Building a team and seeking funding

Many inventions need external funding or support, because the cost of developing a new product or technology often exceeds the resources of an individual or a small business.

There are, however, very few sources of support specifically for inventions. Raising funds may depend on convincing other people and organisations that your invention is a business opportunity with excellent investment potential.

But to stand any chance of persuading them, you may first need to assemble a team. Exploiting a new business idea usually demands a range of skills that few individuals possess - and experienced investors know this. You may therefore have to find other people who can provide the skills that you lack. A team effort should also help you to achieve your objectives more quickly.

Building a team

In the early stages of an invention, many inventors work alone. But as soon as external funding is needed, it often helps if the inventor is part of a team. This is because most investors want a fairly rapid return on their investment. They may think this is unlikely to happen if they see you struggling to do everything on your own. You have to prove to them that you have the resources to make things happen quickly and successfully.

In many cases, one or two other people may be enough to form a credible team. But any team must include business skills. These are often missing because all the early focus has been on technology. Technology skills may be important, but for most investors only the business potential of the idea matters.

Sources of teams

You can build a team in several ways. For example:

• Recruit from among ‘family and friends': people whose abilities and personalities you know well.
• Create a team of specialists you can call on when needed: for example a product designer, a prototype manufacturer and an accountant. They will have their own ‘day jobs', so keep them fully informed of progress if you want them to be effective at short notice.
• Contact a local inventors' club and see if you can recruit a team from among their network. This may include retired professionals looking for new challenges.
• For major projects, form a ‘virtual company' with a professional management team which does not become operational until investment is available.

However you build your team, you must be able to convince them that your idea has good commercial potential. If you cannot, you will have little chance of convincing investors!

You should decide how everyone is to be rewarded from future profits, and with appropriate legal advice construct a reward agreement that everyone is happy to sign.

You should also ask every team member to sign a non-disclosure agreement before being allowed access to key information. (An exception may be solicitors, lawyers and patent attorneys, as their professional code of conduct requires them to observe confidentiality.)

Sources of help for invention

There are very few sources of help for inventions and inventors. There are, however, numerous sources of help for innovative small companies. Therefore, it may be worth setting up a company to exploit your invention. As a company with an invention at an appropriate stage of development, you may then be eligible for some assistance.

(The aim of your company can be either to make and sell a finished product, or to develop the invention to the point where a larger company can invest in it or license it from you.)

Raising finance

Raising finance for inventions is nearly always difficult but not impossible. The lower the risk to an investor, the better your chances of getting funding. There are two basic types of funding - and you may need them both:

• ‘Friends and family' investment. In the very early stages of an invention, your only hope is likely to be comparatively small amounts of money from people who (a) know you well and (b) are willing to gamble that your idea will reward them well later for a small investment now. Other investors are unlikely to be interested as there are too many ‘unknowns' and so the level of risk is too high.
• Formal investment. Larger amounts of funding may be available once your invention has (a) reasonably assured prospects - perhaps demonstrated by sales of actual product - and (b) a business plan (Part 7 ).

How much money do you need?

Many inventors harm their chances of getting funding by asking for unrealistic sums - and asking for too little can be as unrealistic as asking for too much.

It is important to calculate the cost of developing your invention as fully and accurately as you can. This may not be easy, but anyone with experience of assessing investment proposals will know immediately whether you have made the effort.

It may be helpful to seek a range of professional advice to identify all the costs involved in developing a new product or technology. If you have never done it before, it can be easy to miss or underestimate important cost headings.

You do not have to cost everything to the nearest euro, but you do need to present figures that someone with experience can look at and say, ‘Yes, that is about right'.

For example, a significant budget item may be the cost of patenting. This tends to be fairly predictable over several years, so you should be able to get realistic figures from your patent attorney.

It may be unhelpful to ask for money to meet your living expenses. Many funders will see this as increasing their risk while reducing yours. And if they think that you are not willing to make sacrifices for your invention, they may question your commitment to it. If you think some personal income is necessary, you must justify it in your business plan.

Do you need external funding at all?

The aim of a business is to make money rather than spend money, so identify every possible way of cutting your costs before concluding that you need external finance.

For example, the key to the success of many inventions is skilful marketing. If you can get orders for your product before it is manufactured, you may not need any external funding. Even if your orders are not paid for in advance, proof of those orders should make it easier to get credit from your manufacturer or perhaps bank finance to cover you until customers pay. And you could offer discounts to customers for early payment.

Your profit may at first be small, but (a) you will have launched your product successfully and (b) you will have spent only what it cost to sell the product, rather than what it cost to make it.

Sources of funding

It is unlikely that banks or venture capital investors will provide funding to develop or market an invention. Banks do not want to take risks, and venture capitalists tend to invest only in existing businesses run by experienced managers.

More fruitful sources of funding for inventions are: 

• Family and friends
  Individuals may be willing to invest small, affordable amounts. For example, the inventors of the hugely successful quiz board game Trivial Pursuit® were turned down by every company they approached. They then offered $500 and $1000 shares to friends and raised all the money they needed to launch it. Many people will gamble sums they can afford to lose in return for a small but worthwhile stake - for example, one per cent per €1000 invested - if a business venture is presented convincingly.
• Private investors often known as ‘business angels'
  These are private individuals with money to invest in small businesses. Most look for three things: effective management, a good product and a worthwhile market. They may be willing to take a large risk, but in return will want a large reward. A convincing business plan will be essential, and the angel may insist on taking a close personal interest in the business.
  Business angels often form local syndicates, details of which should be available from local business support organisations.
• Potential business partners
  Partnership with an existing business may be a good way of getting investment in the form of money or other resources. But if the relationship is unequal, the risks to you may be high. It will be vital to base any partnership on a legal agreement that defines the relationship, its objectives, the sharing of rewards, and what happens in a range of changed circumstances. Always be careful not to give away more control of the invention or the business than the partnership is worth.
• Government or EU grants and subsidies
  Business support organisations will be happy to give you information about current funding schemes for innovative small businesses. The funds available may not cover all your development costs, but they may make it easier to obtain additional funding from the commercial sector. 
  Some schemes may be limited to businesses in designated areas. It may be worth moving your business to become eligible for support, but you must carefully examine the terms and conditions. For example, if you are tied to specific premises, can you be sure that an initially low rent will not rise steeply later? 
• Support from universities
  Universities may be worth exploring as a source of help. This may range from low-cost undergraduate projects, for example in market research or product design, to consultancy or testing at commercial rates. Many universities now actively seek business opportunities in innovation, but they also expect to profit from them. You should therefore ‘shop around' for a university with the most appropriate resources and the most acceptable terms and conditions.  
• Competitions and publicity
  Winning an invention or innovation competition can provide useful funds and publicity. Always ensure before entering any competition that (a) the organisers understand the need to limit disclosure, and (b) you have adequately protected your idea. But do not file a patent application simply to enter a competition - unless you are absolutely certain of winning it!
  Always beware of media publicity - particularly television - if you cannot control the information that reaches the public. For example, if you are presented as a ‘mad inventor' rather than a serious entrepreneur, your competition win could turn into a loss! For print media, it will definitely help if you can produce media releases of professional quality.