If you have an idea for a mobile app, you’re probably excited to get started with it – and you should be. Globally, the mobile app market generates about $60 billion in revenue every year, which means that mobile apps present a huge opportunity for new businesses.
But unless your best friend is a genius coder, you’ll likely need to hire an app development company to build your new app idea for you. That’s an expensive proposition. Just how expensive? While the cost of an app can vary greatly depending on the specifics of the concept and the feature set, the “average” mobile app usually costs anywhere from $80,000 to $250,000, and larger apps can easily run up to $1,000,000 or more. On top of that, you’ll need capital to cover operational overhead, marketing and user acquisition, hiring, and all the other expenses that come with starting a business.
All that means that in most cases, launching an app will require you to raise capital. So how do you do that? How do you raise money to fund an app?
The short answer is that you raise money for an app the same way you’d raise money for any other business. You can raise development capital from friends, family, or outside investors – anyone who thinks your idea is valuable enough to generate an ROI (return on investment). Some apps raise millions of dollars in pre-development capital, while others raise significantly less. And despite the steep costs of development, it’s still possible to bootstrap an app with little to no initial capital.
Ultimately, the capital you raise depends on the specifics of your app idea, the needs of the business, and the resources you can get access to. But first, let’s talk about where you can find funding.
How to Find Startup Funding For Your App
When most people talk about raising funding for a mobile app or a startup, they immediately jump to venture capital. That makes sense: VC investments are often talked about in the media, and because venture capitalists make some of the largest investments, they tend to be the “big fish” of the funding world. However, venture capital firms aren’t the only possible source of funding.
Where else can you look?
While it’s less glamorous, one of the first places that most entrepreneurs look for funding is their friends and family. Unless you come from wealth, friends and family (F&F) money will usually be small-scale, initial investments made partially to seek a return on investment and partially because the investor knows and believes in you.
That said, just because you know the people investing doesn’t mean you don’t have to treat them like investors. Ultimately, if someone puts money into your idea, you owe them a return. Don’t take these initial investments lightly. You’ll need to present a good case for why your idea has merit, and especially at this early stage, you’ll need to stretch every dollar as far as you can. If people see that you use your investment money wisely, they’ll be more likely to invest more later on.
While many are quick to dismiss it, F&F money can be a meaningful source of capital when just starting a business. Raising even a few thousand dollars can help with the initial expenses of testing and validating your idea.
Crowdfunding Your App
Crowdfunding is another viable option for getting funding for your app idea. Using sites like Kickstarter or Indiegogo is a proven method for raising capital, and some tech crowdfunding campaigns have raised millions of dollars to get ideas built.
Crowdfunding is also a great idea because it’s built-in validation for your idea. If you can run a crowdfunding campaign and get a large group of people to pledge real money towards your mobile app, that means there’s a validated demand for what you’re trying to build. Not only do you raise capital, you also prove that it’s worth spending that capital to develop the app – and as an added bonus, you can cultivate your community of backers to be your early adopters and repeat customers.
These two methods are great because they’re accessible to anyone – but they come with their own limitations. If you’re really looking to raise capital for development with an app development agency, you’ll need professional investors. But where do you find them?
How to Find App Startup Investors
If you’re looking for app startup investors, you’re probably unsure where to even start. But you don’t need a rolodex full of VC firms to find an investor for your app.
Even if you’re looking for institutional money, the best place to start is in your own network. Rely on the strength of weak ties here. Think back to college professors, old colleagues, or old bosses. Contact your alumni association. Who do you know that might know somebody? You’re looking for someone to give you an introduction to potential investors – an intro from a third party is one of the best ways to find an investor for your app startup.
Another avenue is to look for app contests. Some organizations, companies, or even startup incubators will hold pitch contests for mobile app ideas or ideas for startups in general, and the winners will often take home prizes in the form of capital. These contests are extremely competitive, so winning one will take both an excellent idea and a ton of work, but it’s possible. If you have a great concept, can prove there’s a big market for it, and can put together a convincing pitch, a contest might be a realistic way to get your foot in the door with investors.
As a final note, don’t keep your search for funding private. You should be loud about the fact that you’re looking for money – announce it on all your social media profiles, don’t be shy about telling people, even consider putting it in your email signature. While you don’t want to annoy people, there’s nothing wrong with making your aspirations known. It might lead to a connection that turns into an investment in your app.
How to Get Investors for a Mobile App
Even if you find a potential investor, you’ll need to convince them that your app is worth putting money into – and that’s easier said than done. VC-level investors likely hear dozens of pitches a day, and even low-level investors are careful about where they invest. You’ll need to make a strong case if you want anyone to bet money on you.
The first step to this process is perfecting your elevator pitch. If you ever want your app to succeed, it’s critical that you can explain exactly what the app does, why people want it, and why you’ll succeed in about 30 seconds.
Write this pitch out on a piece of paper and practice it until it isn’t just memorized, but sounds natural. Then, give your elevator pitch to a few friends and ask them to explain the concept back to you in their own words. This is a great way to ensure that your pitch actually communicates what you intend it to.
Assuming you can convince someone with your elevator pitch, you’ll need to craft a pitch deck to secure investment. There are dozens of articles on how to make a good pitch deck, and with a little hunting, you can find sample decks from startups that have raised funding before you – AirBnb’s pitch deck is an inspiring example.
Critically, you need to convince investors not only that your app is a good idea, but that it is a profitable idea. Don’t rely on the strategy of attracting millions of users and figuring out how to make money off it later. You should have a clear monetization plan in place, and ideally, some signs of early traction. If you have an MVP, users, paying customers, or feedback from testers, those are all great assets to your pitch.
If this is all sounding like a challenge, well, it is. Raising money for an app is difficult, especially if you’re starting with just an idea. Another option is to try a Roadmapping service before trying to raise money for development. Roadmapping is a process through which you hone your idea, test it in the market, and build an MVP of the app. It costs much less than full development, and it can give you the tools to raise money once you’re ready to head into development.
What are Startup Funding Rounds?
If you do manage to get in front of VC investors, it’s important to know how startup funding rounds are structured. While funding timelines can change from company to company, the timeline for funding generally goes like this:
- Seed Round: This is the earliest money that goes to the company, app, or idea. Seed funding often comes from insiders and provides the initial startup capital for the business.
- Angel Round: An angel round is similar to a seed round, but is generally more formal. Angel investors are often outside investors and will buy common stock in the company, usually with more formal terms than seed investors.
- Series A: This is normally the first round of large-scale venture capital funding for a company. Series A rounds usually bring in $2 to $10 million and will provide capital for the business to fully develop its product and grow.
- Series B, C, etc.: Further rounds may be held based on the capital needs of the company.
Some companies take on millions of dollars in financing over their lifetime, while others are bootstrapped from day one. There’s no right or wrong way of approaching capital, but we think the conventional wisdom is true – the less capital you can take on, the better. If you can bootstrap your company and grow based on your own revenue, that’s always the most sustainable option whether you’re building an app startup or a biomedical company.
How to Get Startup Business Funding if You Have Bad Credit
If you’re a first-time app entrepreneur looking for capital, you may wonder how your credit will play into the matter. Is it possible to secure investors if you have bad credit?
Ultimately, this depends almost entirely on the investors you’re working with. Raising funding for a mobile app isn’t the same as a loan: it’s equally possible to have perfect credit and get rejected by investors as it is to have bad credit and secure millions in funding. Having good credit is a plus, but it’s not the most important factor.
When it comes to raising capital for a business, your credit score is less important than the viability of the business idea. If an investor genuinely believes that your idea will make money and that you’re capable of executing on it, they’re likely to fund you.
However, an even more powerful factor is having traction to show. If your app has users and is generating revenue, that’s the most convincing argument possible for an investor. And if you can get your business to profitability, that’s even better. As they say, the best predictor of future success is past performance. If your app is already making money, investors are much more likely to want to invest because they know your idea is profitable.
What are App Angel Investors?
In researching how to fund your app, you’ve likely come across the term “angel investor.” But what is an angel investor for a mobile app?
As you might guess from the list of funding rounds, an angel investor is a company or person who invests at the angel round. These are usually outside, third-party investors – that is, not friends or family – that invest at an early stage in the development of your app and business. Angel investors may provide capital for development of the full app, or they may provide capital to help you grow the app after it’s been developed.
Whether it’s friends and family, angel investors, or venture capital, raising funding for a mobile app is difficult – but it is possible. With a great idea and a strong pitch, you can drum up the capital to get your app developed and turn your idea into a reality.