There are a number of classic ways to fund the development of your invention. Building your invention in the garage during your spare time while your day job pays the bills is one method. Mortgaging your house and racking up credit card debt to pay for the design and production of the first lot of your product is another. The internet has made it possible for innovators to tap into several new sources of capital.
Peer to Peer Lending
Peer to peer lending involves seeking a loan from dozens or thousands of peers. These loans are facilitated by a platform. The platform presents the loan to the crowd, collects money from lenders and funnels it to the borrower. The borrower will make payments with the platform distributing the money. The site takes a modest fee for this service.
One advantage of peer to peer lending is that all you have to do is make your case. You’re far more likely to receive a loan for a startup or small business idea from the crowd than you are from a big bank. That’s actually why most small business loans are originated by small banks and credit unions, not big banks. However, a small loan to buy a bike to make deliveries or funding for a prototype may be too risky or too small for even their portfolio. A side benefit of peer to peer loans is that the interest rate is typically much lower than the interest rate on credit cards. You can also use the peer to peer lending site to manage personal loans, collecting money from friends and family as well as strangers to fund your venture.
Crowdfunding is somewhat different from peer to peer lending. You’re soliciting money for your venture. You may be asking for money without any sort of return. That’s common in charitable crowdfunding campaigns. However, most donors do get something back. It may be a T-shirt or prop from a crowdfunded movie. Crowdfunding has also taken off for product development, and it has become a legitimate marketing tool. The crowdfunding reward in these cases is either a first-run edition of the product or a significant discount on the product. For example, large donors may have the honor of owning one of the first ten off the production line. Very large donors may get to tour the factory and be seen in the commercial for the product. Smaller donors may get a discount on the purchase price of the item if and when it goes into production.
Crowdfunding for electronics innovators has a number of benefits. You don’t have to go into debt. The crowdfunding venture is a low risk since the money can be returned to lenders through the site if you don’t make your goal. It allows you to test real-world interest in the product by seeing if you can get it funded. The crowdfunding venture can be a marketing tool in and of itself. For example, you know that the people getting the first production versions are going to be touting that fact on social media. A fun, funny or novel invention may go viral from the sharing of the campaign ads, whether or not it receives its funding. The crowdfunding site also gives you a much larger audience for any marketing content, and you can use the donor list to start your email marketing list. Just pay attention to donor privacy rules.