Article in Under the Hood category.
How to Raise Funding for Your Mobile App
Let’s say that you have a brilliant idea for a new app, an app that you think could attract some serious venture capital cash. But…
Let’s say that you have a brilliant idea for a new app, an app that you think could attract some serious venture capital cash. But right now it’s just an idea. No potential investor can try it out, and you can’t cite any real world successes to prove you’re not just some starry eyed dreamer.
You need to build your app and get it out there into the world to prove itself. So you approach a respected app design firm — maybe ours — and you’re quoted a five-figure or six-figure price tag. The app we’ll build will be beautiful, responsive, intuitive, a pleasure to use… everything you’re dreaming of and more. But your app hasn’t yet earned you a dime, so how are you going to pay to have it made?
This is a really common conundrum for app startups, and it’s one that many billion-dollar-valuation apps struggled with in their early days. Fortunately, those who have gone before you have mapped out several paths to funding success.
Option 1: Self-Funding
Are you independently wealthy? Then you should fund the initial app build yourself. If you don’t believe in your idea enough to fund it with your own riches, then you shouldn’t be asking someone else to take that risk.
Even if you can afford to spend a quarter of a million dollars building a fully featured and beautifully designed initial app, that doesn’t mean you should. Save (most) of your money and build a cheap prototype that has only the most essential functions you need to test and prove your big idea.
Find a freelance developer in Eastern Europe or Asia and pay them a few thousand dollars to do this. They don’t have to be the world’s best developer, only good enough to build a working prototype.
But don’t build a prototype expecting big success. Build it to learn what users like and don’t like about your idea, and to demonstrate to VC investors that your idea has traction. It’s OK if users tell you that it’s a cool idea, but it crashes every other time they use it. Or that they’d use it a lot more if you changed x, y, and z. That is very valuable information.
Feedback like this is gold, it shows engagement. It shows that users want to like your app, even if they don’t right now. There are only two kinds of bad feedback at this stage: feedback that says your app’s core idea is boring or stupid, or no feedback at all.
Engaged complaints, however, convey one thing to VC investors: potential.
“Self-funding” need not be only for the 1%. Are you working a day job? Great, keep it, and save up some of your income to fund your prototype for a few thousand dollars. Again, if you believe in your app, you should be willing to risk your own money on it. If you’re not willing to take that risk, you probably shouldn’t ask someone else to do so.
But if you simply don’t have enough money to fully self-fund even your cheap prototype app, then read on...
Get a Co-Founder
If you can partially but not completely self-fund, consider partnering with a co-founder who is willing to share the cost and risk with you. Bringing on a co-founder is a really good idea even if you don’t need the capital. Many VC firms won’t even consider investing in an idea unless there are at least two founders. Having a co-founder means that you’ve convinced at least one other person that your idea is worth pursuing. Maybe you’re both crazy, but at least you will have to continually defend your ideas to one another and refine them accordingly.
Friends and Family
Finally in self-funding, there’s the friends and family plan: asking your loved ones to kick in a few hundred dollars each to help you fund the prototype. It’s a risky way to go, so proceed with caution if at all. Be scrupulously candid and clear with your family and friends about the risks. That’s a good practice with any investor, but it’s especially important when you’re mixing business with family and friendship.
Option 2: Build It Yourself
If you have or feel able to learn the technical skills to build the prototype yourself, this is your best option. Remember, you’re only building a functional first draft of your app, so you don’t have to be a seasoned veteran. Once your prototype wins you VC funding, you can bring in a firm like ours to build the beautiful final release.
Seriously, Get a Co-Founder
If you’re not technically skilled yourself, consider bringing in a co-founder who is. Just as VC firms prefer startups with co-founders, they also prefer startups with at least one technically skilled founder. That founder doesn’t need to be an uber-ninja coder, though obviously it’s very valuable. They only need to be good enough to build your crappy prototype. Investors will like knowing that at least one person at the helm has knowledge of technical matters, even if you later outsource the final app development.
Tweak It While You Seek It
There’s another benefit to having someone in-house with technical skills. There’s a very good chance that you won’t build just one prototype. Your initial prototype might not get any traction with users, so you’ll have no case for VC funding. You’ll spend some time figuring out why people don’t like your app, deciding what you want to tweak, and then you’ll want to build another prototype. Maybe that one will do better, maybe it won’t. Maybe you’ll make a third prototype. If you’re hiring that guy in Eastern Europe, you’re writing more checks each time. But if it’s you or your co-founder making the prototypes, you can tweak as much as your available time will allow.
How many prototypes? As many as it takes to earn traction with users and make a case to VC firms. Or until you decide the idea just wasn’t that good after all. Then you write off the time and hopefully modest money you spent, and you get to work on a better idea.
Ideas That Won’t Get Funding
All of this assumes that your idea is indeed one that could potentially be funded. There’s no magic equation to determine whether you’re wasting your time and money or if a VC will actually invest. You may toil away in obscurity for two or three years like Ben Silbermann did before Pinterest became an “overnight” success. Only you can decide whether you still believe in the idea enough to keep trying.
That said, before you spend your money and give up all your free time, it’s worth considering how VC firms will evaluate your app. You don’t need to provide guarantees that your app is going to become a billion dollar idea, and, actually, if you try, you’ll likely get written off as not having an appreciation of risk. But you do need to show that there’s at least the possibility of your app vastly scaling up into something big. VC firms bet on bunches of ideas like this, knowing that most won’t pan out, but they don’t bet on ideas that have no chance of going big.
Is your app idea is a casual game that, if it’s really successful, might get 10,000 downloads a month at 99 cents gross revenue a pop? That’s great. If it succeeds, it can be a nice source of some extra income for you on the side. But you’re not ever going to hire your own development team on that revenue stream. You’re either going to build and maintain it yourself, or you’re going to partner with a developer who likes the idea and agrees to do the development work for a share of the profits. And VC firms aren’t going to fund you. That’s fine, just make sure you understand that going in.
Once Your Prototype Gets Traction
Congratulations! Your app is actually scalable and potentially something VC firms might fund. The prototype -- whether it’s the first prototype or the seventeenth -- is getting some real traction. Users are complaining about bugs and demanding missing features, but they’re using your app! They’re engaged!
Don’t break ground on your new corporate headquarters yet. Your successful prototype is a big step toward funding, but you still have to convince investors to take a chance on you. Paul Graham has written what I consider the definitive guide to convincing investors to fund you, so, rather than try to restate it, I’ll just send you to the source. Read what he has to say now, even before you build your prototype. It will help guide you along the way. Then, once you have a successful prototype, read it again.
At the beginning of a new idea, when you have nothing, this all can seem very daunting. I won’t tell you it’s not hard. It is. And you may labor at this for a long time before you have any real idea whether you’re going to succeed. That’s both the thrill and the burden of entrepreneurship. Where it will take you, I can’t say. But it’s definitely going to be a wild ride.