Funding Your App – The Friends and Family Round
Yona GidalevitzMay 19th, 20156 minute read
Yona is Codal’s Technical Writer. At Codal, he is responsible for content strategy, documentation, blogging, and editing. He works closely with Codal’s UX, development, marketing, and administrative teams to produce all manner of written content. In his free time, Yona is an avid guitarist, cook, and traveler.
This is part one of our mini-series on how to fund your app. Be sure to check back next week for part two.
So you've got a great idea for an app, a talented development team, and an empty bank account. What do you do?
Getting funding is no easy feat – the competition is fierce, and money is tight. As a business owner, there are several routes you can take to get funding for your app. Among the most popular methods include: the friends and family round, crowd funding, small business grants, bank loans, and venture capitalist investments.
If you don't have a substantial track record, your initial choices are essentially limited to the friends and family round, crowd funding, and small business grants. The former can be a great choice for businesses that have not developed an app before, nor received funding for a previous project.
The Family and Friends Round
The relative ease with which the friends and family round can generate capital for your app makes it a strong option for first-time entrepreneurs with no track record. It works in much the same way as it sounds: it is a fundraising technique that relies on investments from one's friends and family.
A typical friends and family round can generate anywhere from $25,000 to $150,000 for your fundraising campaign. Compared to the figures typically generated by more robust campaign options, an investment of this size may be considered relatively small. For your growing small business, however, such an investment could be the difference between getting your app off the ground, or letting it die.
What are the risks?
While the friends and family round has it's advantages, it can also be risky. It is important to remember that when you engage in this form of fundraising, you are mixing business with personal. Once you've crossed that line, it can often be difficult to return things to the way they were.
An important consideration to keep in mind is that the investors – your friends and family – may lose a lot of money if you do not succeed. As such, you ought to remain straightforward with them when pitching your idea. You should make sure that potential investors are still interested in investing in your idea after you've explained the chances for failure.
What do you need to get started?
As an entrepreneur, your quest for funding should always start with an innovative idea. An app that regurgitates the functionality of other apps does not typically bring anything to the table. Although your friends and family may fund your app regardless of it's originality, you may be risking their money by pushing an app that is not innovative.
Strong data not only makes for a strong app, but also successful fundraising. Without statistical data to support the creation of your app, investors are less likely to commit to your project.
Investors of any kind want to see a strong plan. Your friends and family will, too. Showing them how you plan on using their money may help them feel at peace with making a substantial investment. Likewise, asking your friends and family to invest in a project without a good plan is not likely to give them the impression that your app will be successful.
Ultimately, your ability to attract investors comes down to the strength of your pitch. While a clever pitch can often make up for a lack of data or strong planning, the meat of your pitch should come from these factors. Your pitch should identify your idea, present any relevant data, and offer a strong plan of action, utilizing whatever creative means are at your disposal.
How do you go about getting the funding?
1. Contact everyone you know
Finding investors can often be as simple as contacting everyone you know, and offering them a piece of the action. You never know who might be interested. Your fifth grade math teacher might want to get involved.
2. Ask a friend
Your friends and family might know someone that would be interested in investing. Sometimes sending out a mass email won't reach a wide enough audience, so it may be beneficial to ask your friends and family to keep an eye out for potential investors.
3. Host an informational event
Hosting an informational event for anyone that might be interested in attending can make a profound difference in your fundraising campaign. It is often difficult to include every piece of relevant information in the pitch, so an informational event may give potential investors the piece of mind they need to make a decision.
4. Contact a potential investor directly
If you know anyone that has invested in a similar project before, consider contacting them directly. Have your pitch ready, and provide them with all the relevant information in a way that puts your project in the context of their previous investments.
5. Invest your own money
If you want to show potential investors that you are serious about the project, consider investing your own money. Your friends and family are more likely to trust you with their money if they know that yours is at stake too.