Most app entrepreneurs are under the delusion that as long as they have a great app idea, investors would throng their doors with their money. Unfortunately, this is a rare case scenario, and most app entrepreneurs have to work really hard to gain investors for apps. In this article, we shall discuss how entrepreneurs can convince investors to invest in their app idea.
Homework before scouting for funding
Know the app’s niche
The oversupply of app ideas in the market acts as a hindrance for a new app idea. There seems to be an app for everything, and hence investors are wary of funding an app idea that already exists. Therefore it is crucial to do substantive research and figure out the market potential of the app idea. Entrepreneurs should figure out what competitor apps are offering. This exercise will help the entrepreneurs identify the customer’s pain points, which will ultimately help them improve the usability and user experience of the app users. The practice of competitive analysis will also ensure that the app idea is not a blatant copy of an existing idea because no investor is interested in an identical product.
Entrepreneurs must identify a profitable niche to lure investors. The entrepreneurs need to ask themselves.
- What exact problem will the app solve?
- What are the USPs of the app?
- How is the app better than the existing solutions?
- Are there customers who are willing to pay for the app?
Investors tend to fund ideas that are well researched. The app idea’s research quality also shows the entrepreneurs’ clarity, which is a confidence-boosting thing for the investors. Investors want specifics regarding the target audience, what problem is being solved, the app features, and so on.
A logo and a domain for the app show that the app is not just a side gig, and the entrepreneurs are serious about the app. It shows that the entrepreneurs have put a lot of thought into the vision. Branding is the core of every business, and branding helps investors visualize the idea.
Having a mockup of a site, domain, mockup of the app will help the investors visualize the app idea and allow them to gain a better understanding of what the entrepreneurs are pitching to them.
A good elevator pitch is one of the most important things that entrepreneurs need to focus on. An elevator pitch is a 20-30 second pitch for the app idea. The elevator pitch should be designed in a manner that sparks the interest of the investors. A good elevator pitch should describe the app idea, the app’s significant features, the problem that the app would try to solve, and the market potential. The elevator pitch acts as a hook for the investors to call the entrepreneurs for a detailed meeting.
The Pitch Deck is a detailed presentation about the app idea. A pitch deck aims to answer all the questions related to the app idea. While preparing the pitch deck, the entrepreneurs must ensure that they do not overburden the pitch deck with too many details. Instead, they should focus on the necessary details like graphs, stats, branding, key features, market segmentation, and the app’s revenue potential.
There are a few things that one should keep in mind for the first meeting-
A clearly defined company purpose will help the investors in understanding the real motivation behind the startup. A purpose will act as a guideline that will help the business in making tough decisions with ease. Investors love companies with a clear purpose.
Entrepreneurs must define clearly how they are going to solve the problem of the users. The pitch deck should talk about the current state of the problem, how the present solutions address the issue today, and the shortcomings of the existing solutions.
The pitch deck should show the potential solution that the app would provide to the users’ problem. The pitch deck should establish the value proposition and the uniqueness of the app.
Why It Is The Right Time
Like all things, ideas also come with expiry dates. The pitch deck should answer why this is the right time to invest in the app idea.
The pitch deck should clearly define the customer and the market. Investors should be able to understand the market potential clearly.
The pitch deck should answer the question of who are the competitors in the market, their strengths, and weaknesses.
The app’s business model should have concrete plans regarding the source of revenue and the potential fixed and variable expenses.
Types of funding
Once the homework is done, the startup can now start scouting for funds. There are various ways to fund an app idea; we shall discuss some of the most prominent ones below.
Angel Or Seed Funding
Angel or seed funding for mobile application development usually is hard to get as the Angel investors fund the project when the app is still on paper. To get angel funding, entrepreneurs have to develop compelling arguments regarding why their idea is worth the angel investors’ time and money. Typically angel investors tend to dig deeper and can ask a lot of questions. Startups vouching for angel funding should be prepared to answer any question that comes up their way. To gain angel funding, the entrepreneurs have to convince the investors that pitching is a novel idea, and the investors will see a significant ROI from the idea.
Though not always the case, venture capitalists typically fund ideas that are already on the ground. As opposed to angel funding, venture funding is not meant to be long-term funding.
Venture capitalists invest in a company till a predetermined size and market credibility are reached with the ultimate aim of selling the company to a larger player or taking the company public. The big challenge with venture capital money is to demonstrate superior returns on investments consistently.
Bootstrapping is the most simple form of funding. The entrepreneurs start with their own savings. The significant advantage that bootstrapping has over other financing forms is that the entrepreneurs have complete control and ownership of the app and its process. They do not have to answer anyone regarding fund usage. It’s always a good idea to bootstrap an MVP to validate the idea. With a few lucky founders, bootstrapping is the only funding they require; for others, it’s an excellent way to get their feet on the ground before they go to the investors.
With the increased coverage of the internet worldwide, crowdfunding has emerged as a popular mode of funding.
The main types of crowd funding are reward-based and investment funding.
Sites like Kickstarter and Indiegogo fall under reward-based crowd funding. The popular crowd funding platform Kickstarter.com has funded projects worth $5.43 billion till Jan 2021. The reward-based model works on gathering funds from many people by offering people some form of reward. The people who have invested money in startups get rewards in the form of early access to the app, free product, or having their name in the credits in case of a documentary or a film.
Another more conventional form of crowd funding is equity funding. The entrepreneurs raise money via the sale of securities (shares) of their company. The benefit of the entrepreneurs’ investment funding is that they retain full control over their product as the investors are interested only in their ROI and generally do not interfere in the company’s day-to-day workings.
Business incubators run app contests all over the world. The Y Combinator Demo Day is one of the most popular startup pitching competitions in the world. Held twice a year, the competition features the latest batch of startups that made it into the Y Combinator accelerator program. Startups can gain access to more than 400 investors on the demo day, and the startups stand a great chance to secure some funding from here. MIT $100K entrepreneurship competition, TechCrunch disrupt, and Flash Pitch are other popular app contests. Although extremely competitive, app contests are an excellent opportunity for entrepreneurs to showcase their talent to the world and gain some much-needed publicity along with funding.
The personal network of friends and family can prove to be a great source of funds.
Entrepreneurs can also consider weak ties within their network like old friends, coworkers, the social media network, professors, and bosses to see whether they can help. Even if the weak ties cannot provide the fund themselves, they might know someone who will.
Raise Donations on Your Own Site
To gain funds from retail investors, crowd funding and app contests are a great way, but they have their drawbacks. There is a lot of competition and getting reasonable funding becomes a near-impossible feat for many entrepreneurs. A smart way of raising funds can be to ask for funds on the company’s own website. The business won’t face much competition for funding on its own website.
Bringing an app from idea to reality is a long process. It’s not easy, but success is imminent for entrepreneurs willing to put in the hard yards. While scouting for funds, one should try all possible means to search for mobile app development investors. Once the app owners get the funding, they can hire a top mobile app development company to build a successful mobile app.