How to Get Funding for an App Idea - A Complete Guide

Last Updated
March 29, 2024
How to Get Funding for an App Idea - A Complete Guide

Getting funding for your app can be very challenging. But, you have to be very forward-thinking and smart. If you can sync your goals and those of the person or firm providing the fund, it can create a win-win situation for both parties.

Today, we live in a world, where online access to various products and services has become a necessity, rather than leisure. Additionally, with smartphones swarming every nook and corner, apps have become quite popular. 

From entertainment to online payments, life can be very dull without apps.According to Statista, The North American app market is forecasted to undergo a 9.97% growth trajectory from 2022 to 2027, culminating in a substantial business volume of $244.60 billion by 2027.

If you are one of those interested in launching your own business via apps, then the time is right. However, you may need to look for the correct funding options. Apart from ideation for the business offering and related features, you must look for resources to give direction to your app. There are quite a few aspects that you need to look into, before curating the right apps, which will generate substantial profits. 

Importance Of Funding For App Development 

Developing apps comes with a good amount of expenses. A basic app can also cost somewhere around $ 10,000. The more you increase the features, the more complex it becomes.  You can read in depth about the cost estimation on developing an app.

Thereafter, with the integration of advanced technologuy, the expenses can quickly spiral upwards. That is the reason why app development companies need funding at different stages of app development. However, you have to go through several stepping stones to fetch the right funds for your app or technology. 

There are several stages in the start-up funding process. You should read them here. 

Pre-seed 

The initial phase of funding is called pre-seed. It mainly involves bootstrapping and private fund sourcing. In this stage, businesses mainly concentrate on idea development and market analysis. The money raised during the stage is used to analyze the market conditions.

Additionally, you have to prepare the pitch after you have analyzed the market conditions. In a few situations, if you have enough funding at this stage, you can build a prototype. It provides an idea apart from helping one with the initial calculations. Moreover, it can make your app more interesting 

Seed

This is the first real stage of funding that goes beyond personal savings and network contributions. In this stage, angel investors and venture capitalists come into the scene.

The funds that you receive at this stage, are used to expand the development team, or by outsourcing the technology to a third party. Many app development firms and businesses develop the minimum viable product or MVP, to present in front of the early users for feedback or the bigger investors, to get more funding. 

Series A

If you have reached this stage, it means that you have good clarity. Moreover, you may have already presented the app in the market. This is the stage when you could be looking for expansion. At this stage, most app companies look towards scalability. You can collect as much as $2 million to $15 million. You can also get through Venture capitalists. This is the most risky stage for investors, and you must prepare a strategic pitch to secure the funding. 

Series B,C,D

After securing Series A, if you want to expand your business, or take it in a new direction, then you have to target bigger investments. Series B can fetch you around $25 million from potential investors. 

Your share prices also increase at this stage. After you cross Series B, you can opt for Series C, D, and E. Investors often go for public appearances and declarations at this stage.  In Series C, your business should be running smoothly. Moreover, it can cover all kinds of costs without requiring any funding from third-parties. 

Understanding The App Idea – Making It Seem Realistic And Viable 

Knowing Your App’s Niche

While working or, ideating on an app idea, you need to figure out why anyone or a particular firm from one particular sector might be interested in your app. If the app idea is already present in the market, no investor will want to fund you.

So, you have to study the marketplace properly, to stay free of risks. You have to be up-to-date about your app’s unique features, UX/UI, or tools. You have to find a USP to lure the investors. Know your target consumers and other smaller details about your app. 

Branding The App 

This is the next thing you should be thinking about and working on. Branding in a proper manner makes your vision realistic. Decide your logo, domain, and online coverage. Investors will look into all these aspects, unlike people in your family and amongst your friends. Make a mockup of a website or an app, if possible. This will allow you and your potential investors to visualize. 

Having A Business Plan 

Investors prefer to invest in start-ups whose owners have already started some business. Moreover, it must be a successful one. You should be ready with a complete plan for development. This is especially applicable, if you are doing it for the first time. A strong business development plan, along with a marketing and scalability study, should make you more promising. 

Having A Ready Team Working In The App 

You should have already hired a few specialists, who have started working on the app. This will make it seem that you are ready to fulfil everybody’s expectations. If you are under-confident with the development bit, you may want to outsource the development as well. 

Having A Prototype 

You should be at least ready with a prototype or an MVP. If the app is beyond these stages, it may be more promising in the eyes of prospective investors. 

Even if you do not have any of the above, you should be at least ready with an explanation about the stage your app is in. Overall, the more information you can give the prospective investors, the more professional it looks. Do not just highlight small nuances, as investors want more. Talk about projected revenue figures.

Exploring Funding Options

Bootstrapping 

Bootstrapping stands out as a straightforward and accessible funding avenue for burgeoning app startups. Empowering entrepreneurs with autonomy, it liberates them from external dependencies and places them in full control of their ventures.

By using personal resources and receiving support from trusted circles, entrepreneurs can seamlessly kickstart their app projects. Self-funding not only fosters independence but also get around the immediate necessity for external investors during the growing phases of development.

Seed Funding 

Seed funding, often sourced from angel investors, represents an important stage in startup financing. Accessing this funding stream can prove challenging without adequate preparation, as early-stage ventures must demonstrate considerable promise to attract investor interest.

Crafting a compelling strategy outlining revenue projections and return on investment (ROI) potential is paramount in captivating angel investors. Thorough research around your business will help in addressing investors' inquiries comprehensively and instilling confidence in the viability of the venture. 

Crowdfunding 

Crowdfunding presents a dynamic funding avenue for app development projects, leveraging diverse models such as donation, reward-based, and investment funding. Platforms like Kickstarter and Indiegogo offer accessible channels to showcase app concepts, solicit financial support, and engage with potential users.

In donation-based crowdfunding, backers contribute without expecting material returns, driven by altruism or belief in the project's mission. Reward-based crowdfunding offers backers incentives, such as early access or exclusive features, in exchange for their support. Meanwhile, investment crowdfunding enables backers to become stakeholders, seeking financial returns based on the app's success. Utilizing crowdfunding for app funding demands strategic planning, compelling storytelling, and active community engagement to captivate backers and propel project success.

Bank Loans 

Bank loans stand as a prevalent avenue for app funding, providing entrepreneurs with access to capital while leveraging their assets as collateral. Financial institutions, including banks and credit unions, extend loans customized to meet the specific needs of app startups.

Governments often provide support for such startups through loan programs, offering favorable interest rates and terms to encourage innovation and economic growth. This method offers entrepreneurs flexibility in funding their ventures while allowing them to retain ownership and control. However, securing a bank loan requires a solid business plan, a strong credit history, and a clear strategy for repayment to instill confidence in lenders and mitigate risks.

Venture Capitalists 

Venture capitalists, akin to angel investors, provide substantial funding in exchange for equity or return on investment (ROI). However, notable distinctions exist between the two. Angel investors typically invest in ventures at early stages, sometimes before development begins, while venture capitalists prefer to invest in ventures that have already commenced development.

Venture capitalists often manage considerable funds, given their affiliation with large companies or investment firms. This distinction underscores the scale and scope of their operations, as they seek high-growth opportunities to generate significant returns for their investors.

How Much Funding Do You Need?

Now, this can be a tricky question to answer. The amount of money that your app start-up will need at different stages are most likely to differ. If you cannot fund the project properly, it will most likely lead to failure.

At the same time, having some extra funds helps in the later stages. You have to decide how many shares you are ready to surrender to the investor, as this will only guide you towards the right amount. There is no fixed amount as such, as it depends entirely on your app idea. 

However, you can still check out this rough estimate given below. 

Funding Stage
Funding Amount ( approx.) % Of Shares To Be Distributed
Pre-seed
$100,000
10–25%
Seed $150,000–1,500,000 10–25%
Series A < $3,000,000
25–50%
Series B < $5,000,000  33%
Series C and beyond > $5,000,000 33%

The figures are not just related to app development costs. Other expenses are also covered, like marketing and salaries of support staff. 

Preparing For An Investor Meeting 

It is very important for you to get ready for a proper investor meeting, as well. There are a few steps herein, which will ensure that you are approaching the right one. 

Research The Investor 

The most common mistake that app start-ups make is to approach anyone and everyone who comes their way. This can be actually very harmful, in the initial stages of app development.

 You must find someone who is capable of giving you mentorship in your sector as well. Do proper research through social media, and articles, and go through their personal or company websites. You will get a fair idea about them. 

Get Your Elevator Pitch And Business Plan Ready 

A summary of your app idea is what sets the ball rolling. The investors will look for your executive speech. It should obviously include the market size, research study, SWOT, and your future goals. Prepare a realistic returns chart for the prospective investor. 

Practice The Presentation 

You should practice your presentation in writing and verbally. You must finish it in 30 minutes. Explain the points already mentioned in the presentation and abstain from repeating what is already there. 

Estimate The Amount That You Will Need

After your initial calculation, you must explain the cost break up to the prospective investor. The investor will only invest in your app idea if it sounds lucrative to him. 

Take A Q&A Round 

After your narration, you will likely have to answer questions from the prospective investor. You can resolve any sort of confusion, right there. Investors can also give you suggestions and projections, based on their experience. So, you have to keep an open mind. This will improve your app idea. 

Preparing Your Pitch

Develop The Quick Brief About The App Idea:

It is imperative for a prospective app owner to have a vision beforehand. Thus, you need to be ready with a quick brief about the app idea. 

Investors are busy people and will not sit with you, the entire day. Therefore, you must prepare a winning speech and sum up the entire idea. You must include the solution, the punch line, the problem that you are addressing, and the key features. Apart from these, a future forecast will also make it more promising. 

Preparing Elevator Pitch:

An elevator pitch is a small speech that takes you on the angel investor’s list of projects. If you reach that list, other investors in the angel investor’s network can also help you to get funding. 

Preparing The Presentation:

You must prepare the pitch deck as well. After your elevator speech gets you up on the list, this is the next stage. This is similar to a presentation. This presentation must include the key facts and market research findings. This is a good time for you to show some data in the form of graphs and statistics. You may also have an in-person discussion after this. 

Conclusion

So, this is just an idea for the whole process. Apps differ from one industry to another, and so do the requirements. Even if you get the funding, your work does not end there. You have to work harder on the launch and also maintain engagement and try to get better funding in the future. Of course, apart from the funding part, you also need an experienced app development company on board. Go for a company with a fairly good portfolio, and also read through the reviews and testimonials. Finalize and start!