June 5, 2015
Building a new mobile app takes money. The biggest cost is the price to build it, but after that there are often upkeep costs for servers or cloud storage and other infrastructure. There may be costs associated with marketing plans. Everything costs money. The question for many entrepreneurs is, “where will that money come from?”
This is the most basic funding strategy; you’ve got money and you invest it in building your app. It’s a classically DIY entrepreneurial approach.
A great example would be Craigslist, which exemplifies the bootstrapped, built-at-home product that somehow achieves huge success. Creation of the final product was iterative and evolutionary; Craigslist started out as an events board for San Francisco, but morphed over time based on how people started to use it. The service scaled up as more users came on board, and began to collect revenue by charging a small fee for job postings. Overall, one gets the impression from Craigslist that success came unexpectedly, but they were able to handle the growth without needing outside funding.
Another example, which reveals a slightly more focused road to success, is Braintree, a credit-card processing startup which went four years without funding. Braintree’s success wasn’t accidental. In those four years, the company created its payment gateway software as well as a complete business plan to support it. By the time they received funding in 2011, it was able to pull in nearly $10 million in revenue on the year. Two years later, Braintree was acquired by PayPal for $800 million.
There are plenty more startups that you may recognize that were built without any outside funding. GitHub is one, which was funded by its founders and collected revenue for four years before accepting venture capital investment. Imgur is another, which went five years without funding by generating revenue with sponsored content.
Founders who have the money can build the product and pay any upkeep costs out of pocket before monetization clicks into place. The advantage is that you maintain sole control and ownership, which is a fantastic for those that can pull it off.
Angel or VC Investment
Attracting and pitching to investors is the best option to gain capital for growth goals. Securing funding is a long process that starts with finding potential investors and somehow introducing yourself to them. Sometimes that means talking with someone within your own network that might be interested in investing, other times you’ll be going way outside your network.
You don’t want to come to the investor cold, you want someone to introduce you. Don’t be some anonymous business proposal that lands on their desk, if possible. An introduction face-to-face (or over the phone) from a mutual acquaintance puts you miles ahead of other potential entrepreneurs they might be hearing from. Once you do, you need to set up a time to pitch to them.
There is an art to pitching. For some, it is a big challenge, while others are more comfortable with it—either way, the quality and effectiveness of the pitch will be decided by how you prepare. We’ve created an excellent slide presentation on slideshare as a quick-reference or introduction to the pitching process, so check it out.
What are you bringing to the pitch?
- A presentation, a collection of informative and attractive slides would be the default recommendation. Make your presentation look good, but don’t distract them; try to keep their attention focused on you.
- You might also bring a demo of the product to show off. This could be a canned demo that simply serves to demonstrate the intended user experience, or it could be a prototype you’ve built. Canned demos have the advantage that there is no chance of malfunction. Having a prototype is good for showing your commitment and enthusiasm, but that comes with the risk of a bug or error ruining your pitch.
- A paper handout that explains everything in detail (you can leave this with them to review after the pitch).
- Yourself! As important as your idea is to the pitch, the truth is that investors are judging you just as much (if not more).
Don’t spend too much time on the idea. Go over what you are building just enough so that the investor understands the concept. Once you’ve done that, the details don’t matter. What matters is you. Investors aren’t giving money to an idea, they are giving money to a person. So who is that person? Are you excited about your idea? Can they trust you to work hard? Do you have the expertise needed to succeed? Will you take their advice when they offer it?
Really the whole ordeal can be summed up as “does the investor like you?” And as we all know, there’s no accounting for taste. But one common mistake people make in pitches is to spend their time going over the idea and the business model, and they never address their own virtues as a founder.
Practice makes perfect. A pitch is a stressful event. There’s a lot on the line, but truthfully the preparation for the pitch is much more difficult than the pitch itself. A good pitch only lasts around 15 to 30 minutes, so with good planning it’s a simple matter of hitting every point in order and then saying “thanks for your time.” The tricky part is the planning, where you have to decide what those steps are.
Sakshi Sharma is a mobile app strategist at Software Developers India in Silicon Valley, where she keeps her ear to ground of the startup culture. She knows what it takes to build pitches that impress investors and keep costs down when building minimum viable products. Whether you are self-funding your new app, or looking to get your foot in the door with a VC firm, SDI can help. Get in touch at 408-802-2885.