Strategies for Funding the Commercialization of an Invention
While covering these costs can seem like a daunting task, it should not be an insurmountable barrier to pursuing your invention and growing your business. If your idea does turn out to be a market success, you will be able to recuperate those costs and may turn a significant profit, as well as fulfill personal dreams. There are a number of funding opportunities available to aspiring inventors, many of which are likely accessible to you.
Using personal resources
You may start off by using personal savings and resources. Some advantages to self-funding your invention in the early stages include the ability to retain complete control of the process, to accelerate decision making, and to retain any initial revenue. Some strategies for obtaining personal funds outside of savings could involve applying for personal credit and refinancing or selling assets.
If you are beginning the venture as a partnership with other innovators (for example, several co-founders in a start-up), the personal resources of the other partners can also be used as a starting ground.
While self-funding is the first avenue that you should consider, some may not have enough financial resources to entirely finance your project from personal funds. Do not feel discouraged if that is the case as there are many other strategies that you could pursue to bring your idea to life.
Another fairly simple way to obtain funding for your invention is to reach out to your personal network. This can include family, friends, coworkers, and anyone else with whom you have a personal relationship who may be interested in helping you pursue your business. One advantage of asking for such assistance is that it is more likely to be provided even if your plans are not as detailed, or if you do not yet have a prototype. Often this money may be given as a gift or an interest-free loan – terms that are much more favourable than those you can obtain through private or corporate investment. Another advantage is that personal investors are unlikely to be interested in the actual happenings of your business development, and are thus not likely to request a degree of control in return for their funding. As such, they make great initial investors when expediency in decision making is a priority.
Also remember that absent an agreement to maintain confidentiality, disclosing your idea to family and friends may constitute a public disclosure that disqualifies you from patent protection. Therefore, it is useful to file a patent application before speaking with potential inventors or to ask potential investors to sign a non-disclosure agreement before disclosing the details of the invention to them. While bringing that up with close connections may seem unnecessary, it is often better to take the precautions than to create issues around the potential invalidity of your intellectual property rights down the road.
After you have exhausted your personal connections, it is time to cast a wider net to see if any private investors would be interested in helping you develop your idea. A private investor is not affiliated with any sort of bank, corporate firm or organization that specializes in money lending. Private investors independently select which projects to support.
A private investor is highly unlikely to finance your project without seeing a prototype and hearing a cogent pitch, so it is important to figure out exactly which niche your idea will occupy in the market and how you expect to gain a return on investment. This may be a good option before reaching out to corporate investors or government, as it is often less formal and does not require the product to be developed in detail.
You can find private investors by exploring both your personal network and industry contacts. At the same time, a private investor should be treated with the full care and caution that you would exercise when pursuing corporate investors. Make sure that a non-disclosure agreement is in place before revealing the specifics of your idea, and secure a written contract that clearly stipulates the terms of repayment, business stake (if relevant) and any other expectations.
There are a number of government loans and grants available to aspiring inventors. The nature of your invention, your stage of development and your personal circumstances (additional funding is often available to non-traditional inventors such as young entrepreneurs) will determine your eligibility for the different programs available. Other considerations include your city and province of residence, personal income, and whether the invention is being made for commercial or charitable purposes.
Most government funding requires a detailed application, including a prototype and plans for further development. Government grant applications also typically take longer to be processed than applications to banks or corporate investors, so government funding is therefore unlikely to be expedient. It may be a useful avenue after you have determined the details of your project and secured some initial, short-term financing.
We have compiled a list of some government grants and loans that may be available in Canada to inventors that are looking to commercialize their invention. This list is by no means exhaustive, and if you do decide to apply for government funding, it is important to check whether other applicable grants or loans may be available to you.
Funding from businesses can encompass a wide range of financial assistance, from applying to corporate loans at the bank to contacting venture capital firms with an investment proposal. This is a more common avenue for obtaining funding, but tends to come with more strings attached in terms of interest on the loan and ceding control or equity in the business.
There are also some additional considerations when requesting funding that are not present with smaller-scale individual investments. These include signing a specific equity agreement that clearly defines timelines and obligations before accepting any funding, and planning a strategy of how the money will be paid back. Further, make sure to evaluate the method of compensation requested by the corporate investor and how well it fits with your short and long-term plans (for example, interest versus equity-based compensation).
Corporate financing, particularly through venture capital firms or angel investors, is more often done in the middle stages of development, as professional investors are reluctant to invest into undeveloped projects with a high degree of risk. Funding tends to be easier to obtain when your product has already produced some type of tangible result, such as being ordered by wholesalers or having a successful crowdfunding campaign. This tends to hold less true for banks and other professional lending institutions.
Crowdfunding has become a very popular option for inventors looking to raise money to bring their project to life. Crowdfunding showcases your product to the public on platforms such as Indiegogo or Kickstarter and sets a fundraising goal to which anyone can contribute. If you succeed in reaching your target goal, the money is then released to you. In return, you often commit to providing the finished product to the donors or somehow otherwise compensating them when the business takes off. On top of helping you raise funding, this option is also excellent for gauging the amount of market interest for your product – as a business to consumer platform, it has the advantage of having average buyers exposed to your idea.
To successfully crowdfund your project, it is key to have not only a prototype and a functional explanation, but also a creative marketing pitch that will capture imaginations and make consumers feel like your product is worth not only buying, but helping develop. Video pitches are a great way to help consumers conceptualize what kind of impact the product could make on their everyday lives.
If you choose to use crowdfunding, then make sure to protect your invention using intellectual property beforehand – check out our article on IP considerations in crowdfunding for more information. Further, you cannot receive the money you gain through crowdfunding unless you reach your target goal, so it's key to make sure that your campaign immediately receives funding to get attention and exposure. A good way to do this may be through contacting your personal networks and asking them to donate money to the crowdfunding campaign when it starts, as well as sharing it widely across social media and industry channels.
Incubators and accelerators
While the patent process can be expensive, expenses typically arise over a period of a few years and often form a necessary part of the expense of running a commercial enterprise. While it may seem tempting to cut corners early on in the process, correcting mistakes made in the patenting process can be particularly difficult and expensive, resulting in government and professional reinstatement fees or even the loss of potential patent protection. A good patent strategy will include at least a rough assessment of the associated costs.
Other sources of funding
The above list of financing strategies is not exhaustive, and is meant to serve as a starting point for your budget planning. Depending on the nature of your invention and your business, there may be other funding available on a grant or loan basis. Some strategies to conduct further research could involve speaking to other inventors in the industry about their funding sources, exploring local community boards and publications to see if any small-scale funding is available, and, if applicable, contacting alumni networks of your past educational institutions.
When seeking financial aid, it is important to be creative and always keep your goals in mind. While concrete financial assistance may not always be an option, there may be other assistance you can obtain, such as supplies or subsidies to hire employees that could still help bring your invention to market. Make sure to cast a wide net when looking for help, and to not exclude opportunities prematurely.
Bringing an invention from an idea to a consumable and marketable product can be challenging and expensive. Many inventors who do not have the means to self-fund mistakenly believe that this prevents them from pursuing their idea. Thankfully, there are a number of ways available to secure funding, including tapping into personal networks, seeking out private and corporate investors, applying for government assistance and using novel financing strategies such as crowdfunding. Most importantly, having faith in your project will help get others excited and on board with supporting the idea and can be the key to your success.