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.

The term is most often used in the context of 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 when, 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 canceled or suspended until the funding gap can be closed.

  1. Gapping

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

    An exhaustion gap is a gap that occurs after a rapid rise in ...
  3. Gap Risk

    Gap risk refers to a security’s price changing from one level ...
  4. Liquidity Gap

    Liquidity gap is a term used in several types of situations to ...
  5. Gap Analysis

    Gap analysis refers to the process through which a company compares ...
  6. Gap Amount

    Gap amount is the portion of a leased item's value that is not ...
Related Articles
  1. Trading

    Playing the Gap

    Disruptions in stock patterns are known as gaps. Learn how you can earn money by analyzing these disruptions in normal price patterns.
  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. Insurance

    Do You Really Need Gap Insurance?

    Gap insurance can be a useful product, but only for those with significant negative equity in their car. Find out if you truly need gap insurance.
  6. Investing

    Gap Plummets After Warning of Bleak First Quarter

    Shares of Gap (NYSE: GPS) fell nearly 12% on Tuesday after the apparel retailer warned that its first-quarter sales and earnings would broadly miss analyst estimates. Gap said it generated $3.44 ...
  7. Insights

    Gap Releases Q2 Sales Results, Banana Republic Down Again (GPS)

    Gap Inc. has released its latest sales figures with Banana Republic remaining the worst performing Gap brand.
  8. Investing

    Apparel Retailer Earnings to Watch for This Week

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

    Gap Rejiggers Its Brick-and-Mortar Strategy

    Gap is banking on its healthier Old Navy brand over its Gap and Banana Republic brands.
  1. What are some examples of money market funds?

    Learn more about different types of money market mutual funds, including those that invest in government paper versus commercial ... Read Answer >>
  2. Where does a hedge fund get its money?

    Learn how a hedge fund is structured and how the managing partner of the fund finds and solicits investors with large amounts ... Read Answer >>
Trading Center