You wouldn’t sell ice to eskimos or diapers to babies, right? Eskimos might not perceive the value in ice and babies don’t have the capacity to make a purchase (their parents do). Yes, I can accept that it is possible, but wouldn’t it be better to target a better fit?
Understand the funding mechanism before you start spinning your wheels, and start doubting your idea is not good enough. Good ideas don’t get funded because you are not prepared or because you’ve focused on the wrong funding mechanism.
Before we dive into funding mechanisms, let’s explore some terms …
Funding is the process of receiving resources to execute activities to get things done.
Investing, and lending, is the other side of funding. Investing is the process of providing capital to pay for resources to execute activities to get things done, in return for a benefit.
Lending is the same process but they provide the capital in exchange for a benefit measured in interest.
You must understand the mindset of your funders. I go into this in great detail in this video. If you cannot put yourself in the shoes of the person making the decision it will be harder for you to communicate the benefits of your idea and why it’s a perfect fit for them.
The 3 Funding Mechanisms
With so many options available, let’s start with a general understanding of funding mechanisms. There are three: debt, equity, and unfunding.
1. Debt is based on obligations and clear expectations. These funds must be paid, and paid on time. You don’t share the benefits you get from having access to the capital beyond the cost of capital (interest).
2. Equity is based on rewards and sharing. These are funds that share the rewards and risks (read carefully in that order). You don’t know how much it is going to cost you and chances are that the source of capital will also help you increase your value and impact, reduce your risk, or increase your efficiency.
3. Unfunding is seldom spoken about. Unfunding is based on collaboration and recognition. These are resources that reduce or eliminate the needs for funds. They are provided to you for a specific purpose, in exchange for recognition plus other benefits. Crowdfunding falls into this category. Parternships, sponsorships, and gifting also fall in this category.
Don’t miss out on getting funding for your project or business. Define what kind of funders are a better fit for your idea before you approach them.
Ready to find funders? Check out my upcoming training to craft a funding strategy for your business or organization… Fund Your Million Dollar Idea