If you’ve invented a new product, you’ll need financing to bring it to market. Adequate funding helps cover the costs of researching, developing, and bringing an invention to market. Let’s look at five different funding options and a few things you should consider before moving forward.
Private and government invention grants
Many different private and public organizations offer grants for inventions with the potential to benefit society. You can use Grants.gov to begin applying for different opportunities available through the federal government.
For example, the Small Business Innovation Research (SBIR) funds inventions for startup, development, and commercialization phases. If you have an invention related to the military department, the Department of Defense can evaluate your idea and offer tips on submitting a proposal.
Certain nonprofit organizations are looking for inventions that benefit the common good. One example is VentureWell, which offers funding and training for students with creative solutions to real-world problems in the healthcare industry.
[Read more: Small Business Grant Application Best Practices]
Crowdfunding for inventions
Crowdfunding is an excellent option for inventors in the early stages who don’t yet have a prototype. It involves raising small amounts of money from a large number of people, usually through a crowdfunding platform like Kickstarter or Indiegogo.
A successful crowdfunding campaign requires a strong pitch and a lot of marketing. Leverage your network and promote your campaign on as many different platforms as you can. The feedback you receive can also help you improve your invention idea.
Business startup or invention loans
Getting a loan for an invention is challenging since you don’t have any proof that your design will ever earn a profit. But it’s not impossible — you just need to approach the bank, credit union, or non-bank lender strategically.
First, make sure your credit score is in good shape, and you have a detailed business plan. If you’re able to put down collateral, that will also improve your odds of success. You can also contact the SBA’s Office of Investment and Innovation to learn about the different financing options available.
[Read more: Guide to SBA Loans]
If you’re further along in the process and have a detailed business plan and well-developed prototype, you might consider approaching venture capitalists or investors.
Consider licensing your invention
You might also consider partnering with an established company to lease your invention to them. You’ll get your invention into the market and will earn a percentage of the product sales. According to UpCounsel, most licensing agreements earn between 3% and 6% of the gross sales.
The benefit of licensing your invention is that you’ll begin earning passive income and won’t have to worry about the costs involved in bringing a product to market. However, you won’t have any control over how your invention is marketed, and if the product is a huge hit, you’ll only earn a fraction of the proceeds.
Venture capitalists or angel investors
If you’re further along in the process and have a detailed business plan and well-developed prototype, you might consider approaching venture capitalists (VCs) or investors. VCs may be interested in backing your invention if they believe it could eventually make a lot of money. You can also look for angel investors who are actively involved in your industry.
Key considerations when seeking funding for inventions
Before you consider any type of funding, you should have the following things in place:
- A detailed business plan.
- Well-prepared pitch.
- A minimum viable product (MVP).
- Details about what you’ll use the funding for.
- Intellectual property information.
If you’re early on in the process and don’t yet have a prototype, you may want to consider an option like crowdfunding first. This will give you an opportunity to validate your business idea and show that there’s a need for what you’re offering.
If you’re nearing commercialization, investors and loans can help bring your invention to market. This type of financing may cover manufacturing, a warehouse for shipping, and funds for production inventory. Depending on the innovation, some investors may want to get involved earlier in the development or wait until you’re ready to manufacture.
Jessica Elliott also contributed to this article.
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