Two approaches are common as follows:
1. The Entrepreneurial Approach
The entrepreneur seeks to raise capital in order to start-up a new business or to expand an existing business (see Funding). The funding process most often requires trading away some of the business’ ownership. Let’s say the business raises one million dollars initially but trades away a 25% ownership to the funding agency. Later when profit is declared, the funding agency will require 25% of that profit.
The entrepreneur has the responsibility for sales and marketing, product production, quality control, inventory control, shipping, returns and allowances, and bookkeeping, This is a lot of work and must be handled by a team; the entrepreneur is in charge of creating and managing this team.
The entrepreneur has responsibility for outside services which may include attornies, accountants, IT professionals, international marketing specialists, etc. The entrepreneur is in charge of creating and managing this part of the team as well.
If the inventor doesn’t have considerable business experience in the field of the invention, the entrepreneurial approach may be beyond his/her grasp.
2. The Licensing Approach
Licensing is widely used in the invention community with great success. Here, the inventor (licensor) approaches a business (licensee) that already operates within the field of the invention. A licensing agreement is negotiated and signed, whereby the licensor receives an up-front, non-refundable licensing fee and the licensee receives rights to make, use, sell, and import products or services that are protected by the licensor’s patents. The licensor receives a royalty based on net sales of commercial products and/or processes under the license agreement.
Advantages of this approach include:
- No funding needs to be raised by the licensor
- Licensor need not spend time running a business enterprise
- Licensor need not spend time improving business skills
- Licensor has time to seek further licensing agreements, possibly foreign
- Licensor has time to improve and elaborate his/her invention portfolio
- The licensee may have an existing national or international footprint