From Idea to Market | Funding your Product Journey

This is a route many product innovators consider as it can lead to quite promising results with minimal investment. Product ideas can be posted on crowdfunding websites like Kickstarter or Indiegogo along with a target fundraising goal to which anyone can contribute. Though it sounds simple, there are some caveats to this option. Its important to not only have a working prototype of the product, but a great marketing pitch, preferably a video pitch. It is also important to secure intellectual property rights before starting the campaign.

Crowdfunding helps in showcasing the product concept to a large audience, thereby giving an opportunity to gauge market interest and validate product market fit. This advantage is so powerful that even well-established brands use it to gauge market interest for a new product. Another advantage of this method of fundraising is that it does not always involve giving up equity. Inventors can choose to give an option to pre-order the product or be first in line for the product or even choose to give away the products as gifts.

Pros:

• Gain market validation and raise funds in relatively short time. Typical target timeframe of a crowdfunding campaign is 90 days.
• Create momentum and have increasing investors pitch in to the campaign.
• Not always about giving up equity.

Cons:

• When fundraising for an ‘all or nothing’ crowdfunding campaign, not reaching the target funding amount would mean total forfeit of the proceeds of the campaign.
• Most crowdfunding platforms takes a percentage of the proceeds of the campaign as payment. Some of them also charge initial set up or application fees.
• If the product is not ready to release or ship in time, it could lead to a lot of negative flak.

An Angel investor is a high-net-worth individual who is typically an accredited investor or group of investors who invest their own money into companies in return for equity in the business. The percentage of equity in the business depends on its valuation, perceived risk, history and experience of founders and timing.

Pros:

• One of the key advantages is that angel investors are usually willing to take on a bigger risk than other traditional financing options. As they typically risk their own capital, they are more emotionally invested in the company and take on active advisory roles.
• The business owner is taking on a smaller risk as angel investments usually do not have to be paid back if the start up fails.
• Angel investors typically bring with them decades of knowledge and experience to boost business growth.

Cons:

• While investing in the business, angel investors will expect a certain amount of involvement as the company grows.

Venture capitalists (VCs) like OCMX and Keiretsu Forum are typically firms that invest money in start-ups and new product ideas in exchange for equity. They can be institutions or even successful entrepreneurs interested in investing in a promising idea. The main difference from angel investors is that while angel investors typically invest their own capital, VCs are structured as partnerships managing investment funds. To secure funding from this avenue, it is important to do thorough groundwork and prepare a comprehensive business plan, detailed market research, prepare a physical MVP prototype, and a sustainable financial plan. Keep in mind to read the fine print in your agreement when it comes to the equity split percentage, level of involvement in business and, reputation and credibility of the investors.

Pros:

• VCs take most of the risk. If the product succeeds, they win big, but if it fails, they eat their losses.
• They can help you grow your company quickly with funding and can connect you to a great network of businesses. They are directly interested and are often actively involved in your success as they have skin in the game.

Cons:

• They own equity in the company, and this can come with strings attached especially with regards to controlling decisions and future direction.

This is a step in the right direction for inventors looking not just for funding but also for mentoring and nudging the business in the right direction. Accelerators typically provide short, intensive training and consultation by specialists with a goal to get the business ready for market or prepare them to gain additional funding or investment of some kind. Accelerators commonly provides a seed investment in return for equity. This seed investment could be an amount ranging from a few thousand dollars to over six-figures. Innovators can also proactively take part in awards or pitch contests from incubators like ventureLAB and Spark Centre that awards cash prizes to winning ideas.

While not exhaustive here is a list of popular accelerators in Ontario to check out:

• Accelerator Centre
• CommuniTech Hub
• Ryerson Digital Media Zone
• Hatchery (UoT)
• NEXT Canada
• Techstars
• The Next 36

Incubators do not directly provide funding to start-ups, though they help connect businesses with investors and provide a platform for these strategic connections to take place. Here is a list of incubators in Ontario:

• The Forge Hamilton
• ventureLAB
• Innovation Guelph
• Spark
• MARS Discovery District
• H2i
• RIC Center

Pros:

• The best accelerators have great connections with a wide network of investors and provide a platform to pitch to many investors simultaneously on a particular ‘pitch’ or ‘demo’ day.
• In addition to funding, there are intensive mentor programs and a healthy social pressure that is build within the accelerator environment that can boost your motivation and learning experience.

Cons:

• The application process can be rigorous and competitive.
• There is a lot of pressure, for a good reason, on a start-up to scale and as there is equity involved, without clear guidelines, there can be some level of micromanagement involved.

There are various government loans or grants available to aspiring entrepreneurs interested in the research and development of innovative technology or products. This is considered non-dilutive funding. The various funding programs available depends on the province, city of residence, nature of invention, stage of development and purpose of invention (commercial or not for profit). Tax rebates and incentives to specifically offset R&D costs and hiring purposes are also available.

Knowing the various grants and incentives that are available and navigating the application process are the main two challenges involved. The Ontario Centre for Innovation (OCI) offers an array of innovation research and development funding programs that help and support early-stage projects. Other government grants for tech research include Industrial Research Assistance Program (IRAP), Strategic Innovation Fund (SIF) and Innovative Solutions Canada among several others. The Government has also set up an attractive tax incentive for scientific research and development through the Scientific Research & Experimental Development (SR&ED) incentive which offers an income tax deduction, an investment tax credit (ITC), and, in certain circumstances, a refund. A comprehensive list of funding options can be found on the Government of Canada’s website here.

Pros:

• The amount granted does not have to be returned and can be utilized for business purposes as seen fit.

Cons:

• Most government grants have very specific qualification criteria and a long qualification process.
• There are restrictions on using the money for specific requirements such as research and development or hiring.

Establish and register a business with the purpose of selling your idea and approach banks and other financing institutions to take out a small business loan. For this option to work, you need to build credible credit history, have a fully working prototype, and a solid go-to-market strategy as loans typically have steep interest rates and payments need to be made in a timely manner to avoid fines. The Business Development Bank of Canada (BDC) offers start-up financing and loans to entrepreneurs in the start-up phase.

Pros:

• A commercial business loan provides access to a large sum of money that can be used to invest in the business.
• Ownership of the business can be maintained without the worry of losing equity.

Cons:

• Unlike other financing options, the terms of a commercial business loan are not flexible. Regular payments will have to be made with interest until completion of the agreed upon term.

There are also other innovative ways of funding that can be obtained via partnerships either with a design firm or with a distributor or manufacturer.

Ultimately, the most rewarding fundraising option is to offer an IPO, an Initial Public Offering that will take the company public. With a very few exceptions, this comes at a later stage for a mature company.

The above list of funding options is by no means exhaustive and serves only as a starting point for your own financial journey. Great ideas deserve to see the light of day and funding or financial constraints should not be a/the reason to extinguish the entrepreneurial spirit of an innovator.