Creating a mobile app is a challenging process. It consists of many complex phases, including design, development, testing and deployment.
It can also be expensive, especially if you don’t have a reputation for delivering quality apps.
Developers with adequate funding have a great advantage over those who don’t. They can devote all resources towards developing the app rather than obtaining funding.
This post focuses on the first round of funding, where the app doesn’t yet exist.
The primary goal here is to raise enough money to build the app and have money left over to perform some targeted marketing.
Other funding rounds are often necessary as the project progresses, especially if the app is succeeding. Common sources for funding a mobile app include the following:
- Friends and family
- Business partners
- Bank loans
Funding Mobile App Development Via Friends and Family
This type of funding solicits investments from your social network rather than your business network. It doesn’t have to be people you know – it may include friends of friends, according to Evus.
Your social network is a great way to spread the word about your business opportunity. Word-of-mouth is helpful because you’ll need to dig deep into your network if you’re going to develop your app.
Another advantage of asking friends and family is that they won’t hold you to the strict terms of a bank loan.
Asking friends and family for money can be tough. But it becomes easier when you provide a detailed business plan explaining your plan.
You should also ensure that none of your friends and family are giving you money they can’t afford to lose.
A formal agreement is still necessary, even when borrowing money from a member of your social network. This agreement should make it clear that there is a chance your investors may never see the money.
Making this possibility clear from the beginning can help protect you, your lenders and your relationship with them. The last thing you want in this situation is angry loved ones demanding their money back.
Even though these investors aren’t business-oriented, they will still expect their money back. Friends and family may also expect to play a role in your business in exchange for their investment.
An agreement that makes the lender a shareholder can be an effective way to address this issue, since it also offers tax advantages for the lenders. Furthermore, their investment will pay a return when your mobile app become a hit.
Crowdfunding Your Mobile App Development
Crowdfunding is one of the most recent methods of funding a business venture, according to Lifewire.
Crowdfunding sites like GoFundMe and Kickstarter specialize in raising small amounts of capital. These sites have also raised millions of dollars for a venture in some cases.
This approach involves asking the general public to invest in your venture, which entitles them to a share of profits.
You’ll also need to provide a fundraising goal for the campaign. If your crowdfunding campaign meets its goal, then you get the money which you can use to develop your app.
If not, the investors keep their money. Crowdfunding platforms also charge a fee, typically around 5% of the total donations.
The primary advantage of crowdfunding is that you can find more investors than with other methods. It also doesn’t require a working product, which you won’t have in the first round of funding.
The only thing you need for crowdfunding is an idea and a plan. This typically includes a story with photos and video. You also get to keep the equity in your business.
Crowdfunding also means publishing your business plans to many people without an NDA. This is something you will normally have in the case of a private investor.
The lack of an NDA will leave you without recourse should someone else decide to develop your app. Keep this in mind before proceeding with this route.
Using Angel Investor Funds For Mobile App Development
Most venture capitalists will expect you to have a working product before investing in your mobile app, according to All Top Startups.
You may be able to get funding from these sources with a working prototype. But business investors usually require your product to show some commercial success.
Angel investors are an exception to this rule. They’re willing to invest in startups in exchange for equity in the company rather than a direct ROI.
In some cases, they may offer to fund your entire project. But, most angel investors will only fund some of your mobile app’s development costs.
Like others, angel investors are more likely to provide funding if you have a detailed business plan.
They will often remain anonymous, so they’re more difficult to find than other investors. However, a single angel investor can end your short-term funding problems.
Adding Business Partners For Mobile App Development Funding
Many small business ventures are founded by two partners. The dormant partner – or silent partner – provides capital to bring the product to market.
This partner doesn’t play any type of active role in the business. The active partner runs the business, including daily operations and product development.
It’s essential to ensure that a silent partner can supply the capital needed since they’ll own part of your company. You’ll also need to be confident that this partner is a good fit for your business.
Make sure you have a written agreement about the terms and conditions of your arrangement. This should include the amount of the investment and profit-sharing percentage.
Using Bank Loans For Mobile App Development Funding
It’s possible to fund your mobile app with a traditional business loan. A loan officer will require a detailed business plan, often in a standardized format.
You need to provide the reasons you want the loan and what you plan to do with the money. The return on the bank’s investment will usually be in the form of interest on the loan.
Loan approval is often a procedure driven process. This means the loan officer may have little real discretion improving the loan.
In many cases, the loan officer’s only job is to determine if your application meets the set of criteria established by the bank.
The loan officer will then inform you of these criteria and identify the ones you still need to meet.
Getting Mobile App Development Funding From Colleagues
Mobile app developers often look to business colleagues for funding. This is known as buddy funding.
These colleagues typically provide funding for a share of the profits, often in the form of a percentage of sales.
One advantage of buddy funding is that a colleague will often understand the risks and potential rewards of funding a mobile app.
It may also be possible to create a network of developers from your business contacts to invest in your app.