You’ve got a great idea for a mobile app that you are sure will appeal to a broad customer base – but you lack the finances to develop and launch your product. Where should you look to turn your dream into reality?
Nowadays, funding options abound for creative entrepreneurs with exciting new business ideas, particularly in the technology sector. Here are several possible sources of startup capital to consider.
Family and Friends
According to Fundable, this group makes up the lion’s share of startup funding, handing over $60 billion each year. By contrast, venture capital invests only $22 billion annually.
This model has the potential to cause problems within personal relationships, however. If you decide to take this route, the U.S. Dept. of Commerce has a list of helpful suggestions, such as pitching your idea to your loved ones just as you would to an outside investor.
Drawing up legal documents that plainly spell out what is expected from all parties is also encouraged.
The federal government offers several options for financing new business ventures, with a focus on tech startups. The U.S. Small Business Administration facilitates several types of business loans through qualified lenders, and administers grant funding for tech startups.
In addition, the Small Business Innovation Research program and the Small Business Technology Transfer program foster innovation in the technology space by awarding federal grants on a competitive basis to eligible entrepreneurs.
The SBIR homepage also contains a link to its State Services page, where applicants may search each U.S. state for additional funding opportunities.
Enter a Contest
Tech startup competitions award winners with media coverage, exposure to investors, and, in some cases, thousands of dollars in prize money. Here are three annual contests worth considering.
South by Southwest: The SXSW annual conference hosts its SXSW Accelerator competition within Startup Village, an event that focuses on new business concepts.
Entrepreneurs from all over the world pitch their ideas and products to a panel of experts who select winners from each category. SXSW gives outstanding companies exposure to interested investors, rather than cash prizes.
TechCrunch’s Startup Battlefield: This event occurs four times each year, pitting new businesses against each other as they vie for $50,000 in prize money, media publicity, and exposure to investors. Participation is free. Previous winners include Mint and Dropbox.
Techweek’s Launch: Launch rewards winning tech startups with a $50,000 cash prize, in return for 1% of the company’s equity. Competitors cannot have more than $3 million in funding, and must take in less than $15 million in revenue per year.
Winners receive attention from the media and potential investors, and are eligible for mentoring services from Techweek’s Executive Advisory Board members.
Crowdfunding platforms are common these days, making it easier than ever to tap a large number of investors for startup capital. Sites like Fundable were developed by startup founders, and walk entrepreneurs through the process of raising money from investors, friends, and customers.
Crowdfunder is an equity crowdfunding site, allowing businesses to find investors through its network of 12,000 Angel Investors and Venture Capitalists. Microventures is similar to Crowdfunder, partnering Angels and VCs with companies and startups that need between $150,000 and $1 million in funding.
All of these sites have education sections and learning guides, so be sure to peruse them thoroughly before deciding if crowdfunding is a viable option for you.
Business Incubators and Accelerators
Incubators and accelerators can both help startup businesses, but their methods differ.
Incubators offer new companies support during the crucial startup phase, often supplying inexpensive work spaces, consulting services, and helping new business owners with skill development.
They frequently help startups attain financing, though they don’t provide this directly – nor do they invest in the companies they are assisting. Generally, they are nonprofit, and continue their assistance for up to five years.
The International Business Innovation Association lists incubators by state; some listings include accelerators, as well.
Accelerators are concentrated in the tech industry, and are for-profit ventures. Startup owners are usually required to move to the accelerator’s location, where they are immersed in a “boot-camp” type of training environment for several weeks.
At the end of the training period, startups engage in a “demo day” in which they pitch their concept to investors. Accelerators usually invest between $10,000 and $100,000 in a startup, which varies depending upon location. In return, many accelerators require an average equity stake of 6%.
Successful accelerators include Y Combinator, which holds its three-month boot camp at its location in Mountain View, California. YC has helped launch companies like Airbnb, Reddit and Instacart. The company invests $120,000 in each startup for a 7% equity stake.
(Note: Gigster is a graduate of the Y Combinator Summer 2015 Class.)
Techstars hosts its own three-month training camp in various major cities across the U.S., as well as locations in London, Berlin, Tel Aviv, and Cape Town. In return for a $100,000 convertible note, a startup agrees to transfer 6% of its equity to Techstars.
You can also check out business-nurturing programs by city. Boston has a great many incubators and accelerators operating within its borders, as does New York City. Search the internet for startup programs in a city near you.
Submit Your Idea to an App Funding Site
Recently, funds that cater specifically to the development of apps have made their debut. Sites such as AppsFunder and Mobile App Fund make submitting your app idea a breeze, and promise quick turnarounds on a decision regarding the feasibility of your project.
Applicants that make the cut are contacted for the next phase, which differs with each site.
AppsFunder functions as a kind of crowdfunding site, bringing together entrepreneurs in need of money and investors willing to buy a “Reward Pack” defined by the app creator, or put up funds in return for revenue share.
The app idea is first screened by the AppsFunder experts, who will give the most promising projects a certification label. The site will promote your idea, which is funded in chunks called “milestones”.
The creator must receive adequate funding by the end of each self-described milestone, or the project is cancelled, and investors are reimbursed.
If funding is successful, AppsFunder doles out funds as creators finish each phase, instead of transferring the entire amount at once. The site charges app creators fees before conveying each portion of the pledged funds to their project.
Mobile App Fund uses a slightly different model. After submission, applicants are notified if they have achieved Tier 1 or Tier 2 funding. In the first case, creators are promised 25% of the profits their app generates for the site.
Those whose projects are approved as Tier 2 receive a 50% equity share in generated profits.
The site claims to provide funding in amounts between $5,000 and $1 million, depending upon the app’s stage of development.
Both sites have several pages of FAQs and other information about how their business model works. Make sure you have a thorough understanding of the terms before submitting your idea.
However you decide to pursue funding, remember that simple ideas are much less apt to receive investment capital than those that are well-researched. Fine-tune your pitch, and be able to present a prototype – preferably one that already has a customer base, and the potential for scalability.
You know that your idea is great. The next step is to convince people with money that an investment in you will lead to financial success.