Most app founders need investors to put up some of the funds required to create an app.
Depending on your app complexity, average app startup costs range anywhere between $40k-$120K for development. You’ll also need further funding for user acquisition, marketing initiatives, and updates once your app is live.
But as an app founder with a concept, how can you source this amount of capital? Where are the best places to look for investors, and how do you approach them convincingly?
Here, we give you a comprehensive guide to finding investment for your new app. You’ll learn how to:
- Conceptualise your app from the perspective of an investor
- Determine your required investment
- Approach the different stages of funding
- Identify different types of investment opportunities
- Integrate long-term investment requirements into your app development plan
- Avoid common pitfalls
After reading this guide, you’ll have the resources and know-how to find, approach, and convince investors to help take your app from an idea to a profitable listing on the app store.
Table of Contents:
- Conceptualising your app in order to clearly communicate value
- How much investment do you need for your app?
- The stages of funding and how to strategically approach each one
- Types of funding and investors
- Pivoting your app pitch according to investor type and funding stage
- Common pitfalls of seeking app investment (and how to avoid them)
Conceptualising your app in order to clearly communicate value
Before you can approach investors asking for money, you need a crystal clear concept of what your app is and who it’s for. This will ultimately help you to demonstrate how and why it’s a worthy investment that will meet predefined goals.
This involves target audience research, formulating an elevator pitch, creating a pitch deck, and writing a business plan.
Conduct target audience research
Securing investment is the process of getting someone else to believe in your app concept.
To do this, you need to explain the functionality of your app to potential investors and, importantly, what will make it a staple in users’ everyday lives.
You must know:
- Who your app is for
- What problems and goals they have
- How your app solves their pain points and helps them meet their goals
- What branding scheme will resonate with your audience
- Why your concept will benefit your users’ daily lives
Gathering this information with target audience research is the first step towards convincing investors to back your app.
A great jumping-off point is reading the reviews of similar apps. Sort reviews by one star and five stars, and you’ll find your target audience tells you precisely what they like and don’t like about your competitors.
For example, when looking at Splitwise’s reviews, we see pain points around expense sharing and the UI. On the other hand, the top reviews mention organisational benefits and features that make group debts easier to manage.
If you were building a similar app, you could fill these pain-point gaps and double down on what’s working well (in your own unique way).
Formulate an elevator pitch
Once you’ve gathered this information, you must prepare to describe your app and its purpose in a concise, intriguing 30-second spiel. That’s because investors are busy and often want to hear a bare-bones description of your project before they decide to commit to your full presentation.
To work, your elevator pitch must be compelling, attention-grabbing, and include these key elements:
- An introductory sentence to frame your pitch. Such as, “I’ve got an idea for an app, and I’m looking for investment”.
- Your app’s value proposition. Such as, “The idea of the app is to help consumers know where their data is being sold”.
- Attention grabber. Such as, “It is possible to help internet users and consumers monetise their big data—my app plans to do that”.
- **Call to action. **Such as, “Are you interested in hearing more about this idea?”
Write down your pitch. Speak it out loud. Edit it. Memorise it. Tell it to a friend. Re-edit it.
Having an elevator pitch ready to go empowers you to capitalise on any opportunity where you might bump into a potential investor and pique their interest.
Create a pitch deck and business plan
A pitch deck is a fancy way of saying a presentation. It’s similar to your elevator pitch, just with more detail.
Aim to make your presentation around ten-twelve minutes long and include all of the target audience information and competitive analysis we’ve discussed so far.
You also need to go into the specifics regarding your app finances with a detailed business plan that includes:
- Financial figures
- Monetisation strategy for your app
We’ll dive into how to calculate those figures in the next section.
Ultimately, your pitch deck is your chance to convince investors that their money will be well-spent and that they can expect a decent return on investment (ROI).
How much investment do you need for your app?
Before looking for investment, you first must know how much capital your app project needs. Looking for too much money is a common mistake app founders make, which we’ll go into more detail later.
So, how do you know how much you’ll need to create and manage your app? And what does that amount to in terms of valuing your app idea?
It all depends on your app’s complexity. By and large, apps can be simple, medium, or complex.
Factors that determine the complexity of an app include:
- Number and scope of functionalities
- Data models
- Customer UI elements
- Compatibility needs (i.e. single or cross-platform, iOS or Android, etc.)
For simple iOS apps with a single functionality and an easy-to-navigate user interface (such as a workout weight tracker) app founders can expect to pay between 1k-40k for development.
More complex apps are naturally more expensive. For example, weather forecasting apps that incorporate data from external sources and predict where to go fishing on the weekend take hundreds of hours to develop.
Complex apps like these generally cost anywhere from 120k to 500k+.
App developers or development agencies can give you an estimation of how much your app will cost.
We strongly recommend you approach app professionals before seeking investment, as app development teams like ours can help break down the costs involved and provide a realistic timeframe from ideation to launch.
The stages of funding and how to strategically approach each one
As you might expect, funding is rarely a one-time event for an app start-up. That’s because investors are understandably reluctant to put large sums of money into young apps early in their development.
But as a key part of investing involves risk management, investors also know that the earlier they get in on an app, the greater the potential returns.
As an app founder, you can leverage this risk vs. reward ratio to secure early investment by aligning your funding requests with the type of investor you’re approaching.
The pre-seed funding round takes place at the very beginning of your app creation process.
You’re conceptualising the app (as per the first section of this article), doing plenty of research and development, and establishing a founding team.
There is nothing substantial to show investors other than an idea. Thus, the best pre-seed money usually comes from friends, family, and your personal network.
But don’t underestimate the importance of a pre-seed round. Andy Puddicombe and Richard Pierson, the founding owners of Headspace, scraped together $50,000 from friends and family pre-seed. The Headspace app is now worth over $320 million.
In the seed stage, you’re looking for funds to develop your product further, grow your team, and test market-product compatibility.
By now, you’ve invested plenty of your own time and energy into formulating a demo concept, but the full app isn’t yet built or proven.
Investors during the seed round will be risk-tolerant and are typically angel investors, early-stage venture capitalists, and startup incubators willing to risk their funds for a high reward.
When you reach the series A investment round, you’re well on your way. By now, you’ve demonstrated market-product compatibility and have clear objectives driving your app brand.
The traction your app has at this stage will attract more prominent investors, such as venture capital firms and “super” angel investors. These big players can put up the money you need to grow and advance your app development, marketing strategy, and outreach campaign.
One currently trending app in the series A funding stage is Clubhouse. They have proven their concept so far, but need funding to improve their UI and cross-platform capacity before releasing their app to the public.
Series B, C, D and onwards
Reaching this stage means you’ve successfully brought your app to market and established a profitable demand for it.
Series B investment stage and onwards is where you evolve your app from a startup to a mid-sized business. Here, you’ll likely focus on globalisation efforts, team expansion, and service iteration and development to fuel growth and scalability.
Uber is an excellent example of how a team of app founders scaled their funding as their app development demanded it.
Garrett Camp and Travis Kalanick gathered $200,000 in their seed round of investment.
They then used those seed funds to enhance their minimum viable product (MVP) and develop a valuable app they could present to angel investors in their series A investment round. All of this led to the Uber team securing a further $1.25 million.
Once Garrett and Travis had the app up and running, they focused on rolling it out to different countries. To realize this goal, they secured more funds with sixteen subsequent rounds of series B, C, D investment; netting $25.3 billion total.
Types of funding and investors
As each stage of the app development process has specific financial requirements, you need specific types of investors along the way.
Here, we’ll look at the different kinds of investors available to you and at what stage you should consider approaching them.
Angel or seed investors
Angel investors are wealthy individuals (or groups of wealthy individuals) who invest their personal money into companies.
Because angel investors manage their own finances and aren’t tied to larger groups or firms, they can be easier to convince in the early and riskier funding stages. This is particularly true for the pre-seed and seed rounds.
An angel investor might invest in your app because your passion and motivation inspires them to do so, which is why conceptualising your app early is crucial to initial funding success.
However, you might also find that angel investors offer their money in return for partial control over the app's development (or come with other strings attached).
If that’s the case, you have to decide how much of your company you’re willing to share in order to bring your idea to market. And as with every business decision you make, weigh up your pros and cons.
|Angel Investor Pros||Angel Investor Cons|
|Willing to take risks||Might set high requirements|
|The money isn’t a loan||Strings attached to the investment|
|Odds of successfully developing your app increase||You’re no longer in complete control of your project|
Many online platforms can link angel investors with app founders and are excellent resources when looking for initial investment. Here are some of the most popular communities:
- Angel.co (Angellist)
Venture capitalists (VCs) are employees of venture capital firms that invest other people's money (which they hold in a fund) into companies.
VCs often have more money to invest than angel investors but also require more proof of viability. They also want to see greater returns on their investment and will push apps to monetise their product as soon as possible.
Most VCs can provide unique advice on how to develop an app for profitability, which is a bonus for many app founders. Because of this, VCs are a common route entrepreneurs take when seeking app investment.
Let’s look at the benefits and drawbacks:
|VC Investor Pros||VC Investor Cons|
|No obligation to repay loans||Investors own a stake in your company|
|VCs have a vast network of connections||VC investment can come too early for some companies not yet ready for expansion|
|Large sums of money for rapid growth||Can be hard to secure|
Launch.newchip.com is a great online platform where you can link with VCs. Googling “venture capital firms in [your area]” is also a great way to find suitable VC investors.
Bootstrapping and seeking co-founders in early stages
Bootstrapping and seeking co-founders during the early stages of developing your app can be a fantastic way to minimise costs and secure necessary early resources and funding.
Bootstrapping or co-founding your app involves teaming up with another person and making them part of your team from the outset.
If you’ve got an idea and some funds, but little technical know-how, pairing with a tech-savvy co-founder can make it easier to design and build an app prototype from scratch without spending a penny on outside developers.
|Co-founding Pros||Co-founding Cons|
|Gives you more control over the development process||Funds might be limited and still require investment later on|
Some of the most successful apps we use today were co-founded:
- Uber. Travis Kalanick was the cash supply for developer/co-founder Garrett Camp.
- Snapchat. Bobby Murphy, the co-founder of Snapchat, was the development brains behind Evan Spiegel and Reggie Brown’s Stanford classroom project. Currently, the app stands valued at close to $20 billion.
Crowdfunding platforms have gained massive traction over the past several years. The concept is to source investment through online networks in a collaborative effort to raise capital.
There are three main types of crowdfunding:
- Donation-based. This is where app founders put their idea out there and very generous people (often strangers) give them money. In some cases, it’s the best way to raise cash, as you don’t need to relinquish any control or ownership. A popular donation-based platform is gofundme.com.
- Reward-based. This is the process of doling out rewards (often tiered based on donation size) in return for investment. Examples of rewards include membership to the app, access passes, or personal recognition. Popular reward-based apps include kickstarter.com and indiegogo.com.
- Investment-based. In investment-based crowdfunding, app founders sell shares and profits to secure funds. This is similar to VC funding.
|Crowdfunding pros||Crowdfunding cons|
|Founders maintain control of the app||Won’t grow personal or professional networks like angel investing, co-funding, or VC investing can|
Bank loans once your product has been proven
Bank loans are more of a traditional route for securing funding but can be very useful to the right app founder.
Banks like to see proof of work and as close to a guarantee that you can repay the loan as possible. Therefore, banks won’t loan money during the pre-seed or seed round of your app’s development.
|Bank loan pros||Bank loan cons|
|Plenty of banks to try, good chance one will give you the loan||Loans come with hefty interest rates, and the founder is at personal financial risk, unlike with angel or VC investors|
An often overlooked yet perfectly viable option, entrepreneurial app contests such as Dragons Den and Shark Tank provide excellent opportunities for app founders to team up with experienced investors while growing their app’s profile.
Talking with producers or simply looking for early-stage app founder competitions around your area can get you an audition for these potentially rewarding opportunities.
|Contest pros||Contest cons|
|Can team up with highly experienced investors||Investors often demand high shares of the company|
|Gain massive publicity in the early stages of development|
Pivoting your app pitch according to investor type and funding stage
As we’ve outlined, you’ll need to approach different investors at each stage of your app’s development. To do that successfully, it’s important to tweak your pitch according to investor type.
Remember, you need to approach investors from their perspective. This involves highlighting your app’s strengths and showcasing how your business model will reap financial rewards. After all, investors are usually in it for money above all.
Some investors, particularly angel investors, are likely to take on more risk for more reward. Your pitch must reflect this by showing potential for growth from seed and Series A stages.
Other investors look for less risk but still want exponential growth, (i.e. VC investors). Pitching to VC investors must highlight strengths and proven successes, with deep and thorough market research giving accurate financial projections.
Opportunities to integrate long-term investment requirements into your app development plan
One thing investors like to see is continued potential returns. This is more than earning on their initial investment, as many investors will likely want to scale their funding as the app grows.
Therefore, it’s important to show investors that you plan to grow and demonstrate forward thinking. You can do this by sharing planned future updates and opportunities for expanding into new verticals.
Detailed forecasting will help you to secure more long-term investors who will be excited to stay with you as your app grows.
Common pitfalls of seeking app investment (and how to avoid them)
Knowing the basic principles and processes to attract investment for your app is essential. But it’s just as important to understand where others have failed and succeeded so that you can learn from their mistakes and capitalise on wins.
Fundraising before you’re ready
Jumping the gun is app-suicide. If you start looking for investment before you’ve conceptualised your app and decided on your founding team, you’ll find yourself trying to juggle investors and potential team players while you sort your foundational elements.
Prepare, get organised, then look for money. This way, you’ll be able to:
- Present yourself and your business as serious and prepared for a big undertaking
- Prove your MVP
- Provide market trends and competitive analyses to showcase opportunities
- Define goals that prove when, and how, investors will get a return
- Build a realistic timeline to market and subsequent growth
Requesting an NDA
Don’t ask investors to sign an NDA before you show them your pitch deck.
Their time is their most valuable asset, and many investors are highly sought-after. If you jump the gun before proving your worth, they’ll walk away and you’ll miss your chance.
Approaching the wrong kind of investors
Know what your app is, and understand its limits.
Don’t approach VC investors for a small, non-complex app when a crowdsourcing campaign is more than enough. Approaching the wrong investors will drain your time, reputation, and energy.
This again boils down to having a crystal clear idea of your app before seeking funding.
One fundamental rule to remember when raising money is the more you raise, the more control you lose.
Aim to raise the least amount of money possible. This keeps your company ownership concentrated around yourself and the close founding team. If your app succeeds in the seed and Series A stages, you can always raise more money in later Series B, C, D stages.
While you want to seem eager and keen to secure investment, never come across as desperate.
Desperation is perceived as incapable. The more capable you appear, the more attractive you are to the right investor.
It is essential you clearly conceptualise your mobile app idea before seeking investment.
Doing so allows you to seek the correct amount of investment, approach the right type of investor, and present them with a persuasive idea that they can get excited about.
If you can execute these steps, then given the traction surrounding the mobile app market in 2021, you’ll likely find an investor who can help you gather the funds you need to create the next breakthrough app.