This whitepaper examines the process of finding funding for entrepreneurs. Finding funding steps will be examined in this first post, followed by the costs associated with each step in an upcoming second post. This whitepaper will consider grants, tax credits, loans, loan guarantees, and equity funding programs/products in the finding funding process.

Finding Funding Steps

The finding funding process can be logically broken down into the following steps:

1.  Identification
2.  Validation
3.  Application
4.  Verification

Identification

One of the most arduous steps of the funding process for entrepreneurs is identifying current, relevant, and applicable funding programs/products. This can be the most time consuming step that is often not fully explored. It is also the step where the entrepreneur is most likely to make mistakes that can ultimately create problems that compound as the entrepreneur progresses through the subsequent funding steps. There are a number of criteria that need to be considered in the identification step. The primary company profile, or pre-determined, criteria include the following:

>  Business Location
>  Year of incorporation
>  Industry/industries
>  Legal ownership type
>  Age of controlling shareholders
>  Number of full time employees
>  Revenues in the last year

The secondary criteria would include the entrepreneur’s focus, project, or specific needs. These secondary criteria, among other elements, include:

>  Areas of operation
>  Exporting
>  Equipment purchasing/leasing
>  Energy optimization
>  Product or process development
>  Product or process modification
>  Collaborative development
>  Hiring of interns
>  Hiring of full time employees
>  Hiring of contractors
>  Training of employees
>  Strategic transactions

Attempting to manually sort through these criteria for an entrepreneur with an evolving focus or need can be challenging, overwhelming, and for many a seemingly endless process.

The identification step is often carried out in an unsystematic manner by searching the web and manuals or CD-ROM directories, speaking with friends and colleagues, and talking to different funding advisors. However, with thousands of funding programs available that are constantly changing, it is impossible to maintain a current, relevant, and appropriate list of funding programs/products without an online, up-to-date database. Ideally, this database should be updated by the funding providers, by automated program/product validation algorithms, and by the solution provider as well. Effective identification should significantly reduce work and costs for the entrepreneur, while greatly improving the accuracy of the funding programs/products found.

Validation

After identifying an appropriate funding program/product, an entrepreneur should validate the funding program/product. The validation step requires ensuring the funding program/product is still right for the entrepreneur by examining complex, very specific, or evolving aspects not covered in the identification step. If the identification process is well carried out and effectively screens out inappropriate funding programs/products, the validation step should be considerably simplified. However, the validation process should still logically be carried out before the more time consuming steps of application and verification. 

The validation process should ideally be carried out by an expert that is knowledgeable in the programs/products identified. This is an important step, but like funding identification, should not be a costly or lengthy part of the process.

Application

After a funding program/product has been identified and validated, an application must be sent to the funding provider. Generally, the application step needs to be completed before the related expenditures are funded; but in certain instances, most notably with certain tax credits, it may be undertaken following the expenditures. The application process can be as simple as a one page application form, but could also require much more detailed information, such as: financial forecasts, full business plan, technical reports, or other documents. Many applications are very specific in what they are looking for, but there may or may not be well defined documents related to the application process to assist the entrepreneur.
In certain cases the application process is relatively straight forward and does not require any specific expertise, but in other cases (often applications for more significant amounts) the application process can be quite demanding and require specialized expertise and experience.

Verification

Prior to acceptance of the funding program/product by the funding source, the application must be verified by an authority. This may involve an in-depth review or audit process, or may simply be a simple acceptance or refusal. The best way for an entrepreneur to ensure verification for the funding product/process is to ensure that the funding identification, validation, and application were well done.  This should naturally lead to approval in the verification step.

Ideally, the verification process is carried out by the same team that worked on the application process. In certain cases, additional specialized expertize needs to be bought in, but this is often more costly at this stage of the process.

The costs associated with each funding step will be examined in an upcoming second post.