Setting up an innovation start-up
Funding for innovation start-ups
Finding funding for a new business or idea is often challenging. Banks are reluctant to lend money to innovation start-ups, especially those without significant tangible assets such as premises and equipment.
Sources of innovation funding
In the absence of bank loans and finance, sources of innovation funding may include:
- equity finance, including business angels and venture capital
- family and friends' loans
- government grants and incentives
You may also be able to use your own funds or any existing business funds to finance innovation. You may be able to sell some assets to get cash for your business or use others to get collateral in order to get a bank loan.
Your intangible assets may also offer an opportunity to raise finance for your business – see the significance of intangible assets to innovation.
Equity finance for innovation
Equity investors can provide the necessary capital in return for a share of your business. Experienced investors are often a popular source of finance, since they can also provide help with contacts, strategy and management.
You can get small to medium-sized investments through:
- business angels - privately wealthy individuals
- corporate venturers - big businesses interested in the development of new technologies
- seed venture funds - locally based funds, often linked with regional strategies
Larger sums - ie over £1 million - are usually offered by venture capitalists and trusts.
Equity investors will only receive a return on their investment when your business succeeds, so you will not have to repay debts if your business fails. This also means that the investors have a vested interest in the success of the business, and may offer follow-up funding in stages to help it grow.
However, raising equity can be a costly and time-consuming process. You should be aware that in giving away a share of your business' ownership, you will lose some power in making decisions. Read more about equity finance.
Crowdfunding for innovation
Crowdfunding involves raising money for a project or a business from a large number of people, often via crowdfunding websites. It also allows you to market test a product that may only be in the planning phase. See more on crowdfunding.
Government grants for innovation
You can get grants to fund your innovation start-up from publicly funded bodies for a variety of purposes and industries. The eligibility criteria, amount of funds available, funding conditions and activities may differ from grant to grant.
If you need external expertise to help with an innovation project, you can apply for Invest Northern Ireland's Innovation Vouchers. The vouchers are worth up to £5000 and allow you to access skills and expertise from one of the 39 registered knowledge providers (eg universities and colleges) through the island of Ireland.
In the video below, Ian Hawthorne - the owner of Hawthorne Crafts - explains how his business benefited from an Innovation Voucher.