Getting a business idea off the ground is a dream for an entrepreneur, and this dream becomes a reality and eventually, a success when the idea is backed by funding.
But don’t let money hold you back.
A start-up is a dream visualized by a group of ambitious individuals who want to make a difference. And letting dreams die due to lack of money isn’t a good idea. At the same time, we also cannot deny the fact that it’s not everyone’s cup of tea.
Not every app idea succeeds; not every start-up grows.
The numbers show that about 30 per cent of small businesses fail to complete two years of operations while only 50% continue to operate after five years.
That may sound a bit harsh, but that’s the truth.
Also, there is a misconception that great ideas secure funding quicker than usual. It is important to understand that investors don’t fund just ideas, but the core team behind the idea, their passion towards achieving goals, their operational capacity, capabilities, skills and management and various other things.
With increased competition in the mobile space, entrepreneurs need to prove their as well as the app’s capabilities to finally grab funding and sustain the confidence of investors in their idea.
Stats show that investors, today, are rather interested in doubling their bet on proven ideas and established companies than seeding an entirely new start-up. This is probably due to the maturity this market has witnessed over a period of time.
Source
How does start-up app funding works?
Broadly, it works in either of two ways, debt or equity.
Either you raise money for your business in the form of debt or make investors believe in your idea and barter your company’s stake with money.
Debt can be in the form of loans from a bank, a microfinance company or any other third-party lender. The repayment of loans involves interest rate, fixed timeline, complete risk and obligation to repay the borrowed amount.
To minimize risk, some entrepreneurs look for equity funding by splitting their ownership with investors. By taking this route, they not only reduce risk but also are under no obligation to repay the borrowed money. However, there are other clauses associated that are discussed and penned down in the form of an agreement between the app’s founders and investors.
How much money do I need?
There are essentially three different areas you’d be requiring funds for, first is for the development of the app, second is for marketing and promotions and lastly for multiple post-launch services like traffic generation, customer service and more.
You need to estimate funds required for each before pitching your idea to investors. Even if you are funding your app from your savings or borrowing money from your friends and relatives, having an estimated amount in mind would certainly help the cause.
Although in the majority of the cases, this estimation proves to be false than what’s required, it helps you start with a planned mindset.
What do I need to do to get my app idea funded?
First things first, you need to have a plan and a process to see things as they come – one at a time. Next comes the way you are going to present your app idea to the investors for securing funds.
Multiple things demand attention, so, to simplify things, we have created a list for you. Before anything else focus on the following.
1. Build an MVP (Minimum Viable Product)
Building an MVP not only helps you take things from paper to a graphical and functional front but also portrays your app’s idea and vision in a better format.
While building a full-fledged app is a tedious and an expensive affair, MVP is cost-effective, do not require much technical knowledge and serves as the proof-of-concept that’ll help you draft an efficient roadmap for the final version of your app.
Moreover, it helps you gain constructive feedback from users, testers and community of professionals highlighting areas that require improvement and also the areas that carry the least importance and hence, can be omitted from the future app versions. For instance, there was a trend to make utility app like- private vault, lock app, Screen locker etc. we had tons of app MVP, but now a days only few survived after MVP launch.
2. Make your brand visible online
Establish your brand on all possible online channels with consistency depending on the personality of your brand. Let your audience be aware of your style of operation and character. Put out things that are easy to remember, relatable and worth remembering, including your brand’s logo, tagline, colour scheme, fonts and everything that can catch the eye of a viewer.
Define the look and feel you want to offer. Learn about the tone of voice your target audience is familiar with. Research your industry, gain insights from your competitors, analyse users and brands in the segment to prepare a plan that works. Later you can build on the feedback from an MVP launch.
3. Prepare an investor pitch
The app deck is the next important thing you’d like to master to secure funding for your app start-up. You cannot leave anything to chance here. You need to prepare a pitch that communicates well. Here are the pointers you need to keep in mind while designing the perfect investor pitch.
1. It should be crisp and clear
2. It should include details about the problem, the solution, the product and the business model
3. It should contain market stats, a brief competitor analysis and potential-to-grow figures
4. It should also have basic financials like investment required, burn rate, revenue projection
5. Don’t forget to include the team’s details
4. Shortlist your potential investors
It is evident that in the beginning, you’d not be heading to Sequoia Capital for raising funds for your app. Also, not every investor will be interested in funding your app. You need to scrutinize the list of investors for the same finding only the ones who could potentially invest.
Trust plays an important part in raising funds, so skipping the rapport building part by directly looking for investors in your known circle is always a better option. It can be your family, relatives or friends who trust you, believe in you and have faith in your idea and efforts. Research reveals that family and friends invest the most in start-ups.
Some websites to find investors are AngelList, Funded.com and Angel Investment Network.
5. Ask for referrals
Don’t shy to ask for a referral. Check with your network if anyone has a connection with or knows someone who could lead you to a reputed investor. Getting noticed through a referral would be a great start to the process, who knows you might end up securing funds for your app start-up in the first shot.
6. Presentation/Demo
Right then, you are finally going to deliver it in front of investors. The real work starts here. Make sure you are well prepared with the deck containing at max 20 slides. Try to sum up things within ten minutes. Make sure you leave room for a Q/A session.
Also, be prepared for queries. You might encounter questions related to your go-to-market strategy, customer acquisition cost, differentiating factor and app validation, so better you do the spadework.
7. Continue trying
Raising funds for an app start-up is not a cakewalk. You, as an entrepreneur, need to be more practical than being optimistic. You might end up getting money, but the offer may not be the most befitting one, and you might decline it, while in some other cases, investors may reject it straight away. You’d hear a lot of NOs than YESes. Make sure to fill in the loopholes and be presentation-ready for the next investor encounter.
What are my funding options?
Here are a few funding options for you to raise funds for your mobile app start-up.
1. Bootstrapping
This is, by far, the most preferred form of funding. Also known as self-funding, bootstrapping means you build your start-up from scratch with your own money, either through day-to-day sales or savings you had secured for starting your own business. With bootstrapping, you get full control of your start-up and focus on developing and financing your product through sales rather than external financing.
2. Equity
Equity funding means you share the ownership of your company in return for capital. The investment companies invest in your idea/concept knowing the risk involved for exponential results they’d gain in the later stages by selling part of their ownership based on the valuation of your company.
Here, you minimise your risk considerably by generating funds from investors; however, you need to prove your mettle and produce exponential results. Depending on the stage your business is at, you can raise money from investors. Following are the different types of funding you can raise, as per your business’s stage, starting from the first to last.
- Seed funding
- Accelerators and Incubators
- Series A funding
- Series B funding
- Series C+ funding
- IPO/Acquisition
3. Debt
Debt funding means you take loans from a financial body to satisfy your short-term business needs like working capital, payroll and other miscellaneous expenses for a stipulated time at a fixed interest rate.
You can approach banks, microfinance companies or any other third-party financing organization for loans. In case of debt funding, you remain in full control of your company but are obligatory to repay the amount with interest rate to the concerning body within a set timeframe.
4. Crowdfunding
Crowdfunding means accumulating small amounts from a lot of people rather than gaining a big sum of amount from a limited set of people. With crowdfunding, you let people pre-order your product and the funds generated from the sales are used to build the product and ship it to the customers.
It’s an unconventional way of raising funds for your app start-up which requires proper planning, execution and delivery. To get your product crowdfunded, you need to have a business plan, let your customers know about the product – a prototype might help, share your plans, milestones and timelines.
Crowdfunding websites like Indiegogo, Wishberry and Ketto can help you raise funds for your next big start-up.
It’s time to make things happen
Raising funds is important only to scale and capture a more significant audience base. However, people consider it as a deciding factor for success. History is proof of many start-ups which failed to grow despite securing thousands of dollars of funding and were, eventually, shutdown.
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Image Credit: William Hook
This article was first published on November 12, 2019
The post How to raise funds for your mobile app startup? appeared first on e27.
