How to Raise Capital as a Physical Product Startup

How to Raise Capital as a Physical Product Startup

Turning an idea from a concept to a complete product is a complex process. It can also be an expensive process, depending on the amount of development that needs to be done. Raising capital is one of the most challenging parts of the product development process. However, there are many ways for a physical product startup to raise funds for product development.

Physical product startups have many options to consider when raising the money needed to get their project off the ground. Each funding method has strengths and weaknesses. The more money you need, the more formal the process will be. The nature of the development project will determine which way of raising capital is most appropriate. Physical product startups need to consider the cost of product development and refinement, the per-unit cost of manufacturing, and how many units the startup intends to make.

For smaller-scale projects, such as those where the startup intends to create thousands or tens of thousands of unit, it’s possible to raise capital from personal contacts. The team members of a physical product startup can get the money they need from friends, family, and acquaintances. If the idea is good and presented intelligently, these personal contacts will be willing to help fund the endeavor. The benefit of using personal contacts is that these loans come with a low-interest rate or none at all. And unlike more formal funding options, there are fewer requirements, expectations, and paperwork.

Many physical product startups have larger projects in mind, with millions of units being manufactured. Typically, a project at this scale requires more money than you can get from personal contacts. Product developers should consider looking at professional venture capital funds. These funds are looking for good projects to support, but the process is much more formal. At a minimum, they will require a very well-written, detailed business plan and more professional documentation. Additionally, these professional venture capital funds have more expectations of the physical product startup, and you’re on the hook to follow-through.

Thankfully, there are more options than just personal contacts and venture capitalists. The internet has made it easier than ever for physical startups to find funds. Nowadays, there are custom-tailored online services for raising capital that you can see by searching on Google (e.g., Angellist.com, Startuploans.com, Seekcapital.com, PayPal Business Loan, Fundera, etc.)

The last decade has seen an explosion in crowdfunding sites like Indiegogo and Kickstarter that can help physical startups get the money they need. These platforms have become one of the best and most popular ways for products which are affordable and relevant to the general public. However, you need a working prototype to do crowdfunding, which is why you should work with us to get a prototype ready. You can quickly and relatively easily raise hundreds of thousands or millions with crowdfunding.

When you look at all of the available funding opportunities, there are tons of options for physical product startups to consider. There is no excuse not to make your project happen due to funding constraints.

There’s another way that you can save some money upfront. At Brainchild Engineering, our product development process has three phases. Phase 1 is the production of general design and professional sketches. Phase 2 is detailed engineering, and Phase 3 is the production of a working physical prototype

Instead of trying to get all the funding you need to make it through phase 3, you can start by getting enough money to finish phase 1. You can use the work produced in phase 1 to help raise further funds for the project. The general design and professional sketches that you get from Brainchild Engineering will go a long way in establishing your credibility to potential investors, big or small. Use these materials to gain some initial funding to then continue to progress your project into detailed engineering and physical prototyping (phases 2 and 3).

Contact Brainchild Engineering if you have questions about the product development process or how to succeed as a physical product startup.