One Stop Invention Shop » finding funding

How to Create a Presentation to Raise Initial Funds for Your Invention

admin — Tue, 20 Mar 2012 06:01:24 +0000

Often inventors need to raise some early investments to help pay for prototypes, patents or other items to help get the project off the ground. You have three goals: one, avoid trying to write a 40 to 50 page business plan, two, to show you are serious about taking your product to market, and finally, you need to show your idea has a real chance to succeed.

A brief history

Provide a short summary of why you came up with the idea, what made you use your particular product design, and why you think it will sell. Include a list of any industry related people you’ve worked with, such as sales representatives, retail store owners, distribution people, inventors who have succeeded in the market, or key end-users.

A competitive products chart

Analyze the products that are already on the market, what they cost and what their strong and weak points are. Include your product in the chart. Also try to get some of the more popular products either the actual product or brochure, printed web pages or ads for the competitive products.

Current sales efforts

If you have done anything to sell your product, list those efforts here. If not, list any feedback you have from industry people or end users. If you are going with end-users, try to have them evaluate not only your product, but also the competitive products so that they can rate your product above others.

Transitional sales plan or a licensing plan

If you plan on taking the product to market on your own you need a plan to show how you will start to sell the product until its sales expand into a large market. This plan doesn’t have to be long, usually you can show your plans in five to eight bullet points showing the steps you will take to market the product. Be sure to list in this plan any contacts or connections you might have made that will assist you.

If you plan on licensing the product you should list at least three potential licensing targets. You need to show how you will meet the key contacts at those companies. This is usually done either by showing you have a personal connection into the company, perhaps you know a sales rep, or other employee, or a major customer of the targeted company, or by listing the trade shows you will attend to start the licensing process moving forward.

Show the product’s expected sales price and projected costs

The projected costs should be no more than 20% of the products final sales price. You can estimate the products sales price by comparing it to other products in the market, both with competitive products and with products very similar to yours in construction or manufacturing techniques. One effective tool is to have a focus group evaluate your product against others and then list them by order of value, from the highest price product to the lowest. You can use the product rated just above and just below you to estimate your price. You can get the manufacturing cost by getting quotes for several potential manufactures for 5,000 or 10,000 units. Don’t use a price for a low number of units as the price will be too high and you probably won’t meet the criteria that manufacturing costs can’t be any more than 20% of the final retail price.

An orderly financial plan

Don’t go wild here and come up with pages of data. Instead you just want a simple layout. For example:

Finalize prototype $5,000.00
Apply for provisional patent $3,500.00
Arrange for first small production run $12,000.00
Attend Las Vegas trade show $15,000.00
including brochures, booth and display
Start larger production, establish operating cash $20,000.00

Ask for a specific investment

You don’t want to ask for all the money, as then you will have to give up too much of the company. But usually you want to ask for $10,000 to $25,000 for five to ten percent of the current shares of the company. Be careful here to mention the shares of the company will be diluted (become smaller) as more and more shares are sold to raise money. For example today you may sell 10% of the shares and you own 90,000 and the investor 10,000. But if you sell another 10,000 shares, then there will 110,000 shares, with the each investor owning about 9% of the shares and you about 82%.

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Need Money for Your Invention?

admin — Fri, 01 Oct 2010 05:31:05 +0000

Want to raise some money for your invention? Kickstarter.com offers an innovative new way to raise money. You post your idea, how much money you want and what you will use that money for. Then people will see your idea and if they like it, they can pledge money. Their credit cards aren’t charged until enough money is pledged to meet your goal. So if your goal isn’t met, no one’s credit card will be charged, making it an all-or-nothing kind of fund raising. Best of all, you keep all rights to your idea and kickstarter keeps just 5% of the money raised.

Funding Sources – Part 2

admin — Wed, 20 Jan 2010 14:16:31 +0000

Raising Big Money

Professional Investors

These are people who are looking to put serious money into a new product or business that has the potential to give them a good return. They may put anywhere from $50,000 to $1,000,000 into a project. Expect them to be very careful about where they put their money and check and double check everything about your product and business. Also expect them to try to negotiate a deal that is good for them. You can find these investors through other start-up companies, at entrepreneur clubs or venture conferences.

Venture Capitalists

These are firms that invest in companies with high-growth potential, experienced management and a sound business plan. Often they are unwilling to invest in a company without a sales history, unless it is involved in an exciting new technology, and they are not looking to make small investments–usually they invest $1,000,000 or more. To find these firms, look for Pratt’s Guide to Venture Capital Sources, which is a fairly comprehensive list of venture capital companies, at a larger public library.

Private Placements

Private placements mean raising money by hiring a broker to sell stock, but not making the stock publicly available like on a stock exchange. The stock is sold mostly to accredited investors, who make more than $200,000 a year (or $300,000 together with spouse, if married) or who have a net worth of more than $1 million. This stock can be hard to sell and investors generally hope that you eventually go public with your company so they can sell their stock on an exchange. Broker and legal fees for this can be considerable, for instance raising a $1 million or more can easily cost you $250,000.

IPOs

Initial Public Offerings (IPOs) are much like private placements, except that your stock can be freely traded on stock exchanges. The timing of your IPO is important for investors because it offers them the first time they can sell their stock and usually they want you to go public when the company is doing well and is going public to raise money for a major expansion. Before an IPO, you can only sell stock to people you know, or people someone in your company knows, and to accredited investors, so an IPO opens you up to many more investors and gives you the potential to raise serious money. But the legal fees to offer an IPO are also very expensive, typically well over $250,000.

SCOR

If you don’t have the money to set up a private placement or an IPO, you can still sell stock publicly through the Small Corporation Offering Registration (SCOR) program. Through this program you can raise up to $1 million for a much lower cost because of the reduced paperwork.

Community/Minority Funding

There is a huge amount of funding available for you depending on what area you live in and what your ethnicity or religion is. Many cities and counties, especially in rural areas, but also sometimes in the inner-city, have economic initiatives to bring business and jobs to their area. These funds can be low- or no-interest loans, tax breaks or even grants. Sometimes even if you are not located in an area that offers these funds, you can still access these funds if your manufacturer is located there.

If you are part of a minority, either religious or ethnic, there are also funds available. These funds are usually not available through the government, but often successful members of the minority set up funds to help others in their minority also succeed. A simple internet search may help you find some of these funds, or you can also contact minority media outlets, like newspapers or websites, and they probably know who offers such funds.

Sales/Leaseback

Real estate investors and equipment leasing companies are often willing to buy your building or manufacturing assets and lease them back to you.

Other Funding

Factoring

Factoring (also called receivables financing) companies buy your account receivables from you for 4% to 8% off the face value. They then receive payment as the client or customer pays. This can be very expensive since you are giving up to 8% of the bill to get the money two or three months in advance.

Cash Deposits

Instead of just offering 30 day terms, you can require down payments, especially on custom made orders. These deposits will help your cash flow and pay for the products your are producing to sell.

Bank Loans

Banks always want collateral for their loans, and if don’t have business collateral, they will want personal collateral. Some of the most common bank loans are:

installment loans, where you make a monthly payment for a certain number of years
term loans, where you repay the entire amount after a certain number of months or years
asset based loans, for inventory or equipment
revolving line of credit, which you can withdraw when you need cash and repay when you have extra cash

SBA Loans

Small Business Administration loans are similar to bank loans, except the borrower doesn’t need to offer collateral because the government guarantees the loan. These loans can also be easier to get than bank loans.

Borrowing Money Off Orders

With a big order from a reputable company, you can often secure a term loan from a bank. Private investors also can offer you a short-term loan, but they will charge you a much higher interest rate.

Tips to Consider

Not all banks are equal, some of the smaller regional banks are much better loaning money to small entrepreneurs than the bigger national and regional banks. Contact your local Small Business Development Center to find out which local banks offer you the best opportunity for a loan. Be sure to do all your banking at a bank that is “small business friendly.”

Do an internet search for Economic Development Resources in your state. For example check out this site for the state of Minnesota: www.ecodevdirectory.com/minnesota.htm. Often towns will have economic resources to help you get started. Sometimes if you look at smaller rural towns you might even find that the city has lined up some local business or investors to help you get started in your town.

Always consider using exclusive agreements to get cash. You can agree to make a product at a manufacturer in return for the manufacturer picking up tooling costs and you might also be able to strike an exclusive deal with a distributor to carry your product in return for an upfront fee. You can also use exclusive agreements with distributors, manufacturers or vendors in return for an investment in your company.

Should I Call Myself An Inventor When Raising Money?

admin — Sun, 17 Jan 2010 14:00:54 +0000

Is being an inventor prestigious in business circles? Not always. Here is an interesting article from Inventors Digest about what to call yourself when raising money. Related posts: The First Steps in Raising Money Need Money? Get a Mentor Need Money for Your Invention? Related posts:

Need Money? Get a Mentor

admin — Fri, 15 Jan 2010 14:00:12 +0000

As we have been writing about raising money, we have also mentioned that to gain trust of investors, you need experienced people as mentors, advisors or even consultants on your team. Many people underestimate the importance of having experience on their side, so when I found this article on having mentors to raise money, I decided to share it with you.

Funding Sources – Part 1

admin — Tue, 05 Jan 2010 06:01:38 +0000

Nearly all inventors need extra funding to bring their product to market. But where do you find this funding? Who can invest? Are there other ways to get financial help besides through investments? These are the questions we will answer in this two-part article.

Funding from Individuals

Finding individuals to invest in the early stages of your product development is usually the easiest and best way to get your project started. Below are the most common forms of individual investing.

Self Funding

Self funding can be money from checking or savings accounts, credit cards, personal loans, or the sale of personal property or stocks.

Family and Friends

Investments from friends and family are often the easiest investments to get for starting your product development. But don’t take advantage of their trust by asking too much. Bringing a product to market is a high risk venture and you don’t want your friends or family to lose too much money, and potentially ruin your relationship with them, so don’t ask for more that 10% of their investment money. It is better to ask for a little bit of money from many people, than a lot from one person.

Industry Insider Investments

Getting investments from industry insiders are the best investments you can get because once people invest, they are interested in seeing you succeed and can help you, or introduce you to contacts who can help you, with inside market advice to make and sell your product. Read The First Steps in Raising Money to find out more information on meeting industry insiders.

Angel Investors

Angel investors could be anyone, for instance: your dentist, neighbor, people at church, or even parents of your children’s friends. They probably won’t know much about your business, and don’t want any involvement, but angel investors can give you the investments you need to get started. Once you get your first investor presentation ready, don’t be afraid to start approaching potential angel investors. You probably already know dozens of people who could invest.

Now, most people have less money to invest, so you will want to find a number of angel investors and ask them for smaller investments. It will be easier to find three or four investors to make a small investment than it will be to find one investor to invest a larger sum.

Angel Investor Groups and Syndicates

Due to the economy, individual angel investors are investing less, but more and more angel investors are becoming parts of angel groups or syndicates. Investors join these groups to pool their money and spread their risk. These groups save time for both the investors and for entrepreneurs. Entrepreneurs can present their product to many potential inventors at once and raise more money than from an individual angel investor, and investors save more time because of the screening process the group or syndicate does before hand to eliminate overly risky or unqualified businesses.

Because of the screening process, expect to answer tough questions. Only a small percentage of entrepreneurs seeking money from groups or syndicates receive it, so make sure your presentation, and financial information, is dynamite.

Funding from Manufacturers

Funding from manufacturers often is not outright investments. Manufacturers have lots of resources and sometimes working out deals with a manufacturer can only cost them a little bit, or even nothing at all, but can be a huge savings for you. Often manufacturers make these kinds of investments when you have already signed some kind of deal with them, or are intending to. When you make a deal with a manufacturer, like for contract manufacturing, you can ask for certain investments as a part of the contract.

In-kind Investments

If you need a part machined or some engineering drawings done, a manufacturer probably already has someone on salary who can do it for you. The manufacturer is paying these employees anyway, so it doesn’t really cost them anything.

Extended Terms

Payment terms are usually 30 days. This means once a manufacturer finishes producing a shipment, you have 30 days to pay them, but also if you have 30 day terms with a distributor, they won’t need to pay you for 30 days until after they receive the shipment. The result? You need to have the money on hand to pay the manufacturer for the shipment before you receive money from the distributor. This causes a big cash flow problem by requiring you to have larger amounts of operating capital (something overlooked by many inventors). But if you get extended terms from the manufacturer, say 60 or 90 days, you will get paid by the distributor before you need to pay the manufacturer, allowing you to have much less operating capital. In a sense, you aren’t really saving money, since you still pay the manufacturer the same amount you would have paid them in 30 days, but it allows your cash to be used in growing your business instead of keeping it on hand to pay the bills.

Amortized Tooling

When you start manufacturing a product, there are molds and other equipment accessories that need to be purchased to start making your product or to speed up the manufacturing process and ensure high quality. Usually manufacturers want you to pay upfront for these purchases, but you can also ask them to amortize the cost, which means instead of charging an upfront fee, they will charge an extra fee for every product manufactured to cover those costs. This again isn’t a real savings, but it keeps your upfront investments low when you will have no sales to cover the costs.

Prototypes and Product Development

Some manufacturers have the equipment and staff to make prototypes in-house. If you will work with one of these manufacturers, either in some kind of partnership or contract manufacturing, they could help you with prototyping and finishing your product’s development, provided you can demonstrate that your product has the sales potential to justify them investing their time and energy. Your goal is to show that the product has so much potential that they will make lots of money manufacturing it, even in a contract manufacturing agreement, so covering the cost of prototyping and developing the product is worthwhile for them.

Outright Investments

If manufacturers like your product, they may buy stock in your company, or at least make you loans to launch your product. Also, if you have strong orders once your product is launched, manufacturers will often loan you operating capital.

Joint Venture Financing

Manufacturers also are often willing to enter into joint venture or alliance partnerships if they like your product and believe in your business skills. These agreements can vary widely, but generally these are agreements where partners pool their resources and skills and split the profits, all of which is detailed in the joint venture agreement signed by all the parties.

Part 2 of this article will cover raising big money and alternative sources of funding.

Getting the Investments to Get Your Product Off the Ground

admin — Sun, 20 Dec 2009 06:01:37 +0000

Many inventors run out of money early in the invention process. This is often because they wait too long to take on investors. Experienced inventors know it is best to take on investors from the earliest stages of inventing so they don’t run out of money later on. Once you run out of money, finding investors can be difficult because you will look like a poor planner. So take the right steps, right from the beginning.

Early Investments

These are the investments that help you finalize your concept, create a prototype, execute a patent strategy, make initial contact in your market and set up your business operations.

Initial Seed Money

This money is needed to evaluate your idea. It typically involves a preliminary patent search, some initial market analysis, verification of the idea’s premise and possibly attendance of trade shows to see other products and meet industry people.

This stage is typically self funded. Your goal is to evaluate your idea, determine if it has potential and gather information to create a presentation for potential investors about your idea and its potential in the market. In an upcoming article, we will deal with how to craft that presentation.

The costs for this stage usually run less than $1,000 and can be funded by savings, credit cards or the sale of personal property.

Feeling Out the Market

As you develop your product and further investigate market potential, you will need to attend trade shows, industry events and association meetings, plus subscribe to industry literature. Your goal is to learn about the market and to network both with people who can help you with your product, either as advisors or as investors, and with people who may end up being customers. You will use the presentation you prepared using your initial seed money to explain your product to industry contacts and potential investors.

Before you start, you will want to look into applying for a provisional patent to give you a patent pending status. Although many inventors submit provisional patent applications themselves, you will probably want to talk to an experienced person to see if this will work for you. For instance, provisional patents don’t apply if you will later be applying for a design patent. It is better to have a patent pending status than to ask people to sign Non-Disclosure Agreements since some companies don’t sign Non-Disclosure Agreements.

Also before you start attending events, you will need to prepare a sample brochure. Make sure your brochure includes your contact information so people can get in touch with you later.

This is a great stage to take on your first investors. You may not need them yet since this stage often costs less that $2,000, but if you lined up three investors to each give $500, you will have some funds to help you along and also three more people interested in your success. Because of this interest, these investors will also be more inclined to invest in the future. You want to tell them that you need to prepare a brochure and attend trade shows to make industry insider contacts that you can rely on during your invention process.

Models, Prototypes and Patents

Once you are sure that your product will sell, you will want to make a high quality prototype to both verify that your product will actually work as you envision it and to prepare for the next stages of your product’s introduction. If your product works well as you envisioned, then it is also time to implement your patent strategy. You want to make sure your product is just right before applying for a patent, otherwise any changes you make could take your product outside of your patent protection.

With your high quality prototype, also create packaging and another brochure using the product’s picture. With these tools, you can attempt to land a licensing, private label or join-venture agreement. Your prototype needs to show your product will work and your packaging and brochure need to show that your product has a good sales pitch.

Depending on the complexity of your product and your patent strategy, this stage can be expensive. Patents alone can cost from $5,000 to $25,000 and up. But if you are looking into starting your own company, this stage is not expensive compared to setting up manufacturing. Hopefully you have already brought on some investors and you should approach them about investing in this again. Most investors understand how important this stage is and will invest again. Especially if you are starting your own company, try to approach many investors for a small investment now. It will be easier to get small investments and then it sets these people up to invest in your business later on.

Another possible source of funding for prototypes is from manufacturers. If you have met some manufacturing contacts in the previous step, you can sometimes set up a deal with them to have their in-house engineering staff do the prototype (they are being paid anyway and if the manufacturer doesn’t have enough work this can be attractive for them) in return for you using them as a contract manufacturer when you start production.

Next Steps

After this step, your product development can take many different paths and you will need to choose your business model at this point. But in this article we will mention one more step that most inventors forget to plan for.

Setting Up Company Operations

If you set up some kind of company operations you will have a variety of expenses, which may include: operating capital, buying office supplies (computers, printers, fax machine, desks, file cabinets, etc.), setting up phone systems, hiring an accountant and paying legal fees. These expenses will greatly vary depending on whether or not you run your company out of your house, if you need to hire employees and many other factors.

Make sure you consider these expenses in advance so you can create a presentation on your needs for current and potential investors.

Look for our next article about many of the different funding sources, for instance: angel investors, bank loans, deals with manufacturers and many others.

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The First Steps in Raising Money

admin — Sat, 05 Dec 2009 06:01:07 +0000

Nearly every inventor has problems with money shortages. Even the best planned product introduction, using all of the low-cost methods available, can be very expensive, especially when it comes to prototypes and patents. Most inventors need to raise money sooner or later in their product introduction, but raising money can be very difficult. In this series we will teach you by laying out a good plan for raising money in advance can be the ticket to getting the big investments you may need to bring your product to market.

Getting Started Raising Money

Keep on Working

Most inventors use personal loans or credit cards to fund the first phases of their product introduction. If you are not working, you will have a hard time securing these loans. Some inventors get so excited about their idea that they quit their job to dedicate all their time to their new project. But this is usually not wise. In the early stages of your product development, you should keep on working, dedicating evenings and weekends to your project, until you are sure your product will succeed. Then once you feel it is wise to quit your job, make sure you apply for any loans or credit cards you may need before you quit. This way, you will have an easier time getting loans and credit cards and you won’t be going into debt just to pay your regular bills.

Founders’ Equity

When you are starting to develop your new product, it is a good idea to get a pool of money from founding investors, which includes you. This can be just family and friends, although someone within your industry is even better. Ask the group to invest a small amount, say a couple of thousand dollars, and then you match whatever the other founders invest. Then reward yourself around 500,000 shares of stock, since you came up with the idea, and give the other founders 10,000 to 25,000 shares. Then as your need for more funding grows, ask your founding investors for more money.

Outside investors always like to know how much money you have put into the project and are putting into each additional stage. By having a founders’ group, you can say how much the founders are investing and it will help you not run out of money and be unable to invest in the next stage. If you approach an investor to finance, for instance, your patent and you say you aren’t putting up any money for the patent since you have none, you probably just lost your investor. In that case, you will look like a poor planner. Having founding investors helps you always have at least a small supply of funds.

Business Experience

If you don’t have business experience, you will have a very hard time finding serious investors. Find a mentor, hire a consultant, or take on a business partner to let the investors know the project is in reliable hands.

How can you find people with business experience?

First, check with your family and friends. Often, they will know someone in the industry you are targeting and even if that person does not have the experience you need, he or she might know who does. Also keep your eyes and ears open and ask people what they do for a living. You can meet the contacts you need almost anywhere: at religious gatherings, at your children’s sporting events, at community gatherings, etc.

Another good way to meet mentors is through business courses offered through the SBDC (Small Business Development Center), SCORE, and local universities. Both those teaching and those attending might be good contacts for you. The same goes for events at your local chamber of commerce and your local inventors club.

Join trade associations in your industry. Seminars and meetings of the trade association will introduce you to many important people in your industry.

Read articles about your product category. Write or call the authors and ask for input. If they aren’t open to helping you, or don’t have the experience you need, ask them if they know someone else who might be interested in being a part of your project.