Why you probably can’t get funding for your invention – and How we can help
Many inventors and innovators face the same challenge. Funding for your invention!
Why can’t I get funding? I have a great idea!
To be very blunt, you will probably not find someone willing to fund your prototype. Investors are looking to fund sales growth, not prototypes.
Funding for your invention at an early stage of technology is extremely difficult to come by. This is because it is one of the riskiest investment options out there. It is far too risky for an average private investor to back. It has been said that 99.8% of patents aren’t commercially viable.
The hope for any inventor is to find a venture capitalist or angel investor to back their research and development. Venture capitalists are wealthy individuals who look to back what they consider promising business opportunities. Angel investors are usually among an inventor’s or entrepreneur’s family and friends.
Most of us do not know a wealthy individual or two to approach with our ideas. Venture capitalists or angel funders will back the inventor more than the invention itself. And the only way to properly evaluate the inventor (be it an individual or team) is through sales performance.
Funders will want to see that the product is in the market and meeting a sustainable demand. They will want to see at least a small degree of profit. They will want to see that this profit can grow to a viable return on investment. If these criteria are met, the funding they provide will be to take the project to the next level, which will be sales growth.
This is why the likelihood of finding venture capital funding to produce a prototype is so very unlikely. The chances are so low that many would say it is impossible.
What you need is government funding! But it’s not available…
Some of the greatest inventions were all government funded. Items we take for granted today would never have been possible if not for the American government’s allocation of funds. Inventions used every day, which have revolutionised the world, backed by government funding, include the Internet, baby formula and weather apps. Smartphones, GPS and vaccines are on that list too.
The South African government had a great programme called the Support Programme for Industrial Innovation (SPII). This was easily the best option and in many ways the only option to get funding to produce prototypes of new inventions. Due to the high-risk nature of inventions as discussed above, government agencies had stepped in to fill the void where private funding was scarce to non-existent.
SPII was an extremely streamlined option. It required only a solid description of the idea and a viable business plan with costings. They would then provide a pure grant that would support the inventor. With this grant, the inventor would be able to develop the design and produce a prototype. The funds would also be able to cover the patent search and the patenting process. With a loan application process, approval only took a few months. It was the ideal vehicle for inventors. SPII was discontinued and no longer received funding from the end of 2013.
There were reports in 2015 that the SPII would be re-launched. Unfortunately as of December 2018 it is listed under “null incentives” on the DTI website.
One might think of the Industrial Development Corporation and the Small Enterprise Development Agency. But the IDC needs sales to consider funding, which puts you back at the rock and hard place very similar to trying to find a venture capitalist. And SEDA doesn’t back prototyping.
The Technology Innovation Agency might sound good. Unfortunately, their funding is structured as a loan. With about only 2 products being launched out of 3000 ideas, being stuck with a loan to repay is very likely. The funding could also be taxed by SARS if it isn’t all spent in the year you receive it.
What about crowdfunding?
You might imagine that with crowdfunding platforms it would be a shoo-in as the go-to avenue when funding for your invention is required. And it could well be.
But please note that over almost two-thirds of crowd-funded projects fail. These are not the stories that get publicised. Also note that if you were to check out the 10 best crowd-funding stories, these are the exceptions, not the norm. A list published on Forbes had not considered the more common crowdfunding for artistic endeavours. These would include musical artists trying to get an album made or an author trying to get a graphic novel published. Crowdfunding for TV games was also omitted.
Also worth noting is that the most successful crowdfunding ventures make use of some of the world’s top advertising firms. This means that the person or company that was seeking crowdfunding already had a substantial amount to invest, to begin with. They could finance the marketing to raise funding for the development of their project.
We have seen that as many as 99% of inventions don’t make it past the conceptual phase. Early development often reveals that they aren’t viable. They either fail outright or prove too expensive to warrant development.
Basically, the challenges faced in more traditional funding are the exact same reasons that crowd-funders aren’t climbing over themselves to back what could be world-changing inventions such as yours.
Venture capitalist funding is probably an inventor’s best bet – and it’s an incredibly long shot
With all of this in mind, we come full circle back to where began. Experience has shown that the most likely avenue to yield success for funding development of an invention is a venture capitalist.
The good news is that investors are keen to back a good invention. The bad news is that any good investor will want to avoid extremely high-risk investments. And as we have seen, backing an invention might just be the highest risk venture anyone can embark on.
This is where the Institute of Inventors can assist
Funding for your invention? this is where the Institute can help. We have a rigorous process that can separate the viable ideas from those that are unlikely to attract investment.
We apply a time-tested formula to mitigate the risk of failure. We also have experts that can help in identifying the best candidates to attract investment. We help inventors avoid pursuing unviable projects. This will mean that you can save thousands, if not hundreds of thousands, of rands.
We also help in the presentation of viable ideas. You want to make sure that you stand out from all the other options that a potential investor might have. And you want to stand out in the best way possible. You want to be seen for all the potential and possibilities that your idea could have. We assist and advise on how to emphasise the best attributes of your invention while dealing with its challenges.
Be in touch with us today to see how we can help you in funding for your invention. We look forward to helping you on the perilous road of funding. Nothing is guaranteed, but we can ensure that you have the best chances of bringing your ideas to life.