Dealing With Conflict of Interest

Hi everyone - I would appreciate any advice you might have about dealing with a conflict of interest. Here's the situation: I and one of my coworkers have been working on a prototype for a startup that could easily be described as a conflict of interest. The startup is in the same industry as the company we work for. The idea involves referring business to companies like the one we work for. In one sense, we'd be driving business to the one we work for, but would also be driving business to direct competitors (hence the conflict of interest). At some point, we will have to have a conversation with our boss. I'm trying to come up with a way to spin the conversation so that it could be a mutually beneficial arrangement. Ideally, it would be great if the company would seed fund us, although that is a very long shot. As I stated above, in one sense it could be beneficial because our startup would be driving business to the company, but on the other hand, it would also be driving business to its competitors. We aren't comfortable with flying under the radar as long as we can - so we either need to get out now or work on a prototype and when it's further along, have a sit-down with our boss. Has anyone been in this situation?