Financing options for tech startups: Funding your new technology
What is financing?
Financing refers to the money or funding assistance your tech startup will need in order to license your technology to a partner to commercialize, or to start a business selling a product or service based on your technology. Financing for early-stage technology businesses usually comes in the following forms:
- Sweat equity
- Government programs
- Licensing proceeds
- Cash from customers
- Cash equity
Types of financing for tech startups
Sweat equity refers to the time you and key employees, contractors, directors or advisors spend working on the business in exchange for ownership in the business, rather than cash compensation.
Government programs might also offer some funding to help develop your idea. These will depend on where you live or where your work will be based. These federal and provincial programs are designed to encourage technology transfer from academic and research institutions to businesses, create market-ready products, and support employment and training in the technology sector regionally.
Licensing proceeds usually involve an upfront fee paid to the inventor and might also include further payments as the technology is commercialized. This kind of agreement most often takes place with organizations that wish to license innovative technology ideas that complement their existing products and services.
Cash from customers may be used as a financing source if potential customers are willing to purchase an early prototype or provide advance funding for a business to build a product or service. This usually happens where they see significant potential for their own business. Offering consultant or support services provides another way for entrepreneurs to earn early revenues in their industry.
Cash equity refers to money invested by a third party in exchange for a share of the ownership in your business.
Debt is money you borrow to run your business and must be repaid in full, usually in installment payments with interest.
Considerations for financing your technology
A number of sources exist for financing your technology idea or tech startup, which may take any or several of the above forms. Keep in mind that not all types of financing are appropriate or available for all types or stages of technology businesses.
A question of your time
Inventors and entrepreneurs will need to decide early on whether they want full-time involvement in a technology startup. This will determine the types of financing resources you might pursue. For example, if you don’t want to be involved in the start-up and operation of a business, licensing may prove the preferred financing route for your idea’s commercialization.
There are a number of other considerations to determine your idea’s best path to commercialization and the related articles in this database for each type of financing will assist with these decisions and indicate where you can source financing for your idea.
Thinking of raising money? We’ve created a free online course to help you get investment-ready. Check out Introduction to Investment Readiness and learn useful tips, tactics and strategies to prepare for your seed fundraising round.