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Presentation of Content Capital Quest
Lots of innovations are conceived and produced in-house, by people working for established businesses with the ability to fund R&D and product marketing. But for many young or independent innovators, funding the development of a promising product is a challenge. After all, there’s the cost of R&D, engineering, building prototypes, testing, forming a business, obtaining licenses, approvals, patents, trademarks, hiring employees, renting office space, manufacturing, and advertising – all before a product even earns a penny! What happens to an innovation when there is no money to complete these phases? The answer is d . If an innovator cannot fund completion of a product, they may be forced to abandon it. Startups without sufficient financial resources to see their product through to a successful launch, often fail. Most industries are very competitive, so it’s a race to get that patent and get a product on the market. If an innovator lacks the resources to do this and do it quickly, another innovator with a similar product and better funding will beat them to market. How can an innovator with not much more than an idea and design, but no track record of success (called operating history ), get someone to lend them money or invest in their business? There are a variety of sources for obtaining capital for a startup. To be 21st century financially literate, you should know about these sources and the differences between them. Early Capital For any new business, access to money is critical. In the world of commerce, money used by entrepreneurs and businesses to buy what they need to make their products or to provide their services is called financial capital . There are many different types and sources of capital: Seed money . Sometimes, the very early stages of a startup are self-funded by the innovator, or by a loan or gift from friends or family. This is called seed money . It usually involves just enough to get the idea or product developed to a point where it might attract a serious and more substantial investor. Crowdfunding is a relatively new and increasingly popular method of obtaining seed money. It is generated from a large pool of backers via the internet. Crowdfunding can be in the form of a donation , or it can be reward-based where the person who gives money gets some benefit, like the right to buy the future product at a discount. It can also be in the form or a loan with a repayment plan. Crowdfunding has been used to launch tech products, music labels, restaurants, indie movie companies, develop apps – all sorts products and businesses. Crowdfunding companies like Kickstarter and Indiegogo are cropping up all over the internet. They provide a platform for bringing innovators and small investors together. Advise students that it’s worth spending an hour or so checking out crowdfunding sites. There are film and video projects, fashion designs, tech products – lots of interesting innovation by people not much older than they are. PRODUCT PREVIEW
245 THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY
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