customer funding – n : a business arrangement between a vendor and its customer wherein the customer agrees to provide the vendor with some level of up-front funding in advance of delivery of the product or service. The intention of such arrangements is usually to partially or wholly fund a vendor’s product development. The vendor benefits by receiving earlier cash flow that can help fund product development and obviate the need for as much external funding (reducing shareholder dilution). The customer, on the other hand, often benefits from such arrangements by getting an early look at a new product or technology, experiencing the ultimate benefits of the product sooner than it otherwise would, having disproportionate influence over the product’s features and delivery schedule, and possibly special
discounts off the eventual list price.

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Adapted from "The CompanyCrafters Entrepreneur's Dictionary"
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