MaRS Library What financing approach is right for your business?
If you have a great technology idea, you will need financial resources to develop it. An inventor or entrepreneur should develop a long-term financing strategy for their technology. The following checklist can help you develop the right financing approach.
- To help determine the best approach for your idea, decide what you want your role to be in developing the idea. Ask yourself the following question:“As the inventor, what level of involvement do I want in the commercialization of the technology or idea?” If you desire a low level of involvement, one mainly focused on research and technology, then consider one of the following courses of actions:
- pursue a licensing financing strategy directly or with assistance
- take a small amount of financing either through a government grant program, a loan, or by selling an ownership interest in the technology to a third party; do this in order to further develop the technology and increase the likelihood of a successful licensing outcome (or to maximize the value of a licensing deal)
- find and engage an entrepreneurial partner who will develop and execute a business and financing plan for the commercialized technology in exchange for a negotiated ownership interest in your business
If, however, you desire a high level of involvement in the business, then you’ll likely incorporate and need to develop a business and financing plan. Consider adding an entrepreneurial partner or team members if your skills and experience concentrate largely in the technology-development area.
- If you are a first-time entrepreneur, ask yourself whether you have the characteristics to succeed and whether prospective investors will recognize those attributes.
- If you conclude that you’re an entrepreneur, then you need to set up your new business and work on your financing strategy. Once that is underway, determine if you’re ready to accept investment from outside investors to build your business. If so, gauge what types of financing and how much money you can access based on your track record and your personal assets, including those of your family, friends and contacts. For assistance with this process, refer to the article in this database called Are you ready for a private investor?
After working through the checklist above, you should have a better sense of what kind of financing is appropriate for your situation. If you have determined that you are NOT ready to accept outside investment or cannot access investor networks for your business, a “bootstrapping” strategy may work for you.
If you ARE ready to accept outside investment and believe that you can access sufficient financing from investors, develop a long-term financing strategy for your business that plans for equity investment and the use of debt to start and scale your business.
Canadian Bankers’ Association. Retrieved April 9, 2009, from http://www.cba.ca/lang.php.