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What is crowdfunding and how does it work for App Development?

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What is Crowdfunding?

Any person who desires to start up a business, or needs to develop an application, needs time and resources in order to succeed, because if he does not have time or resources, he cannot go forward with the idea. Once a person has an idea, or a solution to a problem, which is the common cause of business startups, they try in every way to make it work. From coming up with a probable working mechanism and  maybe even a little prototype, they put in their all for their idea to be one that generates some kind of monetary benefits in return. Simply put, people come up with businesses and ideas to generate profits and earn in multitudes, which a job would probably not give them.

Though, this is where the problem comes in. Once an idea is generated and a workable process has been planned, how does one take it to the masses? Or the desired market segment? How can one make more of the same items with hardly any monetary means? Because it costs a lot to make multiples of the same thing. This is where every business, at some point, needs money or investment, which is called funding. There are many different types of funding, ranging from the investment that close family and friends make, to the ones where we can get the crowd involved for raising funds, called crowdfunding. This is where our focus lies in this article.

Crowdfunding, today, is one of the main ways that different entrepreneurs and businesses earn a major portion of their finances from, which give the idea a push towards completion, or fame. It is sad to see a business not making enough money and going towards failure, but in today’s era, where IT and computing has reached the next level, app development is one of the more lucrative and funding-worthy investment one can make. This is leading to many companies, businesses and entrepreneurs focusing on developing applications that make people’s lives easier and are accessible to the maximum amount of audience.

Crowdfunding for an application is the easiest way to gain financial resources, because people all over the world are open to technology now, and everyone wants to invest in the computing sector, as it has proved to having the most potential of gaining success. Though, crowdfunding does not work in funding everything that an app contains, it can be used to develop a certain area or part of the app, or to advertise an application that is already existing in the market. The funds from the masses help enhance applications to make them better, and then to reach the right crowd and gain profits, eventually.

Crowdfunding – How does it work?

Crowdfunding, as mentioned above, is one of the methods of how businesses can raise funds and obtain finances from online platforms to develop your business further. Some online platforms do charge for their services, but others only take a fee if the fundraising goals are achieved. This way, any startups can grow towards business advancement and profits.

Crowdfunding works in a simple way, as explained step by step below:

Step 1 – Showcase your idea: First, the person who has developed the idea needs to show people what it is in an impressive way, so that he can attract maximum audience and investors.

Step 2 – Campaigning: Once our idea is out there, you need to have a strong, on-going campaign to lure investors towards your app, and make people pledge money to you in real terms. This can only be done if people see the ROI (Return on Investment) as being lucrative for them.

Step 3 (Seed Round) – Pre-development capital: The person then goes on to appealing family, friends, investors and people online for investment, and once has enough to start the development on a larger scale, he then goes on to starting the work.

Step 4 (Formal Round) – During development: Once the development work starts, it may occur that the finances collected are lesser than anticipated, and there is need for more. Or it may also be that some certain part of the app needs further development, so the person starts raising more capital during the development process in order to reach final completion.

Step 5 (Series A, B, C, etc.) – Loyalty: During the fundraising, you may also have some customers or investors that repeatedly are ready to invest in your idea because your previous one was a hit for them and they start believing in you. These people are highly essential for further fundraising and act as a source of attraction to get more investors on board, so keeping a track of these people is very important.

How much does it cost to launch an app?

The first thing that should come to a person’s mind when thinking about launching an app should be, that, launching in app is a whole process, and finances are required for all stages, not only just to start the app. The main questions here that the person should be asking are:

– How much money is required to build the initial app?

– How much money does traction of the app require?

– How much financial help will be needed once the app is launched, in the post-launch services?

Launching an app requires the development of the app, the addition of different features and maybe some third-party additions as well, and finally the partnership with software such as iOS or Android to have a place on their stores. Thus, the launching of app is a complete process, which may cost around $25,000 for a very basic application, $40,000 or so for a medium complexity app and more than $60,000 for a fairly large of complex application. This includes all the funds that would be required for its development and distribution in the market.

How to Choose the Right Crowd Funding Platform for Your App?

There are multiple crowdfunding options available in the market for every entrepreneur who dreams to create their own app and have a successful launch for it. Which one will suit you best, depends upon the kind of app you have, and the kind of campaign you take forward. The best crowdfunding platforms for your app are as follows:

AppStori is known as a great platform for crowdfunding and crowdsourcing, because getting a listing on it is completely free, once you have been approved. They do not charge any fees until your funding goal has been reached, but once that happens, AppStori, along with Amazon Payments both deduct transaction fees. This is divided into 7% for AppStori, once you succeed, and 2% or 3% for Amazon.

Indiegogo is a platform that does not need any specific app to integrate with, and all platforms ar able to work with it. It is a platform that gives its users the choice of choosing the right funding type for themselves. Indiegogo also has two different kinds of funding available: flexible funding, through which you can raise funds and keep them till a certain time period, before returning them, and fixed funding, where all the contributions given are refunded.

AppBackr is the most recent platform that has been launched for the purpose of crowdfunding. This platform connects the two parties, buyers (backrs) and developers together, and the buyers can then get wholesale copies of the app if there is an agreement reached. This way, both parties get profit, because the developers get to sell their app immediately, and the buyers can further sell this app on the official marketplace keeping their own profit margin.

Kickstarter is great for funding creative projects, and that is why it is one of the best ways of crowdfunding an application. This is good because in today’s time, only new, creative and innovative ideas succeed, so Kickstarter kick-starts the right kind of projects. Another reason for being perfect for mobile app development funding, is that it enables even small amounts of funds to be raised. Their fee is lower than AppStori, being 5% for Kickstarter and maybe 3% to 5% for Amazon Payments.

Appsplit was launched in the year 2012, and is a crowdfunding platform that enables its users multiple options for selling their ideas, for example: users can raise funds for a new app, an existing app, and can even find contractors for you to start your app development. They have a 5% fee for campaigns where the user gives back the contribution amount, and 10% if they keep the funds. They also charge 5% extra for selling online.

Types of crowdfunding for App Development:

There are multiple types of crowdfunding that exist, and which one works best for the development of your application depends on the kind of app it is, the market it will cater to, and the solution it is providing for the people. Some basic types of crowdfunding are listed below:

Each of these types of crowdfunding is discussed in greater detail in the next few segments.

Crowdfunding for an application through securities is one of the ways of raising funds and taking your app another step closer to success. The users who want to work with securities for raising funds mostly deal with the investors on the basis of different marketable securities for example; they would either sell the stocks of their business and raise money, or maybe deal in bonds and preferred shares, etc. This way, even if there is a loss or what they plan does not happen, there is some backend securities to cover that up.

This potentially is one of the most difficult kinds of app crowdfunding because in this, all the money is donation-based, and so, the investors will not be getting anything in return. There is a large amount to be raised, with no returns, so the best apps that can crowdfund in this way are for social causes and charities, because people donate for such causes. Generally, these also go on for a long period, like three months or so, because they need a longer window for more and more funds to keep coming in.

The rewards-based way of crowdfunding is by far the easiest and most used way of raising funds for an app, because both parties are benefitting from it. The developers can easily give back rewards to their investors in the form of a copy of the app, or the title of co-developer in the app development process, etc. which are the kinds of rewards that would attract investor to invest in your app. Though, the rewards are only given after the pledged amounts are received from the investors.

Raising funds through peers is not really crowdfunding because it is not in the form of masses, but it is still a pool of finances that can jumpstart the developing of your app process. This form of funding is also not funding, but it is more like a little loan, a lending process, where your friends give you a little investment to start your business, and you pay that amount back to them whenever possible for you. Since they are peers who are investing, it is more of an informal agreement, where not strict terms are set for the payback date or whatsoever.

Real Estate apps are a new way of selling properties online, and people prefer this over the actual visits to the sites, thus, they provide a great solution to an existing problem, and have proved to be much used by the masses. Looking at this, it is also a lucrative opportunity for investors because the returns are well versed in this area. Moreover, since so many people use these apps, investment can also be gained through advertisements and companies investing so that their ads could be played and gain popularity, benefitting both parties. Platforms such as Alpha Investing, DiversyFund, Crowdstreet, etc. are the best platforms to raise funds for real estate apps.

Human Capital is a whole resource to any business that is required in all aspects of production, development and backend working. In app development terms, human capital is all the skills, knowledge and experience that the people, or workers, can input for the business. Crowdfunding for this kind is also part of the Equity-based crowdfunding, because it is all the returns and resources that the company owners also injecting in the app development. Thus, an equity funding campaign needs to be started for this purpose, and the developer exchange their own skills and experience in return for the funds that the investors are giving them.

Crowdfunding for companies in order to develop an app is all the amount of funds they can raise that will take their app from the pre-production stage to the post-launch stage and then onto the success. This is the investment that the company needs to start developing the app for a larger audience, making changes and launching an app again that may already exist, but with added benefits, or the need to launch a new app on the different platforms that exist and need money for the purpose.

As we have already established, creating a basic app too can be costly, so some pool of funds are already needed to build the app, and then once the development starts, funds are required for any additions to be made, and then funds are required to launch the app, thus, a crowdfund is a good source of raising the great amount of funds that will be required throughout.

In most cases, business apps do not need crowdfunding, since they are eligible for bank loans of the amount they need to start up their business and develop their ideas into workable apps. Though, there are some cases where the person or developer is not eligible for bank loans due to other reasons, that is when crowdfunding comes into play, and the businesses app developers need to turn to getting funds online.

Once the developers have decided that crowdfunding will be the source of the finances, they start approaching different investors. Since this is a business app, the business idea needs to be creative and innovative if the person wants to attract worthy customers and investors. Moreover, the developer needs to have his pitch ready beforehand, and the idea should be practical, as no one will invest for an idea that has no basis and seems to have no potential. As soon as the developer is able to attract some big investors, they can start collecting the funds and start work on the business app.

Different kinds of crowdfunding exist for different kinds of app development and ideas, which is why, the first and foremost thing the developer needs to do is to specify what problem exists, what the app is going to help in doing, and what exactly the target audience is, only then can the move forward. When the kind of business the app will conduct is decided, then the developer looks at the different options of crowdfunding resources available to him.

It is easier for a charity or social cause app developer to crowdfund using the donations method, but if a business app needs to be developed, the developer needs to know which investors to attract, and so, their following campaign needs to be designed accordingly. A successful campaign can lead to a successful business, so be sure to focus on what you are aiming for and what you are portraying in your campaign, as both of these should match.

Some of the benefits that come from crowdfunding are as follows:

Where there are benefits of crowdfunding, there are also some risks involved, as follows:

Tips for crowdfunding success to your App Development Project:

To garner success towards your app and its development, it is essential for a developer to follow a few tips and tricks, as mentioned below:

This is very important, because we have known that only those app projects are successful that are fulfilling a purpose, or solving a problem, so it is necessary for you app to have a worthy purpose behind it, that too, one that is sure to attract customers.

The app developer should have an idea of who the app is catering to, and what does their target market consist of. For example, your app would definitely go towards failure if you market your product or app to the wrong people, who have no use for it. So identify your market segment before the launch.

The developer should always know how much his app would cost eventually, and how much finances he has to raise for it. If the funds do not reach the goal, there is a high chance that the developer will not be able to get his money from the online platforms. Incase if he gets more, he can save it, but that is also a form of wastage of resources. So the developer should always have a rough idea of how much funding is required.

Once you have decided upon the kind of campaign you will hold on the online crowdfunding platforms, you need to start promoting your campaign and create hype for it. You should know who your investor is, and your campaign should be targeted towards them.

The final execution of your campaign is also as important as the promotion part. This is because, a well-executed campaign can attract all the right investor and make you reach your funding goals easily and faster, rather than having a worthless campaign which will not have a great effect on the audience. Always execute your campaign in the best possible way for successful results.

Q.1.) What is the best crowdfunding site for app development?

The best crowdfunding app development site that is currently being widely used and preferred, as per online comments and research, is Kickstarter. This app has captured the attention of the public in a short time, and has an easy-to-use interface that will be quick in making the right campaign for you.

Q.2.) What is crowdfunding quizlet?

The crowdfunding quizlet is a platform where there are flashcards available pertaining to crowdfunding, and has multiple questions that are asked in order to see which crowdfunding is the best and what all is required to conduct it.

Q.3.) What is crowdfunding Kickstarter?

Kickstarter is an online platform through which app developers can easily attract investors and gain funds from the masses. It is one of the most widely used, easiest and effective ways of earning funds for jumpstarting the development of the app.

Q.4.) What is crowdfunding for App development business?

Every app that is developed, be it business related or not, costs something or the other, and sometimes, that amount of money is not available with the developer. This is where he needs to find a source for crowdfunding, and gain financial strength from online investors.

Q.5.) What is crowdfunding campaign and how to do it for App Development?

A crowdfunding campaign is the way you portray, explain and present your app and its purpose on the crowdfunding online platforms. This is a very important step in setting up your app development fund, because if the correct kind of campaigning attracts the right consumers, the developer is sure to make great profits.

Q.6.) How to raise money for an app?

Raising money for an app is really simple. Either you take a bank loan, or you can lend some money as initial investment from family and friends, and return it when you have the amount with you. But these resources are not enough, which is why the app developers go a step ahead and set up a crowdfunding account on a platform, set a goal, and then try to achieve it through active campaigning.