5 Things to Ask About Before Funding an App
What every investor needs to know about the project before funding it
The rapid development of an IT industry leads to hundreds of innovative software products appearing on a regular basis. This is especially true for the mobile application industry since mobile is growing exponentially and almost every business these days has its own app. For investors, that means that if you invest in the right product at the right time, chances are high it will bring you numerous benefits in the future.
However, investment in mobile applications can be quite risky as there are several major pitfalls that should be taken into consideration. We listed down the obligatory questions to ask before finding a mobile app.
Is there a detailed business plan?
A business plan is a must for absolutely every company. It serves as a guideline for the development, helps allocate resources, align the strategy, and ensure the product meets the set business objectives.
So naturally, an investor would like to learn whether the startup has a ready and detailed business plan that includes the competition analysis, market research, product evaluation, and allocation of resources. As well, the business plan should state the company’s mission and goals and showcase the unique competitive advantages that will gain users’ interest.
By seeing a business plan, an investor can better understand how the startup will allocate his money and what it will be spent on. However, watch for the business plan to be realistic. Inflated expectations from the entrepreneur’s side will lead to major problems in the future. So it’s better if a business plan looks convincing with the help of realistic (even though not very big) numbers rather than having bloated figures that will be impossible to achieve.
Who is the management team?
One of the first things that an investor would probably like to know is the composition of the management team. Some founders may have an already known record of success and thus, it will add to the startup’s reliability and potential from the start. As well, the investor will be able to assess the team’s knowledge and skills and see whether the team members have all the needed experience. In most cases, investors research the founders and their previous business so they can predict the product’s success right away.
Another important thing to look at here is the team’s passion and enthusiasm for the product. It is important that the founder is not a “money-maker” but a person who is genuinely interested in the product and wishes to develop and launch it. This will not only contribute to the app’s future success but will also make the investors more confident.
Who is developing the product?
The quality of the product and its future success heavily depend on the development team and its level of expertise. If the developers are not professional enough, this will result in a poor product performance, low usability and low level of interest from the users. It is therefore crucial that the startup has qualified developers who can create a product that fully corresponds to the business requirements and user needs.
As well, keep in mind that the product will grow and expand its functionality so developers will have to build a scalable solution and support it in the future. This, as well, depends on the team’s skills and experience in creating such products.
A startup may either have an in-house development team or work with an outsourced team of developers. While both options have their pros and cons, more and more companies prefer working with the outsourced developers as such collaboration comes at a lower cost but delivers excellent results in terms of quality. SoftTeco, for example, has rich experience in building mobile applications for clients from different domains and every time we delivered the same high quality of the product. Judging from our experience, work with an outsourcing company allows the client to focus on business goals and product realization with no need to worry about technical aspects and similar issues.
Is there any positive early traction?
Early traction means the first wave of users and can be measured by a certain success that the startup obtained with the help of these first customers. Examples of early traction include:
- User reviews (testimonials, feedback)
- Pilot users
- MVP (or released beta version)
- Partnerships with trustworthy partners
Early traction is a good indicator of the product value. If the users got interested in the product during its development stage, chances are high the product will become a success and will bring value to the users. This, in turn, is another factor that impacts the investor’s decision on whether to fund this app or not.
What do metrics say and are there any financial forecasts?
As an investor, look for metrics-driven founders who truly understand their business and can explain its value in numbers. If a person can draw financial forecasts, estimate customer churn and knows the basic metrics (customer acquisition rate, customer retention rate, monthly recurring revenue, etc.), you will immediately get a clear sense that the entrepreneur knows what they talk about.
To assess a startup, investors can use the unit economics approach. Unit economics implies the evaluation of a company and its potential profitability based on the units (i.e. a customer or a transaction). Because a startup cannot display general positive metrics, the unit economics model helps investors evaluate whether it will bring profit in the future. So for startups, positive unit economics metrics are something they need to strive to achieve.
Overall, building financial forecasts does not only impact the investor’s decision but helps the founders reasonably evaluate the business, align the development strategy and consider all possible risks and pitfalls in order to avoid them.
When assessing a mobile application, look for a unique and valuable idea that has potential. Although all entrepreneurs claim their idea is the “next big thing”, you can easily see whether it’s true or not judging by the level of professionalism of the management team.
A startup that prepared a business plan, took its time to work with numbers and realistically analyzes the competition and the market has high chances for success especially if it is backed by an experienced development team that has rich experience in building scalable mobile applications.
Irina is a professional copywriter with over 7 years of experience in this domain. She loves creating compelling and informative copy that provides readers with all the needed information. Irina is also a frequent contributor to different blogs and websites across different domains.View all articles by this author.