Every groundbreaking app idea needs proper funding to drive it forward. Startups and developers must understand the right ways to get funding for their ideas and where and what their options are.
Getting a unique idea for a mobile app can be pretty exciting. And why shouldn’t it be? Having a chance to dig into that $50 billion worth market is a thrilling prospect, especially for startups seeking new business opportunities. However, it is common for people to think that the development process for mobile applications is straightforward and simple: get an idea, develop it, and get rich. Unfortunately, and unlike other business ideas and startups, where entrepreneurs know what their product will look like, robust app development is not a linear process with a certain future. You can have a set idea at the initial stages of building and getting investors for your app. Still, user testing throws you curveballs, your budget gets thrown way off, and you end up needing so many modifications that your app will probably look nothing like the initial idea.
For this reason, mapping out a bound business plan and attracting investors to develop an app is no easy feat. Whether it is at the beginning of the development process, during, or after deployment, your app idea is undeniably going to need to raise some capital, especially if you factor in future expansion and long-term maintenance. For this, you need to determine the type of app you’ll be developing, have an idea of the amount you will need to make it happen, and figure out where you’ll be getting the funds. Without this plan, raising money will be a guessing game, and you’ll likely fail at it. Sure, your vision may be revolutionary, but if you lack the proper funding to kindle that fire, it will probably wither away.
How Much Money Will You Need?
So how do you raise money to fund your new app? How much money will you need to raise? There is no short answer because your monetary needs depend entirely on the kind of app you’re looking to develop. For instance, a simple MVP for a locally run native app with minimal functionality could cost you anywhere from $20,000 to $50.000.
On the other hand, a more complex cross-platform app with APIs, a front-end web app version, and all the bells and whistles can set you back anywhere from $50,000 to $200,000 or more. Don’t get discouraged, though. Luckily, nowadays, there are several options and platforms for small businesses and startups to raise capital and fund their ideas. You can raise money from friends and family, banks, or outside investors like Angels, Venture Capitalists, and Crowdfunding platforms, among others (more on this later).
But before you start making a list of prospective investors for your app and knocking on their doors, you must determine the funding you will need for the development of your app. You have to work hard with the development company of your choice and plan carefully to figure out the estimated cost of developing your app with an understanding of its users, its specific functionalities, and an overall idea of your app’s primary purpose. Without any budgetary certainty and a plan set in place, you risk making a monetary miscalculation that can cost you your dream. If you receive too little funding, you’re right back where you started: with not enough money to fund your app. On the other hand, if you receive more funds than you need, once your app is successful, you can end up giving away your owner’s share, equity, and even your company to investors.
You can also ask yourself questions like:
- How will my app function?
- How much money will I need to create my app?
- Who will I get the money from?
- How will I raise the money from them?
- How much money will I need to keep the app running once it is deployed?
Ultimately, the capital you raise and where you raise it depends entirely on your app’s specific needs. A good starting point to know the average development cost of your app can be asking your development company for an estimate. From that point on, you can calculate extra costs such as operational overhead, marketing and advertising, and other expenses that usually come with any business idea. This way, you have a solid plan for your app’s funding goal, and you can confidently justify the approximate amount in front of potential investors.
How to Get Investors for Your App
Now that you’ve determined your funding needs, you need to start looking for investors in the right places and according to your business plan and your app’s specifications. You must have a clear direction, experience and stand on solid ground in front of the people who will fund your app. Depending on where you choose to pitch, most investors have many options, so you need to stand out.
Consider this 2018 study that found that seed funds look for a capable CTO or an experienced co-founder when investing over any other factors. Additionally, in February of this year, developers released approximately 88.500 mobile apps in Google’s Play Store and 29.500 in Apple’s App Stpre. The competition is fierce. Your potential investors need to see that you’ve worked on your app and that you’ve invested time to refine it, that you’ve done your market and competitor research, and identified your app’s unique benefits and selling points.
It sounds like a lot to grasp, but don’t panic; at Foonkie, we created this guide to give you the answers you need and, hopefully, get your app funded.
Understand Your App’s Niche and Market
As we stated above, the mobile app development market is booming, and as of today, there is an app for almost everything. As a result, your app needs to stand out. Your app’s success is linked to whether there is a need for it and what necessities or problems it solves, hopefully in a unique way. For this reason, you must do a ton of research and find out who your specific users and competitors are. Conducting thorough market research can make a world of difference for investors. Any investor or platform wants to fund apps with clear goals and knowledge of their market. To make an informed decision, investors will want to know your app’s niche, the problem you’re trying to solve, who your competitors are, the spectrum of your target audience, your app’s features, monetization strategies, and more.
Additionally, make sure your market research also includes:
- Market gaps (an opportunity to sell something that doesn’t exist)
- Market analysis reports
- Marketing plans
- SWOT analysis
- Target market analysis
- Domestic/International competitors
Besides conducting thorough market research, you also need to prove you understand the dynamics of app stores. Understanding this will give you an idea of your target audience’s preferences, inclinations, and how to attract their attention. Also, note that you don’t need to find a new niche for your app; you can tap into an existing one and alter it by providing unique solutions.
Establish Your App’s Branding
Most people wrongly believe that an app’s success or failure depends solely on the programming and technical components. The reality is that without a solid branding concept, you can’t add any direction to the development process, and it will likely end up delivering a weak app with no apparent value. Sure, programming is crucial, but chances are there will be other similar apps on the market. What will make users choose your app over the others will be your branding strategy. Additionally, even if your app is already live or at its early development stages, attracting investors without strong branding will be near to impossible. Implementing a robust branding scheme from the beginning is the key to make your app look professional and show your potential investors that your app represents a profitable opportunity for them.
Giving your app a solid branding strategy can also help your potential investors visualize your ideas and make abstract concepts palpable, even if your app is still at the planning stage. It also helps them understand what value your app adds to users’ lives, the problems it solves, and the advantages it has over competitors. Furthermore, if your app is already out there, having an established branding strategy can resonate with users, creating an image they can engage with that goes beyond your app’s features. This way, a clear and strong brand position can make your users connect with your app on a deep level. Your investors will pick up on that and will get more incentivized to invest in your app.
Whether your app is already live or still in the planning stage, you must have a full-fledged marketing and branding strategy in place to attract potential investors for your app. Nobody wants to invest in someone who doesn’t know where they stand or in an idea that has no north. Strong branding looks professional and conveys security and trust. Additionally, it will be much easier for you to pitch a finished, whole idea to potential investors rather than pitching a vague idea that lives in your mind. You need to have a logo, a catchy name, and a domain for your app. If you want to take it a step further, you can develop a demo of your app’s user interface, an MVP, or a mockup of what your app will look like. All these elements can significantly improve your chances of getting considerable funding for your app.
Develop an Elevator Pitch
Now that you have a solid foundation for your app idea, it’s time to figure out how you’re going to pitch it to your potential investors. Your elevator pitch is a quick, to-the-point summary of your app. It’s commonly called “elevator pitch” because it should ideally be short, as an elevator ride. An effective pitch should keep your investors hooked, interested, and excited about your app idea. Developing a robust elevator pitch is crucial because you’ll likely have little time to engage with your investors, and catching their attention in that time will determine whether or not they give you their money. You need to convince them that not only is your app good, but that it is profitable. You’ll have more time to elaborate on your app idea once your potential investors find your elevator pitch interesting.
A great elevator pitch should ideally include what the app does, why people need it, and why it’ll be a success, all in a concise, to-the-point way. It doesn’t sound easy, but if you have a clear concept of what your app is and does, it’ll be easier than you think. You can write your pitch out on paper and practice it until you perfect it and memorize it. Practice it in front of friends or colleagues and ask them for feedback to ensure that your pitch does communicate what you want it to.
After you’ve developed your elevator pitch, presented it, and your investors are ready to hear more about it, you’ll need to craft a pitch deck to secure your funding. A pitch deck is a more lengthy and detailed presentation elaborating on your app’s details, features, and overall processes. Have you seen the TV show “Shark Tank”? Well, that’s how a pitch deck meeting usually goes. With this in mind, you can format your pitch deck as an attractive slideshow presentation with graphs, stats, images, branding, and any other visual aid you find relevant. You should include details about your business model, team, competitors, advantages, challenges, budget, and profitability, among others. Also, make sure you have a clear monetization plan in place and include any additional aids you may have, such as an MVP, signs of early traction and customer base, and feedback from testers, if you have it.
Build a Minimum Viable Product (MVP)
Developing an MVP is a very affordable and effective way of visually helping users and investors understand the working flow of your app. Creating a full-fledged app before securing investment is not a good idea. Not only will it cost you a lot of money, which you probably won’t have, but it will take time, and you’ll likely have to backtrack some processes until you get funding or feedback. An MVP allows you to understand if your app works and accomplishes the desired outcome before going to investors, which ensures that you have solid evidence that demonstrates the market validity of your app. It can also help you articulate your app’s key features better and gather the necessary feedback to make improvements to your final product.
Additionally, an MVP is a genuine, fully functioning product, so it proves your idea has weight and provides your potential investors with a physical product that they can see and use in real-time. This way, they will see that your product is authentic, works, targets issues and solves them. An MVP can also help them know that you can launch your app into the market as soon as the investment comes in without them having to wait a long time to see the return on their investment.
We at Foonkey Monkey have always encouraged the development of MVPs because of the benefits they bring to the table. We strongly recommend you consider developing an MVP for your app before going investor-hunting. You can thank us later!
Figure Out What Kind Of Funding You Need
After having your MVP, pitch, budget, and business plan mapped out, you will need to find the right investors for your app. That doesn’t mean you’ll go ringing on every door until someone answers. Your investing options will depend on the stage you’re in regarding your app idea. In the early steps of your app’s development process, you’ll be at the pre-seed investment stage. Ideally, you may have options such as friends or family members open for investment at this stage. However, you’ll eventually need to scale it and find external investors for your app that can add more value to push your app forward. Still, you must understand that your app is very new at this stage, and it will likely not have much revenue, which means you must set your investment expectations accordingly. At the pre-seed stage, you can realistically aim for about $10,000 to $200,000 or less.
Once you secure your pre-seed funding, the amount of money that will flow into your app will increase at each new stage. Remember, you must advance stages slowly and scale your app’s growth carefully. If you get too excited, you risk scaling your startup before time and will jeopardize your app’s success, as shown in this study where 74% of high growth internet startups fail due to premature scaling.
Moreover, you must not underplay the importance of knowing how much funding you need as the stages advance. Underfunding or overfunding your project will cause you problems, so make sure you have a clear plan that helps you adequately estimate your funding needs depending on which funding stage your app is in. These stages are:
- Series A
- Series B, C, etc.
Additionally, and depending on the stage you’re in and your external funding plans, there are a variety of investors you can choose from.
What Are The Different Funding Options Available to You?
• Angel investors or Seed funding
Angel investors are your go-to funders when your app is at the idea stage or is very new. They are individuals, usually with high net worths, willing to invest their money in startups and small businesses. Angels tend to invest in the very early stages of growth and are prepared to take on high risks in return for considerable equity. They are usually ex-business owners and invest in the sector they’re familiar with and can provide mentorship, so try seeking angel investors relevant to the IT industry and digital products.
Also, they do not demand much control over how you handle your app, which allows you to function at your own pace. What they do demand, aside from equity, is a good, unique idea, an MVP or prototype, an outstanding pitch, and proper ROI and income strategies. So make sure that when you contact an angel investor and get a meeting, you have done thorough market research and are fully prepared to answer each question they ask.
As stated above, angel investors are individuals, but they can also work in networks to spread the risk and facilitate investment processes for stakeholders. Angel List, Angel Academe, and Cross Border Angels are a few of the countless networks where angels and startups connect to conduct business. We consider both angel and seed funding to be terrific options for securing funds for all app startups.
• Self-funding or Bootstrapping
If you feel like you can become your investor, then bootstrapping is the option for you. Bootstrapping means using your monetary resources to launch your app without seeking external funding. This funding option is excellent if you can realistically cover your app’s expenses successfully, at least at the initial stage. No doubt, this approach is ideal if you want to retain total control and ownership of your app, but keep in mind that you’ll probably need extra funding when scaling your app.
You’ll likely need a lot of help at the development stage, but with cost-friendly development companies like us, you have access to many possibilities that can help kickstart your app. As stated above, starting with an MVP is a good idea. If you already have your MVP and want to take it a step further, keep your product as simple as possible, like developing a native app (iOS or Android) and then scale it as you grow.
• Venture Capital (VC) Funding
Venture capital financing for app developers and startups has skyrocketed since 2013, as shown in a study by Preqin. Venture capital funding reached its apex in 2018 with investments worth $108 billion that resulted from 4,735 funding deals. These numbers show that venture capital is the ultimate funding option for your app. Though not always the case, to get funding from venture capitalists, your app should be already running and have some market presence. You’ll also need to have a very compelling pitch and be ready to compromise most of your ideas which your investors’ vision will likely mold. Venture capitalists often invest large amounts of money; henceforth, they won’t commit to high risks and typically want a fast return on their investment.
Remember, getting funding from venture capitalists takes time and will likely happen in the later stages after your app has gained some traction. VCs usually look to invest at least $600,000. Some will either go up to a million or down to $500,000, but no less than that. So, once your app is up and running, has an established brand and user base, and is starting to break even, a VC is the best way to take your app to the next level.
• Bank loans
If none of the options stated above sound right for you, banks are always an option for personal or business loans. Although most banks are very risk-averse, if you have a sound business plan and can make a good case for your app, you likely won’t have an issue getting a loan. Banks are also the fastest option for getting a quick injection of money, but keep in mind that the amount may not be as high as the other investment options. Also, they may require some collateral on the loans, so you must be extra careful and make sure you can afford to make the payments.
• Crowdfunding platforms
Crowdfunding is another excellent option for funding your app. Crowdfunding means raising small amounts of money from each person, making up a large pool of investors (usually ordinary people). In 2018, businesses raised over $34 billion in crowdfunding platforms, making it an attractive prospect for startups to raise funds and have anyone contribute to a product’s development.
Accordingly, if you have a groundbreaking and unique idea and can convince the public to invest in your app, crowdfunding may be the best option. All you have to do is choose a crowdfunding platform, upload your app’s in-depth description, the investment amount required, your goals, and any other visuals you see fit. If the people on the platform find your idea attractive enough, they will likely invest. In return, you can give shares of your company, or you can come up with some kind of reward system, whichever works better for you.
One of the most significant advantages of crowdfunding is that you can get funding for your app while announcing it to the world and advertising its features and benefits. This benefit means that your investors will eventually become your users too. The most popular of these platforms is Kickstarter, but due to its success, the world has recently seen the birth of other media such as GoFundMe, Patreon, and Crowdfunder, to name a few.
Finding Investors For your App: The Takeaway
Hopefully, by now, we’ve managed to help you get a more accurate view of what you need to start your app’s funding journey. Having an innovative idea is just the first step of a long but worthy process. When you are ready to bring your vision to life, take the time to prepare yourself and your app for a future in which investors will be drawn to it. Analyze the market, build your idea with accurate data, do your research, and with time and effort, you’ll surely see the results.
No one understands better than us that transforming your app idea into reality is no easy feat. But if you use the pointers mentioned above and commit yourself to put in the work, we guarantee your app will take the market by storm. And, once you’ve accomplished your desired investments, don’t stop growing. Your work doesn’t end with funding; your app can constantly improve. You can add functions and features, improve the design, and make iterations. Plus, with advances in technology and updates in OS versions, your app will surely need to evolve constantly. For this reason, you must make sure you hire a capable development partner that can keep your app running smoothly for a very long time!