Business Friday July 29, 2022

How to Raise Money for a Mobile App Startup?

How to Raise Money for a Mobile App Startup

The first thing app startups always have to do is secure the funding for apps. It is because of meeting market expectations and turning an app idea into a reality without a flexible budget.

But lack of it should never be the cause of why you give up on ideas. The market today has many lucrative opportunities for mobile apps.

According to a report by Statista, the global mobile app market revenue may reach $420 billion in 2022 compared to $318 billion in 2020. And that is why you must try out every option you have to secure the necessary grants for app development startups.

Mobile app startups may not always be aware of the best methods to secure funding for apps. And you do not need more than a practical development plan to present to multiple investors.

Such a plan requires extensive research and dedication but it will help secure mobile app funding quickly if you do it right.

And you have to provide a viable strategy as proof to explain how the app investors will benefit from your app. It is best to verify the viability of your app startup professionally before you present its potential to investors.

How Much App Funding Do You Need?

You must determine the mobile app funding you will need in the pre-development, development, and post-development stages.

The mobile app startup budget depends on your app design and feature requirements. It could vary from $250,000 to $500,000 and more.

Knowing the amount of money you need for your app is necessary to find suitable investors and avoid repercussions later.

Ask yourself questions like:

  • How much money do you need for the development of your app?
  • Can you shorten your fund requirements with an MVP product?
  • How much money do you need for post-launch services?
  • Does your app have the potential to survive and grow in the market?

You can compare your mobile app startup project cost with a similar project if you can. It will give you an average estimate for the required funding for app development startups.

You will have a better idea of what you need and what you can lose once you know the exact fund requirements of your mobile app startup.

The next step is preparing your app project for presentation to prove its potential to multiple investors.

Tips to present the potential of your app project

Tips to Present the Potential of Your App Project

You need to learn how to get funding for an app like a true business professional to succeed in the task. The investors must understand your vision and the lucrative potential of your mobile app startup for them to pay attention.

Make a lasting impact with the presentation of your mobile app startup. And figure out every step you need to take to get there.

Analyze the Market

Investors will see the professionalism in your pitch if you have an informative insight into the target audience and the competition. It will also help you understand where your product will stand in the market and how you can elevate it to a better position.

Make sure you know everything about the market and competition related to your app startup.

Validate the App Idea

Validate your app startup idea to capture the interests of reliable app investors and increase your chances of securing funds.

Find an unidentified problem that your app can solve unlike any other in the competitive market.

It will be easier for you to grow and sustain the app startup in the market if it can solve a problem that the target audience has never known existed.

You need to determine every goal, analyze the market for your startup, create a prototype or MVP if you can, and conduct target audience interviews. It will help you find whether your app startup will be in demand.

You can use this information to present an idea with a strong enough base to survive in the market.

Focus on the Unique Factors

Figure out the answer to questions like:

  1. Is your app offering something truly new and unique?
  2. How does it solve problems better than other apps?
  3. What makes it distinctive in a highly competitive market?
  4. And how will it maintain its unique qualities with time?

You will be able to prove the potential of your startup idea if you know the answers to these questions. The mobile app startup that addresses consumer pain points in a new way to provide innovative solutions will surely attract investors.

You may also consult an established mobile app development company to help you identify the distinctive aspects of your mobile app startup.

Have a Business Plan

Investors are more likely to pay attention to your app startup idea if you have a practical business plan. It shows you understand what it takes to survive in the market even if your app idea fails.

A practical business plan and cost estimation for app development, marketing, launch, and post-development will attract many investors.

Prove the Demand Potential

You can get seed app funding for your startup if you can prove your app’s market appeal and potential.

Conduct thorough market research to understand similar competition and market trends related to your app startup.

You can use this data to highlight the unique aspects and potential of your app.

Create a Prototype or an MVP

Building a prototype or MVP to present your idea better will speed up your investor search.

Prototypes are suitable for presentation but not always for demonstration. That is why you must ensure the prototype has no faults that could lower your chances with investors.

It is best to create a functional MVP product that demonstrates your app’s potential for revenue and your team’s dedication to the project.

Creating an MVP also helps you get feedback for improvements from investors, stakeholders, and the target audience.

Prepare an Elevator Pitch

An elevator pitch is a short description that can creatively highlight the potential of your app startup idea. You should keep your elevator pitch short like 25 to 30 seconds as investors are busy people. They can lose interest if you stretch it too long with unnecessary information.

How to prepare an elevator pitch?

  1. Focus on your goal.
  2. Focus on the USPs.
  3. Include an interesting question.
  4. Use descriptive words.
  5. Piece it all together into one good story.
  6. Practice until the pitch is perfect.

Have a Contingency Plan

Being confident in your app idea will impress investors. But not being prepared for any other outcomes other than success will seem unprofessional to many.

Make sure you have a feasible contingency plan if your app idea does not bring expected results.

It shows investors that you can prepare your business for every positive or negative outcome. And have the ability to deliver what you promise to investors sooner or later.

All you need to do after these steps is start figuring out how you will secure app funding.

How to get funding for you app development startups

How to Get Funding for App Development Startups?

Consider several methods of securing the capital for your mobile app startup to know which one is most suitable for you. These methods will also help you learn how to get funding for an app startup in the most mutually beneficial way.

Bootstrapping

Bootstrapping is using your money to make yourself the investor of your own startup.

It is the best way to secure startup funding for apps as it gives you total control over every aspect of your project. But it is only possible if you have enough savings to risk with a startup project.

Securing money from bank loans and venture capital investors for app ideas is an option. But you have something or more to lose with those options. Bootstrapping removes that possibility since it is your money invested in the project.

You may not even have to use your money for long if the app becomes a success.

The profit is all yours if the app succeeds in the market. And the money you lose if it fails will also be the same amount as invested.

Bootstrapping may be a recommended option for startups but not always the possible one.

Bank Loans

Getting a loan from a bank is a common way to secure funds for your app startup. It is much easier to convince banks to give you money than private investors.

According to a survey by Statista, the value of loans granted by US commercial banks reached $16.84 trillion by April 2022.

But you must be financially prepared to pay back the money if the idea fails. The banks will not care about the outcome for as long as you pay back the money with interest.

One of the benefits of bank loans is that you will not have to give any of your equity stakes to the bank to secure the funds. You have to get the loan approved and pay it back with interest. And the app startup control and profit will be all yours.

However, banks will ask you for some collateral like a house or car if you fail to pay back the money.

Raising money for startups with bank loans is risky unless you already have a practical plan to pay back the money in case of failure.

Talk to app startup industry experts for more insights.

Crowdfunding

Crowdfunding for mobile apps is another effective way to raise funds for startups.

It can include both small and large investors. You can use online/social media crowdfunding platforms to raise this type of capital.

Crowdfunding platforms for mobile app development are highly competitive. And require you to create impactful and creative pitches to get noticed.

The best way to stand out on the app crowdfunding platform is by creating a prototype or MVP for your app startup. It will help capture the attention of many potential investors.

SkyBell raised around $607,261 for its smart video doorbell project on Indiegogo (a crowdfunding platform).

Crowdfunding platforms also have a service charge for every contribution you get from investors.

You can give a share of the business or other rewards to investors in exchange for the contribution.

Raising Donations

Raising donations on your own private platform is better compared to crowdfunding. It is like planning an open fundraiser for business startups.

How is it different from Crowdfunding?

Crowdfunding is a highly competitive platform for raising funds as it has many startups looking for the same thing. And its platforms require a service charge for every contribution.

You can get private donations on your own platform like a website, social media profile, or event. And put all the money the investors give you in your pocket without any service charge.

Your mobile app startup presentation must be captivating and interactive to make the donation method work. Here are some tips for you to make that happen:

  1. Keep the pitch short and unique.
  2. Offer a choice in the amount of donation.
  3. Provide early access or premium accounts in the app for investors.
  4. Offer them a chance to become a publicly displayed patron of the app.

Raising private donations from your own platform is highly recommended for mobile app startups as it has no risks or losses.

Venture Capital Funding

Choosing venture capital startup funding for mobile apps is the best option if you need a large amount of money. A good business plan with a prototype/MVP will quickly capture the interest of VC firms. These firms usually invest in startups with irrefutable potential for growth and revenue.

You can only display such an image with a unique business plan and MVP. It will represent your professionalism and dedication to your own project. Securing flexible capital will be easy once you convince the VC firms to invest in your app startup.

But you should know that venture capital firms will take as much as they give. They will most likely ask for some or more equity stakes. You will also have to share control of your company with VC firms if you choose them.

It will not be a problem if you handle the legal aspects carefully and with the help of reliable lawyers.

Private Investors

Private investors are usually small business owners and companies that do business in the same niche as your mobile app startup.

For example, if your mobile app startup idea is about hospitality like hotel booking and tourism,  you can share it with the hotel owners and travel agencies to raise funds.

Being in the same niche makes this fundraising beneficial for both parties. You can use your app to help investors perform better than their competitors. An example would be you providing hotel customers with an easy way to book a room through your app.

Private investors are also highly recommended for startups as it helps businesses in the same niche grow by helping one another.

Personal Network Funding

Securing the funds from family, friends, colleagues, and relatives for app startups is one of the safest options. You can trust and rely on these people even if your app startup idea fails.

Friends, family, and colleagues will also give you vividly honest feedback on your app idea that can benefit your startup.

Convincing your personal network about your idea will also be a lot easier as they already believe in your potential. You will not have to worry about paying the money back late or missing the payment like bank loan payments.

It is best to raise funds from a personal network if your app startup idea requires a small or reasonable amount of money.

Business Partners/Co-founders

A co-founder or business partners are clever choices for securing startup funding for apps. You can also get one of your friends or family as co-founders that can provide the necessary money. It is a great way to raise funds and share control with someone you can trust.

Partnering with businesses to raise funds is beneficial for your budget and business.

An established business will bring the money and their existing customer base to your app startup.

They will actively do this if you partner with businesses in the same niche. You get effective promotions for your app startup this way.

But you will most likely have to share some or more equity stake/control of your startup with the business partners in exchange.

It will not be a problem if you find the right partner and handle the legal aspect carefully.

Startup Pitch Competitions

You can secure capital for your app startup by taking your idea to startup pitch competitions.  These competitions are obviously competitive and not at all easy to win.

But you have a chance if you prepare an influential pitch to highlight the growth potential of your app startup. Your app idea will need to be noticeably unique and captivating to win such a competition.

Many of these competitions also provide business guidance to winners along with money. A mobile app startup can always benefit from such rewards.

Another benefit of these competitions is that they put an unavoidable spotlight on your mobile app startup. It increases your chances of getting investors even if you lose.

Angel Investors

Angel Investors are individuals or business owners who have a large enough net worth to afford to invest in multiple startups at the same time. These investors will be ready to invest in your startup from an early stage. And they will be ready to accept the risks that come with it.

According to an article by Angel Investment Network, the Small Business Administration estimated 250,000 active angel investors in the US that provide capital for about 30,000 startup companies every year.

Angel investors are actively looking to invest money in new startups. They neither seek control of your business nor do they ask you to pay back the money if your idea fails. It provides you with more freedom in your business and app expansion.

Some of these investors might also help you learn how to get investors for an app like a business professional.

Angel investors will ask for an equity stake in your company in return for the money.

The money you require will determine the shares you have to give to them. Startups give 25% to 30% shares to angel investors on average.

And angel investors are not easy to impress due to the large number of pitches they get. You will have to perfect every minute detail in your app idea pitch to have a chance.

It is the only way to get an angel investor to take an interest.

Conclusion

Many startups in the market lose their business after a few months. And even after the startup business shows some growth.

It is usually due to the inability to sustain the business financially.

That is why it is necessary for your mobile app startup to secure reliable investors that will get you through the post-development stage.

You will need to raise enough funds to sustain the startup business during and after the development. It is crucial because it takes time for an app to gain a customer base that can support its operations financially.

You can also get insightful guidance from app startup industry experts like Ailoitte. Our team will evaluate your startup/ideas carefully. And help choose investors that are most beneficial for your business in the long run.

Frequently Asked Questions

How do mobile apps get funding?

Mobile apps get funding through different methods/investors like bootstrapping, crowdfunding, personal network funding, angel investors, venture capital, and bank loans.

 How do I get investors for my app idea?

You can get investors through crowdfunding, bootstrapping, angel investors, private donations, business partnerships, venture capital investors, bank loans, and startup pitch competitions.

Here are some tips to get investors interested in your app idea:
1. Make sure your idea is unique and provides real value.
2. Analyze the market (Target audience and competition).
3. Validate the idea.
4. Create a business plan.
5. Create an impactful elevator pitch.
6. Pitch your idea to several investors.

Can you get a business loan to create an app?

Yes, you can. But it is not recommended for startups to get a business loan as you will have to pay it back with interest regardless of whether your app succeeds or fails in the market.

Do you need funding for an app?

Yes, you do. The app design and feature requirements will determine the development fund amount. You can talk to Ailoitte’s experts to find out the cost estimation of your app.

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