Different Methods to Source Capital
Before you start to approach, you should understand the different types of capital sourcing available. There are three main styles, which come with their own intricacies, so it’s essential to do as much research as possible before you start searching.
Bootstrapping
Bootstrapping is one of the most popular styles for start-ups and small businesses. Usually, it arises from the natural structure and history of these companies. This is the process of start-up founders and teams pulling together to source capital for their business through personal finances. By using personal savings, or borrowing from friends and family, teams can launch their app in its early stages and allow it to prove itself in the market.
Financing
For most private sector businesses, financing is a traditional form of sourcing capital that relies on corporate finances. Typical investors in this area include venture capitalists – those who seek out start-ups with the potential to snowball quickly – as well as banks or private individuals.
Funding
App funding refers to the process of software houses approaching individuals or businesses to encourage financial investment in their app. Often, investors are looking for businesses that have the potential to grow into a successful endeavor that can increase the amount of capital they have in the company.
For app creators, funding allows them to improve the functionality and service that their app delivers. For investors, they see a positive monetary return.
If your app lies predominantly or exclusively in the public sector, you can find a range of opportunities that exist within the funding financing style. For instance, government bodies or philanthropical donators might fund your app development with a view to its long-term potential to do public good. If you think this style suits your app, you can contact your local government body to discuss your options.
It doesn’t matter how you decide to fund your app, so long as you ensure that at each stage of its development, you can back up how your actions will be financed. This gives stakeholders the confidence that you’re running a tight ship, and have control over the end result.
Do You Even Need External Capital Sourcing?
As an app creator, you might feel confident about your app's ability to perform in the market and debate whether you even need to secure capital for your app. If this sounds like you, there are a few things that you should consider to help you make the decision:
- Your Personal Financial Situation
For most start-ups, the founding team will often have some form of savings that they can use to invest in their app’s development, or the ability to borrow from family or friends. Having faith in your own app is crucial to its success, so if you don’t want to put money into it, then why should anyone else? If you don’t have access to savings, then it might be worth pitching to an investor.
Different Stages Of Sourcing Capital
If you’ve decided that you need to secure capital for your app, you should follow several steps.
- Choose The Right Method To Source Capital
Firstly, decide what capital sourcing method would be most suitable for your app. Can you afford to self-finance a little longer, or do you need to pitch to private investors? If the latter, ensure you have a clear, concise pitch to communicate your business plan.
- Lay Out Your Finances
When you approach investors, they’ll want to know that their money will be in safe hands. Go into your pitches with a clear financial plan that’s laid out in a digestible way.
- Clarify Your MVP
Your Minimum Viable Product, or MVP, will play a significant role in deciding whether to apply for funding, or self-fund for a little longer. This is a basic form of your app that defines the minimum requirements for it to process a customer’s entire journey. It won’t include additional options or feature ideas – perfect for working out exactly what your app needs to survive in the app store. If you complete your MVP design, you can determine the finances required and whether you need to turn to external investor funding.
- Consider Crowdfunding
If you’re still struggling to source capital, then you might need to turn to some less traditional methods to keep building your app. Crowdfunding is a good example – this involves going to a dedicated crowdfunding site and pitching your ideas to strangers who can pledge a certain amount of money to your app. In 2020, businesses around the world raised over $34 million in crowdfunded revenues, so this is a worthwhile option to consider if you genuinely believe in your app’s potential.
When you source capital, remember to read any contracts in detail before you sign on the dotted line – financial agreements can be complex, so make sure you secure the help of a legal advisor if you need clarification.
