Money, as they say, makes the world go around and this is never more true than in the world of innovation.
Having a great idea is simply the start of the process and it is a process that can be exhaustive both from a personal level and in terms of cash.
So whether you are looking to disrupt a service sector or you have plans to design the perfect mousetrap, you are going to need to find a source of funds.
Assuming that you don’t have a wealthy benefactor how can you fund your innovation?
In this post we are looking at some of the more self-contained methods of funding including;
● Grant funding
● Innovation competitions
● Charity funding
● Equity funding
● R&D tax credit funding
Grant funding is a great source of cash for the simple reason that it is to all intents and purposes a gift.
There is no debt, no interest and no monthly repayments.
That doesn’t mean to say that there aren’t any drawbacks though.
Sources of grant funding can be fairly unpredictable and may dry up suddenly. You will also find that in the main there are quite a number of hoops to jump through during the application process.
Be aware that you may be required to report on the use of the grant and any outcomes as a result of the funding and the money will usually be restricted in terms of what you can use it for.
All that being said, if you can tap into the grant funding stream then it can make a significant difference to your chance of success.
Rather like grant funding, awards and competitions can be sporadic but they are a very helpful source of cash for two reasons.
The first of course is that this is an award rather than a loan and just like grants there is nothing to pay back.
But secondly, competing for money is an incredibly helpful process, even if it may not feel like it at the start.
In a competitive awards process, there is a limited pot of cash and you need to prove that your idea is better than the others to gain access.
This means that you need to sit down and set out your idea in detail, how you will achieve your goals and what it will mean in the future.
Surprisingly, few entrepreneurs actually do this which is a shame, because it really helps to cement your thought process into a coherent and compelling proposition.
The process also allows you to find gaps in your knowledge and may even highlight shortcomings that you had never thought of.
Charities will often have funding for innovative solutions that addresses need in their particular area of interest.
This is especially the case for medical and pharmaceutical research but can also be for other products that may provide assistance.
Charities will also provide funding for investigations and initial feasibility studies that produce original research into their field.
This means that companies can get research funded which then allows them to produce products or services as a result.
In most cases, funding is really restricted to larger charities but when you consider that Cancer Research received an income of £582m in 2021 you can see that this is a potentially very helpful source.
Funding your innovation doesn’t necessarily mean bringing in external money, you can do it internally.
If you have a business that is already generating cash then you can allocate some of your income to bootstrapping your development.
Admittedly this is likely to take much longer than finding a massive source of free cash but it does have the advantage that it is all in your gift and you won’t need to produce business plans, bids or financial forecasts.
In some cases, businesses are able to launch a ‘lite’ version of their main product and use the income from that to fund further development work.
Selling a part of the business may seem like a bad idea but sometimes it is the only way to make forward moves.
You have a choice here though. You could sell off a part of the main company and use the cash for R&D or you could set up a subsidiary with the aim of developing and exploiting new products and services.
The main benefit is that you won’t have any cash cost for this until the business makes a profit and you start paying dividends but don’t discount the fact that many equity investors bring great experience and a large number of connections with them.
R&D tax credit funding
R&D tax credits give businesses that are developing new products and services a useful tax asset that they can use against future profits.
This is all well and good but having a fat asset sitting on your balance sheet seems a bit theoretical when you are trying to find the money to pay your business rates.
However, you can use that asset to your advantage by raising finance against it.
As specialists in alternative finance, we saw that there was a need for SMEs to be able to access cash when they needed it and not at some far off future date.
Our unique and dare we say innovative funding solution allows businesses to access cash based on the value of their future R&D tax credit claims giving them a valuable source of development funds.
This means that you can fund your future development based on the value you have created in R&D tax credits in the past.
The key to funding innovation has to be to take a blended approach.
Don’t put all of your eggs into one basket, instead, look at basing your funding plan on a mixture of different sources. This way if one source suddenly dries up you still have options available to you.
Make sure you always have an up to date business plan and financials, this way if a new source of funding opens up you have everything you need to make a quick application.
And when you have R&D tax credits that you can claim, call us and let us show you how easy it can be to bring in cash for your company.