Funding Your Invention: How Investors Can Help

Investing in an invention is when a person or entity commits capital with the expectation of receiving financial returns. This can be done through invention investment companies, which seek out and invest in the ideas and inventions of others. These companies will often take an invention, turn it into a product, and then manage the day-to-day operations regarding production and sales. In exchange, the inventor will be paid as the licensor. There are various payment structures, including ongoing percentages of sales, known as royalties, or one-time payments, known as buyouts.

Invention investment companies

However, you will first need to research companies and pitch your idea to them. Before you do this, ensure that your invention is protected by seeking a patent. Licensing is the quickest way to commercialise your invention and make a profit. Another company will take your invention, turn it into a product, and manage the day-to-day operations regarding production and sales.

You will be paid by the company as the licensor, and there are various payment structures to choose from. You could receive an ongoing percentage of sales, known as a "royalty", or a one-time payment, known as a "buyout". While licensing means you will gain a smaller share of the profits and have less control, it also means less work and fewer risks. This payment structure also requires less of a financial investment from you.

If you are willing to work hard and want to maximise the revenue from your invention, licensing may not be the best option for you. This is especially true if you are confident in your ability to build and manage a business.

Most companies will not invest in an undeveloped idea, so it is important to ensure your invention is patented or patent pending. To license your idea, you should first find relevant companies and conduct market research. Then, approach your main targets, prepare a confidentiality agreement, and get ready to negotiate. After that, you can make your initial presentation, highlighting your invention, and negotiate further before closing the deal.

Before you seek a patent or a licensing deal, it is important to identify any weak points in your invention. By focusing on how your invention may fail, you can take a proactive approach and address those issues. It is also important to keep your idea confidential and only confide in those you trust. Since patents are fairly expensive, you don't want to incur any unnecessary debt.

An example of an invention investment company is Intellectual Ventures, a private company that believes ideas are valuable. Their funds include Deep Science, the Invention Investment Fund (IIF), the Invention Science Fund (ISF), and the Global Good Fund.

Patenting your invention

A patent is a legal right granted to an inventor by a government entity, giving them exclusive ownership of their invention for a specific period, typically 20 years. It provides the inventor with a monopoly on producing and selling their invention, allowing them to license it to others for financial gain.

Not all inventions are eligible for a patent. To qualify for a patent, your invention must meet certain criteria:

• New: Your invention must be entirely novel and cannot have been publicly disclosed or made available anywhere in the world before your patent application.
• Inventive Step: The invention must offer a unique and inventive solution to a problem. It should not be an obvious solution to someone with knowledge and experience in the relevant technological field.
• Industrial Applicability: Your invention must be industrially applicable, meaning it can be mass-produced and have practical applications.

Patent Application Process:

The process of obtaining a patent can vary by country, but here are some general steps to follow:

• Confidentiality: Before proceeding, ensure your invention is kept confidential. Share your idea only with trusted individuals who can provide honest feedback and advice.
• Conduct Market Research: Research similar inventions and the market demand for your product. This will help you assess the potential for commercial success and identify potential licensees.
• Prepare Documentation: Gather all the necessary documentation, including detailed descriptions, diagrams, and evidence of the invention's development.
• File a Patent Application: Submit your application to the relevant patent office in your country or region. Provide technical information about your invention as part of the application process.
• Prosecution and Examination: The patent office will review your application and may request additional information or clarification. They will assess your invention against the patent criteria.
• Approval and Grant: If your invention meets the criteria, the patent office will approve and grant you the exclusive rights to your invention.
• Maintenance: Once granted, maintain the validity of your patent by paying any required fees and ensuring compliance with the specific jurisdiction's laws.

Benefits of Patenting Your Invention:

• Exclusive Rights: A patent gives you the exclusive right to produce, sell, or license your invention, preventing others from commercially exploiting it without your consent.
• Financial Gain: With a patent, you can license your invention to companies, receiving ongoing royalties or a one-time buyout payment. This can provide a significant source of income.
• Protection from Copying: Patent protection prohibits others from copying, selling, or importing your invention without your permission, safeguarding your intellectual property rights.
• Attracting Investors: A patent makes your invention more attractive to potential investors, as it ensures they will have exclusive access to the rights for a specific period.

Challenges and Considerations:

There are also some challenges and considerations to keep in mind:

• Cost: Obtaining a patent can be expensive, and you may need to incur additional costs for legal assistance and maintenance fees.
• Time: The patent application and approval process can take time, and there may be delays in obtaining exclusive rights to your invention.
• Geographical Limitations: Patents are typically valid only in the country or region where they are filed and granted, so consider your target market and whether you need international patent protection.
• Lack of Guarantee: Obtaining a patent does not guarantee commercial success or prevent all potential infringement. Stay vigilant and enforce your patent rights if necessary.

In conclusion, patenting your invention is a crucial step in securing your rights and attracting investors. By following the steps outlined above, you can effectively protect your invention and maximize its potential for success in the marketplace.

Pitching your invention to companies

• Know your product and your customer: Understand your product inside out, and identify your target market. Know your customer's needs, demographics, and shopping habits. This will help you tailor your pitch and demonstrate the value your invention brings to the company and its customers.
• Research the company: Learn about the company you are pitching to, including their business model, target market, and any existing product lines. This knowledge will help you showcase how your invention aligns with their goals and fills any gaps in their current offerings.
• Prepare a strong introduction: Craft an engaging beginning statement that grabs the attention of your audience. Focus on the most important and exciting aspects of your invention and explain why it matters to the company.
• Identify the consumer problem you are solving: Clearly articulate the problem your invention solves for the consumer and the company. Show how your invention adds value and addresses any existing issues with current product offerings.
• Demonstrate knowledge of the company: Show that you understand the company's position in the market and how your invention can help them stay competitive. Use data to support your arguments and create a sense of urgency for adopting your idea.
• Highlight your product's unique features and characteristics: Explain the specific attributes of your invention and how they benefit the consumer. Bring a prototype or a 3D model to make your pitch more tangible and help your audience understand your invention's functionality and advantages.
• Provide metrics, data, and marketing opportunities: Support your pitch with relevant data, such as market size, target market share, pricing strategies, and anticipated margins. This demonstrates your expertise and the potential revenue your invention can generate.
• Differentiate your product from the competition: Analyse competitors and explain how your invention is superior or fills a unique niche. This is crucial for building confidence in your idea and minimising the company's investment risk.
• Keep it concise and engaging: Aim for a pitch that is clear, concise, and lasts around 30 minutes or less. Focus on the most critical aspects of your invention and its benefits. Make your pitch memorable and leave a lasting impression.
• Protect your intellectual property: Before pitching your idea, consider protecting your intellectual property. You can do this by registering with the US Patent and Trademark Office (USPTO) or entering into a confidentiality agreement with the company. This will prevent your idea from being used or copied without your permission.
• Practice and refine your pitch: Rehearse your pitch in front of friends or colleagues to get feedback and improve your delivery. Refine your pitch based on their input to make it more compelling and effective.

Remember, a successful pitch is about selling your invention's potential and demonstrating its value to the company and its customers. By following these steps, you'll be well on your way to delivering a persuasive and memorable pitch.

Licensing your invention

If you are an inventor who does not have a lot of business experience, licensing may be an ideal option. In this case, other companies/firms will invest in your invention, paying you a certain amount to make and distribute your idea. However, it is important to note that you will likely gain a smaller share of the profits and experience a lack of control.

• Find relevant companies and conduct market research.
• Approach your main targets.
• Prepare a confidentiality agreement to protect you and your invention.
• Prepare for the negotiation process.
• Complete the initial presentation, highlighting your invention.
• Negotiate further before closing the deal.

It is also important to ensure that your invention is protected before moving forward. This can be accomplished by seeking a patent. Most Fortune 500 corporations will only ever consider concepts that are patented or patent-pending.

Licensing is a fantastic option for inventors who want to focus on the art of inventing rather than handling the business side of things. By licensing your invention, you can get your product on store shelves by partnering with larger firms that already have established sales and production processes.

Building a business around your invention

Protect Your Idea

Firstly, it is important to protect your idea. This can be done by filing a patent, which gives you a proprietary interest in the invention for a specific period. You can also consider a trademark to protect your idea's name, logo, or associated phrases. A non-disclosure agreement (NDA) is another way to protect your idea when sharing it with third parties.

Research and Prototype

Before investing too much time and money, it is important to research your idea from legal and business standpoints. Conduct a patent search to ensure your idea is unique and research your market to understand if there is demand for your product. Build a prototype to test your idea and work out any flaws or additional features.

Seek Investment

If you don't have the business experience or funds to develop and market your invention, you can seek investment from invention investment companies or license your idea to another company. Invention investment companies seek out and invest in the ideas and inventions of others. Licensing means another company will pay you to make and distribute your idea, but you will have less control and a smaller share of the profits.

Collaborate

Inventions are often turned into successful businesses through collaboration. Look for a business partner who complements your strengths and can bring business acumen, passion, and an understanding of what the customer wants. Building a trusted relationship and valuing each other's strengths is critical.

Understand the Financials

Understand the financial and tax implications of your invention-based business. Congress has created a research and development tax credit to encourage inventors, and CPAs can help develop a business plan and provide necessary documentation to support any claims from the IRS.

Frequently asked questions