UNDERSTANDING THE FINANCIAL RESOURCE REQUIREMENTS

LICENSING VERSUS STARTING YOUR OWN BUSINESS

Should the inventor license the invention to a third party, or should the inventor open their own business and manufacture and market their invention? This decision will affect not only how you earn money, but also how much financing you will need to proceed.

Differences in Financing

In terms of financing your invention, licensing usually requires much less capital than the alternative of opening your own business and manufacturing and marketing your invention yourself. What's usually required is money to create a prototype (or other suitable presentation to potential licensees), to market the invention, and, perhaps, to solicit and negotiate with potential licensees. On the positive side, a successful licensing agreement will potentially provide an inventor with a financial gain and then be able to possibly pursue inventing new projects while still profiting from the last idea. On the negative side, a bad licensing deal will limit the amount of profit an inventor can make and may tie up their innovation or, worse, result in legal battles over royalties.

If you start your own business you will need far more financing to manufacture and market your invention. Money is required for producing a prototype, creating tooling and/or molds, mass producing the product, distribution, insurance packaging, collecting payments, and enforcing your patent rights. In addition, entrepreneurial inventors often become involved in more complex financing than an inventor-for-royalties -- for example, you may need to form a corporation and sell shares of stock (or other interests) in the business and the invention. On the positive side, the financial rewards are potentially much greater -- which is precisely why it appeals to more entrepreneurial inventors. On the negative side, manufacturing and marketing are incredibly risky and can cause tremendous anxiety and engulf your personal life.

Which Is Right for You?

If going into business is your goal, and creating your invention is your means of full time career, then starting a business could be the right choice for you. If you're not afraid of taking risks and you have the capital or least access to the capital and you love to innovate in commerce, going full time into a new business is your best option. But if none of the above appeals to you, licensing is the correct course of action for you.

Find the money you need to bring your invention to life!

There are many sources of potential investors who are looking for a great idea to get behind. Look at the list below for some of these sources.

If you have absolutely no money and you want to get your invention into the marketplace, it is very unlikely that you will be able to turn your invention into a commercial product. By no money, we mean someone who is unable to earn money above living expenses, raise money, or borrow any money.

However, if you are willing to work there are opportunities out there.

When soliciting for money, conduct yourself in an appropriate businesslike manner. An email inquiry asking for financial support penned in an informal manner and full of grammar and spelling errors will get no response. The same goes for badly penned snail mail or confused sounding phone calls.

Stretch What You Have

It's a good idea to use what you have before borrowing what you don't. Here are some common-sense--yet often bypassed--strategies to make the most of what you've got:

• Cut corners in your everyday life. Most likely, profits won't be rolling in a month after you launch your business. So, think of what you can do without. It can be as small as giving up that daily $3 cup of coffee (it adds up!) or as substantial as waiting to invest in a new car or a larger home.
• Keep working. Don't give up your day job too soon. Many successful inventors work on their project at night and on weekends, and take the process as far as possible before leaving their paying jobs. If you have a supportive spouse or partner, involve them in the planning. When you reach a point where your business becomes a full-time venture, perhaps you can negotiate with your partner so he or she agrees to support the family while you build your business.
• Spread it out over time. Avoid incurring large expenses all at once by spreading out your process over time. In other words, you don't have to accomplish everything from market research to prototyping to manufacturing overnight. Let your finances help set the pace.
• Work with your vendors. One of the best ways to finance your project is to find vendors who'll share your financial strain. While you can't ask them to work for free, you can ask them to give you their absolute bargain price now. Let them know that with success, their support will be rewarded by your loyalty. You may also request to pay via a scheduled payment plan. Time your payments for when you know you'll have available funds, such as on payday.

In addition, be sure to communicate! If you're going to be late with a payment, don't avoid your vendors--let them know upfront. This way you can work on a solution together, such as incremental payments, etc. The quickest way to sour a relationship is to ignore their inquiries.

The money you spend early on will help finalize your idea through the prototype stage. It will also let you make initial contacts with industry insiders. Here's a rundown of typical costs:

1. Initial seed money: $100 to $1,000. This money-self-funded through credit cards, savings or the sale of personal property-is used for an invention evaluation, patent search, possible legal protection with a provisional patent application. You might also want to attend a trade show to check out products and interview industry people.

This will give you a better understanding of your idea's market potential. Prepare a presentation on why your invention will sell.

2. Researching the Market: $1,000 to $3,000. Attend trade shows and association meetings to start networking and learning about competitors. You'll use the presentation developed with your seed money to explain your product to industry contacts and potential investors. After this period, you should have a better presentation, and you should make a sample brochure. You may need a concept model for the brochure.

Even if you don't need the money, this is a good time to start adding investors because you only need to ask them for small amounts. You could ask for $500 from each of three investors to prepare a concept model and a sample brochure, and visit two trade shows. Your goal is to line up industry contacts as early investors you can rely on during your invention process. You may want to apply for a provisional patent before attending the show so you can say your product is patent pending.

Government Resources for Financing Your Invention

Many branches of the government give grants and loans to fund research and development of inventions. However, the grants are often very specific as to what type of inventions funding is given. For example, the U.S. Department of Energy offers grants for the development of inventions that benefit the environment or save energy. The U.S. Department of Small Business offers small business loans. Getting a grants or loan will require footwork and research on your part.

Grant Programs

Invention grants and financing are available from government sources; however, they are not just sitting there waiting to hand money to you.

There is a process to follow just like any other funding process.

Governments at all levels have an interest in supporting research, development and commercialization of technologies related to the environment, energy, health sciences and high-tech.

With the "meltdown" of economies and the proliferation of "bailouts", governments realize there is a need for change. This can only help inventors needing government support for starting a small business.

CRITERIA

Government programs are often very specific as to what types of inventions they will fund and what criteria is required to apply.

There are numerous databases for grants, which include available resources and funding requirements. The criteria for qualifying varies depending on the source of funding.

Understanding the process and preparing qualified applications is important.

For example, the Small Business Innovation Research (SBIR) program provides grants to small businesses with innovations that have the potential to be profitability commercialized. The criteria for these grants include a business plan and a technical evaluation of your invention.

Researching and preparing grant applications can be a difficult task, so it helps to have help.

· US Small Business Administration

· Regional SBA Offices

· Office of Entrepreneurial Development

· National Science Foundation - Promotes and advances scientific progress in the United States by competitively awarding grants and cooperative agreements for research and education in the sciences, mathematics, and engineering. Includes extensive list of funded activities.

Find an Investor - Venture Capital

· Venture capital or VC is funding invested, or available for investment, in an enterprise such as bringing invention to marketplace that offers the probability of profit (along with the possibility of loss) to an investor.

· Traditionally, venture capital is part of the second or third stage of financing for a business startup, which starts with the entrepreneur (inventor) putting their own available funding into a shoestring operation.

· Next, an angel investor may be convinced to contribute funding. Generally an angel investor is someone with spare funds and some personal (family) or industry-related interest. Angels are sometimes said to invest emotional money, while venture capitalists are said to invest logical money that is they are willing to help give the new enterprise a more solid footing. Did you get your business plan together yet? Your potential investor will want to see it.

In closing, do not, I repeat, DO NOT use an invention company. They will try to lure you into their web by promising to do it all for you at what may appear to be a smaller capital input than described above. The fact is any money you spend with them will be a total loss.

Remember, the invention industry is a risk and a gamble. Don’t gamble with the invention companies.

Exclusive Funding Source Directory

Disclaimer: All information was accurate at time of directory compilation, InventorEducation.com is not responsible for any changes in guidelines, company policies and or contact information.

SBA.GOV

Official website for the SBA business loans.

http://www.sba.gov/

Advanced Financial Organization Lends on Assets Based Financing

404-256-2123 http://www.advancefinancialcorp.com/

All City Services
Provides Business Loans in addition to Commercial Loans. (781) 233-4850 http://www.allcityservices.com/

Bentley Banks Financial Corporation

Lends to Businesses as well as equipment leasing programs. (403) 328-3179 http://www.bentleybanks.com/

Berkman Financial Services Finances Businesses and Lends to Businesses. (925)

284-4400 http://www.storyloan.com/

Business Finance Services Inc

A Great alternative source for business funding. 877-411-6691 http://www.businessfinancialservices.com/

Business Lenders, LLC

Non-Bank SBA Lender with great lending programs for businesses. http://www.businesslenders.com/

Loans & Cash Advances

Alternative source for business financing. http://www.loansandcashlive.com/

Capital Management Group

Funds business loans and international loans. (714) 439-9600 http://cm-group.com/

Creative Financial Corporation

A reliable business funding source. (212) 534-2795 http://www.creativefinancialcorp.com/

DGH Financial Services Inc.

Source for SBA business funding. 818-998-3224 http://www.sba4you.com/

A & E Funding

Great business loan source. 201-944-8646 http://www.aefunding.com/

Execunet Financial Many different business financing options

http://www.execunetfinancial.com/home.htm

Financial Managers Resource Great source for business funding. 978-256-8634

http://www.finance-manager.com

First Fund Source

Business Funding loan solutions (630) 410-8140 http://www.firstfundsource.com/

Interstate Finance Inc.

Business Financing Source (425) 203-0035 http://www.interstatefinance.com/

Sun State Consulting Great source for start-up financing.

480.994.1086 http://www.sunstateconsulting.com/

Wachovia Corporate Services A reliable source for business loans.

http://www.wachovia.com/corp_inst

IMPORTANT INVENTOR DISCLAIMER

it is very important for all inventors to understand that the invention process is a major risk. There are no guarantees of success. You must understand that any and all capital that you or your investors may invest into your project can be subject to complete loss. If you are not prepared or able to risk any monies, or if you cannot locate investors, it is highly recommended that you stop now and do not move forward with your invention idea.

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