Once you’ve got your concept, done your market research, and are ready to start developing your product, you might notice that something is missing. That something is money. You need money to pay product designers and engineers, to commission a prototype, to manufacture the product, to market the product, and so much more.
You can fund your invention in a few different ways—bootstrapping, crowdfunding, or by getting investors. Each has its own benefits and pitfalls, but today we’re going to focus on funding with investors.
If it’s too early to turn to crowdfunding, and you don’t want to risk your savings on your idea, then your best bet is probably getting what’s called an angel investor. An angel investor is a wealthy individual or group of individuals that is willing to provide a startup with funds, in return for a stake in their business.
The pros of this strategy are obvious. You’re getting an investment that doesn’t require you to take out a loan or blow through your savings. It also looks good that someone else is willing to invest in your idea, even without guaranteed success. The amount varies, but angel investors generally put up somewhere between $50,000 and $250,000. Yeah, that’s a pretty sizable chunk of money that you’re not going to raise on your Kickstarter.
And that’s the biggest reason to apply to angel investor groups. You probably just don’t have the funds to manufacture your product and get it to market, and a massive loan is a sizable risk that may not pay off. That’s why they call them angel investors. They seem like they’re heaven sent when the funding comes through.
However, there are some potential negatives to getting angel investor funding. Although they are called “angel” investors, that doesn’t mean they’re doing it out of the goodness of their hearts. Angel investors generally want a pretty hefty stake in your business in return for their generous funding. This can be anywhere from 10 percent to 50 percent, so you should spend some time weighing the potential benefits against the amount that your investors will want from your business. If they want half of your business, is that a sign that your invention has significant potential? And what will that do to your income down the road if your invention does take off?
Applying to angel investor groups is a great way to cover costs that you simply can’t on your own. Crowdfunding is nice, but it almost definitely won’t cover all your expenses. That’s why it’s a good idea to have multiple streams of funding to ensure you have the costs to develop, manufacture, and market your product, without relying too heavily on one source of funding.
Pivot International is a product design, development, and manufacturing firm with extensive experience in product prototyping. If you are interested in designing a new product or updating an existing product, contact us at 1-877-206-5001 or request your free consultation today.