7 Ways to de-risk your retail tech innovation: How to finance innovation projects with smart venture funding models in retail
How many new retail innovation projects are you paying for at the moment?
It’s absolutely vital for staying ahead in retail that you roll out your own new tech ventures almost continuously – because your competitors are. Gartner projects that almost 57% of retailers will invest more in innovative new tech in 2024 alone.
(See what they’re investing in, in our post on the future of retail.) What you're looking to do is continuously innovate by testing new ideas, like these creative MVP examples for retail. And then, if you’re wondering: Well, how are we supposed to afford to fund all these risky new retail tech integrations, rest assured that your company doesn’t have to self-fund everything.
Your company can raise the capital for your tech projects creatively, and remove some of the risk from yourself. Here are 7 creative venture funding models for retail.
Venture funding models are creative ways to finance new projects in your retail company.
For example: If you want to deliver a new system, tool or method to overcome the crucial delivery challenges in the competitive grocery delivery space.
See, when you want to roll out an innovation project – a new system, technology or approach in your business – that doesn’t always have to be structured as a hard/fixed R&D cost to your company.
You could simply brand and create the project as its own entity called a venture – and then fund it like you would a startup. (Great for protecting your core brand from any misfires.)
Many larger companies deploy their own innovation departments, teams and studios, whose sole job is to come up with new ventures (entities) to test innovative ideas for them. And then the “mother” company can just absorb whichever ones work best.
When you handle innovation projects like ventures, you have various ways to fund them – you don’t have to foot the bill for all of them. A venture funding model is simply a way to pay for innovation ventures. (Also see how to choose a retail venture funding model.)
If you have some budget but not enough to fund the entire digital transformation project, reallocation means taking a closer look at your current budget and identifying areas where you can free up funds for innovation.
Conduct a thorough review of your spending and income streams. Identify opportunities to increase efficiency, negotiate better deals with suppliers, or eliminate unnecessary expenses, and then use that money to fund your innovation project(s).
How it works: You simply find opportunities to reallocate funds in your current operations or financials to self-fund, if the long-term benefit of growth or cost savings outweighs the reallocation. The benefit here is that you maintain full control of your project and don't have any debt to other entities.
For a better idea of the power of omnichannel, see our POS integration case studies.
VCs are professional investors who provide new ventures with equity funding in exchange for ownership stakes. CVCs are similar, but funded by corporations to invest in startups strategically aligned with their own goals.
Your project (venture) can simply go and apply for the funding it needs, and then you strike a deal with the CVC for how many shares it gets in the project.
How it works: You present your innovation project to potential investors or corporate entities who are interested in your sector, and they will conduct due diligence and invest based on their evaluation.
In exchange for the funds, you will priorly agree to give the investors an ownership stake in your venture, so it’s up to you to decide how much it is worth to you to be able to have the money to roll out the project right now.
See how data boosts customer loyalty.
Government agencies and non-profit organisations often offer grants and subsidies to support businesses undertaking innovation, research, and development projects, to stimulate the economy.
You would need to find a type of fund that is looking to invest in your type of project, apply and then be prepared to regularly report on all your progress.
The most enticing part of grants and subsidies is that they are often non-repayable, meaning you don’t need to repay anything, as long as your venture performs well and stays on track.
How it works: Governments and NPOs often have strategic objectives – like stimulating the economy during the pandemic or increasing the country’s industrial infrastructure, increasing its tech investment, promoting employment etc. And if your project lines up with what they’re trying to achieve, they will fund you.
Normally, all you need is alignment, a strong proposal aligned with their criteria and application deadlines, and a commitment to keeping them updated on your progress.
In South Africa, for example, the Department of Trade and Industry has several innovation and tech funding instruments, as well as non-repayable grants.
Another creative way to get the tech you need is to strategically partner with others in your industry, professional venture developers like us at Specno or even startups.
You could do some interesting things here, like bring in professionals to design solutions for you in-house, and then create a partnership agreement on, for example, owning a share of the rights to the solution. Then, they can roll it out to your competitors, and you can make money off them.
How it works: There are so many different ways to structure a partnership like this. You can get developers in at a hugely reduced rate, ask the partner to share the risk while you provide the framework for testing etc. And then have a say and share the resulting technology.
There are honestly many highly skilled individuals looking for opportunities just like this, and all it takes to start talking to them is to reach out to startups and tech companies and tell them you have a problem to solve.
In fact, we’re tech consultants and we specialise in such partnerships, so you can get started right now by getting in touch and letting us know what you need.
Another option is to go to banks and lenders who offer loans or lines of credit with interest repayment. This naturally works best for established businesses with predictable cash flow.
How it works: If you have the collateral and can justify the cost and reward, you can simply present a business plan and financial projections to lenders. When approved, they’ll extend you the loan, and then you pay them back at a predefined interest rate.
See the benefits of better inventory technology as well as the latest banking UI trends.
A much less common but very innovative funding model, especially if you're developing a new product or highly valuable, tangible service, is to allow customers to pre-order it.
How it works: Customers pay you the money up-front for a product or service you will deliver in the future, giving you the funding to finalise the development of the product or service.
Naturally, to do this you need to have a highly sought-after product or service, and the kind of customer who can and will pre-buy it. It’s not very common in retail – the gaming and tech industry is better known for this tactic – but it’s not impossible.
A benefit of this method is that it helps you validate demand beforehand.
Get some extra retail insights through our case study on Amazon’s omnichannel strategy.
Closely related to venture capital and partnerships, revenue-based financing is specifically when you get the funds for your project, but you don’t have to give up equity in it or pay back a loan.
You simply agree to pay the investor(s) a percentage of the future profits of your innovation.
How it works: You find investors, just like with other models, but then you negotiate with them for funding in exchange for a share in the revenue you will generate with the new tech/systems etc.
Naturally, this works much simpler when you’re building a new revenue-generating product/service, but even if you’re deploying new tech to help you automate and save costs, you could potentially negotiate a share of the savings.
Just remember, it’s not risk-free, it has a potential impact on your revenue and returns.
Unsure what'll be best for your business? Discover: How to choose a retail venture funding model.
Also get ideas for exciting new fin products with our look at blockchain in banking.
Need help with a retail innovation project?
Let our team of digital consultants help you make good decisions.
.jpg)
