Alternative Mobile App Funding How to Use Crowdfunding and Equity Partnerships to Fund Your Mobile App
How To Fund Your App Without an Angel In this guide we ll explore the pros and cons of the newest trends in app funding that provide alternatives to angel funding: from Kickstarter, to equity partnerships, to the quickly evolving equity crowdfunding space. The goal of this guide to to help you better understand how you can take advantage of the many options to get your app funded today so you can make the right call for your situation and your application. Angels have become the go-to source for many tech startups. By getting in earlier and driving valuations higher than VCs did previously, they ve become an attractive option. But angels aren t always a viable choice, particularly in the competitive world of mobile applications. You ll learn what types of funding would be best for your application, how to maximize your chances of success, and how to protect your ideas, your application, and yourself. We ll also discuss the role of the Minimum Viable Product in development and funding and what some of the pitfalls are in taking an MVP approach to mobile.
Source: Google Trends, January 2013 Why Angel Funding is Not Right For Everyone If you have an idea that can legitimately have the impact of an Instagram, and a team that s capable of designing, building, marketing, and monetizing it, finding angel funding is still possible these days. For the right startup and the right app, angel funding can be the right direction. Good angels, particularly those tied into their local VC communities, can bring a wealth of experience, knowledge, and networking to the table. But for many would-be app creators today, angel funding isn t the best (or even a viable) option. Because there is so much risk at the angel stage, angel investors typically receive a sizable portion of a company relative to the size of their investment. The less you bring to the table in terms of proof of concept and a team, the more expensive an angel round can be if your company takes off. The intense competition in mobile development coupled with the pressure angels face to drive high returns to offset the risk they take on also means that many good app concepts just aren t a good fit for angels. as the rewards wouldn t offset the risks. Fortunately, a number of other options have evolved to fill the demand for mobile app funding.
How to Use Crowdfunding and Equity Partnerships to Fund Your Mobile App Kickstarter can be a good place to go if your app fits the genre that tends to succeed there and you have the resources to build and update a high quality project page, video, etc. Sourcebits Client PhoneJoy Exceeded Their $50,000 Funding Goal on Kickstarter Because Kickstarters don t get equity, the platform works best for projects the Kickstarter user base can get passionate about or where a reward is enough incentive to drive a pledge. But even if your app has huge commercial potential, if it doesn t appeal to the Kickstarter base it s not going to get funded. Kickstarter IndieGoGo Kickstarter is the best known of the non-equity crowdfunding platforms. These platforms allow users to pledge to support a project without earning any stake in the company. IndieGoGo has also begun to build a following, with many successfully funded projects. Users are typically incentivized by a combination of a desire to help fund innovative projects that might not otherwise be developed, and tiers of rewards from a simple thank you to discounts on a product to becoming a character in a game. For example, Sourcebits client Phonejoy has tiers from a $1 Thank You level to an opportunity to spend three days with the Phonejoy team on a personal tour. Based on a recent search, however, the apps being successfully funded on IndieGoGo are typically raising less than $10,000. If you re looking to raise a small amount to build an application yourself it may be a viable option, but it s not the best choice if you re building anything substantial.
How to Get Your App Crowdfunded The first rule to getting funded on a non-equity platform is that your project must appeal to the right user demographic. Spend enough time browsing these sites and exploring projects to get a clear idea of what s getting funded and what s not. In general projects get funded either because funders want something for themselves (a game or cool product) or they believe strongly in the social value of the project (a solar lamp for villages in Africa, or a documentary on an important, but under covered topic). To have the best shot, you ll want a great explainer video that shows off your app s features and the problems it solves, as well as a compelling story describing why you re creating it, and how you re going to actually deliver it if you re funded. Remember, this is all you have to convince complete strangers to give you money for something they have never seen. Top Tips to Get Your App Crowdfunded 1. Invest in your project page. This means a great video, screen mockups, and copy that tells your story clearly and compellingly. 2. Build momentum. Get all of your friends and family (and their friends and family) to support your project earlyboth financially and with social media. Most backers like to see others onboard. 3. Update, update, update. No matter how good your project page, video, etc. backers want to see activity. Make sure that your project page gets regular updates-the more the better- and that you answer questions quickly. 4. Leverage influencers. Once you have backers, reach out to tech blogs with an angle that might appeal to their readers. A single hit on the right blog can be huge. Confidential Sourcebits, Inc. 2012 5
Challeneges: Equity Crowdfunding Equity crowdfunding is a new funding source being created by the JOBS Act of 2012. Under the act, the SEC must issue new guidelines in 2013 that will allow a significant loosening of the restrictions governing the solicitation of individual investors funding startups. Opportunities: Once finalized, the new guidelines will allow companies to raise actual funds online in exchange for equity. In theory these new platforms will open up massive opportunities for companies that would not otherwise have access to capital--as well as give investors a chance to invest in companies they d otherwise never be exposed to. Some of the concerns already being voiced about equity crowdfunding include the potential for fraud on the part of the companies being funded as well as the amount of equity that will have to be given away to entice investment at any meaningful level. Once in place, the SEC restrictions, will still require financial statements and significant background / due diligence checks, so putting up a project on an equity site won t be as simple as throwing a project up on Kickstarter. The other problem is that it s now likely that the SEC may not issue these guidelines until 2014, due to a change in their leadership and their concern about opening up avenues for wide scale fraud and abuse. But for the right companies, equity crowdfunding will offer many a real opportunity to raise all or some of the capital they need to build their businesses. While it s too early to know the impact or what the regulations will require, if you re raising capital it s worth keeping in mind. Confidential Sourcebits Technologies 2012 6
The Myth of Mobile MVP The end result, however, is often a mediocre app that hurts the chances of a future funding round rather than helping. Be careful, if your MVP is too minimalist, it could torpedo your company's future. - ReadWriteHack, October 2012 For many startups, finding the right partner to develop a mobile project is a challenge. They don t have the capital to work with a top-tier firm, but they re not experienced enough to work with freelancers or build an app themselves. Some startups end up building a bare-bones app under the justification that it s a minimum viable product, or MVP, that will allow them to prove concept. The problem stems from the definition of viable. In mobile, when you re competing against world class developers and more than 700,000 apps in the App Store, the bar for viability is extremely high. Gaining enough users to determine viability requires an app that can break through the clutter Even if an MVP app does prove viable, it s often not scalable, or even usable as a base for the real application. This increases costs and development time as well as the risk that the app will be outdated before the final version is complete. Going the MVP path can be a dangerous road for startups that don t have the experience to know what viable really means. Confidential Sourcebits Technologies 2012 7
The program also includes access to: Equity Partnerships Equity partnerships address the concerns of startups that don t have the funding to build a world-class app but also don t want to end up with a mediocre MVP. For example, Sourcebits 50-50 program allows friends & family, crowdfunded, or even angelfunded startups to build the app they need for 50% less cash. When companies participate in the program, they pay 50% of the total design and development cost of their project in cash. Sourcebits will then become a partner with them, and take the balance in a note that converts to equity when their raise their next round. Sourcebits 50-50 Partners have full access to the same design and development resources that emerging technology companies like Sling Media, Peel, Knocking, CloudOn, TwitPic, and Posterous, as well as enterprise clients like CocaCola, Intel, and General Electric have taken advantage of. US Based Project Management Rock Solid Quality Assurance Built In Scope for Change Requests Marketing insights From Sourcebits Experience Building More Than 20 Top 10 Apps industry Recognition That Your App is Built by Sourcebits Marketing Support Including: Free Demo on This Week in Startups, Features on Sourcebits Site and Blog Mentions in Sourcebits Social Media Event Speaking Opportunities Equity partnerships allow startups to build apps that can compete with the best in global app stores, while keeping cash in reserve for marketing and operations. Because Sourcebits is taking a sizable risk by taking half their payment in future equity, the companies they work with must have raised at least an initial round from friends and family, crowdfunding, or an angel investment. Be careful: Ethical equity partners will only succeed when you succeed, and will only take equity at a fair discount to your next funding round or a mutually agreed fixed valuation. Want to Learn More? Call: 415.288.3697 or Visit www.sourcebits.com Confidential Sourcebits Technologies 2012 8