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10 Ways to Fund Patenting Costs

By: Christopher Heer, Annette Latoszewska | Last updated: February 2, 2020
The value of intellectual property in today’s economy cannot be overstated but is often overlooked. In 2008, intellectual property composed 31.2% of all intangible wealth in Canada, amounting to $47 billion; this proportion continues to grow as intangible industries expand and tangible industries experience little to no change. The asset value of a patent for a commercially viable invention is therefore significant and should be considered when making decisions surrounding its protection. The cost of filing a provisional patent application pales in comparison to the value of the rights granted by the eventual patent.

This article will explore ten ways to fund your patenting costs so you can secure those valuable rights. As you pursue these and other funding options, you should always be mindful of the information you are disclosing about your invention. Disclosure of an invention prior to filing a patent application can, in some circumstances and in some countries, preclude the grant of a patent. An intellectual property firm can work with you to ensure your protection is not jeopardized at this early financing stage.

1. Self fund

a. Use Personal Savings

Perhaps the simplest means of financing your patent is through personal savings. With no conditions or obligations, no interest, and no one to repay, financing your patent with existing savings is an excellent option.

b. Sell Investments and/or Property

If personal savings are not currently a feasible means of funding your patenting costs, consider the value of your other assets. Sale of investments or personal property can grow the funds to finance the protection of your intellectual property.

c. Earn Additional Income Through Contract Work

Another means of self-financing your patent is through additional income earned from further employment or contract work. As an inventor, you may possess a marketable set of skills. Contract work is a great opportunity to exploit those skills and grow your patenting budget while controlling your workload and work hours. Upwork and Freelancer are just two of the many online platforms for individuals looking for contract/freelance work.

2. Seek Funding

a. Participate in Business, Entrepreneurship or Innovation Competitions

There are many ways to fund your patenting costs without relying on personal finances. One potential funding source is business plan and pitch competitions. Though, the prizes to be won in many of these competitions are investments in exchange for equity.

b. Apply for Grants and Awards

Not all external funding requires you to give up a piece of your business. For instance, you may be eligible for free money in the form of grants or awards relating to your industry or invention. A grant is not a loan, and you won’t have to pay this money back. Grants and similar awards may be federal, regional, age or gender based, or geared toward a specific problem or goal. You can search for grants using a search engine and carefully chosen keywords. Alternatively, websites like GrantWatch amalgamate all currently available grants and awards into one place. When searching for grants, you should consider not only your invention and the industry to which it pertains, but also your personal identity. If you’re a young entrepreneur in Ontario, for example, you may be eligible for a $5,000 Starter Company grant. Also see our list of innovation grants and awards.

c. Crowdfund

Another very popular source of funding for businesses is crowdfunding. Crowdfunding via platforms like Kickstarter is a unique way to raise capital from strangers while retaining full equity in your company. Most often, businesses induce the public to finance their innovative products by selling advance copies or models at prices well below the forecasted future manufacturer suggested retail price. Crowdfunding is not only an excellent way to raise capital for expenses like the cost of patents, but also a way to generate sales.

d. Start Selling Your Product

A closely related way to finance your patent is to sell your product more broadly and offset the cost of your application with your profits. This option raises the issue of disclosure described briefly at the beginning of this article. Before you enter the market, it is imperative that you consider your patent filing strategy and the rules which will apply to you should you publicly disclose your invention in the course of sale. A patent lawyer or patent agent can help you devise an appropriate strategy which will enable you to defer some of your patent costs, sell your product, and obtain your patent in the future.

e. Apply for Tax Rebates

Rebates received from the Scientific Research and Experimental Development tax incentive program (SR&ED) may represent a source of funding for your patent. SR&ED is a generous tax credit offered by the Canadian government to businesses operating in Canada attempting to advance technology in some way. The credit is intended to rebate a portion of the expenses incurred in the process of attempting to find a solution to a problem or to improve technology. The same research and development that has led you to your patentable invention could therefore entitle you to a rebate you may later apply toward its protection.

f. License Your Invention

A further option, is a licensing agreement. You may wish to provide licences to third parties to manufacture, sell or use your invention in order to support funding of the patent. In this way, someone else pays for your patent, but also acquires a limited right to the subject invention. To learn more about licensing your patent, see here.

3. Borrow Funds

Borrowing money may represent a valuable means of financing the protection of your IP. You might consider borrowing money from family and friends, from financial institutions, or from private lenders. Loans from family and friends may be an advantageous starting point given that they are likely to carry minimal obligations and interest – if any. Financial institutions, on the other hand, often offer loans catered to the needs of small businesses and entrepreneurs, with options like retroactive purchase financing and flexible terms. Credit cards are another way to finance your patent-related expenses, though financing in the form of a loan geared toward small businesses may be preferable to carrying a balance on a high-interest credit card. Finally, private lenders (individuals and businesses not associated with financial institutions) present another opportunity to borrow funds for the purposes of securing your IP.

4. Sell Part-Equity or Ownership of Rights

A final, and probably the most onerous means of financing your intellectual property protection, is selling ownership in your company or in your patent rights to investors. If your financing needs are limited to the costs of your patent(s), you may want to present to angel investors, as they tend to make smaller investments and are less likely to expect a seat on your business’ board of directors relative to venture capital firms. Angel investors are individuals with personal income to invest, whereas venture capital firms are made up of professional investors that manage large funds composed of contributions from various sources. Venture capital firms tend to invest on a larger scale. In either case, partnering with investors can be a highly effective means of bankrolling critical advances in your business, but capital received from an investor is never free. In order to make a profit on their investment, investors receive equity in your company. Alternatively, you may be able to secure an investment in exchange for part ownership of the patent rights you are eventually granted. The amount of equity or ownership exchanged will depend on numerous factors including the valuation of your business or patent and the amount you’re looking for. In the early stages of business, and particularly in the pre-revenue stage, investors may expect to acquire significant equity in exchange for their investment. If you would like to set up a business consultation to help you weigh your options, please feel free to contact us for a confidential and complimentary initial telephone appointment.