The mobile app startup scene is highly competitive. For every app startup that strikes a deal with an investor, 100 others are turned away. Just having a great idea doesn’t impress app investors; angels and VCs back startups that have validated a proven market need and showcase a high potential for future profitability.
Hundreds of millions of dollars are invested into app startups every month, and if you follow the right steps, you can raise seed money too. In the following post, we’ll provide our top five tips for securing app investors for your tech startup.
1. Launch A Minimum Viable Product (MVP)
Angel investors and venture capitalists rarely invest in pre-product ventures. Great ideas don’t always become great businesses. However, even mediocre products can experience massive success if it solves a specific problem, with the right strategy, and at the right time.
A minimum viable product is a first-version product that only provides enough features to satisfy early customers and gain real customer feedback. According to Eric Ries, the creator of Lean Startup, an MVP is defined as a version of a new product that allows a team to collect the maximum amount of validated learning about customers with the least effort.
A minimum viable product provides the opportunity to attract early adopters, monitor customer behavior and generate the user metrics that app investors care about. Some of the most notable companies out there have used lean startup strategies to bring their app ideas to life.
- Groupon: The Groupon we know today started with extremely humble beginnings. Instead of launching the full platform, Groupon started with a WordPress blog – posting their daily deals as blog posts. Their Head of Customer Support, Joe Harrow, would manually send out daily emails to individuals who purchased a deal, personally delivering their electronic voucher. While it wasn’t as “grand” as it is today, it proved a theory that individuals were interested in finding group bargains.
- Zappos: Nick Swinmurn, the founder of Zappos, implemented a “wizard-of-oz” strategy before building the technology to power the e-commerce giant that it is today. Instead of purchasing a large inventory and hoping that people were interested in buying shoes online, he went to the mall and took pictures of items at local shoe stores. These images would be added to his website, and if a sale was made, he would return to the store. After purchasing the item, he’d send it off to the customer as if it were coming directly from his non-existent warehouse. Although the model was not scalable, he was able to validate that customers actually would purchase shoes online. Today, Zappos is one of the largest e-commerce platforms in the world.
- Dropbox: Building Dropbox from scratch would likely take hundreds of thousands of dollars. That is a huge risk to take when you are the first major cloud storage platform that offers cross-device compatibility, during a time when many digital consumers weren’t even familiar with cloud storage. This is why Drew Houston, CEO of Dropbox, started with a Video MVP, instead of launching a full product. He produced a three-minute video explaining DropBox and posted it to Hacker News. In a single day, Houston had collected over 70,000 email addresses – a surefire sign that there was a large market of people looking for the product he wanted to develop.
2. Validate Monetization Strategy
Capital can still be raised even if you aren’t earning significant revenue. However, investors expect to earn a return on their investments and require proof that monetization is possible. It’s great to prove that you can drive traffic to your app and generate user downloads, but your business won’t be sustainable if you can’t generate value from those users.
Once you have implemented a strategy for marketing your minimum viable product, begin testing your ability to monetize. Try to validate the following assumptions with your tests:
- Are customers willing to pay for your solution? If so, how much?
- What is your conversion rate? In other words, how many views or downloads convert into paying customers?
- How long or how often are customers willing to pay for your solution? A business app solution, for instance, may find that customers are willing to pay $5/month but they drop off after six months. A mobile gaming company, on the other hand, may find that customers purchase new items daily, averaging a spend of $3 per day per customer.
Use these metrics to build a strong financial projection model. With real financial data, you can present a much more attractive opportunity to potential investors.
3. Develop Business Plan and Pitch Deck
Investors are accustomed to receiving information in a certain format. Generally, you will need to be introduced to an investor by someone within their network – most of them do not accept unsolicited pitches. Once an introduction has been made, an email can be sent directly to the investor. In this email, they will be expecting to see a great pitch deck and an executive summary that describes the main components of your business.
If your pitch deck was exceptional enough to impress them, they may request to see your business plan or may schedule you for an in-person pitch. For this presentation, a second pitch deck will be necessary. A presentation deck is typically shorter than the introductory deck with less text and fewer slides.
Even if the investor is interested in striking a deal with you, they will do their due diligence before signing an agreement. If they haven’t already, they will request to see your business plan and examine the fine detail. Here, they will want to learn more about your strategy to bring the product to market and widely scale the business.
4. Showcase On The Right Platforms
You can find investor lists online, but they won’t get you anywhere. Again, investors usually don’t accept unsolicited communication. If they did, they’d receive pitches all day and would spend too much time rummaging through the bad to get to the good.
There are several platforms you can use to secure funding for your app. Crowdfunding sites like Kickstarter and Indiegogo allow you to pitch your concept directly to consumers. Interested consumers purchase reward packages, usually giving them first access to the product once it is launched.
Other platforms, like PitchLions, allow you to pitch your startup directly to investors. After completing your profile and loading your documents – like your business plan and pitch deck – the platform allows you to schedule a “live pitch”. It also provides access to an investor database that you can browse to invite angels directly to your pitch.
If you want to find an investor, you need to go where app investors are actively looking to fund early-stage tech startups.
5. Pitch Frequently
The most important tip is, pitch to everyone you can and as often as you can. Confident pitching comes from practice. Lack of preparation will be exposed at the worst possible time. Pitch to your family and friends, then to your peers. Ask them for feedback and have them identify things they didn’t understand. Practice until you can deliver your pitch confidently. When you can pitch from memory on a moments notice – you are ready to approach investors.
Likely, you won’t land a deal on your first pitch. Don’t give up – on average, it takes startups over 40 meetings before landing an investment. Take every opportunity to tell someone about your business – you never know who knows someone else!
Do you have another awesome tip for raising funding from app investors? Tell us about it in the comments below!