You have an exciting idea for a new application and want to develop it for market, but like most great inventors, you need investors to help you refine and then market the idea. In the past, raising money for development meant a long process of finding investors and convincing them that your application had merit and that it offered an opportunity to achieve solid profits. With the advent of crowdfunding; however, app development has been made infinitely easier by allowing you to appeal to a larger audience through one carefully crafted appeal.
Crowdfunding is the process of raising money for creative ideas and projects by appealing to a large internet audience through carefully refined pitches on web sites designed solely for this purpose. These pitches generally include an overview of the project delivered in a video presentation and followed by more specifics in a written appeal. Some sites, like Kickstarter, are geared toward a wide variety of creative endeavors, while others, like Appbackr, are designed to fund only applications.
Although relatively new, crowdfunding has allowed creative people to raise money to develop their applications and get them ready to market. Some sites allow donors a percentage of the profits, while others have the project developer offer specialized rewards for donating funds at a certain level. In the case of application development, those rewards might be free apps, public recognition of the donation, or some other token of the creator’s appreciation.
In general, the most important part of successfully using crowdfunding is the carefully honed video. Sincere, straight-forward appeals work best on these sites, since the focus is on helping people who have limited ways to raise money. Any video that is too slick or seems to come from a professional ad agency will not be received as well as a simple, from-the-heart explanation of what funding you need and why. Each site has its own requirements for these pitches, so understanding the rules and standards of the site before creating your project is a necessity.
Once you've done your research, you need to choose the site best suited to your project, complete all the steps, and then muster your online supporters. You'll need all the buzz you and they can possible generate, so using your social media contacts is essential. Choosing the right site for your particular mobile application depends on a number of factors, including your goals and the current status of the project. Some sites favor the already competed app, while others are more helpful for developing your application.
3. The Crowdfunding Sites
Kickstarter is a fundraising site for all types of creative projects. The fundraising is an all or nothing proposition, so a clear explanation of your application, a creative video, and a definite production plan are necessary to reach your goal. You can choose a time period up to 60 days but the site recommends that you give your project a deadline of 30 days or less in order to create a sense of urgency. Investors want to feel that their help is truly needed and that the project depends on their support.
The service is free, and you retain ownership of your project. You are urged to create special rewards for different donor levels, like free app copies, etc., but you use your discretion when choosing what to give. When done well, these incentives do help draw larger donors.
You pay nothing upfront, but Kickstarter takes a 5% service fee. Fortunately, you never have to pay back anything raised on Kickstarter. You are expected to live up to your promises, and you do sign an agreement to do so. Kickstarter is probably the best known fundraising site, so you will have lots of competition if you choose them for your project.
This service works best if you already have a social network in place that you can rally to your cause. Facebook and other media sites are helpful, and if you already have a fan base, you will be off to a head start.
Indiegogo bears a great resemblance to Kickstarter, but it offers several different types of funding: flexible and fixed. Flexible funding means you can keep the funds raised by the date you set even if the amount is less than your goal. Indiegogo then takes 9% of the funds raised. If you choose the fixed option, it's an all or nothing proposition, with Indiegogo taking a 4% cut.
The success of mobile apps on Indiegogo is mixed, so creating a dynamic pitch and quality video is especially important. You do get to keep 100% ownership of your project, and you will not be paying any funds back to the site.
This "just for apps" site has many features to help you market your ideas. First you can submit finished or in development apps to the exchange, and they will assign it a score based on sales prospects and consumer reviews. A high score is likely to attract quality investors. You will set a time frame and a funding goal. Backers purchase apps at wholesale prices, and the developer gets immediate payment. Then when the applications sell in Google Play or the iPhone app store, Appbackr pays both the developer and the investor. In this forum, the investor actually makes money when the applications sell in the stores for more than the wholesale price.
If your app works on both iOS and Android, you'll have to create two campaigns. Again, having a solid social network behind your efforts makes it much more likely that you will be successful.
Appsfunder is another app specific funding site that operates like Appbackr but has a few significant differences. It also has you pitch your idea, and if you like, an expert panel will evaluate your application and assign it a score. Anything receiving a 70% gets an AAA rating and is much more likely to attract investors.
This site does fund the projects differently, allowing the designer to set milestones. A percentage of the funding is released when each milestone is achieved. This procedure allows both you and the investors to safeguard their part of the process. You will have the money you need to complete each step, and the investor's money will be released only when a certain amount of progress on the project has been made.
You do have some options about funding, but it is also an all or nothing site. If you do not reach your milestones, you get no funding. If you meet your goals, Appsfunder will be in charge of disbursing funds to your investors and keeping 8% as a "success" fee.
This one site is much like Kickstarter but focused only on app development. You pitch your idea, set your funding goals, and get your social media supporters to publicize and participate in your dream. You need to set up attractive perks for the different level of contributions and blog about your project, giving updates and other information.
The site was also featured on Shark Tank and got an investment from Kevin O’Leary. Since its launch Plumfund campaigns have raised more than $350,000,000 USD.
To get started, you can create your fund page here: http://www.plumfund.com
Plumfund’s differentiator to most of the platforms are its zero platform fees, where most the other platforms have fees starting at 5% or more.
4. Getting Started: The Presentation
The Written Pitch
The written pitch on a crowdfunding site needs to include a clear definition of the project, with photos, diagrams, statistics, and any other information that will explain the project and encourage people to contribute. Making a video is a necessary part of a good presentation, but the written portion can flesh out the details and also provide more comprehensive information about the rewards or profits you are offering.
You also have an opportunity to create a bio, which will establish your credentials and let contributors know why they should believe in your ability to complete the project. This bio should include education, job experience, and completed mobile applications, if there are any. Contributors like to back an underdog, so even if it’s your first app, people will contribute if the idea is a good one.
The tone on these pitches should be friendly and yet authoritative. Above all, you need to be as honest as possible about your hopes for the project as well as possible challenges you may face. Veteran contributors can spot an inauthentic or poorly designed project immediately. Confidence and knowledge are the biggest assets you can have when it comes to crowdfunding sites.
Even if making a video is optional on some of the crowdfunding sites, the chances of getting funded without one are drastically lower. Possible investors do not just want to read about the project, so a written appeal, no matter how well done, is not enough. A thoughtful, visually appealing video will go a long way toward getting your mobile application funded.
Some newcomers hesitate to post a video because they have no video experience and feel uncomfortable pitching their product in such an intimate way. Video removes the distance between the creator and the investor, which is exactly why filming one is so important. Producing a solid video is not difficult. Good lighting and sound are important, but an iPhone or even a good web cam program can deliver the necessary features needed to make a good quality product. Fancy production values are not necessary. The viewers are interested in your story and application.
Even if you feel particularly awkward about the process, you need to appear in the video appeal. You must plan your pitch; however, otherwise, it will sound and look disjointed and poorly thought out. The video needs a personal introduction, a description of the app, an explanation of what happens after funding is reached, the contributor rewards, and an invitation to action.
You need to sound knowledgeable and confident, but you shouldn’t try and come off like a professional actor. Investors are looking for ordinary people with extraordinary ideas. They want to help someone with a worthy creation succeed. If you come across like a professional ad person, the performance can backfire. A sincere pitch from a bright novice can be quite powerful.
A creative and humorous pitch, when appropriate, can be a strong selling tool. On a site with thousands of projects, a video that stands out in a positive way can quickly attract many contributions. Humour is subjective, however, so running the video past other people before posting it is a good idea. Any technique used to catch the audience’s attention needs to highlight the application and not exist simply for entertainment value.
You should not create a long video. People in general have short attention spans, so the most important project details should be expressed clearly and concisely. The written portion of the pitch can be more extensive. The rewards should be mentioned but not belaboured, and a sincere thank you should be included. Getting the video right may take many attempts, but posting a less-than-perfect video will sabotage the project. All of these steps are simple but necessary for an effective fundraising video.
Making videos for mobile applications offers more challenges than creating one for other creative projects since the app can’t be demonstrated or even fully explained, due to intellectual property concerns. Selling an app idea requires creativity and possibly diagrams, sketches, and other helpful media aids to enable contributors to visualize what the app will be able to do. You will have to work harder to get your vision across to the audience.
Some sites also allow video updates on the project, and these can be as important as the initial video. Contributors and investors need to stay connected to you in order to remain enthusiastic about the progress of the fundraising. Video updating accomplishes this goal and keeps the pitch from growing stale and uninteresting. So many new projects are added daily to these sites that a real effort needs to be made to keep the app’s momentum going.
In crowdfunding, the pitch is as important as the mobile application. In order to raise the necessary money, you must capture the imagination of many people so that they will be willing to invest or contribute money. A great idea presented in a compelling package is the only way to make that connection happen. You need to invest considerable time in perfecting the written copy as well as the video. Something thrown together overnight is likely to be overlooked or quickly forgotten. Two weeks to a month may be required to put together the right project pitch.
5. Protecting Your Intellectual Property
Crowdfunding sites offer little or no intellectual property protection, something that you need to seriously consider before revealing your mobile application ideas on one of the funding websites. The onus is on you to protect yourself, since you will have little recourse if someone steals your ideas and produces their own apps based on that information. This problem is perhaps one of the biggest drawbacks to the crowdfunding system. Giving potential investors enough information without giving away the entire application plan is a difficult balancing act for you to perform.
Filing for a provisional patent may be worth the small fee (currently $65 for a micro entity) to protect an idea before you publically reveal it. Having patent pending status will offer some protection from people who are trolling the crowdfunding sites to steal ideas instead of investing in them. US patent law is some of the most accommodating in the world, but negotiating it still requires a certain level of expertise that you may not have.
Seeking the help of an attorney is the safest choice to make, but since you are already trying to raise money, paying for legal assistance might be difficult. Still, expert legal advice can be the best way to protect intellectual property on these sites. You are bright and enthusiastic, but you may be completely uniformed about what you must do to protect your ideas. Once an app is funded and developed, the intellectual scavengers will swoop in, so you need to be prepared.
If you decide to raise funds without filing for a provisional patent or seeking legal advice, you need to protect as many of your trade secrets as possible. You can only provide enough information to entice investors without giving away all the secrets of the application. Even with these precautions, you cannot totally safeguard your apps. Using crowdfunding as a method to develop mobile applications has its risks. Of course, once any application becomes successful, it will be a target in our litigious society.
6. The Follow-up
When you meet your goals and raise the money, you must follow through with all the things you promised, including finishing the application and then delivering the rewards. In the case of Appsbackr and other similar app development sites, the investors are automatically given the funds they are owed when the application sells, so fewer problems exist with fulfillment with those sites.
Each site has its own rules about fulfilling commitments, and though Kickstarter never “takes back” the money it rewards, some of the legal issues concerning fulfillment on it and other sites are cloudy. No matter what the legal ramifications are, ethically you need to fulfill each and every promise to contributors. You must protect your own reputation and also not be responsible for driving away investors from future projects. Even if the reward was just a t-shirt, you must deliver it to maintain the site’s integrity and your own.
7. Tax Liability
Participants in these sites don’t always realize that the money they raise or “earn” on them is taxable as income. For some, this revelation hits hard at tax time. Everything you earn on these sites needs to be carefully documented, and the prizes and or equity awarded to contributors/investors reported. The IRS will treat the entire project as a business, so some expenses are deductible, but the government will get its sizable bite of the proceeds.
If you raise a large amount of money, you need to seek professional tax advice immediately. Though the trend in these sites is going toward equity-based funding, the procedures still differ. The IRS and the crowdfunding world do not have a clear understanding of each other as of yet, so caution is the best policy.
Crowdfunding has given life to many worthy projects that, in the past, might have been overlooked. Your mobile application can be one of the success stories. Like most successful business ventures, it takes a great idea, an intriguing presentation, and steady follow-through. Once you have your idea, research the crowdfunding sites to determine which best fits your product.
Then create a simple, enthusiastic video and written appeal to attract donors or investors. Maintain your project momentum by consistently providing updates and additional thoughts on the project, and, once your fundraising goal has been reached, complete what you promised.
The process of raising funds in the past has deterred many inventors from bringing their ideas to life. With the increasing popularity of crowdfunding, an inventor has more options and a better chance of seeing his idea become a reality.