It’s a common stumbling block for any enthusiastic entrepreneur. You’ve got a great idea for a new product, device or invention and you’ve done the due diligence in ensuring the product has a place in the market. However, when it comes to funding such an endeavour, it’s hard to know where to start.
Well, in this blog we’re going to go through a few of the ways that someone like yourself could get your product funded. Naturally, this won’t be an exhaustive list, nor is it a substitute for official financial advice, but it’s going to give you a steer in the directions you could be looking.
Now, first things first, before you go barrelling down the road of finding money to throw at your dream, you need to have ensured that your idea has legs. We’ve gone through this in a whole separate article previously. During idea validation, you will have done basic calculations as to how much your product will cost to manufacture. This is a good place to start in knowing how much funding the idea needs. However, don’t forget to consider other needs your business may have. Understand that making the product is not the only cost of running a business.
Fund it yourself
One of the most common ways to begin a business is to fund the business yourself. However, depending on the levels of production you’re looking at, you may not have the funds available. Funding the endeavour yourself comes with the obvious risks – if the venture falls through, you’ll lose your hard earned savings. However, unlike many other kinds of funding, using your own money means that you’re the sole owner of the business and allows you to have complete control over your business.
Next on the list is a business loan from a bank. Business loans are a relatively common way of gathering funding for your endeavour. There are a number of different kinds of business loan, however they are notoriously hard for a new business to gain, unless secured against something, and may leave you looking for other options. As a new business, it’s particularly hard to achieve bank loans, due to having no history of running a profitable business. This money doesn’t come with many conditions (other than repayments) so, similarly to using your own savings, you’re free to run the business as you please.
Angel investors are wealthy individuals who provide funding to businesses. They will usually do so for a share of the equity of the business and in a method of what’s known as “seed funding”; funding as and when the business requires it.
An angel investor will assess the viability of your business plan and you may have to give up an amount of control in your business. However, an angel investor may bring additional expertise and experience with them that can be more than worth the share of the business they are asking, depending on how involved the investor wishes to be.
Venture capitalists are very similar to angel investors. However, they are usually corporations whose sole purpose is to invest into small businesses for financial gain. They look for a solid business plan and product and expect to see good returns on their investment. In exchange for investment, they will require a share of the company, and look to sell this share back to you (or another interested investor) when the time is right, and the investment return is high enough.
Whilst this may seem daunting, once they invest, they are invested. It’s then as much in their interest as it is yours that the business grows, flourishes and begins to increase in profit. This does mean that you will have to relinquish some control of your business but in return, you get access to expertise, experience and resources you may never had been able to access before.
A less utilised method of business funding is government grants and funding schemes. There are hundreds of small business grants available to business, providing you satisfy the criteria. Some of these are in the form of a direct grant, some in equity finance and some in “soft loans”. Each method has its own pros and cons. For more info and a list of the available financial support offered by the government, take a look at their website.
Those are jus a few of the ways that you can begin to take your business from a fledgling idea through to a fully funded and growing business. If you’re interested in learning more about taking your product from a simple idea through to a marketable product, take a look at our guide “From Idea to Product”. It takes you through the whole process, step by step.