Let me guess: you have a great app idea, you know there’s a demand for it, and perhaps you can even envision it. However, you have one crucial problem – you don’t know where to obtain the initial capital to bring it to life or how you can get funding to fuel its development. The lack of significant resources can be the downfall of even the most promising project, as falling below a certain threshold inevitably impacts its quality.
But there are various fundraising options available that can help you raise money for your mobile app and make your dream come true.
It may be hard to believe, but many unicorn companies (companies valued at over $1 billion) began in a similar way. For instance, in 2004, Facebook received its first external investment of $500,000 from venture capitalist Peter Thiel in exchange for a 10.2% stake in the company (CNBC).
Let’s discuss how your app can follow a similar path of success by exploring effective fundraising strategies to turn your idea into a reality!
Understand Your Funding Needs
Raising funds is a common challenge faced by aspiring entrepreneurs of early-stage startups. If you lack substantial savings, it’s only a matter of time before you’ll need assistance in gathering resources to kickstart your app development journey.
During this phase, it’s crucial to remember that mobile app development means much more than just coding. There are various costs associated with creating an app, including design, marketing, and maintenance.
A good starting point will be to understand the estimated costs for your app to assess the required software development budget. While achieving perfect accuracy is not possible due to numerous factors that can influence pricing (some of which you may not even be aware of), Gabriela Jarzębska has created an article that delves into project estimation and provides tips for evaluating development cost estimates.
Nonetheless, strive to estimate costs as precisely as possible to avoid running out of funds in the middle of the project.
So now, I’ll explore the various funding options available for your app idea and assist you in selecting the most suitable one based on your needs.
Funding options for your app idea
There are several startup funding options available to help you secure the necessary capital for your app. Here are some popular fundraising possibilities to consider:
Self-Funding and Bootstrapping
Before seeking external investors, consider using self-funding or bootstrapping if you have any own savings (especially at the very beginning).
Bootstrapping is an approach which characterizes by gradually building a company using your own personal resources. It works well if there is no significant threat from the competition or the market isn’t rapidly growing – then it’s worth waiting with angel investors or venture capitalists (more about them in a sec!) until the later stages of development. It will give you a better position to negotiate terms and retain more ownership in your own company.
For example, bootstrapping was initially used by Apple founders: when Steve Jobs was trying to build a personal computer to make the project work, he sold his Volkswagen microbus to generate nearly $1400 in liquid capital.
Friends and Family
Probably, right after you, the most reliable people are your family members and friends. They know you and trust you, so it might be easier to gain support from them than from complete strangers.
If you have such an option, it may be less risky to borrow money from them than taking loans or sharing a percentage of the company with external investors. You can consider them as private investors.
Angel Investors and Venture Capital firms
Angel investors and venture capital companies are the most common ways recommended by software development companies to raise money for your apps. Sometimes, venture capitalists and angel investors can offer you much more than just financial support. They can share their expertise with you and provide business advice, and bring credibility or resources that can significantly influence the app’s development and success.
Angel investors might evoke an image of literal angels who simply invest money in you without expecting anything in return… However, that couldn’t be further from the truth. What characterises angel investors is the fact that they are usually individuals who invest in your idea with the expectation of getting a share of your business later on.
The advantage is that if your idea fails, you don’t have to repay the money. But if you succeed, angel investors can take a significant percentage of your profits (even 10-25% depending on how much money they provided).
Therefore, think it through carefully! In such a case, angel investors will have a certain degree of control over your business, and they will also be entitled to a percentage if you decide to sell your company in the future.
Keep in mind that collaborating with investors who understand your business and can offer valuable assistance is also crucial. Don’t solely prioritise financial contributions – seek investors who bring their expertise, “know-how”, and a strong network of contacts to the table. Their support and guidance can be just as valuable as the funds they provide.
You can find angel investors through social media platforms like Twitter, LinkedIn, angel investor groups and networks, crowdfunding platforms, or tech startup events.
There’s another option as well – venture capital funding. At first glance, it may seem that it doesn’t differ much from angel investors since venture capital companies also invest in your app in exchange for shares. What sets them apart is that angel investors invest in the idea itself, while venture capitalists typically invest in projects that are already in the development phase and have the potential for rapid growth.
Venture capitalists often have larger sums to offer, but as a result, they also demand greater control over your business, usually aiming for 25-50% of the profits.
To get in touch with venture capitalists, you can try cold emailing (remember to keep it short and highlight the benefits venture capital firms can gain) or meet them at major tech startup events.
Crowdfunding platforms are great for raising funds for your app development and promoting your app idea. Here, you can reach beyond the investor community, as anyone can see your app and support you.
If you worry whether there’s a risk of someone stealing your web or mobile app idea… it is not that likely! However, to start such a crowdfunding campaign, you need to have something to present – a functioning prototype or a nearly completed app (so it’s not the best way to gain initial funding). So no one will be able to outpace a project that is already in progress when they are starting from scratch.
Keep in mind that such platforms don’t take responsibility for the success of your projects. If a project fails, it is the creator’s responsibility. That’s why these platforms often require some evidence or proof of the project’s potential for success before the crowdfunding campaign can be launched.
There are popular crowdfunding platforms for app development that you probably have heard of, such as Kickstarter, Indiego or Patreon. While Kickstarter is known for its focus on creative projects, including games, art or publishing and more, Indiegogo has a broader range of project categories, including creative endeavours, entrepreneurial ventures, or nonprofit initiatives.
They also differ in funding model – while on Kickstarter, you need to reach a set goal within a specific timeframe in order to get money, Indiego allows you more flexibility. It enables you to keep the funds raised even if you don’t reach the goal. That’s why, learn about the platforms and their unique features before deciding which one suits your app development project best.
Types of crowdfunding
There are several types of crowdfunding, such as reward-based crowdfunding, where individuals donate to your project in exchange for attractive non-monetary rewards like early access or premium features (as add-ons to an app subscription). Another type involves investors providing money in exchange for equity shares in the profits.
Fluyo case – the most funded app on Kickstarter
If you doubt whether it’s possible to gain substantial funding on such platforms, I recommend you check out Fluyo – an innovative language-learning game-like app. It’s the most successful mobile app ever funded on Kickstarter, which raised over $1,200,000 in April 2023. They offered various subscription levels along with premium digital items, as well as access to the alpha (which will soon be released for backers to test) and beta versions.
Typically, the backer version is more expensive than the final market version, but it includes premium components that people are willing to pay for and be part of the experience. They offered a Kickstarter-exclusive lifetime subscription that won’t be available for others after the campaign is over. Moreover, Fluyo has expanded its team with backers from Kickstarter and YouTube, creating a great community.
I’m telling you all of this because it serves as a great case study, showcasing how to achieve rapid success and providing insights into effective marketing strategies. The success of Fluyo and the significant funds they raised exceeded everyone’s expectations, including the creators. You can find more information about their work in the updates on Kickstarter.
If you feel confident enough, you can participate in app funding contests where you’ll compete with hundreds of other startups for funding and the attention of investors. Contests are typically organised by angel investors, venture capitalists, or various companies each year. Often, in addition to raising capital, you can also win mentorship opportunities.
One of the prestigious competitions are Apple Design Awards and Webby Awards, which offer to app developers, technical companies or tech startups the opportunity to gain recognition and appreciation for their work. The Apple Design Awards highlight outstanding app design and innovation in various categories, while the Webby Awards celebrate excellence in web-based content, including mobile apps, across multiple categories. Another notable competition is the App Growth Awards (with the entry deadlines for 2023 ending on October 6th, 2023). For a broader range of open app contests, you can also explore the Best Mobile App Awards website.
However, you need to be very well-prepared (more on that in a moment) if you want to win because you’ll be up against strong and numerous competitors. Nevertheless, this is a great experience, and it’s not uncommon for individuals who didn’t win to still attract app investors, get noticed, and successfully raise funds after the contest.
Bank loans, either personal or business loans, are not a popular way to get funding for startups. Keep in mind that banks won’t be concerned whether your idea fails or not – either way, you’ll have to repay the borrowed money, often with significant interest.
An advantage is that banks don’t take any shares from you; however, it’s the riskiest option. So while it’s good to be optimistic, it’s better to think realistically, too (especially at the initial stages). Consider a bank loan only when your idea proves to be feasible, allowing you to expand your project and pay the money back.
Government grants for app development
Government grants are a great opportunity to receive a significant percentage of development costs for your app. However, how much funding you get may vary depending on the specific grant, with some covering a portion of the costs and others covering the entire amount.
So how can you obtain such a grant?
Government grants are usually offered in specific countries or regions, so start by doing proper research. Look for grants that are available for startups in your area. Keep in mind that these grants often target specific niches, industries, or target audiences and may have specific requirements. They also have specific application forms, with deadlines and criteria that must be met to receive the startup funding.
To find government grants for app development, you can visit government grant websites to explore their programs and app funding opportunities. You can also use search engines for grants like Grants.gov (for the US), GrantConnect (for Australia) and Europa Funding Portal (for EU grants).
Keep in mind that grants may involve the expectation that you provide updates on the project’s progress, documentation, and financial statements to demonstrate that the grant has been used appropriately.
Stages of startup funding
Startups go through multiple fundraising rounds that indicate their proximity to generating revenue, becoming significant players in the market, and reaching the IPO stage (a situation when a company’s shares are offered for public purchase for the first time). These rounds enable investors to provide capital in exchange for ownership stakes in the company.
Before each funding round, analysts conduct thorough evaluations of the startup, gathering information about its progress and evolving financial needs. Generally, the key factors considered include the company’s stage of development, market traction, revenue, user base, and growth potential. Investors use their own business valuation methods and the specific criteria for each round may vary depending on the startup ecosystem and investor preferences (but many rely on similar factors like market size, revenue or ROI).
The pre-seed funding stage is critical and happens when your business idea is evolving. Startups at this stage often rely on personal savings, friends and family, angel investors, or early-stage venture capital firms. It is at the pre-seed stage you allocate a significant portion of your private resources to conduct extensive market research aimed at validating your idea. It also involves raising relatively smaller amounts compared to later funding rounds.
So, the outcome of the pre-seed funding round should be twofold: market validation, ensuring your app solves real user problems, and securing initial capital to kickstart your startup journey (like covering expenses for building an MVP, team hiring, and market testing). This sets a solid foundation for future development and growth, making your startup attractive for seed and subsequent funding rounds.
At the seed funding stage, you can gain the attention of angel investors who are eager to invest in your project or occasionally venture capital firms if you’re lucky. Typically, the funding available for startups at the seed stage falls within the range of $1 million to $5 million, depending on the market conditions and the type of the startup itself.
You may also consider crowdfunding during the seed funding stage if you have a prototype or an early version of your product. Take a look at Fluyo as an example. They didn’t even reach an alpha release stage when they presented their project to the public, but they had a part of a mobile app developed and ready to be showcased (built with their own money).
The funds you secure at this stage should ideally be used to expand your development team. Consider outsourcing and finding experts who can contribute their skills to your project. By outsourcing, you can explore different models that best suit your project, whether it’s offshore, onshore, or nearshore development. If you’re not sure what to watch out for choosing the best outsourcing model, read Mike’s article about the pros and cons of all three of them.
By the end of the seed funding stage, you should have a Minimum Viable Product (MVP) developed that you can present to potential investors to secure funding or to conduct user tests and gather valuable feedback.
If you’re new to MVP (Minimum Viable Product) and its importance, read Gabriela’s article to understand its significance in the product development process. But if you’re already familiar with MVP, delve deeper into the MVP development process approach by reading another article from Gabriela. It offers comprehensive insights and best practices for building an impactful MVP.
Series A is the moment for venture capital firms to step in.
It’s the riskiest moment for them to invest. As I mentioned before – venture capital firms invest in apps with the highest potential for growth. As a result, it’s typical for firms going through Series A funding to be valued (pre-money) at amounts as high as $50 million (Inwestopedia).
If you’ve reached this stage, there’s a great chance that your app has the potential to make it. At this point, you focus on the further development process and expanding your app.
In Series B funding rounds, companies are already established, and their valuations typically reflect their stability and growth. In 2022, the median valuation for Series B companies was $35 million, while the average stood at $51 million (Investopedia).
Seriec C, D, etc.
These are the subsequent stages where your app is likely to generate enough revenue for you to cover regular costs and sustain a living without relying on external funding from investors.
When it comes to dealing with investors in later funding rounds like Series C, D, and beyond, it is crucial to assess their alignment with the current stage and goals of your startup. Engage in transparent communication to discuss expectations and future strategies. You can also consider options such as investor buyouts or redemptions while exploring opportunities to attract new investors for further growth.
What do I need to get funding for an app and attract investors?
Getting your app funded and attracting investors can indeed be a challenging process. Investors are cautious with their money and want to ensure it is well-invested.
Remember, when looking for the right investor, think beyond their financial contribution. While financial support is crucial, it’s equally important to evaluate whether their industry expertise, network, and strategic guidance align with your app needs and long-term goals.
Keep in mind, however, that investors vary in terms of goals, so you might need a different approach to different people. Although it seems that friends and family are those who most likely will be willing to invest in your idea only, you might also be supported by a serious business person. Such a person can see that your idea is novel, innovative and future-proof and invest in it without even knowing the forecasted ROI. On the other hand, even your relatives might require some proof that their investment will pay off before they hand you over all their savings.
To increase your chances of finding the right investors for your app idea, make sure to create a well-prepared pitch deck that presents your problem in a simple and easy-to-understand way. Don’t overcomplicate it, and make sure it resonates with the people you want to convince!
To prepare a persuasive speech, you need to argue your idea properly. Therefore, you need to highlight different aspects to different people. Let’s take a look at what arguments you can use when you don’t have a fully working (or even launched) app yet.
A great idea and a reliable team behind it
A brilliant and innovative idea is the first thing that you’ll need to present to anyone. They need to know whether you’re planning to build a social media app or a white-label solution for restaurants. They must be able to imagine how the all will work and what potential problems it will solve.
Friends, family or even angel investors are more likely to invest in an idea than venture capitalists. Having an idea only, you can’t run crowdfunding campaigns and won’t get a bank loan (banks need at least a business plan to make sure you’ll be able to pay off your debts).
However, although the idea is always important, keep in mind that some investors might care more about the team behind it than the idea itself. They are aware that the concept may evolve significantly during agile development, particularly in the initial weeks. For example, consider the success of Slack, which at the moment it raised its first funds of $5M (2010) was just an internal tool for a gaming company. Only later on, in 2013, the whole idea of Slack has changed to a messaging app for business. Slack, contrary to other startups, was evolving slowly, listening to users’ feedback and iterating.
Even Facebook was not previously planned as a global social networking solution. It was initially built as a simple app for comparing students’ photos and creating rankings of the hottest. No one expected that it would become a synonym or icon of social media in the future.
Define your Unique Value Proposition
The fact is that no one is willing to invest in another social media app like the one that already exists on the market. Investors need to feel that your project is unique and has the potential to conquer the market (or its segments). It might be another app of its kind that revolutionises the way we do something (we can take Fluyo as an example – they position themselves like an app like any other that will change the way we learn languages) or an innovative idea for building something totally new, that does not yet exists.
Take the time to define your Unique Value Proposition (UVP) clearly – what sets your app apart? Will it revolutionise the market? Does it offer something entirely new or maybe approach an existing concept in a unique way?
By clearly defining your UVP, you establish what makes your app stand out from the competition and make your chances of success higher. As a result: the greater the chance of success, the more willing investors are to invest.
Make sure your idea is a product market fit
Assessing the market potential is crucial for long-term success and gaining a strong foothold in the market. Your product should achieve product-market fit within your chosen target audience. But what exactly does that mean?
Having a well-defined buyer persona and a narrow focus, such as an app with one key feature that solves a specific problem for the buyer (or user) persona, makes the product valuable and creates a strong desire among users.
How can you measure product-market fit? There is a concept called the “Rule of 40%“, popularised by Sean Ellis. If at least 40% of surveyed customers express that they would be “very disappointed” if they no longer had access to your product or service, or if they consider it a “must-have” and wouldn’t use an alternative, then you have achieved product-market fit.
To test your idea on the market, you should not invest a significant amount of money as you don’t have it. Forget about building simple apps or even prototypes. Test the idea quickly and at the lowest cost possible. To do that, you can use a simple, non-development version of an MVP (Minimum Viable Project). This could take the form of a video, landing page, or social media post. The main purpose is to verify whether there is an interest in the market and assess the demand for your app. For more information on the importance of MVP and the forms it can take, I recommend reading Gabriela’s article about MVP and why you need it.
Prepare a business plan
To convince some people, you might need to prepare a solid business plan – a well-crafted business plan demonstrates to investors that you know what you’re doing, especially if you lack prior experience.
Then, choose a revenue model – carefully consider how you plan to generate revenue from your app and what revenue streams you anticipate. Will it be through in-app advertising, subscriptions, or affiliations? Investors want assurance that their investment will gain a profit for both parties involved.
One of the metrics used to measure the profitability or efficiency of an investment is Return on Investment (ROI). It is a profitability metric used to assess how well an investment has performed. To put it simply, it is a measure of how many times your investment will be returned, indicating whether the investment is profitable.
For example, imagine such a scenario: an investor provides you with 400.000 at a 10% stake. This means that if your app starts generating profits, the investor will gain 10% of those profits. Before investment, they assess various factors, such as the app’s potential for growth, market demand, competition, and risks associated with the startup.
Without this careful evaluation, there’s a risk that you make e.g. $500,000 in profits, and the investor’s 10% share would only be $50,000, resulting in an unprofitable return for them. In such cases, they may demand a larger percentage or they may choose not to invest at all.
However, if they believe that the app has high growth potential and a good chance of success, they might find the 10% ROI attractive and decide to invest.
Create a simple app without coding
Again, although a brilliant idea and market fit might be enough for some, others prefer to see that you have at least a partially working product, they can interact with. Therefore, you can go a step further and use no-code solutions or Figma prototypes to further validate your app idea.
No-code platforms (like Bubble or Framer) allow you to quickly build functional prototypes without extensive coding knowledge, enabling you to demonstrate your app’s core features and user interface to potential investors. On the other hand, Figma, a popular design tool, can help you create interactive prototypes that simulate the user experience, giving investors a preview of your app’s functionality and design.
This not only showcases your app’s potential but also reflects your commitment to delivering a user-friendly product. In the case of less complicated apps built using no-code solutions, you can provide them to users, even if they don’t have all the incredible features that require custom software development.
Develop an MVP
Depending on the type of investors you want to reach and the type of your project, you may find that you actually need a fully-working yet simple app to prove your concept and its feasibility. Therefore, a good next step would be to develop a Minimum Viable Product (MVP). This will provide you with a simplified version of your product to showcase to investors, but also something that you can launch to market and start generating a profit by yourself.
This is the case when crowdfunding comes in. On platforms like Kickstarter, your project must be evaluated, verified and accepted before you’ll be allowed to reach out to potential backers, all that to make sure you’re really capable of bringing the project to life. Therefore, it’s good to have an MVP, not only a prototype.
Having an MVP also means that there’s a huge way behind you. Reaching this milestone, you can try to gain funds from venture capitalists that need to see the project at least being developed. It’s also definitely easier to gain a bank loan when you have an MVP, although I do not recommend this kind of funding as I see it as the most risky one.
If you would like to learn more about MVPs in their development and non-development forms, I recommend you to check Gabriela Jarzębska’s article on that point. In her article on the MVP development approach, you’ll discover practical tips and valuable insights that will guide you through the process of building your MVP effectively. She’s our Head of Product Management Office with huge experience, so she’s also the best person to ask for advice (you can reach out to her via email or LinkedIn).
Prepare a compelling pitch
Even if you know your idea from the inside out, if you start pitching without proper preparation, the speech might be chaotic, and no investor will pay attention. Your efforts will go to waste. That’s why you need to prepare a compelling pitch.
Remember to keep it brief and straight to the point – investors are busy people, so don’t waste their time with unnecessary details. Although for some of them, idea and team are enough to entrust you with their money, others want concrete information. Be prepared for tough questions, such as those about finances, your team, or ROI. Investors want to know everything about your app to determine if it’s worth their investment.
Some questions you can anticipate and should answer with your main pitch are:
- What problem does your app solve, and how does it address the needs of your target market?
- What makes your app unique or differentiates it from existing solutions in the market?
- What is the size of your target market, and what is the potential for growth?
- How do you plan to monetise your app, and what is your revenue model?
- What is your marketing and user acquisition strategy?
- Who are your competitors, and what is your competitive advantage?
- What milestones have you achieved so far, and what are your future milestones and growth projections?
- How will you use the funding you are seeking, and what is your expected Return on Investment (ROI)?
- Can you provide details about your team’s expertise and relevant experience?
- What are the potential risks and challenges associated with your app, and how do you plan to mitigate them?
- Why you and not someone else?
While pitching, you can use a storytelling technique, referring to your personal experience. If you’re wondering how to implement it into your pitch, watch this video of Evan Spiegel in his early speech about Snapchat to take some inspiration!
So to sum it up, raising funds for your app requires careful planning and consideration of various funding options. Whether you choose to self-fund, seek support from friends and family, explore crowdfunding platforms, attract angel investors or venture capitalists, participate in app contests, apply for government grants, or even consider bank loans, each option has its advantages and considerations.
While the journey of funding an app may be challenging, with dedication, preparation, and a well-executed plan, you can turn your app idea into a reality and attract the necessary financial support to bring your vision to life.
Remember to begin with validating your idea with a non-dev MVP, defining your Unique Value Proposition and ensuring product-market fit. If you still don’t know where to start, don’t hesitate to reach me on LinkedIn or via email. I’d be happy to learn more about your app idea and help you achieve your goals!
Jakub is a heartfelt and dynamic leader focused on building reliable, modern, customer-centric, and agile organisations. He's the founder and CEO of TeaCode, a team of passionate professionals: software developers, quality assurance engineers, project managers, UX/UI designers, digital marketers and business analysts.