You have an idea for a mobile application or software but you don't have any computer development skills? Many possibilities are available to you when it comes to delegating the technical part, but you still need to be able to finance its development. In this article, we will discuss the different options to finance your product.
How can I fund
the development of my application
or software idea?
04/11/2020
Development costs
The first and probably one of the most important points before you start looking for financing it’s to have a very good idea of the cost of your product development.
The main recommendation is to work on a roadmap by iterating on the development of your product in order to release the first simple and functional version as soon as possible.
The other advantage when iterating on your product is to limit costs, to validate the interest of your product with your targets, and to collect feedback that will allow you to develop the next functionalities.
This is called the development of an MVP (Minimum Viable Product).
The main recommendation is to work on a roadmap by iterating on the development of your product in order to release the first simple and functional version as soon as possible.
The other advantage when iterating on your product is to limit costs, to validate the interest of your product with your targets, and to collect feedback that will allow you to develop the next functionalities.
This is called the development of an MVP (Minimum Viable Product).
Find a Tech co-founder
It is an alternative to funding but it could have repercussions on the product.
Hiring a technical associate is a solution with advantages but it will also be necessary to propose a good package to avoid conflicts about the shares distributions.
However, this is not an obligation for the first version of your product. You can work on the development of your MVP with an agency and focus on the acquisition of your early adopters, your business model or any other aspects of your product. And thinking about hiring a tech co-founder after clients' feedback.
Hiring a technical associate is a solution with advantages but it will also be necessary to propose a good package to avoid conflicts about the shares distributions.
However, this is not an obligation for the first version of your product. You can work on the development of your MVP with an agency and focus on the acquisition of your early adopters, your business model or any other aspects of your product. And thinking about hiring a tech co-founder after clients' feedback.
Involving family and friends
Called Love Money, it is about raising funds from friends, family, who will then become shareholders of the company.
Love Money is for:
- Entrepreneurs who do not wish to have unknown investors
- Projects that do not require a large financial contribution to start with
Using Love Money allows you to raise funds quickly and therefore speeds up the process of fundraising.
On the other hand, it is important not to forget that asking family and friends to start a business is a risk for shareholders. You should therefore be careful to be clear in the company status about the risks incurred to avoid potential conflicts.
Moreover, Love Money will not always be the most adequate financing, if in addition to the financial aspect, the entrepreneur is also looking for support for his product, marketing, logistics, business model etc…
Love Money is for:
- Entrepreneurs who do not wish to have unknown investors
- Projects that do not require a large financial contribution to start with
Using Love Money allows you to raise funds quickly and therefore speeds up the process of fundraising.
On the other hand, it is important not to forget that asking family and friends to start a business is a risk for shareholders. You should therefore be careful to be clear in the company status about the risks incurred to avoid potential conflicts.
Moreover, Love Money will not always be the most adequate financing, if in addition to the financial aspect, the entrepreneur is also looking for support for his product, marketing, logistics, business model etc…
Soliciting Business Angels
Contrary to Love Money, business angels allow you to benefit from the technical, business, and expertise of the investors but also from their address books.
There are many networks of business angels to whom you can submit your presentations as on angel.co.
In the first round of equity financing, entrepreneurs can expect to sell between 20 and 40% of their equity stake depending on the pre/post-money valuation.
Example:
A start-up raises €800,000 for 20% of its capital. We can then consider that its post-money valuation will be 4M€ (5*800K€).
There are many networks of business angels to whom you can submit your presentations as on angel.co.
In the first round of equity financing, entrepreneurs can expect to sell between 20 and 40% of their equity stake depending on the pre/post-money valuation.
Example:
A start-up raises €800,000 for 20% of its capital. We can then consider that its post-money valuation will be 4M€ (5*800K€).
Financing its development with Crowdfunding's platforms
Crowdfunding, allows you to create a campaign in a limited time and whose objective could be financial or a number of units to pre-sell for example.
The objective must be reached or exceeded, otherwise, the contributors will have to be refunded. Contrary to an equity investment, the participation of the contributors is rewarded by a material counterpart or even a free period to use the solution depending on the product.
The objective must be reached or exceeded, otherwise, the contributors will have to be refunded. Contrary to an equity investment, the participation of the contributors is rewarded by a material counterpart or even a free period to use the solution depending on the product.
Getting closer to the Venture Capitalists
Unlike business angels, VCs invest the money of individuals and legal entities. In terms of return on investment, a typically expected return will vary between 2.5 and 3 times the amount invested.
Most of the time, VCS takes place to scale up the company to accelerate its international development for example. However, there are also VCs that position themselves as seed capital.
Most of the time, VCS takes place to scale up the company to accelerate its international development for example. However, there are also VCs that position themselves as seed capital.
Conclusion
As seen previously there are 3 main solutions when looking for funding. As well as an alternative which would be to find a technical co-founder at the beginning of the project by allocating him shares in the company.
Each source of financing matches with a liquidity need amount.
Each investment in the company will have an impact on the founders' shares, which is called dilution.
As you will understand, it is essential to evaluate the funds you really need to take care of your shares.
If you need a partner for the development of your product, we will be happy to meet you remotely or in our office.
Please also know that we can help you through different workshops to prioritize the development of your product. Do not hesitate to take a look on our article: Design Sprint - A proven use case.
Each source of financing matches with a liquidity need amount.
Each investment in the company will have an impact on the founders' shares, which is called dilution.
As you will understand, it is essential to evaluate the funds you really need to take care of your shares.
If you need a partner for the development of your product, we will be happy to meet you remotely or in our office.
Please also know that we can help you through different workshops to prioritize the development of your product. Do not hesitate to take a look on our article: Design Sprint - A proven use case.
