How to Raise Money for Your Mobile App Startup (A Simple Guide)
So you’ve got a creative idea that you think will be the next big mobile app.
I’m always intrigued to hear what people can come up with these days.
But having an idea and turning it into an actual app that’s available for download are two completely separate things.
If you’ve started to do some preliminary research, I’m sure you’ve discovered that hiring a developer to build your app isn’t cheap.
Well, unless you’re independently wealthy, you’re going to need to raise money to launch your app.
Think of it like any other business.
You wouldn’t be able to open up a restaurant, laundromat, car wash, or ecommerce website without any money, right?
The same concept is applied here.
Mobile apps are a business.
You’ve got to a find a way to make money with your app, or it ends up just being a waste of time and resources.
Look, it’s not completely impossible to build an app without raising money.
But I can tell you from personal experience that it’s certainly much easier to do once you raise some capital.
Here’s something else to consider, the amount of funding that you secure has a direct correlation with your annual salary.
But don’t let those numbers fool you.
Just because you raise lots of money, it doesn’t automatically mean you can pay yourself more.
It just means that founders who can secure large amounts of funding have more resources available to make their business, or app in this case, more successful.
But raising money isn’t as simple as snapping your fingers.
To secure sufficient funds, you’ll need to know:
- what your app represents
- how your app functions
- who to get money from
- how to raise the money from those people
That’s the short version.
As someone who has been through this process before, I can explain how this works in greater detail.
Here’s what you need to know in order to raise money for your mobile app startup company.
Know your market
Before you try and ask people for money, you’ve got to do lots of research.
Learn your market. Analyze the trends.
I see people make this mistake all the time.
They don’t want to start doing the research until after they’ve secured the funding.
But there’s a major problem with that.
Nobody is going to give you money if you don’t know what you’re doing.
You’ve got to become an expert in this category.
Here are the factors that you need to identify during your market research phase of funding.
This won’t happen overnight.
Fair warning, it’s much easier said than done.
Part of what makes this process so difficult is that you’re not seeing any reward yet.
You’re not getting paid for your efforts, and it’s time consuming. As of now, your app is still just an idea.
I know it’s frustrating, but trust me. If you want this app and funding process to be successful, you can’t slack on effort when it comes to the market research.
What exactly is your app and what does it do?
How will it fit into a crowded market space?
Can your app differentiate itself from the competition?
If you can’t clearly answer these questions based on your market analysis, you’ll need to go back to the drawing board.
So don’t rush. Sharpen your pencil and get ready to work.
Establish a brand
Like any business, one of the best ways to have a very strong app is through branding.
This is something that so many companies overlook.
They believe that the success or failure of their app will be relying solely on the programming components.
It’s a serious misconception.
Sure, programming is important. But there will be so many other apps that are similar to yours.
What’s going to make users get drawn to one app over another is completely based on the branding strategy.
Here’s something else to consider.
Branding your app can also help you create a loyal customer base.
Establishing loyal customers will help you increase profits and lower your costs.
Those statistics speak for themselves.
Investors are well aware of the benefits of proper branding.
So when you have a brand backing your app, it’s more likely to appeal to a broader range of potential investors.
It also makes you appear more professional.
Investors will know that you’ve put in the time and effort.
This will show them that you’re taking the situation very seriously.
Getting money from someone shouldn’t be taken lightly.
They are giving their hard earned cash to someone who they might have just met.
That’s a big risk for people.
Sure, they do it for the possible reward, but that doesn’t mean they’re ready to just hand out money to anyone who asks for it.
Branding yourself, the company, and your app will put you in a much better position to be successful.
Understand what investing means
As I said earlier, you can’t take the investment process lightly.
It’s a complicated process.
When an investor gives you money, they are putting their trust in you.
That means they expect you to do exactly what you outlined in your business plan and pitch, which we’ll discuss in greater detail shortly.
Ultimately, investors are looking to get a return on their investment in a timely fashion and then some more income on top of it.
That’s the reason they’re involved in this business. They’re not running a charity.
You’ve got to understand a couple of factors that play a role in your search for an investment.
How far along in the development process are you?
What stage of the investment round are you in?
Here’s a graphic to show how much money gets raised depending on the investment round.
As you can see, the more you’ve progressed in the preliminary stages, the more valuable your company will be for investors.
That’s why the majority of funding comes in the middle two stages.
If you approach an investor too early, a couple of things can happen.
They may have no interest at all.
If that’s the case, you could have just burned a bridge with someone who may have been interested if you waited longer to seek their investment.
Another scenario is that they may make you an offer, but it won’t necessarily be in your favor.
The offer could be for not a ton of money, but for a large equity portion of your company.
That’s not ideal for you either.
It also puts you in a tough position.
On the one hand, you don’t want to turn down money.
But on the other side of the spectrum, you don’t want to give away too much equity shares of your business.
All of this can be avoided if you take the time to do the right market research and brand your app before seeking an investment.
Your development and funding stage will also impact the types of investors that you’ll find.
You’ll learn shortly what I mean by this.
Find the right investors
Alright, so now that you know the market, professionally branded your app idea, and understand the investment basics, it’s time to find the right investors.
But where do you find them?
As I said earlier, depending on where you are on the timeline for development as well as funding, you’ll attract different types of investors.
As you can see from the graphic above, there are significant differences between angel investors and venture capitalists.
You’ll also have to consider what type of involvement your investor wants to have in your app.
Are they going to stay silent and just give you money while hoping for the best?
Or are they expecting to be a strategic partner who offers advice and helps you make decisions?
The amount of equity you give up can potentially make this decision for you, so tread carefully.
If you give away too much equity, you may not be the majority shareholder of the startup company anymore.
This means you won’t necessarily have the final say when it comes to decision making.
In short, you’re no longer in charge.
I would definitely recommend avoiding this scenario.
If somewhere down the road you want to have less involvement and just collect a paycheck, consider it then.
But it’s not a good idea to sell large chunks of your company in the early stages.
Especially not if you truly believe that your app will be a huge hit.
So which type of investor is right for you? Depends on what you’re looking for.
These are both great platforms for startup company founders who are new to investing.
Plus a site like Techstars is perfect for people who are developing software, like a mobile app.
The investors on there are niche specific.
Try your best to get make an introduction with these prospective investors.
It looks better than just sending a cold and unsolicited email.
Everything is starting to fall into place.
You’re an expert on the market, and you know exactly how your app will fit in and stand out because of your branding strategy.
You know what kind of investment you’re looking for and who you need to get it from.
Now it’s time to go out there and get it.
You’ve got to be able to convey your business plan in a quick pitch to investors.
This is also easier said than done.
By now, you may have put months of work and developed a business plan that’s as thick as a dictionary, but nobody wants to read that.
You’ve got condense your points into a quick and informative message.
Here are some tips to help you master your pitch.
- Always introduce yourself and the company
- Give a quick synopsis of your app
- Talk about your goal
- Provide some realistic but optimistic projections for the next year or two
- Say exactly what you’ll use the investment for and be specific
- Let the investor know how and when they can expect to see a return on their investment
- Thank them for their time and say you’ll be happy to answer any questions
Boom. That’s it.
You’ve got to try and get all of this down into a minute or two.
Sometimes these investment pitches are referred to as an “elevator pitch” meaning you need to be able to tell someone about your company in the time it takes to ride an elevator with them.
Practice makes perfect.
While your pitch should be memorized, it shouldn’t sound rehearsed.
You want your tone to be conversational as opposed to reading off of a scripted speech.
I know you could talk about your idea and app all day, but save the extra details for the questions portion of the pitch.
If you can attract the investor’s attention in 90 seconds or so, they’ll give you more time to go over everything in greater detail.
So don’t waste your pitch time explaining your life story.
Learn to love rejection
I hate to be the bearer of bad news, but I don’t want to mislead you.
Your pitches won’t always be successful.
That’s the reality of the situation.
You’ll make mistakes, you’ll slip up, and you might not do the best job conveying your points.
The more you understand your app and the industry, the easier it will be for you to pitch to investors.
With that said, sometimes you may have the perfect pitch, and the investor just may not be interested.
That happens too.
So you’ve got to learn to deal with rejection.
The key is not letting the constant rejection put you down.
Learn from your mistakes and move forward.
Apply the lessons learned from your past experiences to secure the funding your app needs to be successful.
Remember, all it takes is for one person to say “yes” to put you on the right track.
You might hear “no” 100 times first, but the amount of times you get rejected won’t matter once you raise enough funds.
Conclusion (and a secret)
These are the basic steps that you need to take in order to secure funding for your app idea.
If you follow each step carefully, you’ll have a better chance of getting money from investors.
There’s one element that can really give you an advantage when it comes to raising funds, especially during your elevator pitch.
An idea is one thing, but actually showing an investor some basic functions of how your app will actually work can help blow them away.
It shows that you took the time and spent the money to actually start development.
There are lots of different places to build an app online, but only a few can let you do it at a low cost.
A platform like BuildFire can help you build more than just a prototype.
You can potentially add all of your features and plugins right out of the box.
Using a web-based service to build your app can make you realize that you don’t actually need as much investment dollars as you initially thought.
Going this route can help you significantly lower your development costs, so it’s worth looking into.
At the very least, you can build something to show your prospective investors.
What type of investor are you looking for to help turn your idea into a business that actually generates a profit?