In the early stages, a startup’s true value is likely somewhere in the range of: lower than what a founder hopes it to be, and higher than what an investor is hoping to pay for a portion of equity. When revenue is not in play, there are many other factors that become more important to calculating a fair startup valuation, and many of these factors can be quite subjective.

What are these factors? When it comes to a pre-revenue startup valuation, what do investors look for? How do you secure an investment for your startup when you haven’t yet produced any sales? In this post, we want to find the answers to these questions and show you everything you need to know to prepare the best startup valuation when seeking investment.

Why Is Valuing A Startup So Difficult?

Negotiations between an investor and a startup can be tense. On one end, founders approach the situation hoping to raise the largest amount possible while offering the lowest amount of equity. On the other end, investors are looking for the best deal – invest the least amount of money and receive the largest percentage of equity. While these type of startup and investor deals make headlines, really they are no different than any other transaction – a seller wants the highest value for their offering, while a buyer wants the best product or service for the lowest price.

When investors invest in a company however, they are buying into the future value of a company; and using previous and current value to assess how high that future value may be. For an established company, investors can look at financials over several years and use historical data to predict the future performance of a company. Early-stage startups don’t have historical financial data though, and value must be assessed by examining other important factors. Investors have to be especially realistic about the value and potential of a startup; on average,75% of venture-backed startups don’t make it far enough to return cash back to the investor.

There are many different elements that can be considered for a pre-revenue startup as a proof of potential; but really, which factors are most relevant and which are weighed most heavily is highly dependent upon the type of business itself. A social media app, for example, may be able to garner a high startup valuation solely off of a large user base – while a B2B SaaS solution may need to prove their potential by showcasing long durations of user sessions and a high percentage of conversions to paid subscription packages.

Through our discussions with several investors, CPAs and other financial parties, we’ve narrowed down the three most important factors for a high pre-revenue startup valuation – a strong founding team, proven traction, and a viable future financial projection. In the following sections, we will examine each of these factors, explain how they relate to value, and teach you how to strengthen these factors for a better startup valuation.

The Value of a Founding Team

For a pre-revenue startup, one of the greatest predictors of success is the strength and experience of the founding team. A team of founders that have a history of bringing other startups to success, for instance, would be more highly valued than a team of first-time entrepreneurs with little experience. Furthermore, a team of four people with diverse and focused skills would typically provide more value to a startup than a single founder team.

Mike Raab investor at Sinai Ventures in San Francisco explained exactly why a strong founding team is so important when he considers investing in a startup. Mr. Raab explained, “At an early-stage company, the most important factor that investors consider is the startup team. Does the team have demonstrated success and experiences that make them uniquely qualified to build a venture-scale business in this sector? Ideas are frankly very common (there are often many different companies building similar products to solve the same problem), and investors look for the team that has the background and knowledge to
perform and outlast the rest.”

How strong is your founding team? Here are a few attributes of a valuable team:

• Proven Experience: Investors want to know that a startup team has what it takes to succeed. Startup founders that were previously involved in other successful startups are immediately valued higher than founders with no experience. As an extreme example; if Mark Zuckerberg walked into an investor’s office, his reputation would most likely precede him. His past success with bringing startup ventures to the top would be extremely valuable to any new business he participated in. However, it’s not just those with a successful entrepreneurial background that are valuable to a business. A developer that had a significant position at a well-known software company may have an advantage when developing his own software. A successful financial manager may have an advantage when pitching a financial solution since he has unique experience within the industry. How one’s experience can benefit a specific startup is subjective – but experience plays a major role in the way an investor perceives the associated risk of a startup.
• Skills Combination: A startup team should consist of several individuals, who each have a different but complementary skill set that can help progress the
  startup. A programmer with no marketing background may benefit from having another programmer as their partner; but the team could be much more effective if he/she partnered with an experienced marketing expert instead. Identify what skills are necessary to scale your startup and seek to fill in those gaps to increase your team’s overall value.
• Commitment & Dedication: Having a great founding team means very little if none of the team members are actually available to execute the required work. For example, a developer that is involved in multiple projects may have very little time to allocate to building the software – and while they may be a valuable member, their involvement is devalued by their time limitations. Build your team with highly-motivated individuals who are committed to bringing the startup to success.
• Advisory Board: It’s not just your founding team that is important, but value can also be found in people who advise the board when making important decisions. Experienced advisors can help startups avoid obstacles, help them make more informed decisions, and can even introduce them to potential investors or clients within their network. Look for mentors you can lean on – successful entrepreneurs, industry leaders, and individuals who have the knowledge to help you in your mission.

How much is an awesome team worth, exactly? Well, it’s not quite that clear cut. According to Ken Stalcup, CPA at Houlihan Valuation Advisors; it’s not the team itself that adds the value, but the revenue that those members can generate as a result of their experience. While telling us the process of calculating startup valuation, Ken told us, “We definitely consider the potential for the startup team, their experience, their expertise and so on. [However,] we wouldn’t typically associate a particular value for the startup team; rather, the startup team would be a factor considered when determining the potential growth and quality of future revenues. The better the team – the better the prospect for future revenues.”

Traction is Proof of Concept

When it comes to startup valuation, traction tells the true story of the business – and it doesn’t always come down to revenue. Mike Raab explained, “If a company can organically (without paid marketing) acquire a significant number of users, or demonstrate very low CAC (Customer Acquisition Cost) compared to the potential LTV (Lifetime Value) of the customer, the unit economics are more favorable for venture investors.” In other words, what really brings value to a startup is proof and evidence that an idea is viable and scalable to a large market.

Which metrics you use to prove effective traction will be specific to your startup; however some of the most important app metrics for startup traction include number of users, a proven app marketing strategy and a strong growth rate.

Number of Users

A solution that has acquired a large number of users (compared to the size of it’s addressable market) will have a higher valuation. By securing a large quantity of users, startups can prove that they are able to attract consumers, that users are satisfied with their product, and that there is an existing network that can be monetized.

What does a large number of users look like in solid numbers? Obviously, it’s not that simple. The goal is to penetrate the addressable market, but not all markets are equal in size – and therefore, what seems like “many users” for one app solution, may seem like very few users for another. For example – A solution that serves a large portion of the market, like a social media app, may need 100,000 users to make an impression; while a B2B solution that monetizes consumers with a monthly subscription may be able to show exceptional traction with only 500 paying users.

Having a large user base is a major accomplishment, but what really matters is how those users behave once they have downloaded your application. A million users sounds amazing if that is the only information given – but is it still amazing if 998,000 of those users never returned to the app after using it once? In this situation, having a large user base actually hurts value and shows that a major flaw exists. When considering the number of users during your startup valuation, consider the whole story by analyzing a variety of user metrics such as user retention, daily and monthly active users, session length and more.

In terms of the value of a user base, Ken Stalcup commented, “The value of current users is similar to the overall value of the company. That is, we typically want to see a projection of the revenues associated with the existing users. From there, annual cash flows from current users can be calculated and a present value can be associated with that income stream. Obviously, as [the number of] users grow, there will be more value. If users are anticipated to decline, value will decline.”

Effectiveness of Marketing

As Mike Rabb mentioned, a startup that has proven its ability to acquire high value customers at a low cost has a major advantage when seeking investment. Even if current users have not yet been monetized, showing that a strong marketing strategy has been identified and optimized has the potential to increase startup valuation significantly. Taking a small marketing budget and generating a substantial number of users (in comparison to acquisition costs) proves that with a larger budget, the startup would be able to scale its user base exponentially with little risk.

Growth Rate

What makes a large existing user base even more attractive? Knowing that it’s going to keep growing and growing in the near and distant future. A history of incremental scale and growth, even if small, can add considerable value to your startup. If you can grow consistently with a small budget, the potential is great that you will be able to scale larger and at an accelerated pace with the investment of an angel or VC.

Here’s the key to gaining traction. These three concepts are interconnected – a super effective marketing strategy leads to strong growth; and when your growth is strong, your user numbers inevitably increase. Figure out the first things first – build a great solution that is in demand by your market and learn how to get it in front of your consumers at a low cost.

How Valuable Can Your Startup Become?

While there may not be a hard monetary value on each of the factors we explained, all of them fit into the overall value of a startup. Hard metrics like number of users, customer acquisition costs and per customer monthly spend can be directly accounted for in a financial projection – but intangible assets like founders’ experience provide a measure of confidence that the projections can actually be reached, and this is equally as important.

Ken Stalcup gave excellent advice into how his firm typically calculates a startup valuation: “To put a value on a tech startup, we would typically want to see a five-year projection of the company’s future revenues and expenses. Using those projections, we would develop an estimate of the annual cash flows, add all of the estimated annual cash flows together and calculate the present value of that total number. Pre-revenue startup valuation is accomplished by calculating the present value of the estimated future income stream of the company.”

The Perfect Mix For The Best Startup Valuation

What does a valuable pre-revenue startup look like to an angel investor or a venture capital firm? Mr. Raab explained why his firm, Sinai Ventures, recently decided to invest into a startup called Kapwing: “In July, Sinai Ventures invested in Kapwing, a free software tool for intuitively creating and editing video content and memes. While the company had some revenue, it wasn’t of material scale. However, the co-founders had a clear product vision and had built an impressive user base completely organically in just a few short months. Their backgrounds, traction, and expertise & excitement about what they were building made it an easy decision for us to invest.”

When a startup gets funded at a high startup valuation, it’s typically because they have the perfect mix of positive elements that prove the likelihood that the startup will succeed and generate a substantial return. When you can easily prove that your startup possesses all the pieces needed to achieve grand success, the value of your company will increase and you will be better able to calculate a fair financial ask and equity offering.

Mr. Raab gives the following advice for startups that are seeking investment at the highest valuation: “Get your product in front of customers, get their feedback, and iterate until you have customers who love your product. Product-market fit doesn’t necessarily mean revenue – it means demonstrating that there is a core user for your software who loves what you’ve built and is willing to pay for it (in one way or another). If you have customers willing to provide reference calls on your behalf to tell investors why they love your product, why they’re willing to pay for it, and why it’s better than the competition – investors will take notice.”

Need help creating financial projections to better assess your startup valuation? Our experts can help. At ThinkLions, our business plan writers and consultants have worked with hundreds of startups around the world – creating app business plans and pitch decks that have helped raise millions of dollars in investment. Contact us today to discuss how we can help you bring your app startup to life!

The post Startup Valuation: What Is Your Pre-Revenue Startup Worth? appeared first on Startup Squared.

In the following post, we’ll review five of the best Kickstarter alternatives for app startups and provide some examples of software products that were successfully funded through these platforms. 

1. Indiegogo

Indiegogo is a crowdfunding platform that has long been considered one of Kickstarter’s largest competitors. As an international platform, Indigogo allows anyone to raise money from anywhere, and for any reason. 

Categories

Indiegogo includes a variety of categories that cover just about any business or cause-related venture. Specifically, these categories include:

1. Tech and Innovation: This category includes sub-categories such as Audio, Camera Gear, Education, Fashion & Wearables, Food & Beverages, and more.
2. Creative Works: Sub-categories include Art, Comics, Film, Movies, Tabletop Games, Video Games, and more.
3. Community Projects: Sub-categories such as Culture, Environment, Human Rights, Local Businesses and Wellness.

Unique Features

In comparison to Kickstarter, Indiegogo features several unique features. The most notable of these is the ability to access funds even if the campaign has not been fully funded. However, all-or-nothing campaigns typically have better results than keep-it-all campaigns. In a study of 22,875 crowdfunding campaigns, each of which was trying to raise between $5,000 and $200,000, those who used a keep-it-all model only met their funding goals 17% of the time, while 34% of all-or-nothing campaigns hit their fundraising goals. Furthermore, all-or-nothing campaigns attracted 188 backers on average, while keep-it-all campaigns attracted around 73. 

Another major difference between the two platforms is that Indiegogo also allows for equity-based crowdfunding, while Kickstarter only allows for rewards-based opportunities. For businesses that are seeking investors as opposed to donors, Indiegogo provides a valuable opportunity to secure funding in exchange for a small ownership percentage. 

App Crowdfunding?

Although Indigogo is one of the largest and most well-known Kickstarter alternatives, it is extremely tough for app startups to raise money on this platform. Donors on this platform seem to prefer social causes and physical products over software and apps. For example, a startup promoting sensory toys for autism would go far on this platform, but an app for autistic kids might not realize success. With enough effort though, success is possible even for app startups.

The following app-based crowdfunding campaigns were able to successfully fund their campaigns on Indiegogo:

1. Becuzz: A microfinancing platform that allows individuals to fund small goals between $10-$599. Through Indiegogo, Becuzz was able to fund 102% of its funding goal.
2. Placebo Effect: A mobile app that allows you to personalize and customize your own placebo effect to help improve your joy, abundance, motivation, or any other factor that is important to you.

2. WeFunder

WeFunder is an equity crowdfunding platform that is available to individuals that are seeking to invest in startups. Unlike other equity crowdfunding platforms, WeFunder does not only open its doors to accredited investors but allows the average individual to invest as well. In 2016, the JOBS Act, which allowed non-accredited investors to invest, went into effect – and WeFunder immediately took advantage of this opportunity. 

Like Kickstarter, WeFunder is an all-or-nothing platform. In other words, if the business is not able to raise the full amount of capital, funds are sent back to investors and the entrepreneur must start back over from the beginning. 

Categories

WeFunder focuses solely on businesses. These businesses are spread across a variety of categories, including: 

• Technology
• Mainstreet
• Food
• Alcohol
• Hardware
• Software
• Entertainment
• Retail
• Infrastructure

Unique Features

Unlike Kickstarter, WeFunder is equity-based only. Investors on this platform hope to see a return on their investment over the long term, and since this is the case, only business-based campaigns are supported. 

As mentioned, WeFunder is also one of the only platforms that allow regular people to invest their funds into new startups. Non-accredited investors can invest as little as $100 and own a piece of the next generation of innovation.

App Crowdfunding?

Since WeFunder seeks to attract investors instead of donors, traction and potential are more attractive than rewards alone. WeFunder has several app-based businesses using the platform to raise investor funding. For the right app startup, WeFunder can be a great way to attract new investment.

Here are several startups that have successfully funded their apps through a crowdfunding campaign on WeFunder:

1. Boon: On-Demand temporary dental, veterinary and medical staffing.
2. Happy Tax: Convenient, on-demand CPA prepared tax preparation.
3. Digitally Imported: Electronic music streaming service with a human touch.

3. Fundable

Fundable is a business crowdfunding platform that gives companies the opportunity to raise capital from investors, customers, and peers. The platform allows businesses to run either rewards-based or equity-based crowdfunding campaigns, giving them wider flexibility than other Kickstarter alternatives. 

Categories

Unlike other platforms, Fundable does not list its products in groups or categories. Instead, any startup or business seeking capital can add their business to the marketplace. 

Unique Features

Fundable is extremely flexible, allowing startups to crowdfund under their own guidelines. Fundable gives startups the chance to raise either equity or rewards crowdfunding, choosing to secure their funds from investors or donors. 

App Crowdfunding?

Apps have a much higher chance of succeeding on a platform like Fundable – especially when using an equity-based campaign.

Some of the most recent apps that were funded on this platform include:

1. FansRule: Where fantasy teams make the rules.
2. Swych: The first global digital gifting network.
3. Garageio: Smartphone control for existing garage door openers.

4. Ulule

Ulule is a crowdfunding platform that is quite similar to Kickstarter. Like Kickstarter, it is an all-or-nothing platform where you must reach your goal in order to receive the funds. Furthermore, it is open to all types of ventures – not just businesses, but cause-related, art/creative and non-profit ventures as well. 

Categories

Ulele offers a variety of crowdfunding categories both in the cause-related and business sectors. These categories include: 

• Music
• Film & Video
• Sports
• Stage
• Crafts & Food
• Publishing & Journal
• Childhood & Education
• Technology
• Games
• Comics
• Fashion & Design
• Charity & Citizen
• Art & Photo
• Heritage

Unique Features

Ulule focuses on “Making Good Things Happen” and they claim to have the highest success rate for project creators. Furthermore, they take a lower percentage than some other platforms, only charging 5% of the full fund plus a 3% transaction fee. 

Another great feature of Ulule is that they offer support. Personalized coaching is available for each project owner, before, during, and after their campaign. As a result of this, the Company has over 28,000 successfully funded projects and a record success rate of almost 70%. 

App Crowdfunding?

Ulule’s record high success rate also extends to app and software projects – especially those that serve a cause.

Here are a few apps that have successfully met their funding goals on Ulule:

1. Go Zero Waste App: The app to get a life without plastic.
2. SoundR: A new way to explore your music.
3. Ocean’s Zero: Helps reduce waste to save the oceans.

5. PitchLions

For those looking to land real investors (angel and VC) for their project, PitchLions is an awesome Kickstarter alternative. On PitchLions, startups can virtually pitch their concepts live to an audience of accredited investors.

PitchLions allows startups to host detailed profiles where they can upload their business plans, pitch decks, promotional media, and more, showcasing their product/service and detailing the traction they have generated. 

Then, a “Live Pitch” can be scheduled for a specific date and time. By browsing the Investor Database, startups can invite investors to view their pitches. During the pitch, investors can learn more about the business, ask questions, and mark themselves as “Interested” to schedule further discussion. 

Categories

The PitchLions platform allows businesses of all types to pitch their businesses to investors. Categories range from Software Innovations to Film and everything in between, with a variety of subcategories to better organize its listings. 

Unique Features

PitchLions is the first platform that allows startups to present their offer in a live presentation setting. While there are other Kickstarter alternatives that help startups meet investors, PitchLions is the first to create a platform where entrepreneurs can pitch their businesses in a virtual live setting and where investors can view startup pitches on their own terms.

App Crowdfunding?

Since PitchLions is centered around investors, it is an awesome platform for all promising startups to raise funding – including app startups. App entrepreneurs can filter the investor database by location, interests and more. 

Choosing The Right Crowdfunding Platform

There are dozens of crowdfunding and investor matching platforms out there, and each of them has its own benefits and weaknesses – especially for app startups.

Before launching your campaign, consider the following questions:

1. What type of crowdfunding fits your business better – equity or reards based?
2. Which categories are most funded on the platform?
3. Is the platform better for hardware or software businesses, or is it suitable for both?

Need help writing your business plan or creating a great crowdfunding campaign? We’d love to help. Contact us today to speak with one of our expert startup fundraising consultants.

The post The 5 Best Kickstarter Alternatives for App Startups appeared first on Startup Squared.

Crowdfunding is not easy, though. The average success rate of a crowdfunding campaign is 50%; so for every business that raises capital through this method, another business fails to meet its financial objective. 

While there are many things that must be implemented to successfully meet your crowdfunding goal, it all starts with the pitch – or the crowdfunding campaign itself. If you’re looking for a template, you won’t find it here. Templates give you a “standard” way of doing something, but when it comes to effective crowdfunding, it’s the businesses that go outside the standard that succeed.

Whether you’re raising money on Kickstarter or one of the many Kickstarter alternatives, you’ll need a strong campaign to win. In this article, we’ll share several campaign tips and show you how to write a crowdfunding campaign to successfully raise funds for your startup. 

Expert Tips – How To Write A Crowdfunding Campaign

1. Create The Perfect Campaign Name and Title

There’s no point in writing an incredible campaign if consumers never read it. Before you begin writing your crowdfunding pitch, start by crafting an amazing title. 

The goal of a title is to persuade people to click through to the campaign. According to David Ogilvy, the Father of Advertising, “On average, five times as many people read the headline as read the body copy. When you have written your headline, you have spent eighty cents out of your dollar.” In other words, your title is probably just as, if not more, important than the actual body of your campaign. 

Don’t name your campaign after your product, but use this real estate to woo consumers. Use it to capture people’s attention by being descriptive and detailing the benefits of the product. When someone reads your title, you want them to feel connected and driven to find out more. Let them know what your product is and give them a reason to want it – before they even get to your actual campaign! When thinking about your crowdfunding campaign title, consider these titles of campaigns that were successfully funded on Kickstarter: 

• COOLEST COOLER’s: 21st Century Cooler that’s Actually Cooler
• Bring Reading Rainbow Back for Every Child, Everywhere!
• The Micro: The First Truly Consumer 3D Printer

2. Use Content to Describe A Real Solution to a Real Problem

People don’t buy stuff just because it’s cool… well, most people anyway. Consumers buy things that solve a real problem for them better than other solutions can. A new video game console may be entertaining, but people will only buy it if they perceive that it can entertain them better than their current gaming system. Consumers want products that allow them to solve their problems more easily, more accurately, or more efficiently. 

Know who your consumers are, the challenges they face, and their issues with current solutions. Then, decide exactly what problem they have that your product provides a solution for. Here are a few crowdfunding examples of well-funded startups that used a problem/solution statement to stimulate consumers: 

• G:Ro Carry-On Luggage’s Campaign – “We all know travel can be a hassle. The more you do it, the more tiring and frustrating it becomes. To get from here to there, too many of us depend on inferior bags, travel gear and accessories. So, we set out to design a bag that is better than anything else available.”
• eufyCam’s Crowdfunding Campaign: Wireless Security Camera – “Hate getting robbed? Love solving mysteries? Installing a security camera might seem like an obvious answer for surveillance, but it may surprise you that only 3 out of 10 homes have any sort of security device set up. And, as basic as a security camera system might seem, you’ll be surprised to know that other cameras on the market actually present more problems than solutions.”
• SuperBook Crowdfunding Example – “You already do a lot on your smartphone: it’s convenient, portable, and holds all of your apps, files, and contacts. In fact, you could accomplish a lot more with it, but are often held back by its small screen size and limited mobile interface. That’s why we created the Superbook – to remove those restrictions and give you the freedom of using just one computer.”

3. Write A Crowdfunding Campaign People Want to Share

Believe it or not, people don’t share online content because they “like” it. From a medical standpoint, sharing things with our network and receiving positive feedback (likes and comments) releases dopamine in our brains, giving us euphoria. To write a powerful campaign, you should know how to use your crowdfunding content to encourage specific user behaviors – like sharing. There are five main reasons why we share things on social media: 

1. To bring valuable and entertaining content to others.
2. Define ourselves to others.
3. To grow and nourish our relationships.
4. Self-fulfillment.
5. To get the word out about causes or brands.

Think about these factors as you develop the content for your campaign. Consider the second factor, for example – to define ourselves to others. This means, people may not share simply because they “agree” with your cause or brand, but because they want others to perceive them as someone who agrees with that product or brand.

In essence, the product you’re offering isn’t the only thing that must solve a problem for them – your content must do the same. While some consumers will just want to get the word out about your brand, remember that this is last on the list. Give them the dopamine release they are looking for with your content, and it will pay back in shares. 

Getting viewers to share your content with their networks can have exponential benefits to your campaign. Not only does it expose you to new customers, giving you a wider reach, but it does so with the recommendation of the person who shared it; immediately boosting brand credibility. 

4. Make Readers Feel Inspired With Your Campaign

Consumers who purchase from crowdfunding sites often don’t just want the product, but they find pleasure in being a part of the mission of the brand. They don’t just want to use a product, they want to be inspired by the brand’s existence and want to connect to the brand’s overall vision. 

When writing a crowdfunding campaign, tell users about your story. Use your campaign to tell consumers why you exist, how you discovered the problem, and how your solution came about. Users connect to a brand story more emotionally than they do simply to brand claims. Of 1,000 consumers, 65% said they felt an emotional connection to a brand. From those individuals, 65% said they have an emotional connection to a brand because they make them feel, “like they care about people like me.” 

If you want readers to connect to your brand, explain your mission in your campaign; displaying that you care about them and the challenges they face. Inspire consumers and give them a reason to connect with your brand. If successful, consumers will naturally turn into brand ambassadors; sharing the campaign and enticing their network to pre-purchase your product as well.  

5. Sell Your Crowdfunding Campaign With Rewards

Just like when pitching investors, consumers also expect a return on their investment. Sure, they want to receive the incentive or reward that you’re offering in exchange for their money, but there are other reasons that they want to buy as well. 

Use your crowdfunding campaign content to nurture their desires and to offer them a return. Maybe their desire is to be an early adopter or maybe it’s to be the “discoverer” among their friends. The better you understand your customer, the more effectively you can align your campaign to convince them to make a pre-purchase. 

Putting Your Campaign Together

If your crowdfunding campaign achieves all the objectives stated, you’ve positioned yourself for crowdfunding success. These stats from a study of successful campaigns may provide you with some additional guidance when writing your campaign: 

• The average number of words for a effective crowdfunding campaign is 609.
• The most popular campaign contribution reward level is between $10-25.
• The average number of rewards levels for a crowdfunding campaigns is 9.

Now that you know everything about writing a powerful campaign, all that’s left to do now is launch your campaign and promote it to everyone who will listen.

Need some help putting your campaign together? Contact ThinkLions today and speak with one of our startup funding experts! We’d love to help! 

The post How To Write A Crowdfunding Campaign That Gets Funded appeared first on Startup Squared.

Everyone with an app idea and a pitch deck believes that they are ready to pitch VCs and secure a large investment to bring their idea to life. Unfortunately, of the millions of app startups (or pre-startups) out there, very few of them are actually in a position to secure even a minimum amount of initial funding. In this guide, we will answer everything you want to know about how to raise seed funding and convince investors to invest in your app startup.

Is Your App Startup Fundable?

Often, entrepreneurs who have not been through the process of obtaining funding mistakenly assume that just having a great app idea is enough. It isn’t. These entrepreneurs are quickly humbled when they pitch their idea for the first time only to be hammered with questions that they weren’t prepared to answer. 

The truth is, an idea on its own has zero value to app investors. Everyone has the next idea that will “completely disrupt the industry!”; or the next “Uber for ____” idea; or the next idea for an app that will “really change our lives!” Mark Hurd (CEO of Oracle) once said, “Without execution, ‘vision’ is just another word for hallucination.” Unfortunately, very few app ideas ever become apps, and very few apps ever become fundable startups.

There are several steps between the app idea stage and the seed capital raising stage – and even if you know how to raise seed funding, you probably won’t if you haven’t at least progressed your startup to a certain position. At the minimum, a fundable startup will have reached these three milestones before raising seed capital:

1. Established Startup Team: A single-member team isn’t a startup team at all. Building a business takes more work than most first-time entrepreneurs can ever imagine, and doing it alone is usually too much work for one individual. Your team should be complete with several professionals that have an extensive breadth of knowledges, experiences and backgrounds. Each member should have a specific job that relates to their skill set, and particular talents that add major value to the overall organization. When you’re raising seed capital, potential investors will lean heavily on the strength of your startup team when making a funding decision.
2. Validated Idea: It is not always necessary to have a full-fledged and already launched app to get seed funding for a startup business. However, it is necessary that you have tested the idea with real users and that you have validated every assumption. It’s not enough to assume that a demand exists for your app or to assume that your idea is the one that will effectively meet this demand. Ideally, you should have a functional minimal viable product with real customers using it, and should already be producing some type of revenue.
3. Strong Pitch: Even if you have a great startup, if you can’t communicate why it’s great, you’ll have no chance of convincing investors to trust you with their money. Make sure you write a detailed business plan, have an effective startup pitch deck in place and practice your pitch until it is ready to be delivered confidently, at a moment’s notice.

If you haven’t accomplished these three requirements, all of your efforts should be going into doing so – especially before seeking initial funding from seed investors.

You Already Know Your First Investor

There is one person out there that is in the perfect position to invest in your app idea – and you already know them. You guessed it…. It’s you! There is a bootstrapping stage for every successful startup. Some startups do so well in this phase that they bootstrap their way to success without giving away any equity for initial funding. Taking just the first steps towards building an app takes time, energy, and money; and before you can ask someone else to invest their resources, you’ll need to invest in yourself.

By definition, an entrepreneur is an individual who takes risks to reap a large reward. It is quite the irony that many app entrepreneurs want seed funding firms to risk their funds, but aren’t willing to risk their own. Even those who have very little savings can access funds if they are committed to putting in the effort and taking a risk to pursue their idea. Ready to invest in yourself? Here are a few ways you can access funds to get your app idea into the minimal viable product stages:

1. Business Plan Contests: Although many business plan contests also require businesses to be at a certain level before entering, some lower-prized contests and events also allow entrepreneurs to pitch in the idea stage. Some of these events may offer several thousands of dollars in prize money which can be used as seed capital funding to build a prototype or launch a first version minimal app.
2. Crowdfunding : One of the best validation tests for your app idea is crowdfunding. If you believe that consumers in your market would really find value in your app, this method allows you to bring it to them pre-development and allow them to support it with their donation. However, succeeding with a crowdfunding campaign is not as easy as it may seem. It takes much work to successfully promote a contest, and the rewards must be worthwhile. App startups that have been effective with this approach however, have been able to obtain hundreds of thousands of dollars in initial revenue while forming a strong consumer base.
3. Loans: We take out loans in our everyday personal lives, but for many entrepreneurs, personal loans have also been used to fund the launch of their startups. To secure a loan, you will need to have decent personal credit – likely you will not have established enough business credit at this point to secure a business loan. Before taking out a loan of any kind, make sure you understand the terms of your agreement and that you can afford to pay back the required monthly payments.
4. Credit Cards: While only recommended as a last resort, many entrepreneurs have financed portions of their businesses on credit cards. Unfortunately, credit cards often have high interest rates, so you will pay much more to access these funds; but they are also quite easily accessible by anyone with a decent credit score. Again, it is important to only borrow money that you can comfortably pay back. Financing should only be used to better your position, but it can severely worsen your position if not careful.  

How To Find Seed Money For Your App Startup

There is no shortage of seed money investors out there – some of them are obvious, some are hidden in plain sight, and some don’t even know that they are investors yet (maybe they need some convincing first). You may not know anyone who meets the requirements of an ‘angel investor’, but without a doubt, you can access investors if you try hard enough. If you want to know how to raise seed funding for your app startup, here’s a few places to start:

• Explore Your Network: There is no better way to begin a positive relationship with an investor than through a direct referral. A great referral can move the startup/investor relationship several steps ahead before the two even have a chance to officially meet one another. Take inventory of everyone you know, and who they know. Tell people about your business and let them know that you are looking for app investors. Six degrees of separation is a real thing, and you probably don’t have to go six whole degrees to find potential seed money investors to pitch.
• Join An Incubator: App incubators are made to take apps from their initial phases and to bring them to a fundable level. Many incubators have connections with app angel investors, seed funding firms and VC partners; and some are launched by VC firms themselves. Furthermore, many app incubators provide some type of initial seed money, in exchange for a small equity percentage, to help businesses bring their ideas to life.
• Promote On Investor Platforms: With software startup financing being at an all time high, app funding sites have sprung up like spring weeds; acting as a bridge between fundable startups and angel investors. Sites such as Gust, AngelList and Dealroom allow businesses to set up profiles
  and promote their startups directly to investors. Even without knowing exactly how to raise seed funding, investor platforms give startups direct access to investors that looking for amazing deals. These platforms are extremely competitive however, and to succeed in raising funds startups must meet several requirements to help them stand out against other startups.

How To Prepare for Seed Funding

Once you know how to raise seed funding and how to find investors, you will also need to learn how to attract them and convince them to invest in your business. These seven tips will position you for the most success when seeking a seed investment:

1. Make your elevator pitch count – Sometimes, you only have a few seconds to make a good impression with an app investor. An entrepreneur should be able to effectively explain their business within just a sentence or two. Make sure that your elevator pitch is simple in content but offers enough information to draw curiosity. Your elevator pitch should be refined, reworked and optimized frequently until the most effective version has been established.
2. Be the expert – Entrepreneurs can become so fixated on all the features and functions of their app idea that they miss important things happening within their industry. Investors put their capital in people that they believe have the knowledge and expertise to truly deliver a successful product; and if you want them to invest in you, you must have an above-average knowledge of your market, industry, and competitive landscape. Moves that your competitors make will have a direct impact on your startup, as will trends in the industry, government policy, and other important factors that may relate to the potential success of your idea.
3. Know the numbers – There is one thing every investor cares about, and that is, whether their capital investment will produce a positive return. During your pitch, it is likely that you will be asked about sales, the number of users on your app, revenue, profits, projected revenue, funding requirements and more. Don’t pitch a seed money investor without knowingthe numbers that represent your business. If they ask you about these numbers, and they will, you will lose major points if you fumble over their questions and will lose all credibility if you accidentally misrepresent them.
4. Have a pitch deck ready – Don’t wait until you’ve got an investor meeting scheduled to start working on your pitch deck; get it ready ahead of time so that you can focus on perfecting your pitch on the days leading up to your meeting, instead of building slides. Create a pitch deck that is captivating, compelling and that tells a story that investors can easily follow. Design is important, but use it minimally to enhance your pitch so it doesn’t draw attention away from the slide’s content.
5. Show a demo – Talking about how your pre-developed app will operate can possibly help app investors visualize it in real use, but showing a demo leaves a lasting impression. A demo or prototype may not be a totally functional app, but it allows potential investors to interact with your software and “experience” it for themselves.
6. Pitch it well – The key to pitching seed money firms or investors confidently is practice, practice and more practice. Practice your pitch in front of a mirror; record yourself and play it back for critique; pitch it in front of friends and family, and get their feedback; pitch it EVERY CHANCE YOU GET! Eventually, pitching your app idea will become second nature – the more you practice it, the quicker your confidence will build.
7. Evaluate and optimize – Unfortunately, you won’t convince every investor to invest; but you will receive valuable feedback each and every time you pitch your app concept. Don’t lose sleep over an investor’s critique of your startup, but use their feedback to optimize your pitch. Each time you get rejected, you learn more and more about how to raise seed funding. Identify the weaknesses in your pitch and in your business, and strengthen them until they are no longer seen as weaknesses.

How To Raise Seed Funding – The Process

Knowing how to raise seed funding for an app is about as beneficial as having just an app idea – it means nothing without execution. In your startup journey, it is vital to be honest with yourself about whether your startup is truly fundable, or if you need to put in more legwork to validate your idea first. Once you know how to raise seed funding, that’s where the real work begins – because now you have to do it! 

Can’t decide what the next step is in your seed funding journey? Contact us today and schedule a free consultation with one of our app startup experts!

The post The Best Ways To Raise Seed Funding For Your App Startup appeared first on Startup Squared.

Once you finally get the perfect business plan written, what’s next? For those who are far enough along in their business, submitting the plan directly to investors might be a wise step. For those who aren’t quite ready to approach VCs yet, but could use a financial boost to get things going, participating in business plan contests can be a tremendous help. Not only do these competitions often provide significant rewards for the winners, but they also often draw the attention of angels, VCs, and even corporations looking to invest in or partner with the next billion-dollar startup.

Unfortunately, where there is honey there are bees – business plan contests often attract some of the brightest minds, and the higher the reward, the more competition you can expect. In this post, we’ll explore everything you need to know to find a great business plan contest, enter it with confidence, and win against other participating startups!

The Benefits of Winning A Business Plan Contest

Business plan competitions are beneficial platforms that allow entrepreneurs to showcase their idea, product, or startup to a group of judges. Often, these competitions involve pitching the idea or startup to judges over one or more rounds. Once each competing startup has presented, judges vote on which business (or businesses) will receive the offered reward.

While business plan competitions highly benefit winning startups, they offer immense benefits to investors who attend them also – access to early-stage businesses that they can invest in before others have the opportunity. Furthermore, these competitions work to even out the playing field for entrepreneurs who otherwise may not have access to investors – winning a business plan contest could be the difference between funding your business’ launch or failing before you even get the chance to begin.

The most obvious benefit of winning a business plan contest is winning the offered reward. The reward value of these contests can vary from small amounts to extremely large amounts.  For example, the Panasci Business Plan Competition by Syracuse University offers around $35,000 in total rewards, while the Rice Business Plan Competition offers over $1.2 million in seed funding to its winners and runner-ups. Winning the right competition can impact your business greatly; providing you with the app funding required to progress your business from the app idea phase to launch and beyond. There is something that should be considered though – some business plan competitions may come with specific conditions that must be met to receive the funding; such as headquartering the business in a certain location, offering up an equity percentage, or being involved in a startup incubator for some length of time.

High-profile angels and VCs often attend larger business plan competitions, and even participants that don’t win the contest may attract the attention of an investor. In some cases, teams that don’t win may end up with larger investments than those that the judges selected for first place. Investors aren’t always looking for the same things in a startup; your idea might not be of much interest to the judges, but may be exactly what an attending investor was looking for! These investors aren’t only good for the funds they bring – some of them may provide a critical mentorship component to your startup; helping to advise your team for greater success down the line.

Lastly, one of the least recognized but most effective benefits of participating in a business plan competition is having your business plan and startup critically reviewed by experienced judges, entrepreneurs, and investors. Even if you don’t win, the insight provided by the panel of judges will offer different perspectives regarding your startup. Ultimately, by applying this insight, you can further position your startup for success when participating in future events.

Finding The Right Business Plan Contest

The unique beauty of business plan contests is that they are relatively ubiquitous – and today, more competitions are popping up than ever before. A variety of organizations, educational institutions, and even individuals organize business plan competitions to seek out investable and fundable business ideas. In general, most business plan contests can be grouped into two categories:

1. University Competitions: Many major universities organize some type of business plan contest through their business school. Eligibility may vary from contest to contest, but these contests are typically only available to those connected to the business program – students, alumni, and in some cases, even on-staff professionals. Due to these eligibility requirements, competition is generally limited – which means that participants have a much larger chance of winning when compared to contests with less regulation. Furthermore, universities know that any successful startups launched through these contests will give their business program a major boost in visibility and credibility. As a result, universities often go a step above to support winners of these programs – providing additional on-campus resources or even access to alumni professionals that can help them advance their businesses.
2. Sponsored Contests: Sponsored business plans are those that are planned and hosted by an organization, corporation, individual or other entity. Specifically, these organizers ‘sponsor’ the competition – organizing the event, involving investors and judges, and securing rewards to incentivize winners and participants. Sometimes, these competitions may be sponsored by companies within a specific sector such as biotech, healthcare, urban transit, architecture, and etc.; while other times they may be part of a larger startup incubator or accelerator program.  

Business plan and pitch deck competitions take place several times each year in most major cities – and even in many less popular upcoming startup regions. If you are a student or alumni, check with your university to see if they have a business plan competition in place – if not, maybe you can help them organize one! For those who are not eligible to join a university-sponsored competition, a simple Google search will provide you with several options. Search for “industry name + business plan contest” or “city + business plan contest” to see what upcoming business plan contest events you may be eligible to participate in.

Winning Big At Your First Business Plan Contest

Participating in a business plan contest can be extremely valuable, but the real goal is to win – and to win big! The key to winning a business plan competition of any type is to know what the judges are looking for and to position your startup, business plan, and pitch to exceed their expectations.

Judging The Judges

In general, whether you win a business plan contest or not will hinge upon how your business idea is perceived by the panel of judges, and how they perceive you as an entrepreneur and presenter. It is worth noting that judges often come from various backgrounds with varied experiences; what may be a top consideration for one judge may make little difference to another. However, most judges compare businesses on at least the following three factors:

1. Originality: Successful business ideas need to be original in nature and able to improve upon an existing solution, solve a wide-scale problem, or effectively meet the current market demand. Businesses that simply spin-off from other successful ideas are not looked upon favorably by judges or investors – since they usually have little advantage to compete against already established players. To win a business plan contest, it is essential that your idea is fresh, scalable, sustainable and eventually, profitable.
2. Ability To Generate Profit: Even the most creative ideas need to be able to turn a profit at some point. Understandably, most investors aren’t interested in funding businesses that won’t provide them with a return in the long-run. In order to gain interest in your business during a contest, your business plan should show exactly how your business will provide a return for investors in the long-term. While some investors may be interested in other aspects of a business, such as their social consciousness or involvement, the majority of investors are looking for opportunities to grow their portfolio by investing in businesses that are capable of generating strong profits.
3. Effective Presentation: It’s not always the best idea that wins a business plan competition. A perfect business plan and an exciting idea means very little if an entrepreneur can not properly convey their message during their presentation. In most contests, participants are given a set time limit (such as 10 minutes) to present – and expressing all the necessary information within this time period can be rather difficult. Judges look for confident entrepreneurs who can articulate their business enough to convey the efficacy and scalability of their idea properly. The knowledge an entrepreneur needs to possess doesn’t end with just the text presented in their business plan or pitch deck. Most often, there is a Q&A portion during these events in which the entrepreneur will be required to answer specific questions by judges and investors. The inability to answer these questions properly and confidently can quickly dissuade an investor from investing, or can cause a judge to give a lower score than they would have otherwise.

Preparing For Business Plan Contest Success

Success at these events is often linked to how well an entrepreneur has prepared themselves beforehand. One thing is certain – your competitors will be prepared; and if you aren’t, it will be embarrassingly noticeable. Unfortunately, in a business plan contest, there is no way to mask unpreparedness, especially among an audience of experienced entrepreneurs and investors. To best prepare for an upcoming business plan competition, consider the following tips:

• Sell A Strong Team: There is one thing that’s more important than having a great business plan – having a strong and experienced team that can actually execute it. Management teams are what bind all the elements of a business plan together; combining the skills necessary to put the plan into action successfully. It is vital that your team encompasses a broad range of skills and that each team member has a specific job that will lead to the startup’s success.
• Present The Problem First: Startups that win (in contests and in general) are those that truly solve an existing problem – whether the problem is shared by a mass group of people, or by a niche audience. There’s a lot of “cool tech” out there, but even simple ideas can solve major problems. Taxis have existed for decades, but a simple idea like ride-sharing changed the way the world views personal transportation. Prepare a pitch that is challenge/solution heavy by focusing on what the problem is, why individuals experience the issue, why current solutions don’t solve the challenges effectively, and why your product/service is the right solution for the problem.
• Know Your Funding Requirements: Investors don’t want their funds to just sit in an account; they want to know that there is a plan in place to use these funds and effectively scale a startup from its current position. Have a funding plan in place – know how much funding is required, what actions need to be completed to successfully progress the business, and how each dollar will be spent to meet your launch or growth objectives.
• Be The Expert: If there is any gap in your business plan, it will be uncovered during the Q&A stage. Investors and judges are highly experienced in asking the right questions to get a full picture of your startup and to gauge whether you are well-informed about your business, market and the issue that you are attempting to solve. It’s not a good sign when an investor or judge knows more about your business than you do. Ensure that your business plan is all-encompassing with vital information, and that you can answer any necessary questions without needing to reference your business plan. During the Q&A session, you should be able to answer questions proficiently, confidently, and with enough expertise to prove that you know exactly what you are talking about.
• Listen, Learn and Apply: You can’t win every business plan or pitch contest, but you can definitely take the insights given during one competition and use it to propel your potential for success in future contests. It’s not everyday that you’re able to receive critical feedback from a group of investors, and when you can, you should take advantage of it as much as possible. Even if you don’t win anything in a business plan competition, the insights gained can be used to catapult your business to the next level.

Writing A Business Plan That Wins

Even if everything else is perfect – if you want to win, you must begin with a well-thought-out, perfectly articulated, and investor-ready business plan that tells your startup’s story in an effective manner. There are many factors to consider when writing a business plan from proper market analysis to financial projections – and any weak point in your plan will decrease your chances of winning. If you need more advice on writing a business plan, contact one of our experts today for a free business plan consultation!

The post How To Win A Business Plan Contest appeared first on Startup Squared.

If you’re launching a new startup, one of the first stumbling blocks you need to overcome is how to fund the growth of your startup. Obtaining funds to start a business is extremely critical in the early phases. Even if they’ve answered the question, ‘what is seed money’, many new startups don’t know where to find it. Without it, your great idea threatens to stay stagnant or, worse, a competitor with better funding can swoop in and capitalize on the market.

Around 30% of start-ups fail from a lack of capital to grow the business for marketing, personnel acquisition, design, and development of the technology and business direction. Successful startups, however, know the power of early capital, and how to tap into it.

Definition

Seed money can be defined in many ways. When we define seed money or seek to give a seed capital definition, it simply means this – seed money is the first round of capital for a new business. For many new enterprises, seed money provides the capital and funds needed to establish and grow the brand. Common uses of seed money include product development, market research, hiring personnel, securing facilities or equipment, and initial launch and production. For an app startup specifically, common uses of seed money usually include developing the minimum viable product and initiating an early marketing strategy.

So how does it work? Seed capital is often given in exchange for equity ownership — that is exchanging capital in return for a stake in the company. Even when a new business presents a solid idea, unvalidated concepts are a substantial risk to investors. Equity stake, or part ownership in a company, lends incentive to investors to engage in risk and provides a method to earn a return on their investment. Effectively, in exchange for access to early funding, you are trading ownership of the company and a portion of your eventual returns. Likewise, if your business fails to produce a return, investors risk losing the capital that they invested in the business.

Capital for startups is a huge business, however, the traditional sources for seed capital are extremely competitive. While there are many investors seeking new startups to invest in, there are even more new startups seeking an investment partner.

Sources of Early Funding

While there are many ways a startup can raise early financing, the most common sources of seed capital come from three primary groups: friends and family, venture capitalists, and angel investors. There are distinct benefits and ramifications for partnering with each type of investor.

Asking for Seed Money from Friends and Family

Friends and family are a common source of early capital, but you should proceed with caution. You should really limit your list to close friends and family; there is no better way to ruin a relationship than a disagreement over money. Only approach those you would be comfortable discussing sensitive topics with. On the approach, be sure to be sincere and professional in your demeanor and request.

Keep in mind that if your friend and family are not experienced investors, they may solely be investing in you, because it’s you. They may not know anything about investing and make inexperienced financial decisions that other investors wouldn’t make. And they may only be investing for one reason – because you asked them to. Even if they are close to you, your integrity is on the line and you must remain accountable to your investors. It’s important to discuss with your potential investor the fact that your startup can potentially not work out. Your friend or family member could invest a lot of money and never see it again. Can your relationship survive that? Be honest with yourself, and your investor, or risk damaging the personal relationship.

However, friends and family can be great investors. Because they are intimately familiar with the entrepreneur’s character, they are more likely to take a risk on a pre-revenue concept than a bank or venture capital firm might be. Be enthusiastic, but most importantly, be committed to your business. Highlight your judgment, as personal knowledge of your character will be your greatest asset with this type of investor. Those who do invest are looking to get in on the ground floor of a successful business and see their investment take off.

Acquiring Seed Money from Venture Capitalists

Seed funding firms are another common route to early-stage capital. There are several really popular venture capitalists who invest in app startups such as LOWERCASE Capital, Homebrew Capital, First Round Collective, and others. To secure private equity seed funding from these investors is extremely competitive. Thousands of amazing startups submit their business plans and pitch decks to these venture capitalists (and others like them) each year, but very few succeed in securing funding. Raising funds from venture capitalists isn’t nearly as easy as it seems. They only take on new investments with impenetrable business strategy, an exceptional founding team, and well-developed and validated ideas.

In exchange for their funding, venture capitalists will require an unusually high equity stake when compared to other investor types. Furthermore, they will often require a polished business plan and a strong presentation with a top-notch pitch deck design. Entrepreneurs need to be prepared and persistent when seeking venture capital — investors will ask difficult questions and you will likely face several rejections before striking a deal. You should be sure to consult legal counsel before you begin relations with a seed money funding firm. Be aware of how much of seed funding equity you’re giving away in exchange for what seed funding amount. Never jump into a deal without knowing the terms. 

Securing Seed Money from Angel Investors

The last source of seed money is from what is known as angel investors. An angel investor is a well-to-do individual, typically from high-end professions, such as doctors, lawyers, or entrepreneurs, who can invest their existing wealth into a new business. Though the size of the seed investment is typically less than what venture capitalists will commit to, the amount can still be quite sizable.

As a bonus, some private investors bring additional benefits outside of funding; they can offer mentorship and may even have resources that you can tap into. Often successful entrepreneurs themselves, they can offer advice and may even be able to leverage their existing industry relationships to help progress the business.

Is Your Startup Ready to be Funded?

First and foremost, seed funding a new startup is extremely risky for investors. Up to 90% of new start-ups fail and, even for the ones that don’t, it could take years to earn a return on investment. For that reason, before you approach even the first investor, it is important to know how to how to pitch investors properly and effectively. Walking into a meeting with just an idea and some enthusiasm is not going to be enough to install confidence in you or your business.

There are several considerations you should take in before you begin to approach potential investors:

• Have a well-polished business plan: Even for businesses in the ideation stage, having a clear and thorough business plan is a signal of professionalism. It shows that you have thoroughly examined the ins and outs of your business. Most importantly, it will help you more clearly define your vision and goal. A top-notch business plan is complete with financial analysis, marketing strategy, and other important factors that investors will consider before striking a deal.
• Know how much seed money you need and why: Investors don’t just hand out checks. They want to know where their investment is going and how it will be used to progress the business. Part of your well-polished business plan is a strategy that explains what steps you will take to meet your business’ objectives. That means itemizing funding requirements, breaking down expenses, and projecting future revenue. The financial projections should also project when they can expect a return on their investment.
• Calculate the value of your startup: For many businesses in the early phases, the initial startup valuation will yield disappointing results. But with the right experience, dedication, a validated proof of concept and signs of revenue you can significantly increase the value of your startup. A well-calculated company valuation will make investors consider your pitch more seriously.
• Be ready to share equity in your company: Almost by definition, seed funding usually requires founders to give up equity in the company in order to make the deal. In many cases, this also means giving up some of the power to make decisions. Investors may require a seat on the board to ensure that they are part of the decision-making process. The percentage of equity an investor owns in the business is equal to their power in the decision-making process. An investor with 20% equity will have ⅕ of the vote when decisions are made. Taking on capital means taking on a partner; you’ll need to be ready to share your vision, but also open to hearing and considering the opinion of others.
• Take into account the personality of the investor: Be sure your vision aligns with that of your investor. If they don’t, or if your investor’s personality is not a great match with yours or your entrepreneurial style, it can cause major challenges in the future. To be clear, you should diversify the perspectives of your advisors and founding team to maximize your overall vision; but too big a gap in vision can be problematic. With family and friends, this is particularly important. If you mishandle the business relationship, you could greatly jeopardize the personal relationship. Consider how your relationship may be affected if you do not deliver the hoped-for results.
• Seek legal counsel, follow SEC requirements: You can’t just start collecting funds from people and passing out equity. You must follow the SEC guidelines for raising capital, and ensure that you are properly approaching the seed funding process. Search for the guidelines that relate to your business and make sure that you are aligned with them as you accept funds from investors. Likewise, make sure that you understand the potential terms of a contract so you can be ready to negotiate.
• Exhaust other seed funding options: Most new businesses are created as side projects while founders are still working a ‘day job’. In the early stages, many founders fund their new businesses by using their own savings and financing. If you are not ready to seek seed capital from any of the aforementioned sources, consider exhausting these options first. This method is known as bootstrapping.

What is Bootstrapping?

Bootstrapping means growing your business without outside funding. Most startups operate under this strategy, at least initially, and may continue to bootstrap for years. Many successful businesses have been able to grow their startup on the business’ revenue alone; substantially increasing their valuation and potential whenever they are ready to raise funding.

How can I bootstrap my business without seed money?

Businesses require time and money, and if you want to succeed, you’ll need to feed it both. Luckily if you need to raise startup funds, there are many options you can tap into. As mentioned, you can work on the business as a ‘side hustle’ while holding down a day job; using part of your income to fund the business. Alternatively, you can rely on your own savings, credit, and company-generated revenue to continually fuel the progress of your startup.

Another great way to generate cash is to sell personal services. Draw on whatever marketable skills you have. You can consult or freelance, work as a virtual assistant, clean basements — or do whatever else is necessary to progress your idea forward.

Growing your founding team can also help increase resources. More dedicated founders expand your base of savings, credit, and marketable skills that can add more cash into the business’ account until revenue is generated.  Bootstrapping is tedious work and it will require that you cut expenses down to the minimum and outsource as needed. Outsourcing allows you to get vital tasks done without the expense of hiring in-house.

Any expense that can be spared, in bootstrapping, should be spared. Some famous companies that made it big after initially bootstrapping include GoPro, Whole Foods, and Under Armour. With enough tenacity, you could potentially fund your app startup to several million users without taking any outside funding (or giving away any equity).

Bootstrapping vs seed money

There are several reasons you may want to avoid seed funding for your business in favor of bootstrapping. If your idea is not ready to present to investors, for example, bootstrapping is an excellent (and maybe the only) alternative.

Additionally, if you have faced constant rejection, you may have to bootstrap until you can better validate the concept. Sticking with the idea and growing the business, even when funding is not plentiful, is another excellent signal of dedication and professionalism. When you are ready to approach investors again, you may find that you are better prepared. As you can see, there is no right way to fund your startup. Likewise, there is no easy way. In general, seed money will come with a little sweat and blood and a lot of dedication. But, whether you decide to seek the aid of experienced investors or go at it alone, be ready to adapt and refine your idea.

The greatest companies are never born overnight, they are developed by the most dedicated – the ones who keep moving forward even when the odds are against them!

How Much Capital Can You Raise?

The amount of seed money you can raise will relate directly to how much progress you have made with your business. The more traction your startup has, the more seed money you will be able to secure and the less amount of equity you will need to give away for that capital.

Check out our infographic below to see how much seed funding some of the world’s top companies raised in their infancy!

The post What Is Seed Money and Is Your Startup Ready for It? appeared first on Startup Squared.

Is Your App Positioned for Funding?

The word “investor” gets thrown around so much in the app development world that it almost seems to describe one specific individual — a rich person who thinks a certain way, dresses a certain way, and invests a certain way. In reality, every app investor is different, has their own style of investing, and has their own formula for analyzing whether an investment is right for their portfolio.

Wise investors will typically consider several aspects before deciding to invest in your app startup. Typically, they want to know:

1. Is your app idea unique enough to succeed? Having a great idea is one thing, but having an industry-changing idea with the potential to absolutely crush competitors — well, that’s something totally different! A fundable idea is one that has an obvious unique advantage over every other competing solution; faster, cheaper, better, or so uniquely different that it supersedes any current option. Certainly, there are businesses that have succeeded by copying the exact model of another business but in today’s age, where innovation is evident amongst almost every industry, investors are more keen to invest in new ideas that are profitable, validated and scalable.
2. Who’s on your team? Investors know that the success of any startup will be largely dependent upon the dedication and knowledge of its founding team. By nature, startup ventures are difficult to grow and require the expertise of individuals across a wide spectrum of fields: product development, finance, marketing, operations, etc. While some investors do fund sole-founders, most investors seek startups that have a team (two members at least) with a varied range of skills and expertise; members who have been successful in their fields previously, have a vast knowledge of their particular specialty, and have already established relationships that can help progress the business quickly.
3. Is it a business or just an idea? There is a VERY long road between “startup idea” and “launched startup”. Entrepreneurs who have not yet launched, will find themselves parked at one of a million points along this road – either closer to “idea” or closer to “launch”. Investors will want to know what you have done up to date to progress your business from point A (idea) to point B (launch). App entrepreneurs who have tested the market, researched the market, created a business plan, or successfully launched a prototype, will gain the upper hand on investors. Not only does each step help to prove their concept, but their dedication is often noticed and appreciated. Even without funding, there are many things that can be done to push the development of your app startup forward, and investors will expect to see that you have made all efforts to do so even while bootstrapping the business yourself.
4. What’s the plan? Investors also want to know your plans – where your business goes from here, and how you will reach your objectives and goals. Typically, this is displayed through an all-inclusive business plan and pitch deck, which will show investors each step that you will take to bring your idea into fruition successfully. Having a solid plan is essential to attracting seed funding, as it shows the potential of your business and provides a strategic schematic for how you will get there.

App Funding – Angels & VCs

In many cases, when app entrepreneurs mention that they are “seeking funding”, they are referring to financing through angel investors and venture capitalists (VCs). These two terms are not interchangeable and have completely different definitions. 

• Angel Investors are usually wealthy entrepreneurs who are less experienced in investing (when compared to VCs), and invest their own money on their own terms. Angels are usually able to fund app investments quickly, as they are the final financial decision-makers. As entrepreneurs themselves, angels often have a slew of knowledge that they can share, and are valuable in helping advise the businesses in their portfolio as they progress.
• Venture Capitalists on the other hand, invest other people’s money and are often much more experienced in investing. Usually, VCs are much slower to invest, require much more time and information, and must go through several avenues before receiving final approval. In general, venture capitalists have access to much more cash than angel investors and mostly make larger investments.

Traditionally, VCs would fund early-stage apps, as opposed to startups in the seed funding stages. However, today’s scene is much different and there are VCs that also invest in app startups – and some firms that now specifically focus on funding new promising companies.

App Funding: How it Really Happens

Although angel investors and VCs are the most “talked about” funding options, the truth is, most app ideas don’t get developed this way.

There is something to realize about funding app startups. The first investor you’re going to have to convince to make an investment is yourself. Determined app entrepreneurs believe in their idea and their team so much that they are willing to put their finances on the line early on. Most people won’t invest in someone who isn’t willing to invest in themselves.

If three founders invest $5,000 apiece into an app idea, they will likely be able to either build several prototypes or a first version minimal viable product app. Launch your prototype to a limited number of beta customers to see whether they behave the way you believe that they would. If you don’t have a team, take the same $5,000 and invest it in effective market testing strategies such as surveys, customer interviews, smoke tests, and landing pages.

Don’t know how to come up with the money to invest in your own business? Many entrepreneurs consider the following:

• Savings: It can be scary emptying your nest-egg to invest in your app idea. Entrepreneurship however, is about taking calculated risks with the expectation of a high return. Don’t expect someone else to take their savings and invest in your venture if you aren’t.
• Retirement Accounts: Any asset that can be liquidated can be used to fund your business, including your home equity and your retirement accounts. If you have the belief that you will one day be a multi-millionaire app entrepreneur, then you really don’t need a 401k anyway right? It takes real dedication to risk your future retirement comfort for a dream, but essentially, that’s what you’re asking others to do.
• Loans: If you don’t have any savings or assets, you can borrow the money from someone who does, such as a bank or lending institution. Likely, your startup will not be in a position to take out a business loan, so your personal credit history will be used to determine your worthiness. As a last-ditch effort, you can also finance your app with credit cards – sometimes an entrepreneur has to make tough decisions to move forward.

Once you have completed initial testing and have collected a significant quantity of data that supports your concept, you can start seeking outside funding. However, at this point, you still aren’t ready to approach angel investors and VCs. Instead, identify what it would take to move your app into the next stage and look for initial seed funding through:

• Family and Friends – I already know what just went through your mind. You just said to yourself, “There’s no way I would go begging my family and friends for money to start my app.” That’s a very emotional reaction, but not the thought process of a committed app entrepreneur. You’re not ‘begging’ your friends, you are offering an opportunity to be a part of something great. Many people advise against doing business with family and friends, as it can cause issues in the relationship if any disagreements arise. In reality though, there are thousands and thousands of family-owned businesses throughout the country who have issues like every other family but otherwise work together for their own financial gain. It can be difficult to get a stranger to believe in you and your app idea. Sometimes the only people who will believe in you are the people who know you personally and know how passionate you are about your business.
• Crowdfunding – This option is often overlooked by startups, and in many cases, I’m not sure if it’s because they don’t believe that others have literally raised millions of dollars this way; or if deep down they just fear facing whether their app idea will succeed or not. Crowdfunding will tell you a lot about your app idea. Your ability to identify and reach your target market will be put to the test; whether they care for your solution enough to pre-order it will be identified; and the viability of your concept may be questioned. However, if you have built an amazing MVP and a strong following, launching a crowdfunding campaign can be one of the quickest routes to startup funding.
• Incubators – This option has been increasing in popularity, resulting in more incubators popping up all over the country. The great thing about many incubators is that some fund app startups in their idea/conceptual stages. In addition to providing funding for low equity amounts (i.e. $20,000 seed
  funding in exchange for 8% of the brand), these incubators often provide access to experienced advisors who can assist in propelling the app in its operation, and also provide further assistance with seeking venture capital.

Making The First Step Towards App Funding

Funding is the single reason that 95% of app ideas never get built. Many people think it is extremely difficult to find the money to build an app, but if it is worth the risk to you, there are many options available. The first step towards funding your app solution to is make a decision. Make it clear to yourself just how serious you are about starting your app.

Need to speak to an app startup expert about how to fund your app startup? Contact us and see what options are best for you.

The post How To Find App Funding To Develop Your Idea appeared first on Startup Squared.