Making money from innovation

When developing a new product, it can take years before it is a self-sustaining enterprise. This is a problem for startups and existing companies looking to bring new products into the market place. So how can the cost of this development be offset, and how can you start to generate income sooner?

As anybody who has seen Dragon’s Den will know, a common route for raising funds is through selling equity in your company. However, many people do not want to do this as it means giving up some control to their investors. So what are the other options?

Various types of grant funding are available to support innovation. These are operated by local and national government departments, and by other organisations. Many people also look to crowd funding and other non-traditional financing routes to help raise money.

R&D tax credits are a common route for UK companies to generate extra income. This is a scheme operated by the UK government that allows a proportion of a company’s expenditure in research and development to be recovered as a cash payment.  This can be fed back into the development process, or used to cover other costs.

Projects that aim to make an advance in the field of science or technology can qualify for R&D tax credits. Whilst this is not the same test for what can be patented (the idea must be novel and inventive), there is a large overlap between what is patentable and what can be used as the basis of an R&D tax credit claim. If you are thinking about patenting your idea, you should also be considering making an R&D tax credit claim. Conversely, if you are claiming R&D tax credits, should you also be considering patent protection?

Intellectual property (IP) is traditionally seen as a defensive tool only – used to restrict what your competitors can and cannot do – IP often only comes into the public eye when someone is being sued for infringement. Whilst IP can certainly be used in this way, it can also be used to help generate income without ever having to take court action.

IP is an asset, as with more tangible assets, it can be loaned or lent (licenced), bought or sold, mortgaged, or used as a security to help raise funds.

If you are trying to attract investors, IP can be a vital part of your pitch. Many investors will want to know that the unique selling point of your business cannot be copied by competitors who can then bring it to the market without having to cover the full development costs. It is IP protection that can provide this reassurance. Some grant funding schemes also require IP protection before providing money.

Patent Box is another government scheme that can be used to raise money from your innovation process. Under this scheme, the rate of corporation tax payable for a proportion of the profits on a product covered by a patent can be reduced by up to half.

Barker Brettell has an extensive network of people who can advise on all these areas to help you raise funds. If you have any questions, please do not hesitate to get in touch with the author or your usual Barker Brettell attorney.