How do I raise funding for my invention?

Inventors often ask us for advice on raising funding for their invention. Up to the end of 2013, the answer was easy – approach SPII to fund prototyping. At that stage, SPII was the only option. The simple reason is that early stage technology is extremely risky – way too risky for the average private investor.

Generally, venture capitalists (VCs) and angel funders (i.e. private investor funding) backs the team more than the invention. And, the only way properly to evaluate the team is through sales performance. The likelihood of obtaining VC funding at the prototyping phase is extremely low. These funders require you to show: (i) a product that is in the market; (ii) market demand (i.e. sales); and (iii) a small degree of profit. If your application is accepted, they will provide funding to take you to the next level, i.e. sales growth.

Since private funders are reluctant to support early stage development, Government agencies have taken up this baton. SPII was by far the best option available – requiring only an idea and a business plan with costings. In turn, SPII would provide a pure grant to support the inventor through design, prototyping, patent searching and provisional and PCT patenting – this is exactly what inventors wanted. The application process was as lean as one could reasonably expect, and approval took only a few months. However, SPII will unfortunately no longer receive further funding.

<strong?So, what are your current options?

The Industrial Development Corporation (IDC) (VC fund) requires sales. So, they are out.

SEDA provides support, but only in very specific areas. So, for prototyping, they are also out.

This leaves the Technology Innovation Agency (TIA). The problems with TIA are: (i) their application process takes a very long time; and (ii) they structure their funding as a loan. As such, should your venture fail – which is extremely likely – you will need to ask TIA to waive the loan (which will trigger Capital Gains Tax consequences). Also, TIA funding does not properly qualify as a grant, and SARS should subject TIA funding to tax (as income) – not great if you do not expect to spend all the TIA funds in the year of accrual / receipt.

In our opinion, the state of early-stage funding in South Africa has regressed. As an inventor, we wouldn’t have a clue where to turn.

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