Guest blog from Innovate UK EDGE.
Innovation is an expensive occupation. The rewards can be great, but so is the upfront cost. You need money to develop the innovation to take it to market in order to make money from it. So, what is a company to do? Look at grant funding and investment. We asked Angela Smith and Mike Skinner, experts at growing innovative businesses from Innovate UK EDGE, some key questions to help you learn more about which route might be best for your company.
What is the difference between funding and investment? Can they be used for the same thing?
The main difference between grant funding and investment is what the funding provider is expecting in return. Investors expect an equity stake in the company, which means the investor does well when the company does. Grant funding providers do not expect a stake. However, both expect accountability and a return on their investment in terms of company growth, job creation and innovations solving problems within the market.
Funding and investment can definitely be used for the same thing, and it is quite common for a company to make use of both avenues for the same innovation project or to spur business growth.
Things to consider when looking for investment and where to start?
Investors are not about rescuing failing businesses. They can however get involved at an early stage if they see potential,, attitude, talent, plans and projects. Investors typically look to invest in businesses and industries that they can understand, so it’s important to do your research about the right investors for you. Find out who you’re pitching to and base your pitch on this information. Will they understand your jargon or do you need to simplify your language?
The most important thing to consider is that people invest in people; the investor and investee need not become the best of friends, but they will need to trust and work together. To consider investing in you and your business, the investor will be looking for key current and future ‘assets’ of which the most important is you and your team. They’ll ask “can I work with these people?”
What do I need to bear in mind when looking at applying for funding?
First of all, it’s important to bear in mind what grants are not. They are not free money, a way to help an ailing business or to fund existing business activities. It’s important to put yourself in the shoes of the funder. Think about their objectives, and whether what you are offering is a match.
You also need to consider the funding opportunity you are applying for: Grants are often given for specific innovation projects so ask is your innovation project a fit? Are there likely to be a large number of applicants also submitting? Are there other opportunities that would potentially offer a greater chance of success? Ask yourself: is what you are doing truly innovative? Does it meet a societal need? Will the market buy it – grant providers are looking for market pull, not technology push.
What key issues do businesses face when applying for funding?
The first is eligibility. You should check that all aspects of your project are eligible for the funding. Think about the length of the project, the budget, and who is taking part. Next, scope. Ensure that the project is within the terms of the grant competition. It is also important to consider your cashflow. Very few grants are 100% funded, so you have to be clear on where the rest is coming from. You will also be paid in arrears, claiming against the grant for the expenditure you incur along the way. Some grants will provide a small upfront payment to kick the project off, but not all.
Do we have the resources?
Your grant application is what convinces your funders that their money will be used wisely. The application needs to be focused, to convince the grant assessors that you have the skills, knowledge and resources to successfully complete the project proposed and take the innovation to market. You need to think about whether you have resources: these could be anything from premises to testing facilities. It also includes the skillset in the team that will be working on the project and will be enabling the company to commercialise it.
Next, think about whether your innovation is protected. Is your idea able to be patented? Are there trademarks and a brand that you need to consider protecting? This includes the intellectual property you already have as well as any that will be developed during the innovation process. IP is important for your commercialisation strategy and adds value to the company.
What about the market?
Something which is extremely important to both funders and investors is your journey to market. Moving away from the theoretical idea and into the market is a big step, and it’s important to show you have considered this. Have you identified your customers and their need for the product/service? How do you plan to get your product in front of your target market, and how will they actually get hold of it? Is the user experience simple and easy so that sales come easily to your business? Investors and grant assessors are both looking to ‘invest’ in an innovative idea, a product, a service or solution for an identifiable need. Be sure to demonstrate this with facts and forecasts; you will need to dedicate time and resources to research and presentation, and you will need to demonstrate that you understand your target market.
Where can I find information about funding and investment opportunities?
To learn more about the best approach to funding and finance for your established small to mid-sized innovative business and benefit from wider advice, talk to Innovate UK EDGE. You can also take a look at the Innovate UK funding competition page, the EU funding opportunities portal, and the sites of charities and other organisations that offer grant funding.