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Funding
FUNDING
DEVELOPMENT
WITHOUT LOSING CONTROL OF THE INVENTION
IDC Commercialisation Manger - Troy White
ABC Online’s Catapult Website Article
Raising money to develop a new product is one of the more
difficult challenges facing entrepreneurs and small businesses as
they start to commercialise their intellectual property.
It’s often a catch 22 situation were you may need additional
funds to complete testing, conduct market research or even build
a prototype but without these things in place, potential
investors may perceive this initial investment as too risky.
http://www.innovation.org.au/Funding-your-invention.pdf
| Rule #1: Sweat Equity is the best start up capital |  |
The best businesses in recent entrepreneurial history are those
that have been started with little or no money. Dell Computer,
MicroSoft, Apple, HP and tens of thousands of others started in
dorm rooms, tiny offices or garages. There weren’t 100 page
long business plans. In all of my businesses, I started by
putting together spreadsheets of my expenses, which allowed me to
calculate how much revenue I needed to break even and keep
the lights on in my office and my apartment. I wrote overviews of
what I was selling, why I thought the business made sense, an
overview of my competition and why my product and/or service
would be important to my customers, and why they should buy or
use it. All of it on a piece of yellow paper or in a word
processing file, and none of it cost me more than the diet soda I
was drinking while I was writing it up.
I remember the foundation for each of my businesses.
MicroSolutions was very simple. To use microcomputers and
software to help our customers become more productive, profitable
and gain a competitive advantage. AudioNet, which became
broadcast.com was simple as well: use the internet to enable
real-time, worldwide communications of entertainment and business
applications. HDNet is to create great entertainment, originated
in High Definition format to allow our distributors to compete
for the highest margin customers.
Mark Cuban
http://www.blogmaverick.com/entry/4732831173095828
| "The Virtual Company" “Innovention” Professor David Nicholas MBE |
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David Nicholas was a brilliant innovator and a
tireless promoter of the long-term potential of
“innovention” – a term he introduced to link
invention with innovation. David Nicholas pioneered The Virtual
Company concept and has increased the national inventor /
start-up conversion rate for turning incredible ideas into
credible businesses by a factor of six. A virtual company is
formed when a team of experts work together with a lone inventor
to bring an invention to market. The experts work for no fee, but
in exchange for virtual shares in a virtual company, which
convert into real shares when funds are secured.
The (Kingston) Enterprise Exchange was proud to employ David from
September to December 2004. Sadly, David died on 17th December
2004, leaving a wife and three grown-up children. He died at his
desk doing what he enjoyed, helping inventors.
http://www.kingston.ac.uk/~kuweb/business-services/inventors/D.N.-%20profile.doc
| The Venture Capital Paradigm Philip Treleaven Professor
of Computer Science |
|
For many years, nearly every high-technology start-up has been built on the dream of raising millions of dollars of venture capital, working frantically for two to three years to build value, then going public or selling the venture for a vast amount of money. We call this the Venture Capital paradigm, and argue it is unrealistic for aspiring UK entrepreneurs, such as university staff and students.
Our Virtual Company paradigm encourages aspiring entrepreneurs to identify a moneymaking idea, assemble a team, explore new markets and grow the business organically. We teach (and practice) that while investment, IPO, trade sale and other forms of harvest are desirable outcomes, entrepreneurs should not overlook the option of creating durable businesses that they intended to operate personally for a considerable part of their career.
Although not appropriate for all new ventures, we believe the Virtual Company is a viable option in the UK for many entrepreneurs who are seeking to create high-technology ventures. We also encourage technologists to consider founding new ventures as a natural, early and career-boosting step, even if their ultimate aspirations are to work within established businesses.
http://www.cs.ucl.ac.uk/staff/P.Treleaven/include/research.html
| "Virtual Company Survival
Toolkit" Henry O'Tani |
 |
The "Virtual
Company Survival Toolkit" includes several small and
versatile financial tools which make a pivotal difference as to
whether or not a research idea or invention based business
actually survives.
There are many unexpected and unknowable pitfalls ahead
of a successful commercial science and technology business
development. Not least is its financial foundations.
A new and optimistic inventor / entrepreneur may be
forgiven for being completely uninterested in "survival
issues" but should note that some 90% of serious
straightforward (ordinary retail, service & trade) new
business projects fail every 2 years. Half of all British
companies are wound up every 3 years. Furthermore
in the real world of genuine and authentic independent scientific
& technical invention, original authorship and development it
is much tougher.... Only 0.2% of private inventors (1
in 500) even recover their patenting fees... let
alone development costs..
In reality therefore new research or invention led
enterprise development is such a high risk that any method which
improve the survival odds for new start-up ventures' deserves
closest of study.
The following are practical financing methods culled
from retrospective analysis of working over 40 years of
INDEPENDENT new technology enterprise development:-
Thrift, austerity with steadfast courage and cautious optimism
are not counsel of defeat but a formula for success !
Type
#1 "Own Resources" If at all possible, ones
own savings and wages with interest-free loans from "friends
and family", formal grants and "soft loans" are
the best way of funding new research or invention led start-ups.
Type
#2 "Salary Recycling" ... As
old as self-employment.. "ploughing back wages into the
business"
Type
#3 "Virtual Stockholding"...... As per the late
David Nicholas's "Virtual Company Paradigm":- "A
virtual company is formed when a team of experts work together
with a lone inventor to bring an invention to market. The experts
work for no fee, but in exchange for virtual shares in a virtual
company, which convert into real shares when funds are
secured"
Type
#4 "Smart Money Investment" is where
an investor augments a substantial financial investment along
with contributing time such as a professional skill or trade. When
as a leading investor it will be typically in the role as
"finance manager". Alternatively such "smart
money" may come from an early user and/or enthusiastic
client/customer making an advanced payment for anticipated first
use.
Type
#5 "Operating Lease" Investment of essential
materiel in which a priming investor undertakes to not
hand over cash but instead purchases or supplies specific items
of key enabling capital equipment on loan in return for a promise
of equity ... The specific plant or equipment remains the
property of the lender so that should the project fail to meet
promises the investor loses only the market depreciation if
resold. "Free" informal use of land, office premises
and other assets during start-up would be a typical example of
this..
Type
#6 "Asset Mortgaging" is where
a required cash investment is converted into a purchase from the
development company of an existing asset which is
granted a Type #5 Operating Lease whereby the asset is legally
owned by the buyer but leased to the project company for the
duration (with the tertiary benefit of being immune to loss
through corporate insolvency and receivership).
Type
#7 "Celebrity Endorsement" this concept is such as an
open letter or memo signed by the Chairman of Household Name ABC
Inc. stating "if the proposed zzzzz can deliver yyyyy as you
claim my firm would be interested in purchasing the idea /
product".
| Commentary: |
 |
Type #1
Simply the best. Everything else is second best.. But works only
for plutocrats and millionaires... Despite the general claims of classless
entrepreneurial opportunity, over 85% of North American
deka-millionaires were born wealthy..
Type #2 This can work well with self-employed
sole traders and partnerships e.g. the typical lone inventor....
Especially when working under formal grant regimes....
First used by us in a U.K. government public funded
R&D project in 1981. N.B. There may be hidden tax liabilities
created though building capital assets... Professional advice is
necessary..
Type #3 "Virtual Stockholding" is
our initial "Angelsweb Innovation Limited model".
Types #2 & #3 above are called by the Americans (rather
coarsely) "Sweat Equity"...
Type #4 "Smart Money Investment" This
is often a highly successful patronage mode for starting
up new small businesses of any sort.
Type #5 "Material Investment" -
the lend-lease investment option. This is an
extremely practical and useful mode... it is very common for a
wealthy individual to loan a trusted friend or family member;
land, materials or tools in order to get some project started..
Similarly a University providing academics with
"un-billed" ad-hoc use of premises and resources.
Type #6 "Asset Mortgaging"
an Asset Buy Out is the old pawnshop model... re-vamped to the
present.
In principle the "investment options" Types #4 - #6
represent substantially lower risk for the lender/investor(s)
...but even so, even such attractive investment opportunities,
will not guarantee a project an instant solution to cash flow
problems..
Type #7 "Celebrity Endorsement".. e.g.
The CEO of United Global Airways says "our company needs
and would purchase zillions of this product if it can be produced
exactly as promised" A few such "celebrity
endorsements" can be as useful to an inventor as a winning
lottery ticket! The British TV program "Tomorrows
World" once performed in this role.
Justification:
New enterprise is so risky "that it is generally
not worth attempting". If it were otherwise banks and
financial institutions would frequently loan inventors and
entrepreneurs a little of what they need..
Early cash for developing even simple new ideas and paying
professional fees for patenting is very scarce..
Rationally explaining mechanisms for "where the
money comes from" is the primary obstacle to new ventures..
In my opinion the above are a formalization of the subtle
but crucial technical differences in successful small
family enterprise and agricultural business practice which now
make these sectors observed and reported by governments here and
around the world (without fully understanding the mechanisms) as
the most effective engines of successful new economic growth....
What is crucially different is that these practices all demand
high standards of ethical character and probity and levels of
informal kindness and personal trust which are incompatible with
and effectively eradicated by existing modal norms of
competitive and mercenary business relationships.
It is thus possible to put in an advertisement here for new
radical wealth creating business organisation and cultures,
motivational assumptions and participatory structures - at
which Angelsweb Innovation is a pioneering example.
Henry O'Tani
Scams To Watch Out For
"....there are thousands of fraudulent companies and fraudulent middlemen who make their living scamming"
Scams To Watch For (If you are seeking investment)
If you use a planning to deal with a Venture Capital broker or a middleman to try find you an investor or a venture capitalist, you may be asked to pay a large up front fee in advance before any financing has been obtained. The fee may be called a processing fee, finders fee, or credit application fee. In some cases you will be told the financing is in place in which your asked to pay for insurance to insure the loan or the financing. This scam is known as the insurance fee scam. Prior to being told about the up front fee you will be put through an exhaustive array of frustrating paper work which will include credit applications, the business plan, references, co-signers, numerous interviews etc..Even if you are told the fee is completely refundable you may very well have trouble collecting the fee (through the court system) if the middleman has no assets.
Just know in this scenario there are thousands of fraudulent companies and fraudulent middlemen who make their living scamming for these processing fees. The agreement between you will be so fine that you may find yourself in the cold as a result of some unconditional clause in the contract. There are hundreds of reasons why you could be denied independent financing under the contact.
Scams To Watch For (If you are an investor)
There are endless situations where investors have been scammed lending money to new ventures that were nothing more than fraudulent paper corporations with no real foundation. The money gets invested into a corporation, the directors abscond with the money, and bankrupt the company. The same scam can apply to fraudulent real estate deals. We would suggest that all investors conduct extensive due diligence and investigative research before extending money to any individual or company. It is important to look at the company invested but most of all the individuals who are truly behind the company. Do these individuals have criminal records? Have they been defendants in law suits? Is there a history of bankruptcy where the individual formed a company that was shortly bankrupted after being financed by investors?
http://www.eagletraders.com/venture_capital/venture_fraud.htm
