Hello App Dreamer and Entrepreneur! So you’re in need of a little cash to keep the dream alive? You’re in luck! There are millions of wealthy people out there looking for a great place to invest their funds. Who are these people, you ask? In this post, I’m going to introduce you to a few of the key players and tell you what they look for in an app that makes them eager to ‘show you the money’.

Friends and Family

The most common starting place for initial investment is from people who you know and love; your friends and family. You can seek out investment from your friends or family, and often, if you already have an app, they may approach you with a desire to invest.

Where to find them?

If you don’t know where your friends and family are, you have bigger problems than raising money.

What are they looking for?

They are looking to believe in the app’s success and vision for the future. Friends and family are often looking to join you for the ride and will make the decision to invest based o’n feeling’ , rather than some professional formula and investment criteria. However, like any investor, they expect something in return, so make sure to clarify equity stakes and decision making responsibilities before closing the deal.

Investment Ranges

Depending on who you know, the investment range can vary greatly. From our client’s experiences, friends and family have invested as little as 5K and as much as 150K in their app businesses.

Biggest Challenges

Taking on investment from friends and family with the expectation of a return on their investment can put added strain on your relationship. Setting clear expectations, explaining the risks, and defining appropriate equity valuations upfront increases the likelihood of having a successful investor relationship with ‘Uncle Steve’.

Resources to Learn More

http://venturebeat.com/2013/03/03/how-to-raise-startup-funding-from-friends-and-family/

https://www.sba.gov/blogs/6-tips-borrowing-startup-funds-friends-or-family

http://www.calstartuplawfirm.com/business-lawyer-blog/friends-and-family-investment-structuring.php


Crowd Funders

Most people have heard and seen the power of crowdfunding and it might be the right strategy for you as well. The benefits to crowdfunding can often mean keeping 100% ownership of your company and often all you’d have to do is provide your backers with agreed upon prizes.

Where to find them?

Some of the more popular crowdfunding sites are KickStarter, Fundable and Indiegogo. Each one attracts a unique crowd of people with money in their pockets.

What are they looking for?

When I fund a crowfunding project, I look for things I believe in. Whether it’s a cool new product or a valuable cause, crowd funders want to be a part of something special and they show their support by giving you their money. How can you make your audience feel special enough that they’ll give you money? How will you create a community of people that support your app in it’s infancy? Finding creative ways to answer these questions will put you on the path to having a much more successful crowfunding campaign, so that you can continue to fund your app dream.

Investment Ranges

On KickStarter, you’ll often see a range between $5.00 – $5,000. Five bucks will buy you access to their ‘community’, where $5,000 might mean meeting the project creators and getting a ton of specialized versions of their project. The crowdfunding model on Kickstarter isn’t equity based, but rather a special type of pre-order. This means you get to keep complete ownership of your business, but also raise the necessary funds to keep your app project alive. 

Biggest Challenges

Although crowdfunding might seem like you just throw a video up and money will pour in, you’re mistaken. The most successful crowdfunding campaigns take months of preparation and sometimes years of community building. Anyone can start a kickstarter, but one of the keys to success is having a pre-existing audience of people waiting to view and support your campaign. How to build a pre-existing audience for your campaign is another topic all together. I’ll include some links in the resources so you can get a head start.

Resources

https://www.kickstarter.com/help/handbook

http://ignitiondeck.com/id/10-crowdfunding-secrets/

http://www.crowdcrux.com/5-crowdfunding-mistakes-to-avoid/

 

Angel Investors

Angel Investors? When I first heard the word Angel investor I gawked. A bunch of rich people calling themselves Angels seemed unsurprisingly pretentious. A notable Angel investor is billionaire Kevin O’Leary on Shark Tank, who actually calls himself Mr. Wonderful. I’m sensing a trend here. Aside from the godly title, the name ‘Angel’ has stuck and if you find the right investor to join you, they could angelically provide you with the money to keep your app dream alive. So, show them respect.

Who are these Angel investors? They are typically previously successful entrepreneurs and other high net worth individuals that like to invest in early stage companies. It’s a much more personal venture for Angels and often they’ll join your advisory board. Picking an Angel investor for your venture isn’t just about the money, but depending on your necessity, should also take into account the non-monetary contributions they can bring to the table.

Where to find them?

At Chamber DS, we’ve started developing a network of Angels to evaluate our client’s ideas and set them up for successful fundraising. We can bring the investors to you.

Other places you can find Angels include, Angel List, a website for new ventures. You can also meet them at Angel Conferences. The first Angel Event I attended was called BendVenture. According to the Angel Capital Association, “the best available estimates are that about 300,000 people have made an angel investment in the last two years. Many more people could become angels based on a net worth of $1 million or more, the potential number of angel investors is 4 million.”

That’s a lot of people with the ability to fund your app.

What are they looking for?

Angel Investors tend to make their decisions based on personal interest in addition to financial viability. 

Angel investors like to see that entrepreneurs have “skin in the game”. They’ll come into an investment after some proof and traction that you can actually create something that people want.

There are some businesses that are just not appropriate for this kind of funding.

There are very, very few investors that you will find who will invest in a consulting business, an agency, or a lawn mowing business because these businesses all require people in order to scale. Angels want to see how a business can get big really fast. Internet-based businesses can scale much more easily with technology and have thus become a desirable investment area for Angels.

Investment Ranges

Angels tend to invest in companies that have relatively low costs of entry because the typical angel investment is about $25,000 per angel, per company.

Biggest Challenges

Finding the right investors and closing the deal will be the biggest challenge as you seek out Angel investment. Angel investors are notoriously indirect about their interests because they don’t want to shut the door on any opportunities. However, if you have the right idea at the right time, with the right team, you’ll have the best chances to avoid the chase.

Resources

https://angel.co/

http://www.inc.com/abigail-tracy/david-rose-talks-angel-investing.html

http://en.wikipedia.org/wiki/Angel_investor

 

Venture Capitalists

Venture Capitalists are the most celebrated kind of investor for early stage companies. Just one look at TechCrunch and you’ll see dozens of headlines showing multi-million dollar investments coming from Silicon Valley and New York City. Who are they and what’s so special about Venture Capitalists?  Venture Capitalists are a more corporatized version of Angels. They invest bigger amounts and usually come in just after Angel investors. Oh yes, they have boat loads of money.

However, just becauses they have the most cash, doesn’t mean your early stage companies are ready for VCs. Why? Because VCs invest money in order to scale. If you’re building the first or second version of your app, you’re probably not at the scale where a VC will throw money your way. However, if you have the right team and right opportunity, some firms may give you that initial investment to test the waters.

Where to find them?

Venture Capital conferences and organizations like The National Venture Capital Association The NVCA provides services and resources to VCs and entrepreneurs including links to venture capital organizations tools and industry information.

What are they looking for?

VCs invest in management teams and their ability to execute on the business plans. They are looking ideally for executives who have successfully built businesses with high returns. Apparently, there is an old saying that  VCs ‘prefer to invest in a bad idea led by accomplished management than a great business plan supported by a team of inexperienced managers’. Demonstrating that your business will target a large, addressable market (about $1 Billion Revenue) opportunity is important.  The bigger the market size, the greater the likelihood they’ll achieve growth that allows them to exit their investment with major earnings.

Investment Ranges

VCs like to put money in a business that can scale and has already gained traction. Average VC deal size in recent years has been $1 million dollars. Depending on where you are in your app journey will determine whether VC money is right for you.

Biggest Challenges

The biggest challenges for people seeking to work with VCs happen on both end of the deal. Before the deal, the challenge is having the right opportunity, with the correct team in place and enough traction to move into scaling the business. After the deal is closed, you’ll have to face a whole host of changes to your business, including a board of advisors and often limited control over your business. At the end of the day, the money they give you, makes them owners of the business.

Resources

https://www.vfinance.com/ent/ent.asp?ToolPage=venca.asp

http://www.forbes.com/sites/dileeprao/2013/07/22/why-99-95-of-entrepreneurs-should-stop-wasting-time-seeking-venture-capital/

http://en.wikipedia.org/wiki/List_of_venture_capital_firms

So if I’ve done my job correctly, you should now be acquainted with a few kinds of people that will give you money for your app dream. You know there are many people who have the ability to fund your app ventures and it’s up to you to prove to them that you and your app business are worth the investment. And of course, Chamber DS will help you from idea to traction with your app, so if you have any questions about this post or are seeking the right team to take you where you need to go, give us a call. Good luck!

Written by Alexander Gross, Chamber DS Co-Founder