How to Raise Funds for an App Startup?
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 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 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.
Whether you’re a seasoned entrepreneur or just starting out, securing investment is crucial for taking your app from idea to reality. With the right strategies and approach, you can increase your chances of attracting investors.
In this article, we’ll explore the importance of raising funds, the key steps involved, and possible sources that can help app startups to raise funds. Before looking for funding, it is important to finalize the idea behind the app. A greater budget helps startups to work with their full potential. They don’t have to compromise by limiting features and cutting costs in tasks such as marketing and advertising. Investors only invest when they are confident about the startup’s success. Also they look into the profit they will be making out of it. Therefore, your app startup idea should be solid. This should sound viable enough and can generate a great ROI.
From developing a compelling pitch to reaching out to potential investors, learn everything about how to raise funds for an app startup. Read the article so you can make the process of fundraising manageable and increase your chances of success.
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.
But before raising funds you need to do some prior preparation which you will learn in this article.
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.
The specific steps and approach may vary based on the individual startup and their unique situation. It is important to have a clear understanding of each step mentioned above in the list. Read on to prepare yourself before going on to raise funds.
Prepare an MVP (Minimum Viable Product)
The MVP is usually a stripped-down version of the final product, with just enough features to allow early adopters to use and provide feedback. The purpose of an MVP is to minimize risk and investment while gathering valuable information to guide future development.
It’s said that “action speaks louder than words,” likewise a mere verbal presentation in front of investors is less effective compared to MVP. To build an MVP, the startup should finalize the type of features and functionalities first. Depending on this information, an MVP should be designed to help investors get a clear idea about what the app is all about. Developing an MVP is the best way that surely helps attract investment toward the startup. This approach is commonly used by startups to test their ideas and validate the market before committing significant resources to full-scale development.
Steps to Build a Minimum Viable Product:
To ensure the success and usefulness of your product, it’s important to carry out a market research study first. One way to do this is to utilize platforms that offer paid surveys (OneOpinion) to gather insights from potential users. Additionally, it may be useful to examine your key competitors. Study how they develop and launch their minimum viable products (MVPs), and learn from their experiences.
Be Clear With Your Idea
To create an MVP, you first need to identify the problems faced by your potential customers and determine if your product can provide a solution. For example, Airbnb addressed the issue of high-priced hotel rooms, while BlaBla offered more flexible travel routes and schedules. Once you have a clear understanding of the customer’s pain points. Now you can alleviate your product and develop an MVP version of your software.
Before seeking a tech partner, it is important to create a list of features for your future application. Then prioritize the elements that are essential for creating a MVP concept. Keep in mind that an MVP should focus on delivering a basic version of the product, without the need for advanced functionality or intricate design
Once you have established your requirements, it is time to find a trustworthy technology partner with proven expertise in the relevant field. When selecting an IT vendor, evaluate factors such as their track record of successful projects, the complexity of their previous work, the technologies used in their development process, and client feedback.
Once all the components of your app have been defined, begin with the MVP development. The focus should be on creating high-quality and straightforward software, rather than adding excessive features. The software development process typically consists of the following stages: discovery phase, UI/UX design, actual development, quality assurance, and release.
Evaluate the Feedback
After completing your product, it’s time to present it to stakeholders. Before meeting with investors, it’s important to conduct beta testing to minimize the risk of potential failures. To ensure the product meets user needs, it should be tested with a real audience. Any improvements if needed must be made based on their feedback. Once you secure an initial investment, you can then focus on developing more advanced features.
Creating an Attractive Pitch Deck
Create a pitch that starts with the introduction of yourself, your team, and the business ideas you are pitching. Clearly articulate the problem your business is solving and why it matters. Explain the product or service, how it solves the problem and what makes it unique. Provide evidence of traction, such as customer testimonials, pilot projects, and early adopters. Analyze the market size and growth potential, as well as the target customer segments. Explain how you plan to generate revenue and become profitable. Provide financial projections, including revenue, expenses, and cash flow. Highlight the experience and skills of your team and why they are well-suited to execute on the business plan. Analyze the competitive landscape and explain how your solution is differentiated. Clearly articulate what you are asking for, such as investments or partnerships.
Keep the deck concise and visually appealing, using charts, graphs, and images to help convey key points. Aim to tell a compelling story that engages the audience and highlights the potential for success.
Networking and Building Relationships
Networking and building relationships to raise funds for an app startup refers to the process of connecting and establishing professional relationships with potential investors and other stakeholders in order to secure investment capital. This involves actively seeking out new contacts, nurturing existing relationships, and using these connections to achieve specific goals, such as expanding your network, gaining new business opportunities, and increasing your visibility in the industry.
This might involve attending industry events and conferences, participating in pitch events and startup competitions, reaching out to venture capitalists and angel investors, connecting with successful entrepreneurs, and leveraging social media networks. The objective is to create a network of supportive relationships that can help entrepreneurs secure the funding they need to grow their app startups and succeed in the competitive world of tech entrepreneurship.
Reaching Out to Investors
The objective of reaching out to investors is to secure investment capital. In order to obtain this you might need to create a quick video showing some real numbers. You might need to hire an intern or maybe a team who can reach out to your target investors on LinkedIn or angel.co. You might also need to send emails, make phone calls, attend pitch events or presentations, or send formal proposals. When reaching out to investors, be clear and concise and prepare some questions that investors might ask. For instance, why do you believe your app has the potential to succeed?
Finding Funding for an App Startup
There are several ways you can fund your app project: take a look at possible sources that startups should consider to raise funds.
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.
Angel investments are a great way to secure early-stage funding and build a network of advisors and supporters. It is important to carefully evaluate the terms and conditions of each investment opportunity and to seek the advice of a financial advisor or mentor before accepting investment from angel investors.
Advantages of Angel Investors for App Startups:
Large Capital: Angel investors can provide significant funds for early stage app startups.
Mentorship: Experienced angel investors can bring valuable industry knowledge and connections to your app startup.
- Flexibility: Angel investment deals can often be structured more flexible than venture capital, allowing for more tailored funding solutions.
Speed: Angel investments can happen faster than traditional funding sources, allowing for quick access to capital.
Disadvantages of Angel Investors for App Startups:
Exit Strategy: Angel investors often exit a startup quickly, which can be advantageous if the startup grows and the founders can buy back their shares. However, if this is not the case, it can lead to the loss of credibility with other investors and negatively impact the startup.
Control: They will have a fraction of ownership in the venture and thus little control over your business. You are answerable to the angel investor in some of your decisions that are made.
- Ownership Equity: Angel investors may provide startups with confusing and unrealistic valuations, both low and high, which can be a challenge for business owners. It is important to clearly define ownership equity in the business. To address this issue, Y-Combinator has introduced the Simple Agreement for Future Equity (SAFE), which provides a way to manage this situation.
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 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.
In exchange for their contributions, investors may receive rewards or perks, such as early access to the app, exclusive content or merchandise, or a share of the company’s profits. Crowdfunding can also be a useful way to validate a startup’s idea, build a community of supporters, and gather feedback from potential users. However, it can also be challenging to reach the funding goal, and startups that are unsuccessful in their fundraising efforts may have difficulty securing additional funding from other sources.
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.
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.
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:
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.
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.
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.
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.
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.
Initial Public Offerings (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.
How Agicent Expertise Assists You for an MVP
Our company’s expertise assists startups in creating exceptional digital solutions across various industries. Our team is highly experienced in not just making minimum viable products (MVPs), but also helping to grow them into successful ventures. We excel in the early stages of product development, offering CTO services and support in the discovery phase. By utilizing our MVP development service, startups can differentiate themselves from those with just ideas and gain attention from investors with a functioning product.
To successfully raise funds for an app, a clear and compelling pitch that showcases the potential and viability is important. Achieve this through a well-prepared pitch deck and MVP, along with thorough market research. Additionally, exploring multiple funding options and targeting the right investors can increase your chances of securing funding. Overall, a combination of careful planning, market knowledge, and persistence can lead to success in raising funds for an app.
With this, we conclude our thorough research article on “How To Raise Funds For An App Startup”. Now that you know the importance, the steps involved in raising funds, sources responsible for funding and stages of an app startup. Read our next blog on “How Free Apps Make Money“.
Frequently Asked Questions:
There are various ways to raise funds for an app startup, including: Angel Investment or Seed Funding, Venture Capital, Bootstrapping, Crowdfunding, and Loans.
To pitch your app idea to investors, you need to prepare a clear and concise pitch deck that showcases your Minimum Viable Product, Target Market, Financial Projections, and Show them real numbers. Practice your pitch, be passionate, and be ready to answer any questions they may have. Therefore, prepare yourself with a list of questions that investors might ask.
The amount of funding you need to start your app will depend on various factors, such as the development cost, marketing expenses, and salaries for your team. A rough estimate is to aim for at least $20,000 to $200,000 in seed funding.
To increase your chances of getting funded, you need to have a great MVP, a team with relevant experience, a clear understanding of your target market and competition, and a demonstration of traction for your app idea.
You can find investors for your app startup by networking, reaching out to angel investor groups, attending startup events and conferences, and searching online for venture capital firms that specialize in funding tech startups.