There is a myriad of technologies that will shape our future and the future of business. Artificial intelligence (AI), robotics, computer technology, internet of things and web-based technologies are at times the illusive terms of a future we aim to describe and understand, but most of us really have a limited understanding particularly when it comes to how these technologies can be utilised in our businesses and how they can be financed.
This is a space I personally find intriguing and unpacking the business of “technology” and financing high risk technology projects is something I’ve been on a drive to understand. This is what we’ve picked up from the financial ecosystem for these types of businesses.
It’s tough out there.
The mismatch of what techpreneurs want funded vs what financiers are looking to finance, coupled with a vastly different view of business valuation methodology between investor and techpreneur, means very few businesses are being funded. Here are a few perspectives:
Equity financiers in innovation
From a capital perspective, investors (predominantly equity) see technology-based businesses as a relatively low value investment with high risk and with massive potential and upside if commercialised appropriately.
By nature, any investor needs to understand how something will be sold or commercialised. An investor wants to invest in the activities that will scale the technology from a revenue perspective and to invest in expenditure that will make it more efficient to sell and deliver value to clients.
Conversely, techpreneurs or innovators want investors to invest in their idea which means technology research and development, in innovation this is a never-ending process of perfecting their technology and is a non-income generating activity.
Most technpreneurs I’ve spoken to haven’t tested the market’s interest in their intended solution (the technicalities around how the technology will solve the problem isn’t as important initially as is the problem being solved and whether there are buyers willing to pay for a solution, aa well as how much they would pay based on the value the solution provides) – i.e. they haven’t figured out how to commercialise (sell) their offering.
Technology grants and incentives
When it comes to grants and incentives for innovation, computer related innovations must truly be unique with unique coding and algorithms which are scalable outside a particular use case and the innovation must be protectable through IP rights.
This then excludes what most techpreneurs I interact with deem to be innovation, in trying to raise R200,000 to R1mil to pay for customised workflows and frontend branding for a technology solution.
Again, showing that there is in fact a need and intention from the market to procure is very important (potential for commericalisation).
Innovation incentives and grants in South Africa are better aligned to finance industrial innovations which are protectable through patenting. Industrial innovations can often have a component of AI, IOT or utilise the blockchain which then still allows for the incorporation of these technologies of the future, but into physical products.
When looking to raise grants or incentives, understand that the process is a long and arduous one that can take up to 18 or 24 months.
Given the fast pace of innovation, I don’t suggest it as the first port of call when starting out but rather for further development costs are in excess of R3 to R5million.
I’m by no means an expert in innovation or technology development but I trust the context I share provides innovators and techpreneurs with some guidance in how to finance their businesses and this resource from the Department of Trade and Industry on The Path to Technology Innovation, is one that should be under every innovators pillow.