Typically, an innovation project is started by an entrepreneur who sees an opportunity to exploit a new technology or product. If a new company is created, he/she will start their business with whatever they can afford, taking little or no salary, working from home to save rent and so on. In many cases finance also comes from regional or national grants or awards. Furthermore, friends and family can lend a "helping hand", but in most cases they cannot be relied upon for follow-up finance and they may not have useful commercial contacts.
The costs of developing a technology into a product and then marketing it successfully are generally much greater than anticipated. New capital will have to be through Venture Capital funds, wealthy individuals such as Informal Investors or "Business Angels", Bank and Debt Finance, Stock Markets for High Growth, Innovative Companies or other sources.
The INNOVATION/SMEs Programme has published a number of practical guides on sources for Financing Innovation, which can be ordered from the publications section. Which of these sources is appropriate to a specific case depends on a number of factors: the stage of development of the project, the size and age of the innovating company, the amount of money required, the level of technological innovation involved...
- Research can mostly be funded by non-reimbursable grants, primarily from the public sector (sources include national/regional programmes or the European Commission’s RTD programmes, via CORDIS), or from corporate sources (industrial/commercial companies, industrial research associations, charities...).
- If the project reaches the stage where a prototype or pilot plant can be built to demonstrate its feasibility, seed- and Venture Capital funds may be prepared to make pre-start-up investments in the technology.
- If/when a new company is formed, Informal Investors or "Business Angels" may be able to provide start-up equity finance as well as "hands on" advice. They are individuals "of high net worth", typically good for investments below 250,000 Euro. Although many Venture Capital funds concentrate on larger deals and are not usually interested below 250.000 Euro, some, such as those participating in the I-TEC Network of Venture Capital Funds, created by the INNOVATION/SMEs Programme in 1997, are specialised in providing start-up and early stage innovation finance.
- Grants or other non-reimbursable support may be available from the public sector to cover start-up and capital costs, and some industrial or commercial firms seeking a "window" on technology developments may be willing to invest as well.
- If the company grows rapidly and achieves full commercial operation, later stage Venture Capital funds may become interested to invest, and Bank and Debt Finance may become available.
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