In general investment into a good idea will be covered by a closer look into future cash flows in relation to the original investment. Of course, we have methods like the Payback Period, the Net Present Value or the Average Rate of Return to help decide if an investment has a potential future or not.
How to get funded?
What is almost always left out of the equation is HOW to get funded for the amount required. Sources of funding could be retained earnings that accumulated in a strong cash position. If the investment is not possible from these “savings” it will definitely be helpful to find what one needs from investors and or from banks.
How a framework of government support could look like?
One way would be to have a fund available that could participate in the riskiest investments. If enough investments are successful to cover the “losses” this could be successful. There are of course some problems with this solution, not in the least the process and bureaucracy involved. Another way could be to use our tax system to create incentives. The key element is to generate enough cash flows as early as possible on the timeline of the funding project.
What if you would allow a depreciation scheme to be chosen by the investing company?
For example, choose a scheme that is heavily tilted towards the first two years would generate extra cash flows early and help to deal with the risk profile involved. This could be complemented by giving organisations easy access to loans by adopting a scheme of social impact bonds. This is essentially a loan where repayments are reduced when and if specific social effects are achieved by the investment.
Would you like to learn more about innovation and funding? Contact our expert Guido Aerts.