12 min read
A Guide on How to Get Funding for an App
Table of Contents
- How Much Funding Do You Need
- Simple vs Complex
- Perfect Your Elevator Pitch
- Finding Funding
- Seed Funding
- Venture Capitalist
- Private Investors
- Personal Network
- Bank Loans
- Stages of Funding
- Series A
- Series B
- Series C and Beyond
Chapter #1: How Much Funding Do You Need
Before we dive into options for funding, it’s important to first understand how much money you’re going to need for your project.
I get it. You have a great idea and you want to run with it as soon as possible.
That’s great! But slow it down.
You want to make sure you do this the right way so you can save yourself time and money.
This means taking time to think deeply about your idea.
You’ll want to flesh out how your app will look and what kind of features it will have with a prototype and you’ll also want to validate your idea with user and usability testing.
You can learn more about the first steps to take in our 5 Step Beginner’s Guide For Your Brilliant App Idea.
Just keep in mind that all of these steps are crucial to helping you determine the costs involved in creating an app. So don’t skip a step!
The worst thing you can do is to begin a project having little to no understanding of the app development costs.
DID YOU KNOW?
While having too little funding for your project can clearly put you in hot water, did you know that too much funding is also a bad thing?
Remember, the more money you raise, the more you’re giving away your company at the initial phase of the business.
Here are a few questions to ask yourself when contemplating app development costs:
- What kind of functionality will your app have?
- What are the features you’d like to see in your app?
- How complex are these features and functionality?
- Are you going to hire freelancers or an agency?
- What will the design of your app look like?
- Will there be any integration points, like APIs or 3rd party systems?
Ruminating on these questions will help paint a clearer picture of the work your app is going to demand.
1.1 Simple vs Complex
Keep in mind that building a high-quality mobile app can cost anywhere from $10,000 to $500,000, but it depends on several factors.
You should understand the difference between a simple mobile app and a complex mobile app. Then we’ll get into your funding options in the next chapter, I promise.
Let’s say you’re a dentist who wants a simple and clean website people can visit to learn more about your business and even book appointments. Maybe it has a contact form too.
Ask any developer and they’ll tell you that this is a fairly basic app. You could probably get it done for a few thousand dollars. Maybe a little more, maybe a little less.
But let’s say you want this same app to offer a few extra features, like the ability to create a profile and login. That’s going to require a database that stores user information.
Other features that add more to the complexity of this app might be things like:
- The ability to pay for appointments or other products through the mobile app
- Having the app available on multiple platforms
- Having push notifications
- Top-level UX/UI design
This can easily double the cost of your project because it’s adding more layers of complexity, which translates to more time. And of course, time is money. And developers aren’t cheap.
Not that you have a better understanding of the pieces involved in building an app, let’s talk first about how to approach investors.
If you want a better idea of what your mobile app project will cost, most agencies will offer a free consultation that can highlight the hours the project will demand so you can get a hard figure.
1.2 Perfect your elevator pitch
Whoever you’re approaching for money, you better believe you’re going to need an A+ elevator pitch.
An elevator pitch is pretty much how it sounds. You have a full elevator ride to deliver an awesome speech to someone.
And so it needs to be:
- To the point
- Easy to understand
Ok, you’ll probably have more than 30 seconds with the investor or whoever you’re shaking down for money, but the point is, you want to fine tune your app idea pitch so well that it’ll be perfectly clear what your app does, what problems it solves, and how it will generate revenue.
App investors are looking to hear a pitch that’s short, informative, and captivating.
Practice this pitch until your delivery is flawless. Trust me. It makes a difference.
Chapter #2: Finding Funding
There are several ways you can fund your mobile app project, but let’s start with the most popular option, which is seed funding or angel investors.
2.1 Seed Funding
Seed funding is also commonly referred to as angel Investors. These are individuals (and sometimes businesses) who invest in startups in the early phase.
These investors want to hear about your app, but more importantly, your strategies on how your app will make money and what the return on investment (ROI) will look like.
They’ll also expect for you to prove that your app idea has demand in the market.
Remember, investors want to be sure that they’re making a smart investment by funding you. Your job is to prove that to them.
In return for funding your app, angel investors will typically request a share in your company.
So if your app is successful, you’ll owe a share of your business to your angel investor. This amount can range anywhere from 10% to 25% of your company’s shares.
It depends on how much funding you get from them.
On the flip side, if your app fails, you won’t have to pay the money back.
Keep in mind that it’s not easy to get angel investor funding. App startups are seen as risky. After all, anyone can have an idea.
You need to be 100% prepared to show investors your app’s potential in the market. You should have some kind of prototype, proof of concept, or minimum viable product (MVP) to help illustrate your points.
2.2 Venture capitalist
Venture capitalists also offer startups with the funding they need, and most of these investors come from managed venture capital firms.
Unlike angel investors, however, venture capitalists will typically only provide funding once the app is already in development.
They see your app-in-progress and determine if it has potential for quick growth.
Since venture capitalists come from a big firm and aren’t just an individual with money to spare, they can usually fund larger sums of money than angel investors.
Of course, more money invested means more shares you’ll have to give up.
2.3 Private investors
Another way you can fund your mobile app project is through private investors. This type of investor will often come in the form of a local business who works in the same niche as your app.
If your app benefits them in some way, they might want to help with the funding.
For example, let’s say you have a food delivery app or an app that takes restaurant reservations.
You may find some local restaurants that would like to work with you and leverage your app to keep them ahead of the competition.
This is a good option if your app idea fits into a particular industry or niche.
2.4 Personal network
Your personal network includes friends and family, which can be a reliable source of funding for your mobile app.
These are the people that know you best, believe in you, and are willing to support your project with fewer strings attached than an angel investor or a venture capitalist.
But that doesn’t mean you should approach your personal network with a half-baked idea.
Remember, you’re still borrowing money from someone, so you should always have a solid plan and a proper pitch ready.
This is a good idea if you have a smaller project you’re trying to bootstrap without bringing in real investors or if you’re just trying to get some money to fund some kind of prototype for your app.
You’ve probably heard of crowdfunding websites like GoFundMe and Kickstarter, but if you haven’t, these are popular funding platforms which can be donation-based, debt-based, or equity-based.
In short, it’s a place where anyone can fund your project.
They’re also good places to promote your app to a specific audience. You can pitch your idea, raise money, and spread the word about your app.
2.6 Bank loans
Another avenue to get funding for your mobile app is with a bank loan. But it’s worth saying, this isn’t a popular option for startups.
If you take out a loan from a bank to fund your project, they don’t care if it fails or succeeds. You’ll have to pay them back either way, and with interest.
While it’s good to be optimistic about your mobile app venture, you have to be realistic and acknowledge the possibility of failure.
It’s much safer to consider this option for funding once your app is already proven viable and you’re just looking for expansion money.
Chapter #3: Stages Of Funding
Now that you’re more familiar with the funding options available, let’s review the different stages of funding.
Pre-seed funding happens at the very beginning of your mobile app project. This is the phase where you’re in the midst of fleshing out and really evaluating your app idea.
This is a good time to bring in your personal network or maybe private investors so you have some money to build some form of prototype.
Remember, the mobile app world is an incredibly competitive market. If you have something other than just an idea, it’ll give you a leg up when it comes time to bring in investors.
This is the first stage of receiving substantial funding. It’s more money than you’ll get from your personal network or out of your own pocket.
This is a good time to approach angel investors, and possibly venture capitalists if you’re lucky.
Seed money is most often used to bring on board a development team and other specialists for your mobile app project.
Hopefully by the end of this stage, you have a validated idea and an MVP, which can be presented to bigger investors to get more funding.
3.3 Series A
Series A funding is about your startup’s active growth, and it’s also the first stage in venture capital funding.
Remember, venture capitalists want to fund startups who are demonstrating their high growth potential, which is why you’re far less likely to get money from them in earlier funding stages.
3.4 Series B
If you’ve made it to series B funding, you’re in a very good place and your app just might make it.
This stage of funding is about quicker development and more expansion. Your shares will go up in price, so you can sell fewer shares to venture capitalists and have greater control over your startup.
3.5 Series C and beyond
At this stage, your mobile app is alive and well. You’re making enough revenue to cover operational expenses without the need for extra funding from third parties.
Series C and beyond stages are about major upgrades to your app and large-scale expansion to reinforce your company’s existing success.
Series C is usually the final stage in funding, but some companies may choose to go through more rounds.
It’s easy to stress about money, but finding funding for a mobile app project can actually be exciting and rewarding.
And once you get your hands on some funding, whether it’s from your own personal network, crowdfunding, or seed investors, you’ll be ready to take your project to the next level.
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