Got a great business or invention idea but not a lot of capital? Not to worry; the good news is that there are many federal, state and crowdfunding sites to help you out. There are also many contests looking for innovators just like you. The best part about all these sites is that they give you free money, not loans, in order to get started. You just can’t beat free money.
Federal and State Grants
The feds offer over 1,000 grants on their grants.gov website, which takes some time to work through and get the hang of. There is also the more user-friendly aggregator site, Federal Grants, which provides streamlined information divided up into different business categories and owner demographics (e.g., women, minorities). The site also gives you directions on how to qualify for and apply for federal grants as well as what to do once you’re approved. The U.S. Small Business Administration also aggregates and provides information about federal and state government grants; you can use the SBA Loans and Grants Tool to help you find money.
If your business or invention idea involves the commercialization of technology, then you definitely need to check out the Small Business Innovation Research (SBIR) and Small Business Technology Transfer programs. These programs award money to small businesses that engage in R&D and/or high tech applications.
Many business schools offer business plan writing contests; for example, in MIT’s Business Plan Competition, semi-finalists present a 20-page business report and the winner gets $100,000. University of Wisconsin’s business school offers several business plan competitions; in fact, Chris Meyer of Sector67 (whom ITT interviewed) launched his hacker space after winning several UW business plan competitions.
If you’re not affiliated with a business school, that’s OK too. Lots of companies and foundations offer business plan, elevator pitch and other contests; BizPlanCompetitions is an online directory that lists over 400 business plan competitions offered by corporations and foundations. Ben Franklin Technology Partners offers a $50,000 prize to companies that submit the best business plan, while the Business Owners’ Idea Cafe offers a $1,000 cash prize to any business that simply submits an innovative solution to an everyday problem.
Sites like Indiegogo, Kickstarter, Peerbacker and GoFundMe enable you to pre-sell your finished product or service to your backers and raise capital quickly. You must raise your desired amount or the money goes back to your backers; in other words, if you raise only $800 of your desired $1,200 goal, you will not get that $800. Also, because your invention or business idea is made public, there is the risk that someone may try to copy it. As a result, some crowdfunders obtain provisional patents on their ideas before revealing them on a crowdfunding site. Compared to regular patents, provisional patents are fairly cheap and easy to file, and they give your idea one year of legal “identity” before expiring.
Showcasing your idea well on a crowdfunding site is essential to getting pledges (i.e., money) from backers. Think rich media presentations, with lots of audio and video files and maybe even some cartoons added in for good measure. The more you can show to your backers, the more likely you’ll get them excited about your project- and that means more pledges coming in.
Many small towns and communities are acutely aware of the need to help develop local businesses and most have EDPs, or economic development plans (enabled by economic development committees) that make room for business grants. These grants may not be big- think $2,000- but they can get you going on your business idea, especially if all you need is a few tools or software programs and can perform most of your work at home.
Keep in mind that, because these grants are created from taxpayer money, there will probably be some requirement for you to go before a city council and report on your progress (or lack thereof). To find out if your local town has an EDP, just go to the city’s website and search on EDP. Click here for an example of an EDP.
Unlike the angels that you might be thinking of, these angels are more earthbound and loaded with investment cash. They can be located through various directories such as Gust and Go4Funding. The average angel investment is $600,000, so an angel is typically intended for a business that is already up and running but needs help with a new product idea.
While angels don’t necessarily give you cash completely strings-free, they can wait years, if not decades, before asking for some kind of dividend on their investment. Another great thing about angel investors is that they don’t try to micromanage you or your business like venture capitalists. However, you will need to show a return on the investment amount at some point in time. Angels may also steer you towards selling your business, which frees up business profits (i.e., their payback).
What You Need to Provide
A plan: Most federal and state grant programs require in-depth proposals that outline every aspect of your business idea and organization. Therefore, you need to create a business plan.
A prototype: Business and invention contests assign major points to contestants that provide a working prototype. Because building a prototype takes money, you may first need to raise some capital using a crowdfunding site before submitting a contest application.
An employee: If you can argue that your business or invention idea will create at least one extra job (not counting your own, of course), you’re going to be much more likely to secure funding.
An LLC: To prove that you are a serious businessperson, you will need to incorporate your business. The easiest way to do this is to incorporate as an LLC.
A partner: It’s not an absolute necessity, but having someone else also invested in your business or invention idea gives you better credibility, which in turn increases your likelihood of getting money.