Overview – Typical Fundraising “Rounds”
App developers: There are several rounds to venture financing, typically coinciding with the different stages of your app development. The best fundraising strategies thus involve diligent planning aimed at attaining each milestone successfully.
- The first round commonly involves securing sufficient seed money to enable you to advance to subsequent rounds. This may cover design development and the initial marketing that creates the right kind of buzz for your new app. In this phase, you are also setting up early investors for a deeper engagement with you later on.
- The second round involves the beginnings of company development: creating more refines app prototypes, office space, furniture and equipment, staffing, branding, and patent applications. In this stage, some of your seed investors will also continue investing, and new investors will join in.
- In the third round, you attract app users and thereby compile the necessary performance statistics that enable you to garner more investments at higher valuations. While attaining your larger fundraising objectives, this stage also serves to attract niche influencers and brands advocates who can spread your gospel to a wider audience.
- In the fourth and final round, fundraising to date enables you to further develop your app into its ultimate functionality, invest additionally in user acquisition and general marketing, and further staffing for growth. Many app developers are in this stage approached by bigger companies for potential acquisitions or licensing agreements. This stage therefore serves for getting organized for the sale of your company or parts thereof.
12 Fundraising Tips for App Developer Startups
1- Learn your financing options: Startups usually raise as much money as they estimate they will need to attain sustainable positive cash flow and profitability. In the early fundraising rounds, the amounts needed commonly range between $100,000 or $200,000 to $2 million. Here—briefly—are the most prevalent financing schemes:
- Equity: In this most common financing option, a valuation is set for the app development company, from which can be derived a per-share price. Funds then are exchanged for shares.
- Convertible Debt: these are interest-bearing loans, with maturing contingents, that can be converted into shares at pre-specified valuations that are usually lower than for other first-round investors in the app development company.
- Safe: This financing option resembles convertible debt except that it carries no interest or repayment details. Its basic attraction to the investor is in regard to the lower valuation set for converting the loan into shares.
2- Nail your pitch: App developers, fundraising starts and ends with a perfect pitch. Rehearse and nail it, from the minute you open your mouth. Tell your story in as compelling a version as you can muster, and include:
- What your app development company does, and the problems it aims to resolve
- The currently prevailing technologies, size, and opportunities of your niche market
- The new technologies and elements your app startup introduces, and its competitive edge
- Your background, with evidence as to why you are particularly suited to run and grow your business
In addition, whether you strive to raise $50,000 or $5 million, a pitch deck is essential these days. Experts differ as to the length of a pitch deck, going from 6 slides and a few minutes, to 20 slides and 20 minutes. Check out Buffer’s slideshare.com, PowerPoint Design by go.slidegenius.com, and Foursquare’s slideshare.net.
3- Develop an organized campaign: Organization is at the core of every successful fundraising strategy. This would include:
- Producing great information packages for your app development company
- Informing, motivating, and leveraging the capabilities of your friends and volunteers
- Keeping track of all fundraising phases
- Accepting donations online
- Providing thank you notes and receipts to investors
- Managing your finances
There are dozens of software packages that can help you keep your startup fundraising running smoothly (e.g. NeonCRM, DonorSnap, Salsa CRM, Donately, and Bloomerang).
4- Get some app branding going: Branding on its own tells only one part of your story. However, a creative name and logo, a domain name that resonates, and a decent site with an engaging landing page, these and other branding elements create the beginnings of an aura of authority and lend your pitch an added oomph!
Again, logo-creator software tools proliferate on the web, some of them free (e.g. logomark.com, FreeLogoDesign.org, and Canva.com).
5- Self-funding: This accounts for more than half of all startup funding sources, and it includes your personal savings and tapping into credit cards.
6- Family & Friends: Nearly 25% of startups are funded from this source every year. Get a mailer going that describes your venture, and then appeal to every person individually or in small groups.
7- Network Connections: You might consider setting aside 5% of shares in your app development company to offer as stock options to seed investors from within your network of connections. Hug your shares cautiously though for you’ll need to incentivize other investors in advanced fundraising stages.
8- Social media engagement: Zuckerberg’s Law: “It won’t be long before Social Media Marketing will surpass SEO.” So, who better to tap into than your social followers? Roll out your app development idea carefully with compelling content, stories, and any other form of engagement that converts “likes” into investors.
9- Past or future customers: You may negotiate advances from past or prospective customers in exchange for favorable treatment in future dealings (e.g. discounts or special warranties or support).
10- Partners and key employees: Seek active or passive partners who can invest with you and not be particularly concerned with quick ROIs. You may also want to offer stock to key employees who have the means to invest with you.
11- Crowdfunding: Platforms like Indiegogo and Kickstarter raise vast dollar amounts each year by seeking small investments (typically $50-$250) from thousands of investors. The site LendingClub also specializes in loan and royalty-based financing that can be helpful for startups as well.
12- Angels and venture capitalists (VCs): Although many angels are investment-savvy, angels are commonly amateurs though fast with their investment decisions. By contrast, VCs, using other people’s monies, are more professional and need to be pitched rigorously. Some VCs, referred to as “micro-VCs”, could perhaps be better venues for app development startups, since some of them invest exclusively in seed money for new, early-stage tech startups. Finally, lists of both angel investors and VCs abound and are easy to find online.
There is hardly anything more exciting than the buzz and energy that surrounds a new venture. It all becomes like a lightning rod, with you day and night, summoning you to new emotional heights. The fear is there as well: Will my planning prove stellar, my app trendy, my fundraising adequate? Will I be able to attract the best partners and employees, and will I ultimately rise up to the task?
The answer is to summon every ounce of diligence and attention to detail you can muster. Put all that energy to good use, for you don’t get too many chances at developing and growing your new baby. This is it, and may the good karma be your companion!