You might have a million-dollar idea for your next revolutionary app. Nevertheless, without proper funding for your app concept, this idea will probably never see the light of day. Just like opening a coffee shop or a gym, you need tools and money to launch the app. Creating an application is not a cakewalk and it requires resources to develop an app, from hiring a credible development company that provides custom app development services to marketing promotions and further operations.
A recent study by US Bank states that 82% of startups fail due to cash flow issues. In order to bring your app idea to market, you will have to secure funding to develop it. Luckily, many people are willing to invest in new developments and there is a huge ecosystem dedicated to finding and developing start-which which means there are many ways to raise funds for the app. This article will guide you through the entire process of finding app investors.
How to raise money for an app idea?
More app development companies are entering the market than ever before, so it is getting more challenging to find investors for an app idea. But do not let that discourage you. Here are the most common models used to get grants for app development.
Crowdfunding is based on getting small investments from a few people instead of receiving larger funding from a relatively small number of people or investment funds. Simply put, crowdfunding is the implementation of the “every penny counts” principle. Some of the most famous crowdfunding platforms are Kickstarter, IndieGoGo, Fundly, WeFunder, SeedInvest, Appsfunder, AppSplit, Patreon, Appbackr, etc. This market is predicted to grow to a staggering $300 billion by 2030. The process is really simple, all you need to do is register on the platform, create the profile, set a funding goal, campaign duration & project category, describe your app idea and submit your project for funding.
External funding for any project is formed by inviting donors with the possibility of receiving dividends from their donations, or on a completely free basis. As a rule, these are people who believe in your business app idea enough to donate a few dollars. There are no restrictions on how much money you can attract with crowdfunding. Although, most crowdfunding platforms set a time limit within which the goal must be reached. Hence, it is crucial to be reasonable with your app funding goals.
This approach involves financing your business on your own, without attracting external app funding companies. This model has been used by the founders of some of the biggest technology companies of the 21st century, such as Apple, Microsoft, Oracle, and others. Bootstrapping will allow you to have full control over your business. If the app becomes successful, you may not even need funding in the future.
If you don’t have enough savings, you can turn to your family and friends. Moreover, you can consider taking a business loan for app development. However, bear in mind that banks are not so willing to fund startups, as this is a risky endeavor with a high probability of non-return on investment. Banks also don’t care if your idea soars or drowns, they expect you to return the money by a certain date and with a specified percentage, no matter what.
This is why a bank loan is not the best option for a startup. It’s safer to take credit when you’re expanding, not when you’re just starting. In addition, this approach also comes with the risk that you are investing in development and not validating the idea with anyone outside. It’s highly likely that you will invest in an idea that will not be in demand among customers, and will only find out about its unprofitability after the launch.
The most common approach to get funding for your application is through angel investment funds. Angel investors are mostly individuals and sometimes companies willing to invest their money in early-stage startups.
You do not have to pay back the money the business angels lent you if your idea fails. In return, they will ask for a fairly big amount of share capital. Business angels invest in many projects at the same time, since most of them fail, and only one of the few will be able to make a profit that compensates for the losses. It makes sense to start with angel investors, as they face a large number of startups and understand the needs of the market. You can not only get money for your app idea but also confirm its profitability.
Venture capital investors
Venture capitalists (VCs) are investors who put money into a new business venture. Instead, they will ask for an equity stake and may also want to influence your business decisions. Venture capital firms are similar to angel investors, as they also offer large sums in exchange for a stake in the business.
Although there are differences. Angel investors tend to fund businesses that are just kick-starting their new apps. At the same time, venture capital companies provide money to startups in the later stages of growth as they are only interested in those startups that have an MVP, want to expand their business, and have the potential for rapid growth. Some of the popular platforms for finding venture capital investors are Backstopsolutions and Mycapital.
App funding contests
A great number of various organizations (business incubators, technology companies, industry leaders, and others) run application funding contests where participants can win grants for app development. This type of financing has become popular with the introduction of business incubators and start-up accelerators around the world. Business incubators are places where startups can develop their idea, receive mentorship and support, and eventually enter the competition where they can win money for app development.
There is a great variety of resources on the Internet where you can search for the list of ongoing competitions and apply for participation. We recommend checking out Biz Plan Competitions to choose from hundreds of competitions globally. Sure, app contests are very competitive, but they allow start-ups to demonstrate their idea to leaders in the industry. Often, runners-up or those who weren’t even close to winning get offers after the end of the contest. This way, even if you don’t win, you will still have the opportunity to build your network for future project cooperation.
How to get investors for an app?
Since private investors take on serious risks in funding business ideas, it is challenging to convince them to give money to your startup. Competition for investor attention is fierce. However, when you prepare for the battle, your odds of winning increase significantly. How can you persuade investors to fund your app? Here are some recommendations:
Build a solid business case
It’s not enough just to have an idea. In order to raise money for your business, you will need to create a solid business case: vet your app concept, study the market, identify your unique selling proposition, test its revenue potential, and prove that your idea is in demand in the market you are targeting.
At this point, you need to go deep and do some thorough market research to gain a better grasp of your app. If you do not have a good understanding of the market you are entering, you will not be treated seriously, and you will not be able to raise any funds. Analyze your app’s niche and find out who your competitors are and what their exact service model is.
Brand your app
Branding gives your business a face and character, so your product will be easier to remember and at the same time lay the foundation for further promotion. In addition, it will show that you are ready to make an effort and approach your business seriously. It is very easy to kick off the branding process. You can start by creating a logo, buying a domain name, coming up with a unique app name, choosing a color and font palette, and more. Brand identity is also a kind of “personality”: how you will interact with your audience, your brand voice, philosophy, positioning, and values.
Build an MVP or at least a graphic prototype
While branding defines the face and nature of your future business, MVP will enable investors to grasp the idea of the future app and how it will work. MVP development refers to building a basic version of an application where you develop only the core features to deliver value to customers, effectively solve a specific problem, and bring the product to market very quickly. This will allow investors not only to interact with the application and experience it for themselves but also to test the real value of your product concept and determine its profitability.
With MVP development, you can get immediate feedback that can be applied to understand the needs of your target audience and steer your application in the right direction. You can create an MVP by developing it yourself, hiring freelancers, or partnering with an outsourced development company that provides software development services for startups. Even if you do not have an MVP, you need at least to create a graphic prototype that you can show to your potential investors to tell what is the first thing you are going to do when you receive funding.
Prepare a killer elevator pitch
Investors are busy people, and there are way too many entrepreneurs fighting for their attention and funding. What you need is a mind-blowing elevator pitch—a pitch you can deliver in a short amount of time you could get by meeting investors on an elevator ride. Thus, your pitch should grab their attention but also describe the app’s business case (features, problems it will solve, and potential profitability).
The elevator pitch should be concise, clear, informative, and should keep your investors interested in your idea. If you cannot succinctly describe your app in 30 seconds, you probably need to go back and reconsider it. Once the app investors are hooked, you will have more time to go into detail about your app.
Create a pitch deck
Once you have attracted the attention of investors and are on your way to meet them, it’s time to come up with a pitch deck for your meeting. A pitch deck is a presentation that involves details such as product features, the problem your product solves, business model, marketing strategy, market size, major competitors, budget, revenue forecast, and more. It should clearly communicate the value of your product, and define your unique selling proposition & target market.
Demonstrate your app’s stats, charts, diagrams, branding, and other aspects to show its value as an investment. The length of the pitch deck should be no more than 20 minutes and contain around 10 slides. You can check out some successful pitch deck examples available online for inspiration.
How to get an investor for an app: Bottom line
The recommendations mentioned in the article will help you get closer to your goal of raising funds and turning your idea into a successful startup. Grants and angel investments are one of the best ways to get start-up capital as you do not need to return money if your idea fails. Getting funds from investors can be very competitive, so you need to ensure a solid business model and consider applying for different startup funding app sources, not just going for one option.