Gap funding, or funding for time periods during a capital shortage for new technological businesses, is often provided by research universities partnering with investors, corporations, or even the government. Occasionally, these universities independently provide funds to new technological businesses in order to advance development. There are three main stages at which gap funding may be valuable: early stage research, proof of concept, and start-up. Without gap funding, the innovation and development of beneficial technologies may be in jeopardy.

During basic research, gap funding may be valuable in advancing the development of the technology so that it may be assessed for future viability. This is a stage of business development which is often not given full weight, when, in fact, it may be one of the most important stages for new technologies. At this stage, many business have no idea whether their technology has a possibility of success. From ethereal concept to research reality, many new technological businesses could use financial support in order to assess whether it is worth it to continue investing in their product or process.

Proof of concept gap funding involves providing capital so that new technology may be tested and assessed for its potential commercial success. This can include monetary injections to support the creation and evaluation of prototypes. Importantly, it may also help fund the protection of intellectual property for the future commercial introduction of the new technology. At this stage, competitive assessments are undertaken, so that the new business may fully internalize any significant competition, as well as analyze any potential difficulties in their business model, and identify any barriers to entry.

Finally, startup gap funding involves a capital injection into what may be a small technological business. The goal of startup gap funding is to translate a fledgling business with a new, societally-beneficial technology into a large scale operation, with new jobs and commercial success, so that more capital may continue to flow into the business. Often, this stage is thought of as the stage most likely to be funded by venture capitalists, but this may not always be true in a downturned economy, making the importance of university gap funding incalculable.

It is important for a new technological business to assess which type of gap funding they may need, so that synergies may be established between the university partner investor and the technological business. Additionally, during the startup stage, such proper categorization will allow for private investors to identify businesses for which their capital may be ideally utilized.

Although gap funding is often seen as a transitory injection of funds to a new business or struggling technological venture, this view may be damaging and understate the reality of gap funding. In reality, gap funding is a significant and indispensable part of the technological development process, as it often allows many business to be supported through commercial viability.