The mobile app industry is booming at the moment, with mobile apps predicted to generate over $935 billion in revenue in 2023 alone. No wonder then, that many people want to get involved and create their own offering in the space.
However, creating, maintaining and marketing a mobile app requires money and you may find that you don’t have the funds yourself to support the venture initially. Luckily, there are many sources of finance to get your idea off the ground and into the market place and we will discuss these here.
Financing for your mobile app can broadly be categorised into ‘funding’ and ‘investment’. The simple difference between them is that investment requires the exchange of equity in your business for money whereas funding doesn’t. We’ll explore both of these options below and the advantages of each. By the end of this article, you will have a better understanding of what may make the most sense for you and your business.
Funding
Funding can take a few different forms which I have broken down below. The key theme is that typically the source of funding contributes funds not for financial return, but because they want to help you personally, see your idea come to life or indirectly create a benefit to the community.
Bootstrapping
Bootstrapping is the simplest form of financing your idea. You use your own funds or money your family/friends are prepared to give you.
Pros
Cons
Crowdfunding
Platforms like Kickstarter offer founders the opportunity to raise funding in exchange for rewards for backers. The rewards can be as simple as early access or limited edition merchandise. The additional significant benefit is that you see if there is a market for your idea with a broad range of potential users.
Pros
Cons
Grants and Competitions
There are countless grants and competitions out there for aspiring entrepreneurs to apply to. These are often created for the public good in some way i.e. bringing more tech jobs to a particular region or helping solve a particular problem. You can win some serious money using these schemes but they are often bureaucratically challenging and highly competitive.
Pros
Cons
Investment
Investment relies on you being able to provide a compelling enough reason for investors to believe that they can achieve a return on their money working with you. This gets easier the more you validate your concept. In return for their investment, they will take a piece of your company. As they now own some of your firm, they will have a say in how you run it, the direction of the product and various other aspects of your business.
We’ll discuss three different investor types here: Angel investors, venture capitalists and private equity investors. Rather than discussing the pros and cons of each, we’ll talk about whether they would be a good fit for you based on the stage you are at in your growth.
Angel Investors
Angel investors are typically individuals with significant financial resources that they are looking to invest in products they believe have potential. Think Dragons Den or Shark Tank. They often have a good appetite for risk and come in at the earliest stage of the three types of investors.
Angel investors usually look for three key attributes:
The more you can demonstrate all three of the above, the more likely you are to land an angel investor. Highlight your (or your team’s) industry experience or a track record of producing successful products. Show research that confirms your theory that your product has the potential to scale. Spend time on a business plan that outlines how you will make money.
Venture Capital
Venture capitalists look for products that appear to have found the beginnings of product-market fit, buy a minority stake and use their resources and expertise to grow the company’s value quickly.
Typically they will want to see some traction from your product (consistent user growth, user engagement, industry buzz etc.) so you are unlikely to find them while at the pre-seed or seed stage. Series A, B and C are usually where you will stand a chance of getting these investors interested.
Bringing venture capital into your business will accelerate your growth, but with it comes a very vocal partner. Your autonomy will be reduced and you may feel as though you have lost some control of your direction.
Private Equity
If you are reading this article, then a private equity investor is unlikely to be a good fit for you at this time. These investors look for established companies that they believe are currently operating poorly. The PE firm will purchase a majority stake in the company, replace the leadership and revamp the business. In doing so they hope to quickly boost the valuation of the company with a profitable exit following shortly after.
You may consider a private equity firm as an investment partner once your product reaches a certain size and you are considering exit options.
What financing is right for you?
Now we’ve explored some of your options, how do you decide what route is best for your mobile app?
The reality is, that most founders don’t pick one route. They combine financing options to give themselves the best chance of success given their personal situation and the stage of product development.
A typical example might look like this:
At each stage of your growth, you need to weigh up the speed at which you want to move with the size of equity in your firm you are willing to relinquish. Some founders enjoy the autonomy that comes with growing organically and slowly whereas others want to get to a big exit as fast as possible and are happy to do what it takes to get there.
Think carefully about what success looks like for you and use the financing options that fit your goals.
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