How to get investment, funding, or distribution are perhaps the most common questions that inventors ask.

This article offers an inside perspective from the side of the companies and investors that would fund a new idea, and some tips on how to increase your chances.

But first we should say that getting funding for new products is very hard, so relying on early investment should not be part of your plan. Below are some exceptions and strategies for making it easier.

There are only two answers:

1. People who want to see you succeed. This hopefully includes your family and friends.
2. People who want to profit from your work. This includes everyone else.

Beyond investing, funding such as small grants may be available from government and various non-governmental organizations (NGOs).

Any investor will ask themselves two main questions

1. Is this a good investment? Will it make me a significant return on my investment with acceptable risk? Investing in new products is risky and somewhat expensive, so venture capital investors typically want a 5x return on investment. That means if they give you $100,000, they want to get at least $500,000 back in a short time (2-5 years).
2. Is this my best investment opportunity? Any investor gets far more pitches than they can fund, so they’ll only invest in the top opportunities.

On the internet you may come across services that offer to get you funding or investment for your invention idea. Be extremely wary. There is a fundamental flaw in the offer:

1. Getting investment for a new product idea is very hard to do.
2. Since it’s very hard, any company that provides this would have to charge a lot for the service.
3. Since they charge a lot, an inventor who really needs funding cannot pay to get it.

Why can’t the invention funding company just take a percentage of the amount funded instead?

Because no one would invest in a new business where are large percentage of the invested funds immediately went to someone else without adding value to the project. Would you?

So with any company offering to help you get funding or distribution, be sure to understand how they make a profit, and ask for references from other clients.

It’s not unusual for small businesses to get started with help from family and friends. The advice given by Mikkel Svane, who built a $2.5 billion software company partly on friend and family funding, is to make it perfectly clear that they will probably not get their money back.

In short: present it as a business opportunity. Investors may find your invention idea interesting, but they mostly care about if you can build and run a successful company. That means they’re largely investing in you: your integrity, reliability, business savvy, and competence.

Seed funding

The first funding an idea gets is called seed funding. For a simple product, it might be $5000 to $20,000. The purpose is to validate the invention concept , which might mean doing marketing research, test-marketing the product idea to estimate market demand,  and possibly applying for a patent. If the idea still makes sense, small batch manufacturing and some early sales will produce the numbers needed to build a complete financial model. Seed funding often comes from the inventor, or their friends and family.

Growth funding

Most startups (including those formed around an invention idea) don’t make it past the seed funding stage because they weren’t able to validate the idea and demonstrate feasibility. If they do, they’ll need more money to ramp-up manufacturing and marketing. Alternatively, the product may be licensed or sold at retail, reducing the need for marketing. The amount raised may be in the $100,000 range, but it depends greatly based on product type, marketing model, and other factors.

A key point is that to get growth funding, you need to show solid numbers. Test-selling your invention in some quantity is the only way to guarantee people will actually buy your product. It also reveals the cost per sale (advertising spend and sales effort required to make one sale), actual cost of goods, return rates, and customer satisfaction levels. The financial equation should be very clear and simple for the investor, such as “for every $1 I invest, I will get $3 back within 6 months“.

Be very networked. Go to local business events and meet people, and do it a lot. It’s important for others to see you often to build your reputation as a reliable, stable, consistent person.

Be very trustworthy. Develop and showcase a history of integrity.

Develop a track record of success. If you plan a career in product development (inventing), it’s okay to start small to “learn the ropes” and build a portfolio of successfully marketed products.

Do your research. Know the market extremely well: competition, trends, and regulations, etc. Get feedback from people on your product, do surveys, or any other testing you can.

Consider partnerships. There’s huge value in partnering with someone who’s already been through the process and has the connections.

Other ways to help grow your product business include public crowdfunding, private crowdfunding, grants and tax credits, product preorders, or simply bootstrapping (investing your sales profits into growth).

Product Dragon is a nonprofit with the mission of supporting innovation for good. Our three pillars of innovation support are funding assistance, community, and education. Product innovators are eligible for free membership, including micro-courses and webinars by Innovation Advisors.