Why do entrepreneurs who have the next multimillion dollar mobile app idea in most cases remain entrepreneurs without all of that money?
Because nobody understood their idea or did not find it interesting. Other problems could be that the one with wonderful idea, doesn’t know how to develop it themselves, doesn’t have the funds to hire a professional app developer and doesn’t know how to raise the money for the initial investment.
Many entrepreneurs who approach investors assume that they will be interested in investing in their app even if the idea has not (yet) been proven. The best way to overcome this and convince investors that your idea is worth the investment is to build a prototype and validate your assumptions. Your prototype can be validated by reaching a significant number of downloads or customer pre-orders during the validation period.
There are tons of app ideas out there, and it is your job to convince potential investors that your mobile app idea is the one with the business plan that will work.
Create a Prototype That People Will Like
To prove your idea, you don’t need to build out a full-featured app. Instead, start with a small app that will have just a few key features and build it for a very narrow audience. This way, you will have more room for mistakes and you will have enough time to test your assumptions about what users want and how they will interact with your service.
You can also verify your idea by creating a promotional video on your website to gauge interest and by surveying potential users, but be aware that the app prototype will give you the most realistic data.
If you decide to go with an app prototype (often called an MVP or minimum viable product), the first obstacle you’ll encounter is how to pay for development. There are many options for raising funds to start building your mobile app before you get your first big investor.
Here are some great fundraising ideas to get you started:
Private and self-funding
I believe this is the first thing most people think of when beginning the quest for funding. It would be the best if you are independently wealthy, but let’s be honest, that doesn’t apply to the vast majority of people. You have two options, to raise money by taking on freelance jobs and raiding your savings account, or to ask friends and family to contribute either monetarily or by providing you with some additional expertise. Obviously, if your best friend is a mobile app developer then your job is basically done. If you aren’t very technical yourself, having a Co-founder with more of a tech background can really help with determining what is possible and for how much money.
This kind of funding is called crowdfunding, a funding method by which anyone can donate to your project. Keep in mind, you can only use crowdfunding as long as you aren’t selling any kind of stock. Two of the hottest crowdfunding sites on the Internet are Kickstarter and Indiegogo.
Since their launch in 2009, 8.4 million people have pledged more than $1.7 billion, and funded 83,000 creative projects. Thousands of creative projects are raising funds on Kickstarter right now. Anyone can launch a project in one of the fifteen categories as long as it follows their rules. A great thing on this site is that backers are supporting projects to help them come to life, not to profit financially. Instead, project creators offer rewards to thank backers for their support.
Before you start a project on Indiegogo, be sure to check their fees. It is free to sign up, to create a project and to contribute to a campaign. However, once your project raises funds, Indiegogo charges a 9.0% fee on the funds you raise. If you reach your goal, you get 5.0% back, for an overall fee of 4.0%. Your goal should be the smallest amount you need to complete your project and fulfill any perks you offered (backer rewards). Anyone, U.S. resident or not, can receive funding, using PayPal as the payment option.
Other similar crowdfunding sites are AppBackr, AppFunder, RocketHub, GofundMe, Crowdrise, Crowdfunder and Razoo.
According to Chance Barnett, there is a formula for pitching your Startup that has helped Startup founders raise millions. He included that formula in his Investor Pitch Deck Template that you can use for your initial pitch deck. Pitch deck ideas are to win money to fund development. A lot of these contests are run by business incubators and angel funds and more often than not feature judges that are also investors. Pitch deck contests are highly competitive making it imperative to deliver a life changing presentation.
Banks provide Startup grants and loans to entrepreneurs who can prove their idea and concept. This is not the easiest funding option because banks are more conservative with their money and are thus harder to persuade. You will probably need to prepare a business plan, an outline of your complete strategy, and a full market analysis. Here you can find some resources on SBA loans for your Startup.
Angel Investors are private individuals who invest their own money in Startups that, in their opinion have the potential for significant growth. If you decide to take money from angel investors, be prepared to give them a share of your business and thus also potential dividend payments in the future as they will be one of your major shareholders.
One final approach is to negotiate a revenue sharing agreement with an app development studio. While not rare, such revenue sharing agreements are definitely not common either. With this arrangement, it is important to look at the revenue potential. So if you can sell 100,000 copies of an app for $2, your actual net revenue is about $140K. Once you have a draft budget that includes net revenue, costs of marketing, customer support, and the cost of developing the app, then you are in a better position to figure out the percentage split. Be aware that app development companies are not set up to take on significant risk, so to make it more amenable to them you will likely have to pay for a percentage of the development costs up front.
This post delivers some great fundraising ideas, but raising funds for your mobile app depends on you. You are the one who will determine the future of your idea. Do your best and find investors and other people who would be interested in your app and pitch them your idea. Google other projects similar to yours and learn from their experience.