Picture this: You wake up in the middle of the night with the idea to develop an app. You want to make it in the App Store or Google Play Store as the next life-changing app. Then you realize that you need money to make this happen. Investors are always ready to make investments on something that they see achieving success. It’s definitely doable, but it’s going to take some work. With this ultimate guide to funding your mobile app, you’ll be ready to get in front of investors and start the process of bringing your idea to life.
Preparing To Find Investors For Your Mobile App
There’s some work you need to do before you bring your startup or app idea to investors. Having just a baseline idea isn’t going to cut it because investors want to know that you have really given this idea some thought. They want to see that you’ve done the research around the market to show how it will compare to competitors or how it’s going to achieve success. There’s a checklist of a few to-do items before you bring your idea to investors.
- Know Your App's Niche
- Brand Your App
- Develop Your Elevator Pitch
- Create a Pitch Deck
- Create a Demo or MVP
Because smartphones have been around for quite some time, it seems like there’s almost an app for everything. Investors don’t want to fund an app idea that already exists. It’s crucial that you do your research and figure out the competitive landscape of your app’s market. Check out what other apps and companies are offering. Be sure to also take a look at services from other companies in the same industry (and other industries) to ensure your idea is not just copy and paste of another company’s offering.
You have to prove to investors that this is a new idea and that it’s going to be prominent in our everyday lives. Figure out what specific need your app is meeting. Ask yourself questions like, “What problem am I solving?” or “What makes this app different and unique compared to __?” These are the questions that investors are going to ask you, amongst many others. They want to ensure that the money they’re investing will multiply thanks to the success of your app.
It’s crucial that you really do the research to gain a better grasp of your app. Investors don’t want to fund a general idea. They want specifics of who the audience is, what problem is being solved, what features your app includes - the list of details can go on and on. It’s crucial that you narrow down your app idea so that investors are confident in their investment.
Now that you know what your app does, it’s time to start branding it. Having a logo or a domain for your app shows investors that you are serious about your app idea and have put a lot of thought into your vision for it. Branding helps investors visualize your idea rather than keeping it an ambiguous thought. At the core of every business is their branding; when in doubt, fall back on branding. This is just as true for your app idea because its branding will be the foundation for the rest of the development process. Whether it’s a domain, a mockup of a site, a mockup of the app - brand your app so investors can visualize your idea to gain a better understanding of what you’re pitching to them.
Investors are very busy people and before they even consider penciling you into their schedule, you need to have an elevator pitch ready to go. Much like a personal elevator pitch for a job fair, your startup’s elevator pitch is the key to getting in front of investors.
For a quick review, let’s go over what an elevator pitch is. Your app’s elevator pitch is how you describe it briefly and concisely. For example: You’re on your way to a business meeting and you take an elevator all the way up to the 21st floor. A potential investor walks into the elevator and you strike up conversation. You have 30 seconds or so before the elevator door opens and you walk out to your meeting. In those 30 seconds, you have to be able to describe your app idea, what features your app has, and the problem that your app is solving. This is the hook to getting another meeting where you can go more in-depth about your app and other details for the development process.
If you can’t describe your app concisely in 30 seconds, then you probably need to go back and do some more research. You have to be able to describe your app enough to hook investors, but without taking up too much of their time. Once they’re hooked, you have a little more time in the future to sit down and discuss more specific information, like budget needs, features, etc.
You’ve given your elevator pitch to an investor and they’re ready to hear more about it. For your meeting with the investor(s), you are going to have more than 30 seconds to pitch your app, so you’ll need a pitch deck. A pitch deck is a presentation that showcases the more specific details and processes of your app. The TV show “Shark Tank” is a great example of how this pitch meeting should go. When creating your pitch deck, don’t put too much fluff that it covers up the key features of your app. A pitch deck is typically formatted as a PowerPoint or slideshow presentation, but don’t present the exact script you’ll be using in your meeting. This is a chance to show graphs, stats, branding, etc. to provide visuals with what you’re talking about. After all, the investors can read and would have asked for a transcript if they didn’t want to have an in-person discussion with you.
Take a look at Airbnb's pitch deck from 2008.
Much like branding gives investors something to visualize, creating a demo or MVP of your app makes your app tangible. Having an MVP shows you’re serious about making this app the next big thing. It also gives investors the opportunity to see and interact with your idea, not just listen to you ramble about it. A demo of your app can either be a flat mockup or something you’ve already launched. It’s important to note that if you do provide an interactive demo experience, you run the risk of potential bugs and glitches coming to surface. No matter what route you take, investors will be impressed that you’ve put this much thought into bringing your app to life.
Fueled is an app and product development agency that can help bring your app to life by building an MVP before bringing it to investors.
What Are The Funding Rounds?
Once you have worked out some kinks on your app idea, you’re almost ready to get in front of investors. There are different funding rounds that most startups or businesses go through, and it’s important to understand what these funding rounds mean for your startup. With each funding round, you’ll encounter different investors who have varying goals for where they’d like to put their money. These funding rounds allow your app or startup to go through multiple iterations and milestones as improvements are made.
The pre-seed round is the first real stage of gaining capital for your startup. This is when your idea is still floating around and hasn’t materialized yet. This round is considered an informal round because most funding is going to come from friends and family as well as your own money. In the pre-seed round, you’re selling the idea and asking for investments in the founders (you). Funds in the pre-seed round are typically used to create a founding team, develop an MVP, and gaining early traction to see if there’s support or a need for your idea. Overall investments range around $200 thousand or less in the pre-seed round, but don’t let this discourage you - this is only the beginning of the process.
This is where things start to heat up and startups really begin to bring in the money they need to reach their goal. In the seed round, your startup is not quite operational as you’re still working to perfect your product or service. You’re asking for investments to fund further research on your product, begin testing the product-market fit, operational hiring needs, and initial product development. This round is focused on the initial growth of your business, so overall investments can range between $10 thousand and $2 million. Investors in the seed round are typically angel investors, early-stage venture capitalists, and startup incubators who see the potential of your startup and are willing to take a risk.
If you’ve made it to Series A round of funding, then you’re seeing success. Making it to Series A typically means that you’ve gained some proof of concept, have defined the central goal behind your brand or product, and have clear evidence of product-market fit. This stage is where you really start to focus on the growth of your business and product. Series A funds allow you to focus on optimizing your business and product for scalability along with your marketing efforts. Ranging in overall investments from $2 million to $15 million, your typical Series A investors are going to be venture capital firms, “super” angel investors, and family offices.
Making it to Series B and beyond is a significant milestone for your startup. Series B is all about continuing to build and grow upon the success of your business, which could look like globalization efforts or even team expansion. Your business is well on its way to being established (if it hasn’t already) because your advertising is in full force, your product development is consistent, and your customers are engaged and sticking around. Overall investments in Series B average at $24.9 million from venture capitalists and potential corporate investors. Any funding rounds after Series B focus on going public with your company, looking for strategic acquisitions of other companies, or expanding into new markets.
Types Of Funding For Your App
Now that you’ve fleshed out your idea some more and have a better understanding of the funding process, it’s time to start talking to investors. "Investor" is an overarching term for different individuals interested in supporting your app. Whether they’re family and friends or venture capitalists, they’re considered investors because they are making an investment and holding a stake in your idea. They have faith that your idea could see success and want to be a part of achieving success. So let’s dive into the different types of investors you may encounter.
Angel (or seed) funding is a type of funding that occurs when the app is still in the idea stage. Because you’re asking for funding for something that has yet to be materialized, angel funding is harder to get. In order for investors to be willing to put down money, you have to make a very compelling argument as to why your idea is worth the investment. Make sure you’ve done your research and are ready to answer almost any type of question, because this a big gamble they have to consider. You have to show investors that what you’re pitching is a novel idea and will make a significant impact in the industry (and that they’ll see significant ROI).
Many of the biggest and well-known startups take the venture capital route for funding their startup. To be clear, this takes time. Though not always the case, you typically already have to be on the ground running to get funding from venture capitalists. This shows that your app has credibility and has a somewhat stable path moving forward. You’ll need to have a compelling pitch and be ready to have your ideas molded by what the investors envision because they want a fast return on investment for themselves. They see success in your idea, but will want to make a few tweaks so they see fast success. Remember, getting funding from venture capitalists takes time; it can happen early on in your app’s life or it can happen later on after gaining some traction.
Bootstrapping is a pretty simple type of funding; you start with your own savings, job income, existing investments, or any other type of personal funds. It’s highly recommended to use your own funds to get started, if possible. The one clear advantage of bootstrapping is that it gives you complete control and ownership of the app and the process. With your own funds, you can at least build a prototype to validate your idea. Sometimes, bootstrapping is all an app needs to see success. Other times, it’s a great way to get your feet on the ground before getting in front of investors.
As technology has evolved, crowdfunding has become a popular method of funding that sometimes has exponential positive results. Crowdfunding is a form of fundraising through collaborative efforts via the web, but it can look different depending on what route you choose to take. The three main types of crowdfunding are donation-based, reward-based, and investment funding.
Donation-based funding is pretty cut and dry. Sites like GoFundMe allow users to raise money to solve personal issues that have come to surface. Whether it’s relief for natural disasters, cancer treatments, a house fire, etc. - it’s a collaborative effort to raise funds that takes place online. The basic premise of donation-based funding is that it’s a campaign in which donors don’t expect a reward or benefits in return for their contribution.
Then there are sites like Kickstarter and Indiegogo, which fall under reward-based crowdfunding. This type of crowdfunding is typically used by entrepreneurs, inventors, or even filmmakers to raise funds for their development and production efforts. In return for their contribution, donors are offered a reward of sorts, whether it’s early access to an app, a free product, or having your name in the credits of a film. Though similar to donation-based, reward-based funding is centered around the idea of receiving something of value in return for a donor’s contribution.
The third type of crowdfunding is investment (or equity) funding. In investment funding, entrepreneurs raise money through the sale of securities (shares, debt, revenue share, etc.) of their company. Sounds kinda like venture capital funding, right? A little bit, except in investment funding, the entrepreneur raising the capital has total control of what they can sell, how much they offer, and other terms of the agreement. The investors’ job is fairly simple: invest and gain ROI.
App contests are run all over the world, typically by business incubators, like Y Combinator. While extremely competitive, app contests give entrepreneurs an opportunity to present their idea to investors and business people. Investors and venture capitalists are typically the judges of these contests. Funding through app contests is similar to angel funding because the prizes for app contests are funding for an idea. Though your pitch may not win the grand prize, this opportunity allows you to still get your idea in front of investors and potentially create networks with them for the future.
Looking within your own personal network is also a great way to get initial funding for your app. Friends and family are a great way to get some funds, but also reach out beyond your immediate network. Consider weak ties in your network (professors, old coworkers and bosses, etc.) and see if they can help, or even better, see who they know. It’s likely that one of these weak ties either knows someone who can help or knows someone who can make a referral. When using your own connections, it’s all about networking and who you know that could potentially help you go far in bringing your app to life.
What To Do Once Your App Is Funded
You’ve received funds from investors, now what? There’s not usually a stopping point when it comes to your app because there’s always room for improvement. Once launched, continue to improve your app and gain more followers; continue to seek feedback from users and investors as you further develop. As you work through the various funding rounds, you’ll achieve milestones to make it to the next round and get in front of bigger investors. With more and more money, you can add more features to your app or further develop it.
Bringing your app from idea to reality is a process. It’s not easy, but if you’re willing to put in the work, then you’ll see success. Once you have the funding, you can continue to further develop your app and with the help of a mobile app development agency, your app can reach new levels of success.