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
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.
Eric Debelak is part of the team at the One Stop Invention Shop, http://onestopinventionshop.net. The One Stop Invention Shop provides great services and lots of free information to help inventors succeed.
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