Sell Your Business Idea to Investors or a Company: Step by Step

So you’ve got a great business idea but you’re not ready to launch a business (no money or no time). What can you do? You can sell your business idea to big companies or investors that will pay you upfront and then take the item to market. 

This form of business model is called licensing. It involves you receiving licensing fees and being paid royalties on product sales because you are allowing others to profit from your intellectual property, i.e., your business idea. 

This article will explain the two most important parts of this business model. The first being how to sell a business idea to either big companies, small businesses, or investors. And secondly how to protect your idea and defend it from being stolen while you pitch and present your proposals. 

We will discuss in depth how to protect your business idea with and without a patent if you have a small amount of money or no money. These are all practical suggestions based on industry standards. 

If your business is already launched and operational and you desire to sell your company without a business broker yourself – check out our expert step by step plan here.

How to present a business idea without it getting stolen 

The first order of business while pitching your product idea to investors or companies is to make sure it does not get stolen! 

Here are our top three recommendations to protect your business idea from dishonest investors: 

1. Provisional Patent – Contrary to popular belief, you do not need to be issued a patent to protect your intellectual property. You can start by quickly getting an inexpensive provisional patent that will allow you to mark your invention as “Patent Pending.”
2. Trademark – Another way to provide protection to your business brands and product names is with a trademark. For just a few hundred dollars, you can greatly expand the legal protection to your brand. When you register your trademark, it puts the public on notice that you intend to use your brand for commercial purposes. You are granted the exclusive right to use your registered mark on goods and services.
3. Copyright – Original ideas such as board game graphics, books, and ideas for screenplays can be protected by copyrights. Once you register your copyright, you establish public record which helps support your claim in potential infringement claims. 

Check out my in-depth post on how to protect your business idea from getting stolen – without a patent

How to sell a business idea to a company or investors 

3 steps to sell your business ideas and inventions 

Here, we will break down the three steps on how to sell your business idea whether it is an invention, a product board game, or manufacturing process. 

By licensing your invention or business idea, you are selling the rights to a company to develop it into a saleable commodity. The buyer is performing all the necessary actions to take it to market by using their financial and human resources. 

Licensing or selling your business idea can be an excellent way for cash-strapped entrepreneurs to get started making money from their inventions. 

Step 1: Research Market  

You need to be equipped with data about your market to demonstrate the commercial value of your invention. Do this before you begin preparing your proposals and presenting to investors. 

• Marketplace Intelligence – Begin by researching your intended market, including existing products and services, to determine where your invention fits in. What gap in the market is your product serving? Create a database of all similar type products, company data on who is producing and retailing, and distribution channels. 
• Focus Groups – Experiment with customer focus groups using friends, family, or neighbors that match the target customer demographic for your product. Reports of these groups’ reactions and feedback will be an excellent addition to your investor presentation.  
• Legal Research – Do some initial (free) market research on the patentability of your business idea. Start with a patent search on government websites. This will offer an overview of patent grants.
  • KNOW that patent law is very complex, and a quick (untrained) search will often not give you all of the information you need. We recommend that serious investors hire reasonably priced professional attorneys or experts to do an initial patent search. This will save you tons of time and hassle. You need to know if there are other similar patents granted presently. It is surprising how inexpensive this can be and how much good information can be obtained. 
  • PLUS including a professionally prepared patent search in your pitch presentation will impress investors. It shows that you are serious and will answer many of their questions and objections to your product licensing proposal. 
  • For less than a cheap television set, you can get a “patent pending” designation from the U.S. government. These two small words, “patent pending,” will be gold when you negotiate licensing agreements. 
• Manufacturing Production – Take time to research the production process that your invention will require to bring to market. This information is an important section of your proposal. Also, you may identify potential investors or partners during this research phase. You may also find out this information during your product prototype process.

Note on Product Prototypes 

While creating a product prototype can be a powerful persuader to potential investors, it is NOT required to sell your invention. What IS critical is the research on how a product will be manufactured.

Sure, professionally crafted 3D prototypes are cool but they are also expensive and take a long time to create.  Effective product prototypes can take many forms.

Step 2: Prepare Proposal 

Now that you’ve gathered all the research information, including market research, focus groups, and production processes, it is time to prepare a professional presentation for companies and investors. 

While a product prototype, functioning or not, can be an asset, a professional presentation is the most important factor.

I recommend a short, succinct document of up to two pages that clearly states the necessary information detailed below.

Make the document easy to scan and understand for non-technical readers who are unfamiliar with your invention. Make liberal use of charts, diagrams, and images to visually communicate important points. 

Your product’s features and benefits 

There is a distinct difference between a feature and a benefit. A feature is something that is intrinsic about the idea, i.e., that it is blue, made of plastic, or six inches tall.

A benefit is a more important value proposition of what the idea or service gives to the end-user, such as comfort or convenience.

Solution your product provides 

This is a critically important point that many people forget. You must discuss the exact problem that your product or service solves which will allow your investors to understand the need for your product to come to market. 

Market demographics 

Detail the market demographics of your target customer, age, gender, location, lifestyle, buying habits, and hobbies to create a customer persona. 

Legal status of your idea

Add details about the current legal status of your product. What patent and trademark searches have been conducted either by yourself or professionals. What were the results of those findings? Do you have a patent-pending or provisional patent?

Write a cover letter to introduce your proposal and yourself and your professional qualifications to investors. 

Step 3: Pitch Investors 

Now that you’ve done your research and prepared your presentation, you are ready to start contacting prospective buyers. But first, you will need to find them! Here is how to create a list of prospective investors or licensees (buyers of your product invention license rights). 

Of course, just like all sales processes, this is a numbers game. The more contacts you put in your database, the more success you are likely to achieve. 

We suggest that you begin with at least 100 prospective targets. Don’t just come up with two or three companies you think will be perfect and contact only them. You are very likely to be disappointed. Successful entrepreneurs cast a wide net to get more investor fishies. 

How to find prospective licensee companies 

• Shop retail stores – If your invention is a consumer product, go to the related marketplace stores and look at similar products. Take note of the manufacturers, distributors, and retailers. All are possible buyers of your business idea. 
•  Browse online stores – Search online stores and jot down manufacturers and companies that could be a good fit for your invention license. 
•  Find trade associations – Explore industry trade associations for your product categories and get names and contacts from many firms from one source.
• Attend trade shows –   Visit industry trade shows to meet prospective buyers (and research competitors). If you are unable to travel to trade shows, simply go to the show website and access the list of exhibitors.
•  Visit your local library – Most libraries have links to professional databases that will allow you to search industries and obtain lists of companies and executive contacts. 
•  Online industry databases – Visit top industrial databases such as Hoovers and Thomas Net that list large companies that could be interested in your inventions. 
• Manufacturer’s representatives – These are the firms that represent many companies and could be a good source of connections.
• Distributors and brokers – These firms also have connections with many companies that could be your ticket to licensing deals. 
•  Linked in and social networks – Search social media sites such as LinkedIn for companies. Use keywords related to your product idea. 
• Import export firms – These companies work with domestic and international firms that could be a good fit to bring your product idea to market. 
• Industry forums – Join online forums related to your industry and look for active posters and profiles of possible business partnerships. 

Refine Your target database 

Now that you’ve got at least 100 possible buyers, using the techniques listed above, let’s start to refine your list. Prioritize your list into the best prospects to start your campaign. Start contacting companies in the order below: 

Large Companies 

These firms have excellent distribution channels and the needed capital to consider outside product submissions. Many of them also have formalized submission processes.

Smaller Companies

Small companies can often be excellent targets because they do not have in-house inventors and are often looking for ways to expand their market. 

Local Firms 

You have the advantage of proximity plus possible contacts through friends, family, or neighbors, which will allow you to set up in person meetings. These can prove extremely profitable. 

Similar Products 

Companies with similar products to your invention are a good bet because they may be interested in expanding their line. Your invention could be their perfect next product launch. 

Make a deal 

You now have everything in place to get busy selling your business idea!  

Next learn about industry standards for licensing agreements and payments.

Negotiate 

 Begin by negotiating a deal that is a win-win for both you and the manufacturer. In many cases, this could be the beginning of a long-term partnership. You will continue to develop new inventions and this manufacturer may continue to purchase them. 

Four Main Parts of Payment Licensing Agreement

Upfront Payment 

This is the assignment of rights payment that is paid at the beginning of the contract. In most cases, it is an outright payment, but also could take the form of an advance against future royalties. Most upfront payments cover the cost of patent searches and filing. 

Product Royalties 

These are ongoing payments that are made to the product inventor or business idea generator based on a percentage of the product sales. The average royalty ranges from 2% to 5%. This means that you will be paid 5% of the wholesale price of each unit sold. Note that we said the wholesale price, not the retail price. If a product is sold for $100 in a retail store, the wholesale price is likely $50, and that is the amount that will be used to calculate your royalty payment. 

Royalty payments are absolutely the most important part of your licensing negotiation. This is because they are ongoing and directly relate to product sales. You get the advantage of ongoing income and the manufacturer has the advantage of paying you only when the products sell.

Annual Minimum 

This is a part of the contract that requires the buyer to pay the inventor a minimum amount of royalties annually, regardless of the amount of product sales generated.

This is an important element in your contract because it incentivizes the manufacturer to promote the product adequately, ensuring strong sales. 

Exclusivity 

Most manufacturers will request exclusive rights to your product internationally. You can negotiate this country-by-country, as you deem appropriate. 

Specific Industry Tips

How to sell your board game idea

An expert in board game licensing, Scott Morris, is the President of Passport Game Studios, a board game publisher based in the United States. Morris recommends that creators create a video of their game in action.

A short, action-packed video showing how to play your game, what is in the box, and player experiences will impress and excite investors and retailers about your cool new board game idea.

Contact the top board game distributors in the USA:

1. Alliance Games
2. PHD Games
3. Southern Hobby
4. ACD Distribution
5. GTD Distribution