It requires a lot of capital to grow a company, especially one that's on the cutting edge of an industry. And sometimes getting cash requires some short-term pain so the company, and its shareholders, can benefit from the long-term benefit of the investments being made. That's the big-picture story behind Danimer Scientific's (DNMR -10.22%) stock drop today. Here's some details that will help you get a better handle on today's somewhat frightening 20.1% move.

The problem

Danimer Scientific makes biodegradable and compostable plastics. That fits very well with the focus on sustainability that's increasingly driving investors today. And it already has a host of major customers, including PepsiCo, Nestle, and Walmart. These are some of the biggest users of plastic in the world, and they, along with many others, are looking for ways to reduce their environmental impact. In addition to these relationships, Danimer announced an alliance with Chevron Phillips in September to develop lower-cost biodegradable polymer manufacturing methods. And in August, it closed the acquisition of Novomer, a maker of biodegradable polymers. This is a company that is clearly working to grow in an interesting space with material long-term opportunity.

Blocks spelling out calm and panic.

Image source: Getty Images.

Danimer is seeing enough demand that it is expanding its operations at an existing facility, with an expected completion date in the first half of 2022. It is also set to build a new facility from the ground up in Georgia, with a planned groundbreaking before the end of 2021. Looking out longer-term, the company has another plant on the drawing board that could come on line in the first half of 2024, building off of the Novomer acquisition.

All of this investment requires cash. Which is one of the reasons why Danimer just announced plans to sell $175 million worth of convertible senior notes. Moves like this often get investors worried about dilution, which is not unreasonable at all. As a result, the stock sold off dramatically in early trading today, which can be frightening for investors. However, there are times when you need to look past near-term volatility to see the long-term opportunity.

Assuming that Danimer's investments pay off as expected, growth -- backed by its notable list of customers -- could be material. That's the long-term appeal, and one that glass-half-full investors should really be focused on here. The growth, with any luck, would more than compensate for any dilution that might arise from conversion of the notes.

If you liked it before ...

There's no such thing as a risk-free investment, and Danimer Scientific does have some negatives to keep in mind. For example, it is small (its market cap is down to about $850 million), it is relatively new to the public markets (it came public in late 2020 via a merger with a blank check company, meaning there are sizable insiders here), and there's even a notable short seller in the mix (Muddy Waters, whose accusations of misrepresenting customer relationships, product development, and readiness to scale Danimer vehemently denies).

But none of these issues are new. So, if you liked Danimer before the announcement that it was issuing convertible notes, you should probably like it even more now, since it is working to raise the cash it needs to keep investing for the future.