Developing mobile apps comes with costs, and even a basic app typically involves an investment of over $10,000. As you increase the number of features, enhance their complexity, and incorporate advanced technology, the expenses naturally grow.
As a software development company, we at Mind Studios have observed many of our clients seek funding at different stages of development. Even though our expertise primarily lies in the tech side of crafting innovative applications, Mind Studios’ role in our clients’ journeys extends beyond coding.
Our background in software development and partnerships with startups have acquainted us with the complexities of the financing process. And while we don't provide direct funding, we actively collaborate with business owners to strategize and prepare for pivotal meetings with investors.
In this article, we share valuable insights on the diverse investment options available, the stages of the funding process, and effective strategies for pitching your app idea to potential investors. We also guide you through Mind Studios’ approach to supporting aspiring startup owners and empowering them with a strategic foundation investors look for.
Sources to get funding for mobile apps
Having a great idea for an app is, unfortunately, not enough. Building an app requires resources, from hardware and software to a professional team of app developers. Creating a mobile app isn’t a cakewalk. Fortunately, the mobile world is thriving, and that means there are plenty of ways to raise funds for an app:
- Personal network
- Private investors
- App funding contests
- Angel investors
- Venture capital (VC) investors
- Bank loans
Each of these funding options for your app startup has pros and cons, requirements, and certain limitations. Let’s touch upon each of them one by one so you can decide how to get investors for an app.
Bootstrapping means funding your idea with your own money. You know best how much money you can afford to spend, don’t you? This is also one of the safest options, since you won’t owe anyone anything in case your app idea doesn’t work out. If you’ve got savings that can cover app development without putting too much strain on your life, bootstrapping is the best option.
In case your own money isn’t enough, you can turn to your personal network of family and friends. This is a fairly reliable source of funding for app development.
Personal network (friends and family)
Usually, family is among the most reliable sources of funding, second only to bootstrapping and followed by friends. People in our personal network tend to believe in our potential and support us when we decide to venture in a new direction with possible risks. This isn’t to say that you don’t need a solid plan and a proper sales pitch to persuade them to lend you money, of course. But persuading people who know you tends to be easier than selling your idea to a complete stranger.
More often than not, funding your mobile app idea through a personal network is possible with smaller and cheaper projects.
Another good option is to use bootstrapping and your personal network to create a minimum viable product (MVP). With an MVP, your chances of getting funded by bigger investors rise significantly.
Next on our list of mobile app funding options are private investors. These are often local businesses working in the niche your app will serve. For example, say you’ve got a unique idea for restaurant reservations. You can pitch it to local restaurant owners and ask them to fund the development of an app to gain an upper hand over their competitors.
This option is viable if your idea fits a particular niche or industry and you have ways to communicate with businesses that have funds to allocate for an app yet don’t have an app of their own. In this case, there is a high probability that you will receive a grant for app development.
App funding contests
If you’re feeling brave and confident in the revolutionary nature of your idea, you can get funding for your app through one of multiple app funding competitions held by industry leaders, angel investors, and other companies every year. Some of these competitions offer only funding; some also provide mentorship. However, if you’re to brave such a competition, it’s essential to prepare for it thoroughly: getting funding for an app through a contest means you’ll have strong competitors, sometimes up to a hundred of them.
On the other hand, taking part in a competition can be a valuable experience and a way to attract attention to your idea even if you don’t win. Sometimes, runners-up and pitchers who weren’t even close to winning receive offers post-competition.
Now we come to the option that usually most interests those seeking app funding: angel investors.
First of all, don’t be fooled by the name. Angel investors don’t give you money and expect nothing in return. They aren’t selfless, as actual angels are believed to be. However, being backed by angel investors is way less risky than dealing with most, if not all, other types of loans.
Angel investors are mostly individuals — and sometimes businesses — who use their funds to help startups at the earliest stages of development. In return, angels usually ask for a share in your business, or at least a convertible bond.
This is an important characteristic, and you need to consider it carefully.
It’s true that you won’t need to give back the money angel investors lend you in case your idea flops. This is what attracts most startups to seek angel investors.
However, if your idea does survive and thrive, your “angel” will have a share in your business. Typically, you can expect angels to ask for anything from 10% to 25% of your shares, depending on the sum of money they give you. This means they’ll have some level of control over your business and will be entitled to a share in your income or the amount you receive if you sell it.
Family and friends can also be angel investors, as can private investors — it all depends on how you build the agreement. Some angels participate in crowdfunding and trust foundations, or are businesses instead of individuals. There are also angel investment pools where several investors combine their funds and invest jointly.
Since mobile app angel investors undertake great risks in funding mobile app startups, it can be challenging to pitch your idea to them. But if you manage that and you’re fine with offering equity to a third party, angel funding for an app can propel your business nicely.
Venture capital investors
Venture capital firms for app development are, in a way, similar to angel investors — they too offer significant funds for businesses to expand in exchange for a share in the business. There are distinctions, though.
Angel investors invest in the best app ideas at the very first stages when your business is young. Venture capital firms, on the other hand, offer money when a product is already in development. Basically, venture capital is offered to those businesses that VCs deem to have potential for fast growth.
Another distinction between an angel investor and a venture capital investor is that the latter are usually big companies or funds rather than individuals with money to spare. Thanks to this, venture capital usually operates with bigger amounts of money. More money also means you’ll have to give up more shares in your business, though. Expect something between 25% and 50% to go to venture capital investors.
If you’re seeking venture capital for app development at a bigger scale, VCs are the ones to go to.
Crowdfunding platforms can attract any and all kinds of investors (except probably for banks). When you pitch your app idea on a site like GoFundMe, IndieGoGo, or Kickstarter, anyone can offer funds for your project.
There are quite a few crowdfunding platforms today. Some are industry-focused; some offer an opportunity to attract investors for any business. There are different types of crowdfunding, too.
- Donation-based crowdfunding offers patrons some kind of extras when the app is launched, like early access or premium features.
- Debt-based crowdfunding is like lending money with a promise that you’ll get it back.
- Equity-based crowdfunding is what angel investors and venture capitalists offer — money for a share in your business.
But crowdfunding offers more than just money. Especially if we’re talking about getting funding for an app. Crowdfunding platforms are also places to promote your app to an audience larger than a few investors. Anyone can see your pitch and get interested in funding your app. Some will be willing to pay for early access when you launch. Crowdfunding is very public, making it a perfect way not only to raise money for an app startup but to spread the word about your project.
The last mobile app startup funding option for your app startup on our list, bank loans are the least favored by startups. The reason is obvious — banks don’t care if your idea soars or drowns, they expect you to give back the money by a specified date and with specified interest, no matter what. That’s why for a startup, a bank loan is a bad option. It’s safer to take a loan when you expand, not when you’re only starting out.
The process of getting a bank loan to finance an app idea is largely similar to that of getting any other big loan — a ton of paperwork and a number of interviews, a presentation of your app monetization prospects, providing security for the debt, etc. You can take a loan as an individual or as a business, and the requirements will differ depending on your choice as well as the state you’re residing in.
For a bank loan, you’ll most likely need to know a more precise amount of money than for any other funding options — bank officials often like it when specific numbers are presented. If you aren’t sure how much your app will cost to build, our specialists can offer you a quote.
In most cases, tech startups requiring funding for app development go through several options among those listed above, one by one. The typical app development funding process is described below.
Stages of startup funding
The initial phase typically involves bootstrapping and private network funding, focusing on idea development and market analysis. Money raised during this stage is used to analyze the market and prepare a strong pitch deck to present at later stages.
In some cases, when there’s enough funding, the pre-seed stage can be used to build a prototype of some kind. If you can offer something besides an idea and initial calculations, it may raise your chances of piquing investors’ interest.
This is the first stage with substantial funding beyond personal savings and network contributions. Here, angel investors and, increasingly, venture capital firms may come into play. Funds received are allocated to expanding the development team, for instance, by outsourcing the tech side of the project. A successful seed stage results in a validated idea and a minimum viable product (MVP), which is designed to be presented to the public (to gather early users) and to bigger investors (to get funding).
Series A is the beginning of your startup’s active growth. Consequently, this is the stage at which venture capital comes into play. Since Series A is the most risky for investors, it requires a compelling elevator pitch to secure funding. At the same time, if your app clears this stage, the chances of it being successful in the end will be significant.
If you’ve reached Series B, chances are your app is going to make it. This stage is about developing faster and expanding your presence. At this point, your shares rise in price, so you can sell fewer of them to venture capitalists, maintaining control over your business.
Series C and beyond
At this stage, if your business is still alive, it’s most certainly kicking. Meaning, you make enough revenue to cover any regular costs without needing extra funds from third parties. Every funding stage after Series B is targeted at large-scale expansion, major upgrades, and so on.
How much funding do you need to develop an app?
The amount of money that flows into your startup at each new stage will increase, and it’s important to know how much funding you need. In Mind Studios’ experience of guiding startups through the app development journey, understanding the funding needs is crucial. Underfunding a project is a clear way to failure if you can’t secure additional money in time.
At the same time, while it’s certainly handy to have extra money, you need to keep in mind that more money means you surrender more shares in your company. Ask yourself at the beginning of each stage: How many shares can I surrender without long-term consequences to make angels/VCs invest in my app idea? And don’t stray too far from that number. At the end of the day, you still need to be the owner of the biggest portion of shares.
There’s no average amount of funding for a mobile app startup. Though you can find rough estimates, precise numbers will depend on your idea, its complexity, and the team you’ll be working with. Here’s an example of a rough estimate we came up with for a mid-priced mobile app developed for both iOS and Android:
|% of shares expected in return
|Series C and beyond
Keep in mind that funding isn’t only spent on actual app development. There’s a whole bouquet of costs, from marketing to non-development staff and software.
How to get funding for an app idea
So you know how apps get funded, what funding options are available, and how the startup funding process typically goes. Now let’s talk about getting investors for app ideas to become interested in your app. How can you convince people and organizations with money to fund you and not someone else? How can you build a solid elevator pitch and pitch deck?
There are strategies that can help you get funding for your app idea. Investors generally have a single aim — to get a return on investment (ROI). Drawing from our experience as software developers, we’ll now delve into the specific elements that can convince investors you have what it takes to deliver that ROI.
Your idea is unique
Or at least it’s better than existing solutions for a specific problem. No one needs another clone of Facebook, even though many are dissatisfied with it. Your idea needs to approach users’ pain points in an original way and offer solutions that haven’t yet been exploited. Most outsourcing app development companies have project managers who can help you find a unique value proposition for your app.
Your idea fits the market and will be profitable
To get seed funding for an app, you need to prove that your idea has demand in the market you’re aiming for. Invest in market research and keep tabs on what’s trending on the mobile market. You need to present your app’s market appeal and its potential for revenue if you want to find investors.
You have a business plan
It’s a well-known fact that app investors prefer to give their money to startups whose owners have previous experience, preferably successful. Having a complete plan for development shows you know what you’re doing, especially if you’re doing it for the first time. A strong business plan for development, marketing, and expansion is a big yes for many investors.
You have a team working on the app
When you have good specialists with relevant experience working on your idea, it’s a kind of insurance that the resulting app will meet the expectations of users and, hence, investors. This is why, unless you’re a developer yourself and have a team of seasoned professionals at your side, it’s recommended to outsource your app to an app development company. Look for app development companies that have completed projects in your niche.
You have a prototype or an MVP
There are few things that can better convey your dedication to your project and your idea’s potential than a working prototype or a minimum viable product. Better yet, if the product is beyond the MVP stage and is already getting some revenue.
Even if you don’t have a prototype, you need to explain to your potential investors what stage your product is at and what you’re planning to do first if/when you get funding.
Overall, the more information you can provide about yourself, your team, and your idea, the better. Keep it professional and to the point, of course. Don’t linger on unnecessary details and focus on what’s important for mobile app investors — the potential for revenue. It’s easier to let go of money when you’re convinced you’ll get it back with interest.
Maximizing investor interest with Mind Studios’ expertise
In 2023 and beyond, it’s no longer enough to have a unique app idea to catch the investors’ attention. After all, the fact that such an app hasn’t been created doesn’t always mean it will be a success. Someone before you just might have done their research and discovered it’s not worth investing in. Therefore, before approaching the investors, you need to obtain concrete proof that your concept can be transformed into a profitable product. And doing so typically requires a significant chunk of your time and resources.
Surely, you may wonder how you’re supposed to get the project started before getting the funding. The bad news is that you will probably have to invest a couple of thousand dollars into the initial phase of the project. The good news is that it exponentially increases your chances of securing a much more significant investment later.
So, where does Mind Studios step in? Our business development experts can help you prepare to approach mobile app investors. Here is a list of activities we offer for this purpose.
Making sure your idea is worth exploring and investing in lays the foundation of your project. Our experts scrutinize the app concept during this stage, evaluating its viability and market fit. Through a meticulous validation process, we ensure your idea is not only unique but also aligns with market demands and user needs, establishing the role of your app in meeting those.
Product vision description
After the idea validation, Mind Studios’ business development team works together with your team to articulate a vivid and persuasive product vision description. It outlines the future app's goals, purpose, and anticipated impact, portraying its core value proposition and the experience it aims to deliver to the target audience.
Business model compilation
A comprehensive business model should outline revenue streams, cost structures, customer segments, and key value propositions. This step lays the groundwork for a sustainable and profitable app — the only kind investors are interested in.
Competitive landscape research
When conducting market research, we thoroughly examine the competitive landscape to identify and analyze the app’s existing and potential competitors. The process includes evaluating their strengths, weaknesses, market share, and strategies. As a result, we can adjust our own strategy, empower you to make informed decisions, and demonstrate the app’s financial potential to investors.
Creation of UX mockups and UI concept
Visualizing your app's user experience (UX) and user interface (UI) is a powerful move in investor presentations. Therefore, at this point, we engage our UI/UX designers to create UX mockups and UI concepts. As a result, you can then present investors with a tangible preview of the app's look, feel, and functionality, enhancing their understanding of the product and demonstrating your commitment to a user-centric approach.
Unit economics calculations
One of the most compelling arguments for investors is the financial viability of the app. Therefore, it’s essential to conduct unit economics calculations that project the future app's revenue, costs, and profitability. During this process, we thoroughly examine the projected customer acquisition costs, lifetime value, and other financial metrics to estimate the app's profitability and sustainability on a per-unit basis. As a result, the investors get a clear vision of potential return on investment.
Scoping and estimation
Before diving into the project, the investors need to have realistic expectations of its scope and the resources required. For this, we create a detailed breakdown of the development process based on the app’s functionality, timelines, and associated costs. As a result, it’s easier for you to foster confidence in the app's strategic planning and execution when presenting the project to investors.
Pitch deck presentation
The final step of preparing for your investor meeting is creating a convincing pitch deck. This presentation typically includes the information that will sell the market opportunity to investors, from your problem-solving approach to financial projections. At this point, the Mind Studios team can help you craft a visually engaging and informative pitch deck that tells a compelling story, maximizing your chances of securing funding.
We won’t deny this whole process requires a lot of commitment: the average duration of these activities is 3–4 weeks, and the cost varies between $5000 and $7000. By going through this, you will demonstrate your competence and dedication to the investors, significantly increasing the chances of winning them over.
Closing thoughts: Guiding you to success
Tech startups come and go, and many promising projects are forgotten after a couple of months due to a lack of app startup funding. Competition for investors’ attention is harsh. But when you go into battle prepared, your chances of winning skyrocket.
At Mind Studios, we understand the challenges startups face, and though we don't offer direct funding, we do empower our clients with technical and business expertise to help them get the funding they need.
Our commitment extends beyond coding; we're here to guide you through the intricacies of the startup journey, from shaping a winning idea to meeting the tech expectations of the investors. So, if you’re looking for a partner who will not only build your app for you but also support your business on its road to success, reach out to discuss the activities that will empower you for successful investor meetings.