It’s not easy to secure app funding to bring your app idea to reality. Most people believe that as long as you have a good idea and a business plan, investors will be kicking down your door to invest. Unfortunately, this is rarely the case and those who find funding from any source, usually have to work extremely hard to do so. Finding someone to believe in your app as much as you do takes a tremendous level of convincing, and usually, there are many steps an entrepreneur must take before approaching investors with their ideas.
Is Your App Positioned for Funding?
The word “investor” gets thrown around so much in the app development world that it almost seems to describe one specific individual — a rich person who thinks a certain way, dresses a certain way, and invests a certain way. In reality, every app investor is different, has their own style of investing, and has their own formula for analyzing whether an investment is right for their portfolio.
Wise investors will typically consider several aspects before deciding to invest in your app startup. Typically, they want to know:
- Is your app idea unique enough to succeed? Having a great idea is one thing, but having an industry-changing idea with the potential to absolutely crush competitors — well, that’s something totally different! A fundable idea is one that has an obvious unique advantage over every other competing solution; faster, cheaper, better, or so uniquely different that it supersedes any current option. Certainly, there are businesses that have succeeded by copying the exact model of another business but in today’s age, where innovation is evident amongst almost every industry, investors are more keen to invest in new ideas that are profitable, validated and scalable.
- Who’s on your team? Investors know that the success of any startup will be largely dependent upon the dedication and knowledge of its founding team. By nature, startup ventures are difficult to grow and require the expertise of individuals across a wide spectrum of fields: product development, finance, marketing, operations, etc. While some investors do fund sole-founders, most investors seek startups that have a team (two members at least) with a varied range of skills and expertise; members who have been successful in their fields previously, have a vast knowledge of their particular specialty, and have already established relationships that can help progress the business quickly.
- Is it a business or just an idea? There is a VERY long road between “startup idea” and “launched startup”. Entrepreneurs who have not yet launched, will find themselves parked at one of a million points along this road – either closer to “idea” or closer to “launch”. Investors will want to know what you have done up to date to progress your business from point A (idea) to point B (launch). App entrepreneurs who have tested the market, researched the market, created a business plan, or successfully launched a prototype, will gain the upper hand on investors. Not only does each step help to prove their concept, but their dedication is often noticed and appreciated. Even without funding, there are many things that can be done to push the development of your app startup forward, and investors will expect to see that you have made all efforts to do so even while bootstrapping the business yourself.
- What’s the plan? Investors also want to know your plans – where your business goes from here, and how you will reach your objectives and goals. Typically, this is displayed through an all-inclusive business plan and pitch deck, which will show investors each step that you will take to bring your idea into fruition successfully. Having a solid plan is essential to attracting seed funding, as it shows the potential of your business and provides a strategic schematic for how you will get there.
App Funding – Angels & VCs
In many cases, when app entrepreneurs mention that they are “seeking funding”, they are referring to financing through angel investors and venture capitalists (VCs). These two terms are not interchangeable and have completely different definitions.
- Angel Investors are usually wealthy entrepreneurs who are less experienced in investing (when compared to VCs), and invest their own money on their own terms. Angels are usually able to fund app investments quickly, as they are the final financial decision-makers. As entrepreneurs themselves, angels often have a slew of knowledge that they can share, and are valuable in helping advise the businesses in their portfolio as they progress.
- Venture Capitalists on the other hand, invest other people’s money and are often much more experienced in investing. Usually, VCs are much slower to invest, require much more time and information, and must go through several avenues before receiving final approval. In general, venture capitalists have access to much more cash than angel investors and mostly make larger investments.
Traditionally, VCs would fund early-stage apps, as opposed to startups in the seed funding stages. However, today’s scene is much different and there are VCs that also invest in app startups – and some firms that now specifically focus on funding new promising companies.
App Funding: How it Really Happens
Although angel investors and VCs are the most “talked about” funding options, the truth is, most app ideas don’t get developed this way.
There is something to realize about funding app startups. The first investor you’re going to have to convince to make an investment is yourself. Determined app entrepreneurs believe in their idea and their team so much that they are willing to put their finances on the line early on. Most people won’t invest in someone who isn’t willing to invest in themselves.
If three founders invest $5,000 apiece into an app idea, they will likely be able to either build several prototypes or a first version minimal viable product app. Launch your prototype to a limited number of beta customers to see whether they behave the way you believe that they would. If you don’t have a team, take the same $5,000 and invest it in effective market testing strategies such as surveys, customer interviews, smoke tests, and landing pages.
Don’t know how to come up with the money to invest in your own business? Many entrepreneurs consider the following:
- Savings: It can be scary emptying your nest-egg to invest in your app idea. Entrepreneurship however, is about taking calculated risks with the expectation of a high return. Don’t expect someone else to take their savings and invest in your venture if you aren’t.
- Retirement Accounts: Any asset that can be liquidated can be used to fund your business, including your home equity and your retirement accounts. If you have the belief that you will one day be a multi-millionaire app entrepreneur, then you really don’t need a 401k anyway right? It takes real dedication to risk your future retirement comfort for a dream, but essentially, that’s what you’re asking others to do.
- Loans: If you don’t have any savings or assets, you can borrow the money from someone who does, such as a bank or lending institution. Likely, your startup will not be in a position to take out a business loan, so your personal credit history will be used to determine your worthiness. As a last-ditch effort, you can also finance your app with credit cards – sometimes an entrepreneur has to make tough decisions to move forward.
Once you have completed initial testing and have collected a significant quantity of data that supports your concept, you can start seeking outside funding. However, at this point, you still aren’t ready to approach angel investors and VCs. Instead, identify what it would take to move your app into the next stage and look for initial seed funding through:
- Family and Friends – I already know what just went through your mind. You just said to yourself, “There’s no way I would go begging my family and friends for money to start my app.” That’s a very emotional reaction, but not the thought process of a committed app entrepreneur. You’re not ‘begging’ your friends, you are offering an opportunity to be a part of something great. Many people advise against doing business with family and friends, as it can cause issues in the relationship if any disagreements arise. In reality though, there are thousands and thousands of family-owned businesses throughout the country who have issues like every other family but otherwise work together for their own financial gain. It can be difficult to get a stranger to believe in you and your app idea. Sometimes the only people who will believe in you are the people who know you personally and know how passionate you are about your business.
- Crowdfunding – This option is often overlooked by startups, and in many cases, I’m not sure if it’s because they don’t believe that others have literally raised millions of dollars this way; or if deep down they just fear facing whether their app idea will succeed or not. Crowdfunding will tell you a lot about your app idea. Your ability to identify and reach your target market will be put to the test; whether they care for your solution enough to pre-order it will be identified; and the viability of your concept may be questioned. However, if you have built an amazing MVP and a strong following, launching a crowdfunding campaign can be one of the quickest routes to startup funding.
- Incubators – This option has been increasing in popularity, resulting in more incubators popping up all over the country. The great thing about many incubators is that some fund app startups in their idea/conceptual stages. In addition to providing funding for low equity amounts (i.e. $20,000 seed
funding in exchange for 8% of the brand), these incubators often provide access to experienced advisors who can assist in propelling the app in its operation, and also provide further assistance with seeking venture capital.
Making The First Step Towards App Funding
Funding is the single reason that 95% of app ideas never get built. Many people think it is extremely difficult to find the money to build an app, but if it is worth the risk to you, there are many options available. The first step towards funding your app solution to is make a decision. Make it clear to yourself just how serious you are about starting your app.
Need to speak to an app startup expert about how to fund your app startup? Contact us and see what options are best for you.