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Creative Ways to Fund R&D For many businesses, product development drives growth. But it rarely comes cheap. Your rosy projections for launching new products can turn ugly as runaway research costs eat away at your bottom line. The result: A once-promising idea morphs into a devastating financial sinkhole for your firm. Improve your outcome by conducting another kind of research—identify sources of outside capital to fund your R&D. This can involve forging alliances with strategic partners and applying for government grants. It's natural to want to safeguard your intellectual property as you develop new products. But if you operate in a vacuum, you may miss opportunities to combine forces with clients, vendors or other companies that are well-positioned to help you. If you're engaged in product design, your trusted customers or suppliers may offer financing for tooling and creation of a prototype. They may welcome the chance to invest if they're able to profit down the line, perhaps from increased exposure or business volume, if the new product takes off. Licensing agreements offer another option. Once you secure a patent with the U.S. Patent and Trademark Office, you can spin off your idea to investors.They foot the bill to complete the R&D process and market the product, and you earn licensing income from its sales. In some cases, you can jump-start product development by retaining a design firm that specializes in devising solutions to speed production or improve manufacturing processes. If you're hesitant to pay a steep up-front fee, try negotiating an equity deal with the design company so that it reaps a small percentage of product sales. To find grants, contact university research facilities, the U.S. Small Business Administration (SBA ), and your regional or state Small Business Development Center. They may provide directories of grant providers and offer free advisory services. For technology-related R&D, you can apply for Small Business Innovation Research(SBIR ) grants that are administered by the SBA. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of Compass Bank. June 2008 |
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