-investment partner. These investments allow Foxconn to secure future production opportunities while also gaining exposure to fast-growing markets.

Pegatron and Partnerships with Emerging Tech Brands

Pegatron, another major electronics contract manufacturer, has strategically partnered with smaller technology brands and invested in their development. While not every deal involves a publicized equity stake, Pegatron has used investment or financial backing to deepen its role in early-stage projects, particularly in consumer electronics and smart device ecosystems.

Jabil and Strategic Equity Deals

Jabil, one of the world’s largest contract manufacturers, has taken a similar approach with some customers. Through Jabil Ventures, the company has invested in emerging technologies and hardware brands that align with its production capabilities. This structure is a more formalized version of manufacturer investment, one that blends operational expertise with a venture capital mindset.

Smaller Manufacturers Following Suit

It’s not just the giants. Smaller and mid-sized contract manufacturers, such as EPower Corp, are increasingly participating in their customers’ growth journeys. Many offer tooling financing, deferred engineering costs, or small equity positions in exchange for long-term production commitments. These deals are less publicized but are becoming more common, especially in consumer goods and lifestyle hardware.

These examples show that while this practice isn’t yet mainstream, it’s not rare either. For large contract manufacturers, investment is a way to secure their place in future supply chains. For smaller manufacturers, it can be a way to differentiate themselves from competitors and grow alongside their customers.

Why Most Contract Manufacturers Are Not Sophisticated Investors

For every Foxconn or Jabil that invests strategically, there are hundreds of contract manufacturers who simply aren’t set up as investors. Their core strength is building products, not managing cap tables or investment portfolios. This often leads to misaligned expectations or poorly structured deals.

Here are a few reasons why:

• Different mindset: Manufacturing is built around precision and predictability, not high-risk investing.

• Limited understanding of equity: Most contract manufacturers aren’t fluent in venture terms like dilution, liquidation preferences, or investor rights.

• No clear exit strategy: Unlike VCs, they often don’t have a plan for when or how they’ll realize returns.

• Misaligned expectations: Manufacturers may see equity as a guarantee of future production, while brands may see it as a passive investment.

• Lack of structure: Most don’t have legal teams, investment frameworks, or portfolio management capabilities to handle these deals properly.

This doesn’t mean contract manufacturers shouldn’t invest, but both sides need to understand the limitations and risks before moving forward.

What Brands Should Consider Before Taking Contract Manufacturer Investment

Accepting investment from a contract manufacturer can be a powerful way to align incentives and secure support. But it also comes with unique risks that traditional investors don’t pose. Before saying yes, brands should carefully evaluate how this investment will affect both their ownership structure and their supply chain.

Key considerations include:

• Clarify expectations early: Is the contract manufacturer investing purely as a shareholder, or are they expecting guaranteed production rights in return?

• Align on valuation and terms: Make sure the investment structure matches market norms rather than informal handshake agreements.

• Define operational vs. investor roles: Separate the manufacturer’s responsibilities as a supplier from their position as a shareholder.

• Protect flexibility: Ensure the investment doesn’t limit your ability to change suppliers in the future if quality, pricing, or capacity become issues.

• Use proper legal documentation: Equity deals should be structured professionally, with lawyers and clear shareholder agreements.

• Consider future fundraising: Make sure the deal won’t create complications for future investors or cap table structure.

Handled properly, investment from a contract manufacturer can strengthen a partnership and help accelerate growth. But without structure, it can create friction that’s hard to unwind.

Conclusion: Is Your Contract Manufacturer an Investment Partner?

The idea of a contract manufacturer investing in its customer isn’t just a dream but it’s happening. For brands, this can be an attractive way to secure both capital and operational support from a partner who already understands their product. For manufacturers, it’s a way to deepen relationships, secure production, and share in future upside.

But unlike traditional venture investors, most contract manufacturers aren’t built to navigate complex financing structures, long investment horizons, or exit strategies. This can create misalignment if expectations aren’t clearly defined from the beginning.

The best outcomes happen when both sides treat the deal with the same level of professionalism as any other investment round. That means clear agreements, aligned incentives, and a shared understanding of roles. When done right, a contract manufacturer can be more than a supplier, they can be a true partner in the brand’s growth.