Funding Innovation for Entrepreneurs
in Strategy & Trends | by David Capece
By David Capece, Managing Partner
Innovation is a process that involves creating, advancing, refining, and executing (see full Entrepreneur.com article). Most innovation projects have an unprofitable startup period. To sustain innovation projects, you’ll need a combination of investment and sweat equity with the promise of reward over time. Large-scale innovation projects can take significant money and many years before they start paying off. Imagine the case of GM and Ford, who are challenged to green innovations that could take 5 years before coming to market. In contrast, small-scale innovation projects are typically more incremental and can have quicker payback periods. Innovation is critical to the lifeblood of an organization, so take the time to develop your plan and line-up funding. Below we share our tips.
Self-Funding. If you are fortunate to have a successful, profitable business, take some of your profits and re-invest in new projects. While you might make a few less dollars today, you’ll be setting yourself up for sustained profitability as you stay a step ahead of the market and your competitors. Make money quickly by securing existing customers as your first embassadors to your new product innovation.
Sweat Equity. There is a segment of the American workforce that wants to play a role in major breakthroughs. Does your team thrive on working on the “sexy” project that could transform the industry? Is your team excited about the upside of breakthrough success? If so, the opportunity to work nights and weekends as you get the project off the ground might be more attractive than you’d think. The promise of reaping rewards on the upside of success (often in the form of stock or options) is extremely alluring. You can also create similar arrangements with service providers in which you offer them equity compensation in liu of cash payments.
Partners. If you are developing new products and technologies, you may generate interest from peers in your market. Perhaps they would like to jump on the innovation train so that they leap forward in the market. It’s much easier to divide costs among 3 players than to shoulder the burden alone. Beyond that, you can leverage the combined talent of your organizations to make progress more quickly.
Investors. If you’re like me, you know entrepreneurs who started a business, and along the way discovered an adjacent opportunity even larger and more promising than their initial offering. It’s hard enough to build one business, especially for resource constrained entrepreneurs. Access the funding you need through current or new investors. While venture funding seems sexy, there are some contrarians on the topic. FastCompany contributor James Todhunter says, “The goals of the venture firm are not aligned with innovation. VC funded startups are often encouraged to run at a pace that destabilizes the company and undermines their ability to become a sustainable enterprise. With a strong value proposition, it is possible to get future customers to provide funding with prepaid commitments of future purchases of the new product.”
Grants. Local, State and Federal governments often have programs to fund innovation in science and technology. Beyond this, there are organizations and universities that have set up funds to support new development. One example in Pennsylvania is Ben Franklin Technology Partners. Check locally or in specific industry groups to find examples that are relevant to your venture. Ultimately, applying for grants can be very time consuming and comes with restrictions. Do some quick research to see if your innovation qualifies for grants, and use this as a secondary means to acquire innovation funding.
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