Funding for inventions helps cover the costs of research, development, and bringing your idea to market. It can range from grants or loans to investments or licensing. Different options will be available to you, depending on the phase of your process. However, a lot of time is involved in securing financing for your invention. It’s important to identify and focus on the right opportunities and learn how to get funding for an invention.
Key considerations when seeking funding for inventions
Consider your stage and what you need the money for. This will dictate what type of invention funding you should look for. For instance, if you’re still developing your invention and don’t have a high-fidelity prototype, you’ll have better luck pitching your invention to crowdfunding investors versus venture capitalists. At this stage, ask yourself how much money you need to invent something and bring private investors along for the ride.
But if you’re nearing commercialization, investors and loans can help bring your invention to market, either as a finished product or as a licensed item in your startup business. This type of financing may cover manufacturing, a warehouse for shipping, and funds for production inventory. Alternatively, some companies pay for invention ideas, and depending on the innovation, they may want to get involved earlier in the development or wait until you’re ready to manufacture.
Regardless of the invention funding method, you’ll need the following:
- Invention business plan.
- Well-prepared pitch.
- A prototype.
- Detailed funding requirements.
- Intellectual property information.
[Read more: How to Create a Prototype]
Private and government invention grants
Several private and public entities offer invention grants, many focusing on ones with the potential to benefit society. Grants.gov is the best place to start. It lists many opportunities available through the federal government. In particular, Small Business Innovation Research (SBIR) funds inventions for startup, development, and commercialization phases. For innovations that align with a specific industry, such as agriculture or defense, look at the related federal department, like the Department of Agriculture or Department of Defense. Also, consider nonprofit organizations looking for social enterprise inventions and, if you’re a student, VentureWell, formerly the National Collegiate Inventors and Innovators Alliance.
The average royalty for licensing an invention is 3% to 6% of the product's wholesale price, which is the price the company charges the consumer.
UpCounsel
Crowdfunding for inventions
Crowdfunding platforms like Kickstarter and Indiegogo connect you with individuals who offer funding for inventors. Unlike traditional funding, which requires a high-fidelity prototype and typically finances inventors during commercialization, crowdfunding can supply funds in the earlier stages. Indeed, a co-creation and collaboration platform can do more than offer financing. Crowdfunding investors can help improve your invention, provide user insights, and even assist with marketing.
[Read more: Investor Agreements: What to Include, and Why You Need One]
Business startup or invention loans
Getting a loan for an invention is more challenging. It can be hard to convince conventional banks and credit unions that your design will earn a return. In this case, inventors may “start new companies to develop and market their patented inventions,” according to attorney Brian Farkas on Nolo. The Small Business Association, SCORE, and other lenders may support startups.
Companies that pay for invention ideas or products
You can approach companies that buy invention ideas via a licensing agreement or sell products in their local or e-commerce store. According to UpCounsel, “The average royalty for licensing an invention is 3% to 6% of the product's wholesale price, which is the price the company charges the consumer.” But you don’t have to worry about the costs of manufacturing, marketing, and warehousing your products. In either case, if you secure deals to sell your product, it may be easier to qualify for conventional funding options or attract investors.
[Read more: Looking for a Manufacturing Partner? 7 Key Industry Terms to Know]
Venture capitalists or angel investors
According to ThoughtCo., “venture capital is part of the second or third stage of financing for a business startup,” with inventors bootstrapping initial development on their own dime. VCs look for inventions with the possibility of high growth. Angel investors are also a good solution, especially those who are interested in your industry. ThoughtCo. noted the difference between these types of investors: “Angel investors are sometimes said to invest emotional money, while venture capitalists are said to invest logical money — both are willing to help give the new enterprise a more solid footing.”
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