How to Get Investors for Your Mobile App Startups

Startup founders agree: It’s rough out there. In the face of a bear market, shrinking venture investments, and fewer exits, securing funding takes more than good luck. More than ever, mobile app startups need a clear investment strategy.

Adopting an investor mindset is key. Founders must put themselves in investors’ shoes. Qualities like a strong team, market potential, and initial user traction make a mobile startup attractive to would-be investors. A pitch that understands investors’ wants and needs goes a long way toward funding success.

This comprehensive guide will walk you through everything you need to know about getting funding for an app, including different investor types, funding stages, and investment terms. From key terminology to practical tips, this article covers everything startup founders need to know about securing investors for a mobile app. 

Preparing Your App for Investment

Before seeking funding for an app, complete these essential pre-investment steps. 

1. Validate Your App Idea.

Even early-stage investors need some assurance that your idea has legs. Before you seek funding, define your value proposition, conduct market research, and analyze your competitors. Your efforts will demonstrate not only your idea’s potential but also your commitment to building a user-centered app. 

2. Develop a Solid Business Plan.

A strong business plan is the foundation of a compelling pitch. This plan should include an outline of your startup’s vision, mission, goals, revenue model, and financial projections. A clear plan will minimize risk and show investors you understand the investment mindset. 

3. Build a Minimum Viable Product (MVP). 

A minimum viable product or MVP is a slimmed-down version of your app. It supports key functionality and emphasizes usability, without all the bells and whistles that future iterations of the app might include. This simple but complete mobile application is a critical investment tool as it takes your startup out of the theoretical and grounds it in a real, working product. Having an MVP also minimizes development risk for investors by demonstrating an ability to prioritize features. 

Learn More: Proof of Concept, Prototype, or MVP? Choosing the Right Step for Your Software Idea

4. Assemble a Strong Team. 

You might have heard it said that investors fund teams, not ideas. A strong team can indeed be the linchpin that secures an investment. Potential investors look for skilled and passionate teams—in addition to strong ideas—when weighing an investment opportunity. A well-rounded product team, including key roles like engineers, business strategists, and marketers, offers investors the assurance they need to invest. 

Developing an Investor Mindset

Adopting an investor mindset is critical for founders seeking funding. To do so, you need to understand potential investors' motivations, risk tolerance, and investment criteria. By putting yourself in their shoes, you can tailor your pitch and approach to increase your chances of success.

Key Aspects of an Investor mindset:

• Risk vs. Reward: Investors are constantly weighing the potential risks and rewards of an investment opportunity. They're looking for ventures with high growth potential but also understand that early-stage startups carry significant risks. When you’re seeking funding, demonstrate that you're aware of the risks involved and have a plan to mitigate them.
• Return on Investment (ROI): Investors are ultimately looking for a return on their investment. You don’t have to be profitable on day one, but you should be able to articulate a clear path to profitability. Demonstrate how your startup will generate significant returns for investors in the long run.
• Market Opportunity: Investors are attracted to large and growing markets. Showcase the size and potential of your target market and highlight how your solution addresses a significant pain point or unmet need.
• Team: A strong and experienced team is often a key factor in investment decisions. Highlight the skills, expertise, and passion of your team members and emphasize their ability to execute your vision.
• Traction: Early signs of traction, such as user adoption, revenue growth, or strategic partnerships, can significantly de-risk an investment. Showcase any early successes and demonstrate the momentum your startup is gaining.
• Scalability: Investors are looking for businesses that can scale quickly. When meeting with potential investors, explain how your solution can be expanded to reach a larger audience or address new markets.
• Competitive Advantage: Highlight what sets your startup apart from competitors. This could be a unique technology, a strong brand, or a first-mover advantage in a new market. Investors want to see that you’ve taken the time to understand the market and have an edge against the competition. 

How to Develop an Investor Mindset:

• Research: Learn about different types of investors and their investment criteria. Study successful startups and understand the factors that attract investment.
• Network: Connect with investors and other entrepreneurs to gain insights into their perspectives and expectations.
• Seek Mentorship: Find experienced mentors who can provide guidance and feedback on your business plan and pitch.
• Practice your pitch: Refine your pitch by presenting it to various audiences and incorporating their feedback.

By developing an investor mindset, you'll be better equipped to craft a compelling narrative that resonates with potential investors and increases your chances of securing funding.

Understanding Investment Options

The startup world is rife with insider lingo and terminology—especially when it comes to investment. A clear picture of the investment landscape will help you navigate your options efficiently. 

Types of Investors:

• Friends and Family: For many startups, friends and family offer the very first source of funding. These investors are often more willing than traditional investors to back early-stage ideas because they trust and believe in the founders. It’s important to recognize, however, that mixing business and personal matters can jeopardize your relationships. 
• Angel Investors: These early-stage funders invest their personal funds in a company, usually in exchange for a minority stake in the business. Angels invest in companies that show early signs of success, typically in industries they care about or have a personal connection with. Often, angel investors are high-net-worth individuals with extensive business experience. In addition to providing funding, they sometimes serve as mentors to the startup team.  
• Venture Capitalists (VCs): As opposed to the previous two types of funding, venture capitalists (VCs) represent a more institutional form of investing. VCs make investment decisions on behalf of large funds. There are many different types of VCs, usually focused on a particular startup stage (seed, early-stage, expansion, etc.). Each venture capital firm has its investment criteria, so it’s important to understand which funds are right for your startup.
• Crowdfunding Platforms: Whereas venture capital offers access to large sums of money from a single source, crowdfunding takes the opposite approach. With crowdfunding, startups can raise relatively small amounts of funding from a large number of people. Platforms that support this type of investment include Kickstarter, GoFundMe, and Indidgogo, among others. Crowdfunding is a helpful way for startups to turn strong user support into investment dollars, but it often requires significant marketing effort. 
• Accelerators and Incubators: These programs can provide funding, as well as invaluable support in the form of mentorship, networking, and other resources. Gaining access to an accelerator or incubator can be highly competitive and startups must meet specific requirements to qualify. 

Look for “Smart Money”

When seeking investors, it’s not just about the cash infusion—it’s about finding the right partners. This is where “smart money” comes into play. Smart money refers to investors who bring more than just capital. They offer strategic advice, industry experience, valuable connections, and even mentorship. These added benefits can be the key to scaling your mobile app successfully.

For example, a venture capitalist with deep industry knowledge might be able to introduce you to key partnerships or potential hires. An angel investor who has launched their own startup might guide you through early-stage challenges. This added value is often more impactful than the funding itself, especially for first-time founders navigating a competitive market.

Here are a few benefits of smart money:

• Industry Expertise: Investors with experience in your industry can help you avoid common pitfalls and accelerate growth.
• Networking Opportunities: Access to their network can open doors for partnerships, media exposure, and future funding rounds.
• Strategic Guidance: Smart investors can help you refine your business model, pivot when necessary, and stay on track with your long-term vision.
• Mentorship: Many smart investors serve as mentors, offering ongoing support beyond the initial funding, which can be invaluable during critical decision-making moments.

Funding Stages:

Many investors focus on a particular funding stage. Understanding the stages and the kinds of investors you’ll find in each can help you zero in on where to focus your fundraising efforts. 

• Pre-Seed: This is the earliest stage of funding, often used to validate an idea and build an MVP. Investors at this stage often include either friends and family or angel investors.
• Seed: This funding is earmarked for product development and market validation. Seed funding might be used, for example, to iterate on the MVP or to gain market traction Angel investors or seed-stage VCs typically supply funding at this stage. 
• Series A, B, C (and beyond): After the seed stage, investment rounds focus on specific growth goals. VCs typically focus on one or more of these funding series. At this point, investment is less risky than at the pre-seed phase, since the startup will have demonstrated some initial success. Investment in a Series A, B, or C round can help the mobile app scale or gain more market share. 

With each funding stage, investors will expect a higher degree of confidence that the startup will succeed. For pre-seed funding, investors understand that the risk of failure is extremely high. Later stages of funding, however, focus on propelling an already successful product to greater heights. For example, a Series B or C round might target market expansion or other growth opportunities. 

Pitching Your App to Investors

1. Crafting a Compelling Pitch Deck: 

A good pitch deck answers prospective investors’ questions before they even ask them. No matter your industry or idea, it’s important to include these key elements of a successful pitch deck: 

• Problem: Identify the issue your product is trying to solve.
• Solution: State how your mobile application offers an answer to the problem.
• Market: Quantify the market opportunity for your product. 
• Team: Introduce each founding member and describe their role and background.
• Business Plan: Outline your revenue model and how you plan to make money. 
• Financials: Include at least three years of financial projections.
• Traction: Highlight early successes that point to future potential. 
• Ask: State your investment request, including the amount and terms you’re seeking.

When it comes to a winning investment pitch, more is not more. Your message will be lost if your slides are overloaded with too much text. Aim for a presentation that’s visually appealing and concise. 

Wherever possible, replace lengthy blocks of text with simple and intuitive graphics that communicate the same idea. You don’t have long to make an impression on investors, so it’s important to get your point across as quickly and clearly as possible. 

Learn More: 10 Essential Slides for a Winning Pitch Deck

2. Delivering a Confident Pitch: 

Your deck is only one part of an effective pitch. Strong delivery is just as important. By the time you present to investors, you should have already rehearsed your pitch dozens of times. 

Don’t neglect the importance of practice, preparation, and captivating storytelling. Effective presentations use a personal story to illustrate a real-world challenge. Stories humanize and create empathy for the problem you’re trying to solve. An interactive prototype can also help bring your story to life and attract investment. 

Body language is just as important. Warm, open gestures and eye contact communicate a sense of confidence and show investors you’re up to the task of building a successful startup. Practicing your pitch ahead of time can also help you notice and avoid distracting habits or ticks. 

Learn more: Win Investment and Buy-In: Pitch Your Idea with an Interactive Prototype

3. Answering Investor Questions:

Investors might ask tough questions related to your market size, competitive landscape, team experience, and revenue model. Be prepared with a clear and honest answer. Remember, investors don’t expect you to be dominating the market on day one. Don’t feel pressure to overstate your success. It’s okay to be transparent about your startup’s strengths and opportunities to improve.

Understanding Investment Terms

No two investment deals look exactly the same. Understanding investment terms will help determine what sort of funding you’re willing to accept and at what cost. 

Equity vs. Debt Financing: 

Generally speaking, investment funding is either structured as debt or equity. In an equity deal, the investor provides a sum of money in exchange for an ownership stake in the company. The startup is not obligated to repay the investor. Instead, this ownership may entitle the investor to voting rights or a seat on the company’s board. The equity investor may also benefit from dividends or a large payout if the company has a successful exit.

Debt financing works like a traditional bank, where the money loaned must be repaid with interest. A loan is the most common form of debt financing. In some cases, the company receiving the loan may have to agree to certain terms which could restrict its activities. Lenders have less say in the day-to-day operations of a company than an equity partner and their control is bounded by the term of the loan. In other words, when the debt is repaid, the lender is no longer involved in the business. 

Valuation: 

A valuation is an estimate of the company’s value. Valuations depend on a startup's projected future earnings. Since no one can know the future for certain, a company’s valuation can be a fraught and highly debated issue. 

A startup's valuation has important implications on equity investments. A higher valuation means less ownership dilution from the equity investment. For example, an investment of $100,000 equates to a 10% equity stake in a company valued at $1 million, but only a 1% ownership value for a company valued at $10 million.

Knowing that higher valuations tend to favor the startup’s founders, investors will scrutinize valuation figures to ensure they are plausible. An overblown valuation can be a red flag to investors that projections are not realistic. 

Negotiating Term Sheets: 

A term sheet is a non-binding agreement that outlines the key terms of an investment. It serves as a framework for the final legal documents and provides a basis for negotiation between founders and investors.

Some key terms that are typically negotiated in a term sheet include:

• Valuation: The estimated value of the company, which determines the ownership stake that investors will receive in exchange for their investment.
• Liquidation preferences: The order in which investors and founders will receive proceeds in the event of a liquidation or sale of the company.
• Board representation: The number of seats on the company's board of directors that will be allocated to investors.
• Protective provisions: Special rights granted to investors, such as veto power over certain decisions.
• Anti-dilution provisions: Mechanisms that protect investors from dilution of their ownership stake in future funding rounds.

Negotiating a term sheet requires a balance of assertiveness and collaboration. It's important to understand your leverage, identify key terms that are important to you, and be prepared to compromise on certain points. Seeking legal counsel during this process is highly recommended to make sure you fully understand the implications of the terms and protect your interests.

Exit Strategy:

An exit strategy is a plan for how investors will realize a return on their investment. It outlines how they will liquidate their ownership stake and potentially make a profit. Understanding exit strategies is crucial for both founders and investors, as it aligns expectations and ensures everyone is on the same page regarding the long-term goals of the company.

Common exit strategies include:

• Acquisitions: The company is bought by another company.
• IPOs (Initial Public Offerings): The company goes public and its shares are traded on a stock exchange.
• Secondary Sales: Investors sell their shares to other investors or back to the company.

Each exit strategy has different implications for investors and founders. For example, an IPO typically offers the potential for a higher return for investors, but it also involves a lengthy and complex process. Acquisitions, on the other hand, can provide a quicker exit but may result in less control for the founders.

When discussing investment terms, it's important to have open conversations about potential exit strategies. This helps ensure that everyone's expectations are aligned and that the company's long-term goals are clear.

Securing Funding and Beyond

After you agree to the terms of an investment, there are still a few more steps to actually receive the funds and embark on your new partnership. Here’s what you can expect after the term sheet.

1. Due Diligence: 

Your pitch should give an accurate preview of your startup’s potential and current financial standing. Still, there’s a lot more information investors will need before the investment becomes official. Due diligence allows investors to verify all the important information they need to know about your company. This process can take weeks or longer, depending on the company. Having all your documentation ready to go can speed up the process and make it easier for everyone involved. 

During due diligence, investors will typically request access to a wide range of information, including:

• Financial statements and projections: To understand the company's financial health and growth potential.
• Legal documents: To review contracts, intellectual property rights, and any potential legal issues.
• Customer and market research: To validate the market opportunity and understand the competitive landscape.
• Team backgrounds and references: To evaluate the experience and capabilities of the founders and key team members.
• Product or technology demonstrations: To assess the viability and scalability of the product or technology.

Having organized financial records, legal documents, and other relevant information readily available can help expedite the due diligence process. It also demonstrates to potential investors that you’re professional and prepared.

2. Closing the Deal: 

Nothing’s actually official until everyone signs on the dotted line, so to speak. All the relevant parties to the investment will need to complete the legal documents necessary to finalize the deal. The exact paperwork depends on the structure of the deal and the nature of the agreement. Often, it may include a final term sheet, loan repayment schedule, or stock option agreement, or other terms requested by the investor. It’s always a good idea to have a lawyer review any binding documents before you sign them to ensure the deal is fair and sound. 

3. Building a Long-Term Relationship:

Some startups make the mistake of securing investment and promptly forgetting about their investors. However, it’s very important to maintain open communication and transparency with your investors. 

Remember: you’re on the same team! They want you to be successful, just as much as you do. Keep them in the loop with important updates and even new challenges, so they can help. Building a strong foundation of communication and trust is always a good idea. You never know when you may want to approach an existing investor about additional funding. 

Many investors can provide support beyond investment dollars. Their professional expertise, network and resources all represent significant benefits to your startup. Be thoughtful about how and when to leverage their help for ongoing support. 

Final Thoughts: How to Secure App Funding

Attracting investors for your mobile app startup requires preparation, knowledge of your investment options, and a strong pitch. By validating your app idea, building a solid business plan and team, and starting with an MVP, you'll increase your chances of landing investment.

Remember, even after you secure funding, it’s important to maintain a focus on your investors. Keep an open line of communication and share updates as you have them. A strong relationship with your investors can buoy your startup and improve your likelihood of success. 

For additional resources on securing startup funding, visit the Designli Startup School, a compilation of free articles and tips to support your entrepreneurial endeavors. 

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