Google, Microsoft, Alibaba, and Amazon. These names are the inspiration sources for the students, employees, startups, and everyone dreaming to become an entrepreneur. Everyone has their unique startup ideas and wants to bring them to real life. But a basic question that hit them hard is about funding. How and from where to get money?
Just having a unique idea will not help you to get the ball rolling. It demands thorough planning, commitment, discipline, and obviously money.
If you are keen on your startup and do not know how to raise funds, this post is for you.
Different Stages of App Funding
Consider various stages of app startup funding and get into details.
#1. Pre-Seed Funding/Self-Funding
Pre-seeding is also called bootstrap. It is a self-starting process of launching an app startup with very little information. You do not have any other support or outside cash. It can only be the savings of the founders.
This phase is generally not considered among the stages of funding. It is the initial stage where founders work by themselves or with a small group of people.
As this phase is not included in the funding cycle, we can consider it in the startup cycle.
Fundings: It is up to the entrepreneurs/founders how much money they can make.
Contributors: Entrepreneurs on their own.
#2. Seed Funding/Angel Round
Seed funding gets raised at the preliminary stage of the app startup. Stakeholders provide a small amount to bring an idea to life. An app startup takes the first step towards market research and MVP development.
Seed funding generally gets raised from the founder’s personal resources. They also seek help from their friends, family, mentors, and angel investors.
When angel investors help you, they become limited shareholders of your startup. These shares can be 10% or more than that.
Fundings: Approx $50K to $2M
Contributors: Angel investors, Family, Friends, Mentors, and early-stage VCs.
Company Valuation: At least $3M
#3. Series A Funding
The next step is to launch your working product in the market. Series A funding is the first phase of institutional VC funding. It is necessary to have a plan for the business model development to raise a long-term profit.
The money raised is used for the two years. It helps with operating costs such as app development, server maintenance, advertising, and other business operational expenses. You can enhance your brand credibility with this funding and grow your business.
Fundings: Approx $10M to $30M
Contributors: Angel investors, VCs, and Catalysts.
Company Valuation: At least $15M
#4. Series B Funding
When a company has definite success with the Series A funding, it is time to move to the second phase. Usually, the company is already gaining fair profit in the Series B funding.
Such fundings aids companies to pay salaries, staff expansion, infrastructure enhancement, and establishing it as a pioneering player in the wider world.
Fundings: Approx $30M
Contributors: IVP (Institutional Venture Partners, Google Ventures (GV), Late-stage VCs.
Company Valuation: $30M to $60M
#5. Series C Funding and Beyond
It is the third phase of funding companies that have already experienced success in the market. They have definite possibilities in a more extensive market.
Here the main objective is to enhance company growth. Founders focus on product variation, customer acquisition, and accessing the global markets.
Plenty of companies leverage Series C funding to enhance their valuation to prospect an IPO.
Fundings: Approx $50M
Contributors: Big banks, hedge funds, public/private equity firms, and Late-stage VCs.
Company Valuation: $100M
#6. IPO (Initial Public Offering)
When an app startup chooses to get funds from the public (institutional or individual investors) by selling the shares, it is called an IPO.
Investment bankers decide the price and who will sell the shares. When it is out of stock, then be traded on a stock exchange platform.
Each country has decided on some criteria for an IPO. It is necessary to follow basic terms and conditions throughout the IPO process. The company has to submit details to security and exchange boards such as financial statements, a purpose for fundraising, etc.
IPOs usually assist a company to progress and expand in their preferences areas.
Many startups break down when they go public. So, some of them turned into angel investors and started providing funds to other startups.
What are the sources to raise money for the app?
#1. Angel Funding
Angel investors are individual or business entities. They help app startups with the funds at the initial development phase. In return, you need to prove your company shares or convertible securities.
Family members, mentors, and friends can also become angel investors. Some of the angels take part in crowdfunding and trust foundations. There are various angel investor pools also. They incorporate their money and invest together.
#2. Bootstrapping
Bootstrapping is self-funding. You can fund your idea with your own money. So this is one of the secure options because you will not owe anything if you experience failure.
If you have savings to help with app development costs, self-funding is one of the best and safest options.
#3. Personal Network
Individuals in your personal network have faith in your potential. They support you when you choose a new direction without fearing the risks.
But that does not mean you can survive without planning and a sales speech. However, selling your idea to and convincing familiar people is more comfortable than a complete stranger.
#4. Private Investors
Private investors are usually local businesses. They are working in the same sector where your app will perform. You can convince them of your app development funding by improving their business compared to their competitors.
This option is feasible if your app idea is specifically for any industry niche. You can collaborate with the businesses that have enough funds and want to develop a mobile app for their business.
#5. App Funding Contests
Industry leaders, angel investors, and different companies held app funding competitions each year. When you are confident about your app idea and prepared it thoroughly, you can get funds from a contest.
Participating in contests helps to gain attention to your idea. Sometimes, there are chances to get offers after the competitions.
#6. VCs (Venture Capitalist) Funding
Just like angel investors, VCs also offer funding in exchange for company shares. But there are some differences between both of them.
Angel investors help in the initial stages of the development whereas VCs help when the product is in the development phase. If you need funding on a bigger scale, you can choose VCs.
#7. Crowdfunding
There are donation, reward-based, and investment funding when it comes to crowdfunding. It can be performed online via social media contests, incubators, or accelerators.
Crowdfunding for an app means gaining funds from a pool of investors. Each one of them provides a limited amount.
#8. Bank Loans
Doors of banks are always open for personal or business loans. It is one of the fastest options for funding. However, you need to keep security while getting funds from the bank.
Banks do not care if you fail or succeed. They expect the money back after a specific date along with the interests. That is the reason it is not a preferred option for startup ideas. You can choose a bank when you have expanded your business.
Things to consider before convincing investors
Concentrate on some of the factors before you expect funds from the people and organizations.
• You must have a unique idea.
• You must have a working prototype and MVP.
• Your idea has a market demand and should be profitable as well.
• You must have experts performing dedicatedly on your app idea.
• You must have a complete business plan for development.
Summing Up
Whether it's your personal network, VCs, or angel investors, raising money from the inventors is a tough nut to crack. But with the appropriate planning and proper pitching, it is feasible.
Keep faith in your idea and start moving towards your goal gradually. You will definitely get enough money to succeed.
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