By Rilind Elezaj, director of marketing, Creative27
Do you really need funding for your app? Should you approach investors or go at it alone? These are just a few questions you may be wondering about if you are in the process of launching your app start up. Once you have a well-developed working app, the next natural step is to market it and secure investment to make sure it keeps growing.
However, is this funding for app really worth it? Do you actually need it? This is what this article is going to focus on. Today, securing investors and funding for app start ups is an ongoing trend. Everyone is doing it, so it is only natural to imagine this is the only way to go. But the question you really need to ask yourself is whether this funding is really worth it and whether you can survive or even thrive without it.
One of the biggest mistakes many start ups make is that of seeking funding when they do not need it. What harm could that do, you ask? Isn’t having more money for your project actually a good thing? Well, yes, it can be a good thing. But it can also be a very bad thing. There is a certain amount of risk that comes with bringing in investors to your company at a very early stage. Because everyone is doing it, we have lost track of the real reason behind seeking funding for app start ups. We have forgotten what it really takes to move your app forward and keep your business above the red line. We think that money is readily available, and with this attitude comes the risk of spending the money we get without properly thinking through what we spend it on.
The downside is that taking on an investor means giving away part of your company. You end up having more people in control of every decision. In the end, you sacrifice efficiency for growth, and you need to really think critically about whether this is what you want.
There are a few questions that need to be answered before making the decision to seek investor funding for app start ups. Do you really need a full time team from the first day or can you manage without it? Do you really need that uber-expensive marketing campaign or that flashy app design or can you implement simpler strategies? Does your product need to implement all those exciting new features at this stage or can they be staggered out and launched at later stages? Could you be biting off more than you can chew?
There are many upsides that come with bootstrapping your business. With this direction, you get to reap several advantages such as learning new skills such as app development and increasing your creativity in product development and marketing. You also get to make smarter, wiser decisions about your spending, because being strapped for cash has a way of bringing out the inner creative in people. Your business might actually end up taking a different and more innovative direction thanks to this limitation.
Additionally, bootstrapping your business will open you up to more opportunities, it will stabilise your company’s foundation, and it will give you 100% control of every business decision you make. It cannot be overstated how important it is to have decision-making rights within your own company. In the end, things will admittedly move a little slower, but that’s not necessarily a bad thing. By taking things slow, you take your time with every decision, reflect on and analyze your actions, making you learn more and become better at what you do with every passing stage.
Sometimes, of course, your company really does need that extra boost. You may find that you do indeed need additional funding. Think about whether your company can survive without this support. Can you do what you need to do to take your company to the next stage without sacrificing your control over the company? If not, then you do need that investor funding, and the next step is to seek it.
Securing and contacting investors funding is not easy. It is true that there is more money available today from investors than ever before. According to Pitchbook data, the average funding for start ups in 2017 was between $1 million and $5 million. Dropbox could only raise about $15,000 in investor funding 11 years ago. However, let all this cash not fool you. There is more money than ever before, but it is harder than it ever has been to get it. Plus, the five million apps on Google Play means that there are probably several hundred apps out there that do what you want to do, and the competition is intense.
Before seeking out investor funding for app start ups, it is a good idea to at least have a working app that has gotten some traction to present to your prospective investors. This is called a Minimum Viable Product, or MVP for short. It is what will get anyone to open up their wallets for you. All your efforts should be focused on getting your app to this stage, because a working app will secure more funding for a smaller share of the company, compared to an idea that only works on paper.
Next are the types of investors you can get. There are five types of investors to fund your app, each with their own advantages and disadvantages:
Friends and relatives
If your app is in its early stages, you should probably consider seeking funding from friends and family first before venturing to other funding sources. They will probably offer you interest-free loans and will be more understanding of your situation than many other funding sources. However, by getting into business with family, you risk irreversibly ruining those relationships if things don’t work out as you promised. Treat them as you would other investors, by making everything formal, as this might lessen the blow in case things don’t work out.
Sometimes, if you get investors who hold a lot of equity, which may oust you out of your own company later on. This is a possibility most founders have to make peace with if they want to seek investors. However, there is another investment option without this risk; crowdfunding. Crowdfunding means getting a lot of people to invest in your company, so that everyone chips in a small amount that contributes towards a larger end goal amount. This spreads out risk, and no one person holds too much equity and power over your start up.
Angel investors are investors who chip in their own money, while at the same time guiding and advising you regarding your business.
This is the group of investors that everyone has in mind when they think about seeking funding. Venture capitalists are professional investors. Their primary concern is the return on their investment, so they will probably be asking for a huge chunk of equity. However, they also provide technical support through experienced networks of professionals that they possess. This will raise your chances of going to the next level.
Incubators and accelerators
Incubator and accelerator programs are a great way to get funding and guidance especially if your product is in its early stages. These programmes nurture your idea and jumpstart it by injecting a little cash into it, facilitating growth until you can manage it on your own. They also put you in contact with other people who are going through what you are going through, as well as making available the muscle you need for such specialized tasks as advanced app development or improved app design for your product. The difference between them is that accelerators have a fixed timeline while incubators take more time with you with greater long-term benefits in mind.
In the end, it’s all about being honest with yourself. Assess your company’s wants and needs and figure out what direction you need to take. It’s nice to have an app that works, but marketing and developing it constantly is what will take your product to the next level and finally make it worth the time you have put into it.
Creative27 is an award-winning app development company in Los Angeles, US. It specialises in high end app development on iOS and Android.