Getting funding for your mobile app is not as hard as you think - here’s how!
Any startup or business is incomplete without considerable funding to support it. Right funding basically creates the backbone of any company. But don’t think that only funding will take your startup to heights. You will be required to put every single bit of yourself in order to grow your mobile app business.
As per a research, the percentage of businesses failing in the very first year of their startup is staggering. Nearly 94 percent of startups fail in no time and funding remains one of the core issues for the same. Therefore, today I will be talking about funding methods that will help you to support your business model accordingly.
Before we can proceed with the different investment sources where you can get funding for your mobile app business, there are three main stages of startup funding that you need to be aware of.
These startup funding stages mainly vary in terms of risk as well as potential level. In other words, the more potential and less risk there will be in your startup idea, the larger the amount of funding you can score for your business:
In the pre-seed funding stage, app owners/developers come up with an innovative app idea that they think might work great. But to test their app idea, they require a bit of cash for their project hypotheses.
At present, more and more venture capitalists (VCs) have entered this stage of funding but apart from VCs, you can also ask for this kind of small funding from your friends and family or even angel investors.
As pre-seed funding is the earliest stage of funding, a majority of people do not even include it in the complete cycle of equity funding.
In the case of the seed funding stage, app developers might still have a lot of uncertainty about their business ideas and plans for execution. Although the amount of funding in seed stage is small, it is comparatively larger than pre-seed funding. Here, business owners have the option of equity stakes ranging from 20 to 25 percent for their investors who are providing funds for their app idea.
Nowadays, a number of startups and emerging mobile app development companies prefer seed funding as it provides them with an investment good enough to grow their digital product.
This is the third crucial funding stage, it basically moves up to series A, B, C and so on. The alphabetical increment defines here the growth of each funding stage. At this stage, app owners are required to provide the product-market fit by now as the investors also aim for potential revenue growth in their business investments.
In the series funding stage, company expansion plans and the acquisition of smaller companies/enterprises are quite common here.
If only a few companies make it to Series D, then even fewer will make it to the Series E funding stage. For many mobile app startups, the total valuations after the funding may vary a lot depending on the series of funding they reach.
If you talk about initial funding for a mobile app startup, the first thing that matters is the nature and type of business that you want to pursue. You can clearly see in the graph that various business models have different funding inputs. So, once you make up your mind about your startup, you can start thinking of options that will help you to get the required funds.
Let’s get started and explore various options for funding that will help you get going with your mobile app startup plans. Before that, I would like to mention that all the funding options mentioned below may not be available in every region of the globe. So before jumping to any conclusion, make sure to confirm the policies related to the given funding options in your country.
In other words, you can call it self-funding. Bootstrapping is one of the primary and most comfortable ways of raising funds for your business. Nobody knows the future of any business plan, and due to this, a startup always finds it hard to raise funds for the on-ground activities. So, it’s still great to invest your own savings, and you can even ask for a short-term loan from your family and friends.
Bootstrapping has many other advantages as well, like you don’t have to repay the initial investment in your mobile app, and if your family and friends have helped you, there is always ample time to pay them back. The next advantage is that you don’t have to answer back to the investors if your business fails (which I hope never happens).
2. Angel Investments
As the word describes itself, the person who is willing to fund your startup plan is be no less than an angel for you. Angel investors are those people who have an extra set of cash to fund business models and expect some lucrative returns from such investments.
If you think that it sounds impractical, you can have a look at companies like Google, Alibaba, and Yahoo; these all companies got their initial dues from angel investors. So, now you can well make out the feasibility of this kind of funding.
There are downsides to such funding as well, where one of the significant issues is the total investment. There can be a single person being an angel investor or a small group of people. Therefore, the funding always comes in low volume and doesn’t suit the need of startup which requires massive funding from the very beginning.
3. Bank Loans
Then comes the banks. An established and recognized bank will always be up for giving you funds for your startup; the only condition is that your blueprint about your startup should be convincing enough. So, if you are disappointed by the angel investor, the bank will be your savior.
Banks always have the leverage to pump out massive funding, but that also depends on two types of financing options. One is funding, and the other is a working capital loan. With the funding option, the bank will look into your business plan and evaluate the total loan. And in a working capital loan, the loan is more towards covering the finances that the company will spend on the everyday operations like accounts payable, wages, and more.
So, you need to make up your mind about the type of funding before going for a bank loan.
4. Venture Capital
Now, this is the real bet that many of you must be looking after. Venture capital funding is usually extended by private equity firms that offer massive funding for startups and emerging firms. The only factor to grab such a deal is to have high growth potential. Mostly, it’s witnessed in acquisitions or IPOs (Initial Public Offering).
The venture capitalist not only invests in the company but also acts as a mentor who offers their valuable inputs in guiding the business plans after they fund the business models.
The only disadvantage that comes with the venture capital is their time to recover their investment, which is very short as compared to other methods of fundraising and doesn’t go well with many of the startup houses.
Crowdfunding is one of the latest ways to raise funds for a startup, but sadly, it is also not too reliable. There are different websites where you need to register your startup plan, and if people think that your idea is worth their money, you will get a tremendous result.
One such example is Oculus Rift, a VR technology company. Its founders started its crowdfunding campaign in 2012 with a goal of raising $250,000. Thanks to their startup idea, the company was able to garner $2.4 million. Later on, the company did so well that Facebook decided to buy it for a total of $2 billion. Now, you can well imagine what miracle crowdfunding can do.
6. Peer-to-Peer Lending
As the name suggests, P2P also known as peer-to-peer, is the practice of lending money to businesses and even individuals through the means of various online services that match the lenders with the borrowers.
The P2P lending is mainly operated online, they can easily function with low overhead while offering services that are more cost-effective in comparison to the other traditional financial methods.
Peer-to-Peer lending is also known as crowdlending as many P2P loans are unsecured personal loans in nature where large amounts of money are lent to startups and businesses to help them support their business ideas.
Here, extending crowdsourcing to emerging lenders as well as borrowers i.e. businesses opens up new opportunities.
Now that we have discussed the potential sources for app funds and investments for your startup, it is time we cover another important segment i.e. term sheet. Considering that you have reached an agreement with the investors for your mobile app startup, the next step for you is to draw up a term sheet.
By drawing a term sheet you will be basically formalizing the deal between you and your business investors. This is an agreement that mainly lays out a number of parameters regarding the funding process like Control and Investors’ Rights.
To help you in understanding the usage of the term sheet, we have stated below some of the legally-binding documents are based on this concept:
One of the many questions that you will initially have in mind is 'how much funding does my mobile app startup needs'. As per our expert advice, you should aim for the appropriate amount of funds that you actually need to get your business started.
Another thing to keep in mind is that the more funds your app business raises at an early stage, the more portion of your company you’re giving away right from the start.
In other words, if your business manages to get acquired or even go public one day, then you might only have left a small portion of your startup which many people are not up for.
At an early stage, it is advised to have a proper idea about your startup costs as it will further help you in finalizing how much app funds you need for your mobile app startup. Once that is final, then you should go ahead and approach the different sources of investment and funding that we have discussed in the section above.
If you are a startup thinking of going big, then you do require funding. But in case, you are wealthy enough to start on your own, then you are good to go!
However, if you do need to raise funds for your mobile app startup, go on with any one of the above-mentioned ways in this article.
Here are some of the key takeaways from the entire article to provide you with a quick overview along with some main statistics:
Now go ahead and dream big, who knows you may see yourself on the list of the top youngest billionaires of the decade or the best mobile app development companies of the year!
In case you still have some doubts regarding the app development process, don’t worry! We also have many well-researched and detailed guides for building mobile apps for small businesses along with mobile app marketing strategies.
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Twinkle is an experienced business and marketing consultant of the mobile app industry. She advocates perfect branding to the latest tech releases. She is passionate about writing well-researched reports to help the app owners and the mobile app industry audience. Also, she has a vibrant touch that goes well in her writing as well.