Raising funds for an app startup can be a challenging, yet rewarding process. It requires a lot of hard work and investment along with a compelling pitch and the right approach to potential investors. The United States ranks first in the world of startups with 71,153 in 2022. Therefore, it’s important your idea should be unique to stand firm in the competition. Many app startup ideas fail for a number of reasons. For instance, the app’s complexity, i.e., laden with multiple features, the more its development cost will be. Thus, more funds are needed. There have been cases when startups often fail to collect adequate funds. Thus, end up working on a limited budget and are forced to compromise the app’s efficiency. To avoid tight budget constraints, startups need to employ certain effective techniques to get investors’ attention.
Importance of Raising Funds for App Startups
Raising funds is important for app startups because it provides the necessary resources to bring the app to market. Without sufficient funding, it can be a difficult task to bring your app to market. You might need to hire a talented team, develop new features, and reach a larger audience. With funding, you can:
- Fuel growth and expansion: With funds, you can expand your app and reach a larger audience.
- Attract talent: Additional funding will allow you to hire a talented team. Skilled people will help you make your app a successful story.
- Increased marketing efforts: With funds you can invest in marketing and reach a wider audience. Hence, help yourself to increase user acquisition and growth.
- Develop new features: With funding, you can develop new features and improve the overall user experience, helping to differentiate your app from the competition.
- Build brand recognition: By securing investment, you can build brand recognition and establish your app as a leader in its industry.
- Increase credibility: Raising funds from reputable investors can increase credibility and attract additional investment in the future.
- Accelerate time-to-market: With sufficient funding, you can accelerate time-to-market and get your app in the hands of users more quickly.
- Minimize risk: By securing investment, you can minimize the risks associated with launching and scaling your app.
Overview of the Steps Involved in Raising Funds
The steps involved in raising funds for an app startup typically include:
- Prepare an MVP or “Minimum Viable Product.” It refers to the minimum set of features and functionalities needed to launch a product, validate its concept, and test the market demand.
- Create a Pitch Deck: Present your business plan visually, highlighting key points and future growth potential.
- Network and Build Relationships: Attend events, join networks, and meet with potential investors to get introductions.
- Reach out to Investors: Identify potential investors, send your pitch deck and business plan, and attend pitch events.
- Negotiate Terms: Negotiate the amount, equity offered, and timeline for return if an investor is interested.
- Consider Alternative Funding Options: Explore options such as crowdfunding, grants, loans, and other alternative funding sources.
- Continue to Build Relationships: Maintain relationships with investors and continue to provide updates on the progress of your app.
Finding Funding for an App Startup
Seed Funding or Angel Investors
Angel investors are high-net-worth individuals who invest their own personal capital at an early stage of an app startup. They invest small amounts of money and offer additional support and guidance to the startups they invest in. Angel investors can be a valuable source of funding for app startups, as they often have a deep understanding of the technology and startup ecosystem, and can provide valuable insights and connections to help startups grow and succeed. They may also be more flexible than other forms of financing, and may be willing to take a higher level of risk in exchange for the potential of a higher return on their investment. The average seed funding raised may vary between $100,000 to $2.2 million.
Bootstrapping or Self-funding
It is the process of starting and growing your own business idea on your own money. Bootstrapping involves using personal savings, revenue generated from the business, and low-cost or free resources, rather than seeking external funding. Bootstrapping is a good option for entrepreneurs who want to have control over their company. By self-funding you will avoid the potential drawbacks of outside investment, such as giving up equity or incurring debt. By relying on internal resources and being creative in finding ways to minimize costs and maximize revenue, entrepreneurs who choose to bootstrap their businesses can achieve significant growth and success. However, it may take longer to reach certain milestones and may limit the overall scale of the business.
Crowdfunding
Crowdfunding is soliciting small contributions from a large number of people, typically via an online platform such as Kickstarter, Crowdfunder.com, RocketHub, Gofundme, etc. This is an effective alternative to traditional funding options, such as venture capital or bank loans, and can provide startups with access to a large pool of potential investors. To successfully raise funds through crowdfunding, entrepreneurs need to create a compelling pitch that highlights the unique features and benefits of their app, and create a sense of excitement and urgency around their fundraising campaign.
Venture Capital
It refers to a type of investment in which a group of organizations pool their funds and entrust it to a representative, called a venture capitalist. Venture Capitalists invest in promising startups with solid plans, dedicated teams, and a track record of profitability.
Loans
A common form of finance for app startups, providing them with access to capital to fund their operations and growth. There are several types of loans that app startups may consider, including:
Bank loans: App startups can apply for loans from traditional banks or online lenders. The terms and conditions of these loans will vary depending on the lender, the amount of the loan, and the creditworthiness of the borrower.
Government loans: Government-backed loan programs, such as the Small Business Administration (SBA) loan program, may offer favorable terms and conditions for app startups.
Personal loans: Entrepreneurs may also consider taking out a personal loan to finance their app startup. This can be a good option for entrepreneurs who have a good credit score.
Venture debt: Venture debt is a type of loan specifically designed for startups and venture-backed companies. This type of loan is typically used to finance growth and expansion and may be used in conjunction with equity financing. Before taking out a loan, app startups should carefully consider their financial situation, the amount of debt they can afford to take on, and the potential impact of the loan on their long-term goals. It is important to compare the terms and conditions of different loan options, and to seek the advice of a financial advisor to determine the best approach for your startup.
Stages of App Startup Funding
Primarily you can’t just come and get money, you need to go through various phases called rounds. The need to go through these rounds is to prove that your app deserves investment. Individual funding rounds are made to accumulate enough capital to grow the startup. It might take anywhere from 3 months to a year. Let’s have a look at the core stages of funding:
Pre-seed Stage
It’s a stage where founders try to give push to their idea to developing stage by self-financing. Proven ways on how to get funding for an app development at the idea stage: having a reliable co-founder to launch a startup, start a crowdfunding campaign, raise funds on your own websites, take part in funding contests and focus should be on angel investing.
Seed Stage
The initial stage of funding where the prime focus is on angel investors. Seed money is needed to cover business needs such as MVP, team recruitment, rent and other specialists. By the end of this stage hopefully you will have an MVP which you can present to bigger investors to get more funding.
Series A
The stage where you will be attracting third-party investors who will be interested to see further growth. This stage implicit that you have tested the business model, have a decent client base and are already making money. Business owners deal with venture capital firms that ask startups to demonstrate their real data and progress obtained from earlier investment rounds.
Series B
The purpose of Series B funding is to provide a startup with the resources it needs to turn into enterprises. To grow more, for instance, expanding into new markets, launching new products, or acquiring other companies.
Series C
The Series C stage of funding is to provide a startup with the resources it needs to expand its operations, invest in R&D, make strategic acquisitions, and prepare for a potential initial public offering (IPO) or acquisition.
IPO
Initial Public Offering (IPO) is typically the final stage in the funding process of a startup. The company will use it to raise capital and offer liquidity to its founders and early investors. It’s about selling a private company’s shares to the public.
Source: https://www.agicent.com/blog/how-to-raise-funds-for-app/