What is a 'Funding Gap'

A funding gap is the amount of money needed to fund the ongoing operations or future development of a business or project that is not currently provided by cash, equity or debt. Funding gaps can be covered by investment from venture capital or angel investors, equity sales, or through debt offerings and bank loans.

Most often used in context with early-stage companies during the initial stages of research, product development and marketing.


The ease with which a very young company receives funding depends on many factors including the viability of the business model, barriers to entry for that particular industry, and overall economic and market conditions. When the stock markets are strong, venture capital investors are much more likely to fund startup companies, and may even become less stringent in their eligibility criteria.

Funding gaps are also more likely at these early stages because a company won't know what its full operating expenses will be until it reaches a more mature stage and, at first, there aren't likely to be any meaningful revenues coming in.

The Impact of Funding Gaps

Organizations can face funding gaps for a variety of reasons. The shortfall in capital may be a result of expenditures in research and development on initial products. For instance, bringing a prototype to full production or taking an experimental drug through clinical trials and regulatory approvals may incur costs that company cannot immediately cover. When businesses face funding gaps, they may seek additional investors or financial vehicles to secure the capital needed to continue moving forward. The expectation is that once standard operations have resumed, incoming revenue will provide sufficient capital to sustain the business.

Government entities and agencies may face funding gaps if the allotted budget for a fiscal period does not include sufficient money to pay for the regular operations and duties of the agency. If schools face funding gaps, they may be forced to eliminate classes, extracurricular activities, instructors, or administrators in order to continue operating. When government agencies are confronted with funding gaps, programs and initiatives may be forced to cease operation until sufficient resources can be secured. The closure of national parks during government shutdowns is a typical result such funding gaps. The rollout of new military equipment often depends on defense budgets earmarking resources to pay for their development and procurement. When there are shortfalls in federal resources, programs to create new vehicles and hardware may be cancelled or suspended until the funding gap can be closed.

  1. Gapping

    Gapping is when a stock opens significantly above or below the ...
  2. Common Gap

    A price gap found on a price chart for an asset. These gaps are ...
  3. Breakaway Gap

    A term used in technical analysis. A breakaway gap represents ...
  4. Exhaustion Gap

    A gap that occurs after the rapid rise in a stock's price begins ...
  5. Interest Rate Gap

    An interest rate gap is the difference between the rates of liabilities ...
  6. Strategic Gap Analysis

    Strategic gap analysis is an evaluation of the difference between ...
Related Articles
  1. Trading

    Know How To Manage Gaps On Your Trading Strategy

    Gaps generate profitable strategies right after they print, as well as during retracements that test those levels, often months or years later.
  2. Trading

    3 Gap Trades On SP-500 Stocks (AMAT, NEM)

    Gaps generate all sorts of trading signals, both when they occur and when price pulls back to test or fill them.
  3. Investing

    Should Investors Squeeze Into The Gap?

    The Gap is closing stores and conducting layoffs. Will investor panic lead to opportunity?
  4. Investing

    How Gap Plans to get Back in Style (GPS)

    Gap is currently out of style. Here's how it plans to change that.
  5. Trading

    Analyzing The Market With Trend Mirrors

    Past price action can exert a powerful influence on current rallies and selloffs.
  6. Trading

    Valeant Stock: Gaps Suggest Potential Recovery

    Trading around gaps could show if the recovery party in Valeant stock is already over or just getting started.
  7. Investing

    Apparel Retailer Earnings to Watch for This Week

    After a period of decline, these two retailers are hoping to maintain long-term viability.
  8. Investing

    Consumers Bucking Gap for Other Brands (GPS)

    The once "cool" brand has been sidestepped by cost-conscious Millennial consumers looking for more individuality.
  1. How are Sanku (Three Gaps) patterns interpreted by analysts and traders?

    Find out how analysts and traders interpret a Sanku, or three gaps, pattern located within a bar chart or Japanese candlestick ... Read Answer >>
  2. How do I implement a forex strategy when spotting a Runaway Gap Pattern?

    Read about some strategies to consider after spotting a runaway gap pattern in the forex market, including how to distinguish ... Read Answer >>
  3. How do I build a profitable strategy when spotting a Runaway Gap pattern?

    Understand the basics of the runaway gap and how to utilize this pattern to establish profitable trade strategies, including ... Read Answer >>
  4. How effective is creating trade entries after spotting an Exhaustion Gap pattern?

    Understand the components of the exhaustion gap pattern, how and why it occurs, and how it can be used to create an effective ... Read Answer >>
  5. How effective is creating trade entries after spotting a Sanku (Three Gaps) Pattern?

    Learn about the sanku, or three gaps, pattern including formation, interpretation and additional confirmation necessary to ... Read Answer >>
  6. What are the most common securities that exhibit breakaway gap patterns?

    Learn more about the types of stocks or securities that can be more susceptible to exhibiting breakaway gap patterns in their ... Read Answer >>
Hot Definitions
  1. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  2. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  3. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  4. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  5. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  6. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
Trading Center