Building a Funding Strategy

Commercializing technology can be a capital intensive process; entrepreneurs often need to raise funds from investors and other sources. You should research each funding source carefully before pitching to them to confirm a match with your interests and needs. Be sure to adjust your pitch to address each investor’s interests. Investors and grant programs will typically focus on specific markets or will provide funding only at certain stages of the company’s lifecycle. If your company does not match an investor or other funding source’s interests, there is little chance of attracting an investment. Common sources of early stage funding for a startup company include:

1. Organic Growth. Entrepreneurs can also grow companies slowly based on sales, without the need to raise external funds. Organic growth can be a reasonable strategy for certain ventures. Typically, however, UCI innovations are at such an early stage of development that additional funds are necessary to move them from the lab to market.

2. Proof of Product Grants. Proof of Product (POP) Grants are part of UCI Beall Applied Innovation’s suite of programs and initiatives to Bridge Innovation Gaps (BIG), supporting UCI projects in the early stages to effectively partner with industry to translate research discoveries into commercially viable products. POP Grants provide funds to assist in developing technologies with a focus on rapid assessment of commercial feasibility. The Grants are awarded to Principal Investigators to further the development of the technology so that it is more attractive to a startup/licensee. Currently, up to $50,000 may be awarded to each selected project. POP Grants trigger and help focus the entrepreneurial spirit among campus innovators. For more information visit: POP Grants.

3. Federal Grants. The U.S. government provides innovation research grants to small companies, which can be great and non-dilutive sources of initial capital. The Small Business Innovation Research (SBIR) program is sponsored by eleven federal agencies, including the National Institute of Health (NIH), National Science Foundation (NSF), and Department of Defense (DoD). SBIR funds can be used for just about any industry: life science, physical sciences, information technology, or even education technology. A sister program; Small Business Technology Transfer (STTR) allows for R&D to be performed in partnership with a university or non-profit research institution.

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For more information about applying to these funding opportunities contact New Ventures Group (NVG) or Industry Sponsored Research (ISR) at cove@uci.edu. For more information about managing potential conflicts of interest related to these research plans, contact the COI team.

4. Friends and Family. During the earliest stages of company formation, entrepreneurs often use their own funds, or funds provided by friends and family, to get the company off the ground. A “friends and family” round can provide critical seed funding. However, take care to assure that what the company provides in exchange for the funding will not unduly interfere with future funding opportunities.

5. Seed Funding. Seed funding refers to money used to start the company. Most seed funding comes from family, friends and the entrepreneur. There are also specific seed funds that will invest small amounts into a business to help it get started. For example, Cove Fund is a seed-stage venture capital fund that provides startup funding for promising new Southern California ventures. The fund is headquartered in “The Cove” at UC Irvine Beall Applied Innovation, a centrally located and vibrant gathering place for entrepreneurs, innovators and investors in the Southern California startup ecosystem. The fund invests in early-stage technology and life science companies that demonstrate the potential to address large markets with highly differentiated products and services, and that can achieve significant value-creating inflection points with their seed funding.

6. Angel Investing. Angel investors are typically affluent individuals who have a personal interest in funding new companies. They are often willing to invest at earlier stages than venture capitalists (VCs), often with smaller amounts of funding in exchange for equity positions (that is, owning shares of your company). The best angel investors for your company are ones with ties or direct experience in your market or industry, who can offer your startup more than just money. Some angels will form into groups to share research, vet opportunities and pool investments. These angel groups or networks allow your company to pitch to many angels at the same time.

7. Venture Capital. Typical VCs invest after the seed funding round (i.e, during Series A, B or C) in exchange for an equity stake in the company. VCs raise substantial funds from other sources, such as institutional investors. They then invest the funds in high-growth potential companies. VCs are typically hands-on, interacting with the startup’s management team and will often help locate and place senior management into the startup. VCs also typically require relatively high annualized return on the funds used to make investments.