| Nearly all inventors need extra funding to bring their | | | | Often manufacturers make these kinds of |
| product to market. But where do you find this | | | | investments when you have already signed some |
| funding? Who can invest? Are there other ways to | | | | kind of deal with them, or are intending to. When you |
| get financial help besides through investments? These | | | | make a deal with a manufacturer, like for contract |
| are the questions we will answer in this two-part | | | | manufacturing, you can ask for certain investments |
| article. | | | | as a part of the contract. |
| Funding from Individuals | | | | In-kind Investments |
| Finding individuals to invest in the early stages of your | | | | If you need a part machined or some engineering |
| product development is usually the easiest and best | | | | drawings done, a manufacturer probably already has |
| way to get your project started. Below are the most | | | | someone on salary who can do it for you. The |
| common forms of individual investing. | | | | manufacturer is paying these employees anyway, so |
| Self Funding | | | | it doesn't really cost them anything. |
| Self funding can be money from checking or savings | | | | Extended Terms |
| accounts, credit cards, personal loans, or the sale of | | | | Payment terms are usually 30 days. This means once |
| personal property or stocks. | | | | a manufacturer finishes producing a shipment, you |
| Family and Friends | | | | have 30 days to pay them, but also if you have 30 |
| Investments from friends and family are often the | | | | day terms with a distributor, they won't need to pay |
| easiest investments to get for starting your product | | | | you for 30 days until after they receive the |
| development. But don't take advantage of their trust | | | | shipment. The result? You need to have the money |
| by asking too much. Bringing a product to market is a | | | | on hand to pay the manufacturer for the shipment |
| high risk venture and you don't want your friends or | | | | before you receive money from the distributor. This |
| family to lose too much money, and potentially ruin | | | | causes a big cash flow problem by requiring you to |
| your relationship with them, so don't ask for more | | | | have larger amounts of operating capital (something |
| that 10% of their investment money. It is better to | | | | overlooked by many inventors). But if you get |
| ask for a little bit of money from many people, than | | | | extended terms from the manufacturer, say 60 or |
| a lot from one person. | | | | 90 days, you will get paid by the distributor before |
| Industry Insider Investments | | | | you need to pay the manufacturer, allowing you to |
| Getting investments from industry insiders are the | | | | have much less operating capital. In a sense, you |
| best investments you can get because once people | | | | aren't really saving money, since you still pay the |
| invest, they are interested in seeing you succeed and | | | | manufacturer the same amount you would have paid |
| can help you, or introduce you to contacts who can | | | | them in 30 days, but it allows your cash to be used |
| help you, with inside market advice to make and sell | | | | in growing your business instead of keeping it on |
| your product. Read our article, The First Steps in | | | | hand to pay the bills. |
| Raising Money to find out more information on | | | | Amortized Tooling |
| meeting industry insiders. | | | | When you start manufacturing a product, there are |
| Angel Investors | | | | molds and other equipment accessories that need to |
| Angel investors could be anyone, for instance: your | | | | be purchased to start making your product or to |
| dentist, neighbor, people at church, or even parents | | | | speed up the manufacturing process and ensure high |
| of your children's friends. They probably won't know | | | | quality. Usually manufacturers want you to pay |
| much about your business, and don't want any | | | | upfront for these purchases, but you can also ask |
| involvement, but angel investors can give you the | | | | them to amortize the cost, which means instead of |
| investments you need to get started. Once you get | | | | charging an upfront fee, they will charge an extra fee |
| your first investor presentation ready, don't be afraid | | | | for every product manufactured to cover those |
| to start approaching potential angel investors. You | | | | costs. This again isn't a real savings, but it keeps your |
| probably already know dozens of people who could | | | | upfront investments low when you will have no sales |
| invest. | | | | to cover the costs. |
| Now, most people have less money to invest, so | | | | Prototypes and Product Development |
| you will want to find a number of angel investors and | | | | Some manufacturers have the equipment and staff |
| ask them for smaller investments. It will be easier to | | | | to make prototypes in-house. If you will work with |
| find three or four investors to make a small | | | | one of these manufacturers, either in some kind of |
| investment than it will be to find one investor to | | | | partnership or contract manufacturing, they could |
| invest a larger sum. | | | | help you with prototyping and finishing your product's |
| Angel Investor Groups and Syndicates | | | | development, provided you can demonstrate that |
| Due to the economy, individual angel investors are | | | | your product has the sales potential to justify them |
| investing less, but more and more angel investors are | | | | investing their time and energy. Your goal is to show |
| becoming parts of angel groups or syndicates. | | | | that the product has so much potential that they will |
| Investors join these groups to pool their money and | | | | make lots of money manufacturing it, even in a |
| spread their risk. These groups save time for both | | | | contract manufacturing agreement, so covering the |
| the investors and for entrepreneurs. Entrepreneurs | | | | cost of prototyping and developing the product is |
| can present their product to many potential inventors | | | | worthwhile for them. |
| at once and raise more money than from an individual | | | | Outright Investments |
| angel investor, and investors save more time | | | | If manufacturers like your product, they may buy |
| because of the screening process the group or | | | | stock in your company, or at least make you loans |
| syndicate does before hand to eliminate overly risky | | | | to launch your product. Also, if you have strong |
| or unqualified businesses. | | | | orders once your product is launched, manufacturers |
| Because of the screening process, expect to answer | | | | will often loan you operating capital. |
| tough questions. Only a small percentage of | | | | Joint Venture Financing |
| entrepreneurs seeking money from groups or | | | | Manufacturers also are often willing to enter into joint |
| syndicates receive it, so make sure your | | | | venture or alliance partnerships if they like your |
| presentation, and financial information, is dynamite. | | | | product and believe in your business skills. These |
| Funding from Manufacturers | | | | agreements can vary widely, but generally these are |
| Funding from manufacturers often is not outright | | | | agreements where partners pool their resources and |
| investments. Manufacturers have lots of resources | | | | skills and split the profits, all of which is detailed in the |
| and sometimes working out deals with a | | | | joint venture agreement signed by all the parties. |
| manufacturer can only cost them a little bit, or even | | | | Part 2 of this article will cover raising big money and |
| nothing at all, but can be a huge savings for you. | | | | alternative sources of funding. |