Innovation is the engine that drives business growth. Yet too often companies stall at the funding stage, mistakenly believing that traditional investment paths are the only way forward. This misconception, what we call the investment fallacy, can prevent businesses from tapping into more suitable, faster funding solutions like R&D financing. If you are building something new, here is why rethinking this fallacy could be a game changer.
Understanding the Investment Fallacy
At its core, the investment fallacy is the belief that long-term equity investors or venture capital must come first when pursuing innovation. Many founders think they must raise capital through equity rounds before investing in R&D, that they cannot afford development without big backers, or that borrowing without traction is too risky.
This mindset often leads to delayed progress, missed opportunities, and unnecessary dilution of ownership, all while waiting for the “perfect” funding moment that may never arrive.
In truth, many innovative companies already have an asset they can leverage: their existing R&D spend. Rather than seeking investor approval to unlock growth, they can use that investment to unlock their own potential sooner.
This scenario also shares similarities with the sunk cost fallacy. It is a cognitive bias where decision-makers continue a particular course of action simply because they have already invested resources into it. In the business context, the sunk cost influence often appears when companies delay new funding strategies, clinging to traditional paths due to previously invested time and effort, even when better alternatives like R&D finance exist. It is a commercial version of the Concorde fallacy, where continued investment is based on past expenditure, not future benefit.
Being able to distinguish between past spending and what makes sense for future decisions is key. R&D financing enables more rational planning by giving companies access to capital without letting historic investments distort strategy.
R&D Funding Is Not Just Another Loan
R&D financing, such as that provided by Rocking Horse, offers a smarter alternative. It is a loan solution specifically for businesses that have already incurred eligible R&D expenses. Unlike traditional business loans, it is structured around your actual R&D spend, not speculative future revenue.
It also does not compete with the Government’s R&D Tax Incentive (R&DTI). Instead, it works alongside it, allowing you to access funds now while waiting for your rebate to arrive after tax lodgement. That means you can move faster, retain control, and make critical decisions based on current momentum rather than capital constraints.
Most importantly, the funding is flexible. You are not restricted to reinvesting it solely into R&D. Whether it is hiring talent, increasing your marketing budget, or shoring up runway, the choice of how to spend is yours.
Additionally, the funding is linked to R&D expenditure that has already occurred. This minimises risk and avoids reliance on future projections. Since R&D spend is tied to tax offsets, your eligibility for the incentive effectively reduces the net cost of your innovation investment.
This type of finance also helps mitigate the pressure of future costs by giving you early access to cash that would otherwise be tied up until after you’ve completed and lodged your return.
Why the Investment Fallacy Persists
One reason the investment fallacy holds strong is the assumption that equity is the only “smart” money. Equity is often seen as validation. But it comes with strings: it dilutes ownership, can shift strategic priorities, and usually takes months to secure.
Another common misunderstanding is the belief that R&D finance is limited to future spend or tied up in red tape. In reality, R&D financing is available based on what your company has already spent on eligible activities. It is fast, straightforward, and flexible, with no requirement to complete your R&DTI claim before applying.
Also, many believe the funds must be spent on more R&D. This is untrue. Once approved, the money is yours to allocate across the business, whether that is product development, hiring, marketing, or operational costs.
There is also a perception that accessing finance is a high-friction process filled with documentation, collateral, and covenants. R&D finance flips that script. By focusing only on what you have already spent and your eligibility for the R&DTI, the process is typically much simpler and quicker than traditional loans.
How R&D Financing Works
- You conduct eligible R&D activities during the financial year. This could include software development, scientific testing, engineering prototypes or trials.
- Your business tracks and records eligible R&D expenses.
- You consult with an R&D advisor and receive a comfort letter outlining your year-to-date spending on eligible R&D activities.
- You apply for R&D financing from a provider like Rocking Horse.
- You receive a loan based on that accrued spend, giving you access to capital months before your R&D rebate is processed.
- Once your R&D claim is lodged and the rebate is paid, the loan is repaid using the government rebate.
This timing advantage means your cash flow remains healthy during critical development periods, not just after the fact. You are not left waiting months before receiving the R&D tax refund from the government, which could be used more effectively right now.
Unlocking Growth Without Giving Up Control
Imagine a biotech startup investing $300,000 into lab trials. Waiting up to a year for the R&DTI rebate could mean cutting back on research staff or halting progress altogether. But with R&D financing, the company can access that capital early, maintain team size, and continue advancing without delay.
Or picture a SaaS company working on an AI-enabled feature. With $150,000 already spent on development and salaries, they could unlock early funds through R&D finance and fast-track a go-to-market strategy. This could give them a first-mover advantage in their space.
Crucially, they do so without giving up any ownership. There are no board seats handed over and no voting rights lost. The business stays founder-led, founder-owned, and fully in control.
This is the value of rethinking the investment fallacy, accessing capital that aligns with your innovation goals without unnecessary sacrifice.
Break Free from the Waiting Game
The longer you wait for equity, the more opportunity cost you incur. R&D financing allows you to tap into the value you have already created. Your eligible spend is real, your rebate is real, and you do not need to wait for tax time to turn that value into working capital.
It is time to shift from the idea that only equity counts. Loans that support innovation, like R&D finance, are fast, efficient, and purpose-built. They help you preserve equity for later stages when strategic capital might be more valuable, rather than spending it too early just to keep going.
Equity has its place, but only when it supports growth, not when it stalls it.
Make Your R&D Spend Work Harder
Do not let the investment fallacy, or the sunk cost effect, hold your business back. If you have already spent on R&D and are eligible for the R&DTI, you can access those future funds today through R&D financing.
Working with Rocking Horse, businesses can maintain momentum, fund operations, and focus on what matters. There is no need to face the dilution or delays that come with traditional capital raising.
You have already done the work. Now let your R&D expenditure, tax offsets, and forward-looking planning about future decisions and future costs drive your next breakthrough.