How To Get Funding For Your App Idea
If you're trying to build the next big thing we've got good news and bad news. The good news is that you've got lots of options for raising money. The bad news is that raising money is never that easy. Hopefully this article helps you in your journey.
Mobile apps are very much 'in' right now; business-specific apps are easier, quicker, and more reliable than viewing websites on a smartphone, and they often offer unique services and deals. Gaming and interactive story apps, by comparison, offer bite-sized entertainment to the busy individual. So, if you're here because you have an app idea that you want to make a reality, you're right on trend; the average mobile user spends three times longer using apps than the mobile web. In fact, apps have become so popular that many independent app makers have turned app development into their full-time occupation; with the right ideas and development, your app could be your retirement fund.
Of course, if you've already looked into it you'll know that app developers don't work for free. In fact, the average app can cost anywhere up to a quarter of a million to develop, though costs do vary based on a number of factors. This leaves you with two options; you can take the time to learn how to develop your app yourself, or you can raise the appropriate funds to bring your vision to life.
Funding Options for App Developers
As with any business idea, you have a number of funding options for app development; the trick is finding the right option for you. First an foremost, there's the traditional loan. You could also crowdfund your app, approach a VC (venture capitalist), or approach specialist start-up investors. Finally, you can always ask your friends and family to chip in or consider peer-to-peer funding.
Taking Out a Bank Loan
Taking a loan from the bank is by far the least promising of funding options, but it does represent a potential way to fund the development of your app. If you have good credit and can get a loan with relatively low interest, however, it could be worth considering. The main issue with this option, of course, is that it could hard to get the level of funding you need without serious collateral... and remortgaging your house is something to be avoided unless all other options have been exhausted.
Crowdfunding Your App
Crowdfunding has become a go-to option for start-up businesses of all kinds for two main reasons. Firstly, it's a proven method of raising the capital needed to get your business off the ground, but more than this it's also a kind of advertising. In fact, a successful crowdfunding campaign acts as a kind of validation in and of itself; when you successfully raise funds this way, you have shown that there is a market for your app, product, or idea. This means that if you also seek investors at a later stage you can use this in your pitch to show that there is a viable market for your app.
Funding From Venture Capitalists
Venture capitalists are the leviathans of the funding world; everyone is after them. Even smaller VC's will see hundreds of ideas in a day, so you need to be on form when you contact them. But if you can get their attention, all your funding woes could very well be over. Of course, they'll want more in return for their investment than you'll have to give up when you crowdfund or approach smaller firms.
There are also smaller firms who specialize in investing in start-ups and apps. They're just as busy as large VC firms, of course, but they're more open to smaller app ideas, and they're not as likely to want 30% - 50% of your business in return for their investment,
Peer-to-Peer Funding Options
Peer-to-peer funding is a relatively new concept, but it's gaining traction and becoming very popular. Companies like Funding Circle operate on the basis of small businesses lending to each other, hence the term peer-to-peer lending. The benefits of this method are much the same as the benefits of a bank loan; you pay back what you owe, but keep your business. However, peer-to-peer lenders may offer better rates of interest on your loan than a bank. The downside is that you might struggle to get large amounts from this method; it could be a perfect way to top up if your crowdfunding endeavors fall just a little short, however.
Friends and Family
Ah, yes, the bank of dad (or mom); unless you come from a very wealthy family it's unlikely that you'll be able to raise all of the cash you need this way, but you still shouldn't discount it. Firstly, even a few thousand can get you on the road by providing the funds to cover your initial idea development and testing stages.
Once you know what funding method, or methods, you're going to go for it's time to think about how you can convince these people that your app idea is worth their hard-earned cash.
Presentation and Pitching
Though it's tempting to think that your idea is simply so excellent that no-one will be able to resist it, the truth is that most people (even your friends and family) will be wary of investing any real money in something they know nothing about. This is why your idea and passion must be tempered with research, resources, and a solid presentation or pitch.
Of course, the exact specifics of how you present your idea will change depending on who you talk to, but most methods require the same general approach. Crowdfunding is the only real exception, so we're going to deal with that first.
The Key to Successful Crowdfunding
Crowdfunding has boomed recently. According to Massolution crowdfunding report, in 2015 $34.4 billion was raised by crowdfunding campaigns, double what was raised the year before, and this figure has risen exponentially since. This is good news for app developers because it means this is a method that works... the bad news is that the market is saturated. A simple, emotion-driven campaign won't get you far anymore; you need to be professional in your approach. However, when you're crowdfunding you should take a different approach than you might if you were approaching a VC firm.
First and foremost, you can be more personal in a crowdfunding campaign. In fact, it's better if you are; people who crowdfund want the personal touch. They want to feel they know you and your goals, so be open and honest about why you're developing your app and how you got the idea this will engender trust and create an empathetic response. Don't overshare though; imagine you're discussing your project with a trusted mentor or colleague.
Secondly, think about the rewards that you're offering. The rewards offered by crowdfunding campaign are essentially the 'return' that people get on their investment. For example, the successful Nolan Whisky Glass campaign offered investors a set of glasses once they were made. So, whether you offer your investors early access, a discount, or an in-app reward make sure it's worth the donation level they have to meet to get it.
Finally, when it comes to actually writing the body of your page you should make sure that you have done your research, and that you are clear on your goals. Be explicit about your expected timescales, the funds you need, and what they will be spent on. Transparency is key in building trust, and trust is the most valuable currency in business.
Formulating Your Pitch for VC's and Other Potential Investors
The first mistake that people make when pitching to small investors, especially friends and family, is to not take it seriously. This is why we've put the big VC's together with all other potential investors; the first tip we have for you is to treat every investor like they're one of the 'big boys'. When pitching to any VC firm, large or small, or any individual investor you should have a professional, well-researched presentation that cover three key things.
Firstly, you need to make a strong case for the value of your app. By this we mean it's value to the consumer; make it clear that you know who your target audience is, that you are aware of your competitors and that your app has something to distinguish it from the rest of the market. If similar apps have been launched and have failed, find out why and make it clear that you have considered these factors.
Secondly, you need to make it clear that you have thoroughly developed your idea. Talk about the features of the app, the applications, whether it will be a native or a hybrid app and why you made this choice. Tell them what it's meant to do, how it will do it, and what the benefit the user. This also benefits you; the more solid your idea is before you begin creating, the less likely you are to have to cover the same ground twice.
Finally, and most importantly, you need to have a revenue model prepared for your investors. All investors will expect you to cover ROI (return on investment) unless they are family members who have explicitly told you that the money they are giving you is a gift. Give potential investors an idea of your plan of attack when it comes to making your app profitable, give them an expected timescale (e.g. how long will they wait before they start seeing a return), and an idea of what kind of profits you expect to make.
If your initial pitch is successful you will pass from the 'seed' round to the angel round. This is much like the seed funding round, but is a little more formal and may involve third parties who will buy common stock in your company. If you're successful here you will pass to Series A, B, and even C funding rounds. With each successful round, the amount of funds on offer will be more considerable. It's up to you how you seek funding and how many people you work with, just remember to think carefully about what investors ask for in return; don't 'fund' the majority of the company out of your own hands.
Building an app has to be treated like building a business. You can't expect to just get the app built and for it to take off. Occurrences like Flappy bird are mostly once in a lifetime flukes. You're not only going to need funding to build the app, but you're also going to want to consider funding for marketing purposes and raising that much money is no easy task. It's tough, but it's definitely possible.