How to Get Funding for an App Idea

1. Bootstrapping

Consider the main sources of funding for mobile app. First idea — is bootstrapping. Many young startups dream of receiving large funding from venture capital funds or business angels to create their own startup, program or an app. Very few succeed in this, even if the idea itself is very interesting and promising. In this case, bootstrapping can help.

This method can be defined as “a way to finance a company with your own money, without attracting external investments.” Most startups around the world that followed this path were trying to ensure that their idea grows into something more without the use of external investments. The founders of some of the biggest technology companies in the 20th and early 21st centuries used this method at the very beginning. For example — Apple, AppSumo, Craigslist, Facebook, Hewlett-Packard, Microsoft, Oracle and others.

It is challenging to build something like this without external investment, but it can be successful in the long run. It will ensure that you receive all the dividends and income from your startup. In the case of angel investors, you will be required not only to share the income, but also to share the control of your company.

2. Crowdfunding

Crowdfunding is the implementation of the principle “every little bit helps”. The easiest way to describe it is “I have a very cool idea, but I don’t have enough money. Can someone help me?” External funding for mobile app development or any other project is generated by inviting donors with the opportunity to receive dividends from their donations, or on a completely non-reimbursable basis.

A prime example is a few years ago, Zack Brown, being a fan of potato salad, really wanted to make his own salad. He planned to raise about $10 to prepare this dish. As a result, he raised almost 50 thousand dollars. The most popular fundraising platform is Kickstarter. Here everyone can raise money to realize their crazy idea, create a video game or get funding for app development.

3. Personal network (friends and family)

Another option on how to get funding for an app is an investment from a close group of people. But it only works if your project is not too big and does not require a multi-million dollar investment.

You can raise money for any mobile app startup with the help of your friends or family members. In other words, borrow some money. Friends and family, unlike banks, will probably not set creditors on you.

4. Private investors

There are three main categories of private investment:

1. Funded buyout — the company is bought out with borrowed funds
2. Venture capital — investing in a project at an early stage. Typically, private investors are commonly referred to as “business angels”. Such investments can bring huge profits but are very risky.
3. Growth capital — investing in established companies and start-ups, further growth and development.

Private investment is one of the ways to invest your own capital in order to make a profit. Private investors usually act only in their own interests and on their own behalf. Both citizens and legal entities interested in the project can invest.

5. Angel investor

Angel investors or business angels are wealthy individuals with extensive investment experience. It is a way to get funding for your app. Many people invest in the business ideas of newcomers, especially if such ideas are innovative. According to Investopedia, these investments are unpredictable and risky as upcoming markets lack risk statistics.

Business angels invest in many projects at the same time. Since most of them will fail and only one of the few will be able to make a profit that will pay off all the losses. So, Andy Bechtolsheim, one of the first angels of Google is now a billionaire.

Business angels usually invest their own money. The number of angels in the world is growing. They often unite in groups or networks in order to jointly participate in the search for promising projects. You can find such groups and sites where you can get funding for an app.

8. Venture capital investors

Venture investments are investments in growing businesses or start-ups, usually when the prospects and success of the companies are unknown. The main difference between such investments and conventional ones is the high risk. If a startup can find the right business model and does not make critical mistakes, it can become a major player in the market.

If successful, the venture capital for app development investment can pay off thousands of times. In the case of traditional investments, the investor receives a stable, but not super-high income, but the risks are much less.

Many start-ups cannot get a loan from a bank because they do not have sufficient assets for collateral. In this case, one of the very few ways to raise a lot of money for the startup is through venture capital funds.

7. Bank loans

Startup loans are characterized by uncertainty. It is impossible to prove one’s own income and future profits with certainty. Generally, banks do not agree to finance startups since it is a risky deal with a high probability of non-return on investment. Borrowers are often required to meet strict requirements, complexity and duration to obtain a loan. So, for most developers it is not an easy way to get funding for apps.

Small and medium-sized businesses that exist for at least 3-6 months have more chances. In this scenario, the money usually contributes to an already identified goal, there is evidence of profitability, and there are income reports. You can get such a loan in almost any bank, but you should take into account all the risks and problems of this method.

8. ICO and IEO

One of the ways to attract funding is cryptocurrency. Methods of raising capital through cryptocurrency are ICO (Initial Coin Offerings) and IEO (Initial Exchange Offerings).

Let’s look at one by one and compare them with each other:

• ICO — issuance by a project or company of its own money (tokens) in order to attract investment. Simply put, a company that raises money for its project through an ICO borrows money from the blockchain community. In a sense, the initial placement of tokens is similar to the launch of a project on the Kickstarter crowdfunding service. Almost any promising project can attract investments with an ICO. In the meantime, it is necessary to gain the trust of the blockchain community. It is important to publicly and factually prove the viability and prospects of the project.
• IEO — the initial exchange offer, as its name implies, is carried out on the platform of the exchange. Unlike ICO, IEO is managed by the exchange on behalf of a startup that is trying to attract investments through the issued tokens. Since the sale of tokens is carried out on the platform of the exchange, token issuers must pay a listing fee along with the percentage of tokens sold during the IEO.

IEO participants do not send money to a smart contract, as with ICOs. Instead, they must create an account on the platform of the exchange hosting the IEO. Members then deposit funds into their exchange wallets using coins, and use those funds to purchase the fundraising company’s tokens.

If we draw analogies with classic stocks, then investing in an IEO is like buying shares in a company on the New York Stock Exchange. Investing in an ICO compared to this is like buying a stake in a business through an ad in a newspaper for cash on receipt.

9. App Funding Contests

The last idea for funding for an app is the App Funding Contest. A large number of different organizations (universities, technology companies, networks of angel investors and others) hold similar competitions. They conduct them to implement their business ideas on the principle “I have an idea and money, I only need a performer.”

There are a large number of Internet resources where you can find lists of all ongoing competitions and take part in any of them.

Pre-seed

The first stage of mobile app funding, which includes the development of your concept, hypothesis testing, and launch of your MVP. At this stage, the source of financing is usually developers’ own savings, as well as the so-called FFF triad — Friends, Fools, Family. For large projects, this is not enough, so we have to look for sources of external financing.

Seed

From this stage, the generally accepted classification of investment rounds begins. Seed funding for apps is considered the most challenging because it involves testing the business model, analyzing forecasts and results. At this stage, investors are usually business angels, startup studios, venture capital funds. This stage is also risky. The main reasons for failure include:

• wrong business model
• high competition
• consumer dissatisfaction with the product
• lack of funds

By investing in this round, the business lays the “seeds” for explosive growth in the future.

Angel round

This round is not always singled out separately as part of the previous round. This stage involves financing from a private investor — a business angel. In addition to financial assistance, angels often provide other support — useful links, mentoring, acting as mentors for founders.

Round A

Since there are only a few projects ready for this round, investors compete for attention from companies and developers. There is a business model in place with deep and proven sales channels, a strategy, and development plans in place.

At this stage, difficult negotiations are typical. The duration of the conclusion of the transaction can drag on for months. The average amount of funding is $1 million. For instance, Cloudflare closed this stage with $2.1 million. This stage is designed to continue rapid development, to take over a large portion of the target market.

Round B

Most startups approach this round with several trusted investors. The amount of financing at this stage differs, usually from 10 to 30 million dollars, which are spent on further scaling of the company. For example, the electronic payment system Square at this stage attracted 27.5 million. When evaluating a company at this stage, investors are guided by the dynamics of the project, business strategy, compliance with trends, and management efficiency.

Rounds C and D

It is worth noting that all letter investment rounds (A, D, C, D, and so on) have similar functions, structure, and tasks. The main difference between these stages is the type of securities offered. Series A offers Series A preferred papers, Series B offers B shares, and so on.

In the late stages C and D the company is actually preparing for an IPO (Initial Public Offering) or for selling itself to a strategic investor. As a rule, the amount of funding increases with each stage, but at later stages this rule may not be respected. The amount of funding as such at any stage depends on the scope and objectives of the project.