There are a number of options available for app funding. For apps in early startup, using retirement savings, personal loan, crowdfunding, or angel investors may be a good app funding choice, while an SBA loan, revenue-based financing, an online business loan, or venture capital may be better sources of app funding for growth.
A rollover for business startups (ROBS) allows you to utilize funds from your retirement savings to fund your startup app. With a ROBS, you can withdraw funds from your retirement account without paying early withdrawal fees or taxes, and use those funds to finance your business. Our recommended ROBS provider, Guidant, offers free consultations to help you get started.
8 Funding Options for Your Mobile App
Startup business owners with retirement savings
Business owners with solid personal credit
Businesses willing to provide rewards to investors
Businesses with the potential to scale quickly
Established businesses with at least two years of business operations.
Established businesses with steady revenue streams such as SAAS businesses
Businesses needing fast financing
Businesses with high growth potential
Finding startup funding can be difficult, which is why many app developers often utilize their personal finances through a rollover for business startup or a personal loan for initial funding. In addition to these methods that rely on your personal savings and credit history, startups can also receive startup app funding through crowdfunding and angel investors.
Even after successfully launching your product, you may need funding to grow and scale your business. Some potential sources of app funding for growth include SBA loans, revenue-based financing, online business loans, and venture capital. The type of funding that will be best for your business will depend on your business’ particular needs.
How App Funding Works
App funding is used to pay for the development and growth of a new app. In the startup phase, app funding is needed to pay for the programming and development of the app itself. Once the app is created and established, app funding is used to take the app to market and scale its user base.
The amount needed for startup app funding varies based on the complexity of the app to be developed. Many app developers lean towards crowdfunding sources in this phase. However, there are other app funding options available, such as the use of personal retirement funds, personal loans, and seeking angel investors.
As the popularity of an app grows, additional funding is needed to update the app so that it can grow and scale in the market. With an established business, it’s often easier to find funding options and business loans through the SBA, and online lenders become more viable. Additionally, for rapidly scaling apps, revenue-based financing and venture capital may also be appealing.
Potential financing options for your mobile app include:
Rollover for Business Startups: Best for Startup Business Owners With Retirement Savings
Business owners who have existing retirement savings of $50,000 or more to invest in their app may be interested in a rollover for business startups (ROBS). A ROBS allows you to utilize your retirement savings without paying any taxes or penalties for early withdrawal on the funds used from your retirement account. If you have an eligible retirement account you are willing to use to fund your app, you may want to contact a ROBS provider.
Personal Loans for Business: Best for Business Owners With Solid Personal Credit
With a startup app, it can sometimes be challenging to get a business loan, in which case a personal loan for business might be your best option. You may find it difficult to qualify for a small business loan, especially if your startup app isn’t generating annual revenues yet. Some of the best personal loans for business are easy to apply for and provide fast funding of up to $100,000. To be eligible, borrowers will need to have a credit score of at least 660 and a steady income source.
Crowdfunding: Best for Businesses Offering Investor Rewards
Many app developers prefer crowdfunding as a source of financing for their startup apps. With crowdfunding, many individuals contribute small amounts of money to collaboratively fund your business. This is often facilitated through a crowdfunding site. Crowdfunding donors are often given something in return for their donation, whether it be equity, a promise to repay, or a reward.
Angel Investors: Best for Apps With Potential to Scale Quickly
While your app is still in the startup stage and seeking funding opportunities, you may want to consider seeking out one or more angel investors. Angel investors are individual investors who provide funding in exchange for an equity stake (partial ownership) in your business. Because angel investors are fronting their own personal money, they will want to be confident in your ability to succeed as a business owner, as well as in the potential success of your app.
SBA Loans: Best for Established Businesses
Small Business Administration (SBA) loans are a good choice for app funding for growth because they offer fixed monthly payments and longer repayment terms than online business loans. SBA loans can be used for working capital, to purchase inventory and supplies, to finance fixtures and equipment, or to purchase real estate. As your business grows and scales, an SBA 7(a) loan can provide a low-cost financing option. SBA loans typically require a minimum of two years of business operations and annual revenues of $30,000 or more.
Revenue-based Financing: Best for Businesses With a Steady Revenue Stream
Revenue-based financing is a type of small business financing in which your monthly payment increases and decreases based on your revenues. This type of financing often works well for businesses that sell software as a service, which makes it a great fit for those in the app business. Your payments would be tied to the monthly financial performance of your app, and as such would rise and fall depending on how your app is currently performing.
Online Business Loans: Best for Fast Financing
If you have an established business for your app, online business loans have the fastest, most convenient application processes of any small business financing option. Small business loans are available in amounts up to $500,000 with repayment terms ranging from six months to three years. However, the average APR on an online business loan is roughly 40%. Online lenders are able to prequalify borrowers quickly (often within minutes of applying) and can provide funding in record time. Some of the best online lenders can get you funded in as little as one day.
Venture Capital: Best for Business With High Growth Potential
Venture capital is a financing opportunity for funding startups with high growth potential. In exchange for funding, the venture capital firm will require an equity stake in your business. Venture capital is a good option for businesses needing $100,000 to over $25 million in funding to scale. To apply, you must find the right venture capital firm, pitch your company, and pass its due diligence process.
How to Get Funding for an App in 7 Steps
Getting app funding as a startup can be complicated, especially if you choose an option other than relying on your personal finances. However, there are steps you should take to successfully secure financing through crowdfunding, angel investors, or even venture capital. You’ll need to know your market, establish your brand, and prepare a demo. With that information, you can create a pitch deck and present your ideas to investors.
The seven steps to getting funding for your app are:
1. Know Your Competition
Prior to searching for app funding, you should be certain to identify the competition for your app. While you may have a new and innovative app idea, that doesn’t mean it has no competitors. Investors are going to want to know that you have thoroughly considered the market and competition for your app, including current conventional sources.
For example, an app for navigation would have competitors in the app market that offer maps and GPS services. However, there are more conventional and traditional competitors as well, such as road maps, atlases, and in-car navigation systems. Identifying and addressing all potential competition proves to investors that you have taken these into consideration when determining what sets your product apart.
2. Establish Your Brand
Before approaching potential financiers and investors, you should begin establishing the branding for your app. Developing the basics of the brand include deciding the name of the app and securing a domain name on the web, and these are crucial to being taken seriously by investors. Additionally, you will want to create a logo and select a color palette for your backgrounds and fonts.
While your web presence does not need to be fully populated at this point, you should provide some basic information about your app on the website landing page. You will also want to begin mapping out headers and content templates appropriate for your app and its intended audience.
3. Create an App Demo
App funding investors will want to see your product in action to better understand your proposal. Take time to develop a prototype, or minimum viable product, for your app. This does not need to be the full-fledged product you are trying to secure funding for, but it needs to show enough proof of concept to entice investors.
If you already have an established app, and are trying to secure growth funding, this would show investors how you plan to expand the potential of your app. Allowing investors to see your growth ideas in a tangible manner indicates to the investors that you are serious about your product.
4. Understand the Different Types of Financing
Not all financing is created equally. Each type of financing has its own qualification requirements and terms. For example, using a personal loan for business or a small business loan, you will be required to make monthly payments to repay the loan. However, with angel investment, venture capital, or crowdfunding, you may be required to give up an equity stake in your company.
It’s crucial to weigh the pros and cons of the types of financing to determine which method of app funding you want to use. If you are only looking for a small amount of startup capital, you may choose a personal loan for business. However, if you need a large amount of capital for growth, you may be more inclined to pursue venture capital.
5. Build Your Pitch Deck
Your pitch deck is often the first introduction potential investors will get to your business and your app. Having a well-put together and professional-looking pitch deck can be crucial to securing funding. The average pitch deck is roughly 19 pages or slides, and covers numerous details about your proposal, including the problem your app is solving, the competitive market, and the financial needs of the project.
Your pitch deck for app funding should address the following:
- What problem your app is solving: By explaining the problem, you will set the stage for how your app is aimed at filling a gap in the market. The problem should address a common pain point that is easily relatable to the investors.
- How your app is the solution: Explain how your app solves the problem, and why the timing is right for your app. Give examples of how your app as a solution to the problem is scalable.
- What the market looks like: Define your audience, and show investors the market potential that your app has. Include information on the current market, and the potential growth of the market.
- What your product is: Share screenshots of your demo app highlighting the key components that make it unique, user-friendly, and answer the problem. Include quotes or testimonials from those who have tried your app to help prove its value.
- How your app is performing and traction for further growth: If your app is currently on the market, you’ll need to show investors how it’s performing in a month-to-month breakdown. For apps that are still in development, you will want to show a projected growth trend.
- Who is on your team: One of the most important slides in your pitch deck is the one that tells investors who you are. List members of your team, what their educational and experience background is, and what they bring to the team. Investors want to know who the people are that they are backing behind the app.
- Who and what your competition is: You’ll need to identify who your competitors are in the market, and what sets you apart from them. You want to show the investors what makes your app and company unique to those already in existence.
- Projected financials: Ideally, you will present three years’ worth of financial projections. Try to remain realistic, yet conservative, in your projections. You don’t want to over-promise and underdeliver financials.
- Amount of funds needed: When presenting the amount of funding you are requesting, state the amount as a range rather than a fixed amount. Many investment groups have a limit to the amount they will provide to one investment opportunity. If your stated amount is higher than what they can offer, it may rule your app out as an investment.
6. Hone Your Elevator Pitch
If you had 30 to 60 seconds to sell someone on your app, what would you say? Developing a standardized and streamlined description or your app will assist you when contacting potential funders and investors. Whether by phone, in person, or by email, presenting a cohesive elevator pitch will ensure that you hit all of the key factors when introducing your app.
7. Present Your Pitch Deck & Demo to Investors
With your pitch deck complete and your app demo ready to be debuted, it’s time to present your app to the world of investors. Using your pitch deck as a guide, you will need to present your proposal to investors and highlight to them what makes your app unique and innovative. A solid and well-rehearsed presentation is imperative to the success of your investor pitch.
App Funding Frequently Asked Questions (FAQs)
A lot of information has been covered in this article about how to get funding for an app, what financing options are available for app funding, and tips for securing financing. If you have any questions about any of the information presented here, you can post them in the Fit Small Business forum.
Some frequently asked questions pertaining to app funding are:
How do you fund an app?
Funding your app can be a challenge, though there are a number of financing opportunities available depending on how much funding you need. Some common sources of smaller funding amounts for apps are personal loans or online business loans. If you need larger amounts crowdfunding, angel investors or venture capital may be a better option.
How do app ideas make money?
The primary way is by selling your app in an app store. However, even free apps can be monetized through in-app advertising and in-app purchases. With in-app advertising, the app developer receives payment when ads are viewed or clicked. In-app purchases provide an app enhancement to the user, with proceeds going to the developer.
How much does it cost to build an app?
The costs of building an app vary based on the complexity of the app. A basic app will typically cost around $25,000. Complex apps will cost roughly $40,000 to $70,000, with the most complex apps exceeding $70,000. For example, the popular Uber app was built with seed funding of $200,000.
Whether you are seeking startup app funding or app funding to grow and scale your business, there are a number of financing options available. The best financing option for your app will depend on where your app currently is in the cycle of growth, how much app funding you need, and whether or not others are interested in investing in your app.
If you have retirement savings you are willing to invest in your app, a ROBS allows you to utilize funds from your retirement savings to fund without paying early withdrawal fees or tax penalties. If you have a qualified retirement savings, our recommended ROBS provider, Guidant, offers free consultations to help you get started.