Practical steps to funding your invention

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Creativity is inherent to humans. In fact, many people have dreamed about turning an idea into a real-life project. In this way, they can become innovators and inventors. However, imagination is one thing and realization is another. Money is what usually comes in-between. Therefore, in order to develop commercially an invention, funding is of primary importance in case an inventor has limited financial resources available.

At a first stage, marketing the invention by participating in trade shows held both locally and at a national and international level is crucial. It is worth investing any limited, and therefore, highly valuable monetary resources in promoting the basic idea of the invention. This tactic is more possible to result in a much needed incoming investment, than trying to save money, with the intention of using it to further develop the concept from a technical point of view. As in any business area and sector, marketing, promoting and finally selling a product, a service or an idea is the ultimate goal and should be at the center of attention.

In essence, raising finance to bring an invention into commercial production has many similarities to the procedure that is followed when applying for any form of business finance. Viable and detailed business plans, as well as carefully-structured cash flow statements, are the foundations of the process of attracting funds for an invention. What investors need to see before approving the funding of an invention is how much profit their investment is expected to yield, as well as how and when some part of this profit will be paid to them. They also want to rest assured that any risk of losing their money is minimized.

Therefore, an inventor should be adequately prepared to convince investors by showing them solid forecasts of the potential that a product has to produce healthy profits. On the other hand, there are a few things to consider that are apply specifically to invention funding, compared to general business funding.

First of all, it should be noted that there are two main categories of investors when it comes to funding an invention: Venture capitalists and business angels. These two types of investors are more specialized in investments such as funding the development of an invention, due to the fact that they are more willing to undertake risk than other more conservative financial institutions, like the banks. However, they still want to know how their funds will be spent, and for this reason, they require from the inventor to provide them with evidence of solid planning and reporting, before they make their funds available.

If an inventor’s efforts to raise funds by appealing to venture capital firms are not met with success, there is an alternative form of funding that may come from the so-called business angels.

Typically, business angels are wealthy individuals who are willing to help aspiring entrepreneurs in exchange of a share in future profits. It is generally believed that investments by business angels are based on emotional criteria, in contrast to venture capitalists who usually set stricter rules and terms.

Of course, they are not fools who give their money away to anyone asking for their financial assistance. What they need to see from an inventor who asks for their money is passion and willingness to work hard and succeed. These personal qualities, combined with a positive assessment of the whole project might make them put aside any typical standards, such as a formal business feasibility study, and approve the funding of an invention.

The common thing between these two forms of investors is that they expect to make a profit in return of their investment. This sacrifice in the form of a share in future profits can be avoided by the inventor by applying for funding to a government agency that is responsible for making funding decision for inventions and innovative applications in general. There are many government agencies that are specialized in different business areas. For example, if an invention helps in cutting down on energy consumption, the inventor should file an application for funding to the Department of Energy. There is an interesting case in the U.K. where there is funding available for projects particularly aimed to improve or assist with the operation of public sector services.

An alternative option to raising finance to further develop an idea which has already taken the form of a prototype is to license the invention or collaborate with a research company or a university. The major disadvantage of this approach is that the inventor partners with a company or an academic institution, which limits their personal involvement in the project. On the other hand, there is the advantage of gaining access to invaluable sources of knowledge and expertise about an invention, and this might help tremendously in its further development.

Further reading:

5 steps for turning your invention idea into a product

Practical tips on navigating the patent process

Ways to Get Creative with seeking Funding for Your Invention

Startup funding: how it works and how to raise it

How to Seek Funding for Your Invention