Funding

"Funding" is the act of providing financial resources, usually in the form of money, or other values such as effort or time, to finance a need, program, and project, usually by an organisation or government. Generally, this word is used when a firm uses its internal reserves to satisfy its necessity for cash, while the term ‘financing ‘ is used when the firms acquires capital from external sources.[1]

Sources of funding include credit, venture capital, donations, grants, savings, subsidies, and taxes. Fundings such as donations, subsidies, and grants that have no direct requirement for return of investment are described as "soft funding" or "crowdfunding". Funding that facilitates the exchange of equity ownership in a company for capital investment via an online funding portal as per the Jumpstart Our Business Startups Act (alternately, the "JOBS Act of 2012") (U.S.) is known as equity crowdfunding.

Funds can be allocated for either short-term or long-term purposes.

Economics

The flow of funds from lender to borrower.

In economics funds are injected into the market as capital by lenders and taken as loans by borrowers. There are two ways in which the capital can end up at the borrower. The lender can lend the capital to a financial intermediary against interest. These financial intermediaries then reinvest the money against a higher rate. The use of financial intermediaries to finance operations is called indirect finance. Lender can also go the financial markets to directly lend to a borrower. This method is called direct finance.[2]

Purpose of Funding

Research funding

It is used for research, in fields of technology or social science. Research funding can split into commercial and non-commercial. Research and development departments of a corporation normally provide commercial research funding. Whereas, non-commercial research funding is obtained from charities, research councils, or government agencies.[3] Organisations that require such funding normally have to go through competitive selections. Only those that have the most potential would be chosen. Funding is vital in ensuring sustainability of certain projects.

Launch a business

Entrepreneurs with a business concept would want to accumulate all the necessary resources including capitals to venture into a market. Funding is part of the process, as some businesses would require large start-up sums that individuals would not have.[4] These start-up funds are essential to kick start a business idea, without it, entrepreneurs would not have the ability to carry out their concepts in the business world.

Uses on investment

Fund management companies gather pools of money from many investors and use them to purchases securities. These funds are managed by professional investment managers, which may generate higher returns with reduced risks by asset diversification.[5] The size of these funds could be a little as a few millions or as much as multibillions. The purpose of these funding activities is mainly aiming to pursue individual or organisation profits.

Methods of Funding

Government Grants

Government could allocate funds itself or through government agencies to projects that benefits the public through selection process to students or researchers and even organisations. At least two external peer-reviewers and internal research award committee review each application. The research awards committee would meet some time to discuss shortlisted applications. A further shortlist and ranking is made. Projects are funded and applicants are informed.[6]

Crowdfunding

Crowdfunding exists in mainly two types, reward-based crowdfunding and equity-based crowdfunding. In the former, small firms could pre-sell a product or service to start a business whereas in the latter, backers buys certain amount of shares of a firm in exchange of money.[7] As for reward-based crowdfunding, project creators would set a funding target and deadline. Anyone who is interested can pledge on the projects. Projects must reach its targeted amount in order for it to be carried out. Once the projects ended with enough funds, projects creators would have to make sure that they fulfil their promises by the intended timeline and delivery their products or services.[8]

Raised from investors

To raise capital, you require them from investors who are interested in the investments. You have to present those investors with high-return projects. By displaying high-level potentials of the projects, investors would be more attracted to put their money into those projects. After certain amount of time, usually in a year’s time, rewards of the investment will be shared with investors. This makes investors happy and they may continue to invest further.[9] If returns do not meet the intended level, this could reduce the willingness of investors to invest their money into the funds. Hence, the amounts of financial incentives are highly weighted determinants to keep the funding remain at a desirable level.

How to increase the chance of receiving a funding

Plan Well before Applications

Familiarise with the specific scheme application requirements is crucial as failing to fulfil the requirement would result in rejection in the first stage of review. Making sure that you would be able to meet all the assessment criteria before planning to apply. Funders have their own research priorities, thus focusing on the most suitable funder and match the project range to their priorities would give high successful rate. One should prepare a list of questions that investigators would consider asking during an interview and getting ready to provide an effective answer to counter these questions.[10]

Demonstrate your Projects is Well-thought

Funders always want to see that you have put in efforts to prepare your projects. It is essential that you display a sense of seriousness and keen to successfully deliver the projects that you are intended to carry out. It is always good to use evidence as a proof of any planning; this is a solid statement to persuade the funders that you are confident about what you are going to do.[11] Try to accurately estimate all the costs that may occur including the hidden ones. Furthermore, you have to demonstrate that you are capable of managing the projects until they are fully delivered. Funders always want to know that the fund given could create some significant effects to the people benefiting from the activity. Positive outcome is also an important point to be taking care of.[12]

See also

Look up funding in Wiktionary, the free dictionary.

References

  1. ↑ Business Dictionary(2009) [Online] Available at: http://www.businessdictionary.com/definition/funding.html (Accessed: 20 October 2014)
  2. ↑ Mishkin, Frederic. The Economics of Money, Banking and Financial Markets(Global, Tenth Edition). Pearson Education Limited. p. 68. ISBN 978-0273765738.
  3. ↑ Imperial College London(2014) Types of research funding [Online] Available at: http://www3.imperial.ac.uk/researchsupport/funderinformation/typesofresearchfunding (Accessed:15 October 2014)
  4. ↑ GOV.UK(2013) Start Your Own Business [Online] Available at: https://www.gov.uk/starting-up-a-business/get-funding (Accessed: 18 October 2014)
  5. ↑ U.S. Securities and Exchange Commission( 2010) Mutual Fund [Online] Available at: http://www.sec.gov/answers/mutfund.htm (Accessed: 19 October 2014)
  6. ↑ Stroke Association(2009) Research funding process [Online] Available at: http://www.stroke.org.uk/research/research-funding-process (Accessed: 21 October 2014)
  7. ↑ Clifford, C.(2014) Crowdfunding Generates More Than $60,000 an Hour (Infographic) [Online] Available at: http://www.entrepreneur.com/article/234051 (Accessed: 22 October 2014)
  8. ↑ Kickstarter, Inc.(2010) "Seven things to know about Kickstarter" [Online] Available at: https://www.kickstarter.com/hello?ref=footer (Accessed: 23 October 2014)
  9. ↑ Raise Capital(2011) "Business talk - How to raise capital for a hedge fund" [Online] Available at: http://www.raise-capital.com/raise-capital-for-hedge-fund.php (Accessed: 24 October 2014)
  10. ↑ Imperial College London(2014) "Preparing a proposal" [Online] Available at: http://www3.imperial.ac.uk/researchsupport/preparingaproposal (Accessed: 25 October 2014)
  11. ↑ Forbes (2011) "How to Fund Your Start-Up Business" [Online] Available at: http://www.forbes.com/sites/moneybuilder/2011/12/12/how-to-fund-your-start-up-business/3/ (Accessed: 27 October 2014)
  12. ↑ GRANTfinder Ltd (2009) "A Beginner’s Guide to Successfully Securing Grant Funding" [Online] Available at: http://www.grantnet.com/HelpfulReports/securingfunding.pdf (Accessed: 26 October 2014)