How to Find the Right Approach for Funding Your Product Development?

June 11, 2022
Natalie Thorburn

If you have a great new product idea that you believe has the potential to make you a lot of money and meet customer needs, there are a few key options for getting the funding you need. Hopefully, you'll be presenting your idea professionally in front of as many investors, lenders, and grant issuers as possible.

[Source: Pixabay]

First and foremost, you must ensure that your idea has legs before embarking on the journey of raising funds for your dream. You'll have done some basic calculations about how much your product will cost to manufacture during idea validation. This is a good place to start when determining how much money the idea will require. However, don't forget to think about any other requirements your company might have. Recognize that the cost of producing a product is not the only cost of running a business.

How “Fundable” is Your Business?

The first question you should be asking yourself is what funding route is the best for your business and product or service. With so many investing and funding options out there, it’s not always that simple to spread out your efforts, sport the right funding path, and focus on it.

Here are some things to consider when picking your funding approach.

The Technology You’re Using

What kind of technology do you need to bring your product or service to life? Is that technology brand new and revolutionary? Or is it well-known but has never been used by yourself or those in your fields?

Answers may vary, but to support technologically high-risk projects, government grants and public body funding, such as that provided by InnovateUK, are available. Innovate UK is part of the UK Research and Innovation and exists to support technology or product development during high-risk periods (such as the one we’re living in, yay!).

If you feel overwhelmed by checking out this and similar websites, you can always hire a product design and development consultancy that can navigate you through these murky waters.

The Scalability of Your Business

Typically, scalable product opportunities revolve around technology-driven products. Strong market differentiators and novel business models are likely to attract and pique the interest of venture capitalists (VCs; more on them later). If your product is aimed at a developing market (such as renewable energy or artificial intelligence), VC funding may be a good fit. Remember that interest is the source of investment.

And don’t worry - there are many business development grants available to support your project if your business has scalability but isn't necessarily in an appealing market.

The Consumer Appeal of Your Product or Service

If your product is based on well-known technology and does not target specific technology fields, seeking government or public-sector funding is unlikely to yield results. However, if your product is capable of truly captivating its users and inspiring intrigue, crowdfunding can be a great way to test the waters.

After all, product development is all about solving problems and satisfying the needs of potential customers and consumers.

Crowdfunding can also be used to gauge market interest in your product; if your campaign fizzles out or explodes overnight, you will still learn a lot. A successful crowdfunding campaign can be used to attract additional funding later on in the development process. With this in mind, it's also critical to recognize that this will necessitate a budget and thorough planning.

[Source: Pixabay]

#1 Self-funding

Let's start with the fundamentals of self-funding. A difficult road for all of those who don't have their parent's backing, who didn't get rich quickly over the backs of others through speculative investing, and who are starting from the very scratch.

"Bootstrapping" is another term for this type of funding. Essentially, it involves utilizing existing resources, such as friends and family. Microloans, government or non-profit grants, and community organizations all fall under this definition. Self-funding is most commonly done with credit or debit cards, small business loans, or home equity loans, and ultra-low complexity (non-technical) products.

Its key advantages are:

  • You’re the master of your own destiny
  • Investment can accelerate growth, but not necessarily the product

Let's say you're looking for $7,000 in funding. If that's the case, you'll want to find one of several micro-loan organizations that cater to startups or specific marginalized groups.

#2 Crowdfunding

Crowdfunding means using a platform that streamlines the traditional model of raising capital for business. This popular approach lets you present your idea in front of interested parties and give them opportunities to help you grow your business through the wonders of the Internet.

Crowdfunding is a "strength in numbers" strategy based on a micro-investment model. Instead of relying on a single wealthy individual for funding, crowdfunding counts on up to thousands of small donations. Crowdfunding allows you to avoid having to commit future equity shares to your investors for that level of funding.

Some of the most popular websites for crowdfunding are Kickstarter, IndieGoGo, and GoFundMe. The platforms are used over and over again to successful results, especially in the domain of technology.

#3 Angel Investors

Angel investors are money-ladden individuals who make a one-time investment in the form of a loan or stock purchase. They are a godsend for small businesses and startups, hence the prefix “angel.” They are typically in for the long-term - their goal is to help a business get off the ground during its early stages and see the company scale up and/or be purchased by a larger corporation in the future.

If you are UK-based, check out organizations such as the UK Business Angels Association (UKBAA) which strives to connect entrepreneurs and angel investors.

#4 Venture Capitalists

Venture capitalists (VC) are also investors who provide capital, but they’re more likely to be a business or company than an individual because the amounts of money they invest are larger than angel investors. They usually invest millions of dollars in startups and medium-sized businesses. They provide venture capital for businesses with growth potential and, just like with angel investors, they are in for the long-term.

Whether you choose to contact angel investors or venture capitalists, the most important thing is to know what you want from an investor; don't just go in blindly because you need money. Ensure that your short-term cash needs do not derail your strategy – investment should support, if not enhance, your plans, especially if money is added from people who have experience or expertise in your field.

Final Word

These were just a few of the ways that you can start to take your business from an idea to a growing business. Finding the right path to fit your product or service will make this process far easier to navigate.


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