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- How To Raise Money For A Business To Develop A Software Product?
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Do you have an outstanding software idea and want to raise money for your business project?
Technology is helping humans improve their quality of life in multiple ways. Software applications make accessible the benefits of technology to everyone.
However, developing a software application is a complex project in itself that requires time and money. There are many people with amazing software business ideas but not everyone is able to realize them.
Raising money for your own business is hard work that requires careful planning and adopting the right strategy. According to CBInsights, 29% of startups fail because they run out of funds and personal money.
In this article, we will discuss the steps necessary for securing investment to develop your dream software solution.
Raise Funds for Your Business
You will go through the following steps to effectively raise capital for your business and fund your next software development project:
Draw Up Your Business Plan
A detailed business plan will help you understand the correct funding requirements for your software development project. It will also give you clarity on your business idea and its viability in the user market.
To formulate an effective business plan you will perform comprehensive market research to see how well your software idea is received by the target audience. This will include accessing the needs of your potential customers and providing value to them through your software solution.
Next, you will calculate the required investment and the expected value of your return on investment. The percentage benefit or ROI is calculated by subtracting the gain of the investment from the cost of the investment. The value is then divided by the cost of investment and multiplied by 100.
ROI calculation will help you put forward a realistic business plan for your investors. It will discuss profits, opportunities, risks, etc. Your well-put business plan will help investors see their advantage in investing in your software development project.
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Prepare Your Pitch to Raise Money for Your Business
Preparing an elevator pitch is important to introduce your business idea to potential investors in a minimum amount of time. A good pitch alone may not be enough but it sure makes it easier to attract the right investors to your product idea that can land you with good funds.
An effective pitch explains four points clearly: an introduction to your software product, the problem you are trying to solve, your proposed software solution, and the benefits of your proposed solution.
These four sections will answer all the main questions that investors may have about your software idea, including why your product idea matters, why it is better, how will it actually solve the problem, etc.
Investors will ask you a series of questions related to your work experience, the software product idea itself, and the software project history. Your business acumen and skills matter when you pitch your business idea. You should prepare yourself to answer questions along the following lines:
- What are your business development and management experience?
- Who else is a part of your software project team?
- What is the level of knowledge and work experience of your team members?
- At what stage is the product currently in? Is it sustainable?
- Is the project idea innovative or inventive? Is it patentable?
Investors are experienced professionals who are now at a point to invest and give a boost to other startups.
They reach this point after building and marketing their products and companies at the cost of their sweat, time, and money, and want to make sure the founders of the startup they are planning to invest in are willing to do so.
You will likely be asked about:
- Is the software project your side project while you are working at a job with a good pay scale?
- Are you joined by some other stakeholders and what are their leverages?
- How much time and money are you willing to invest in your dream project?
According to research by the Harvard Business School, founders of successful businesses have a 30% chance of being successful with their next ventures.
Communicating your strengths effectively is the key to your success when it comes to securing interested investors for your software project.
Choose The Funding Option
With your business plan and pitch in place, you can now start finding the best suitable funder for your software business. Some of the common ways to raise money for a business include the following:
Accelerators and Incubators
Incubators can help you build a foundation for your software startup. They help new startups with no business model in place to access industry investors, office spaces, and even relevant training.
Even if you are unable to secure funding through an incubator you get the opportunity to connect with the right people in the software industry.
If you have found your product-market fit and have a minimum viable product in hand, an accelerator can help you speed up the development of your software by providing mentorship and connecting with investors to help you stabilize your startup.
Incubators are usually funded by government or academic institutions whereas accelerators are supported by established corporations and businessmen.
You can opt for two types of investors for funding your software business. An angelic investor or a venture capitalist.
An angel investor can be a successful entrepreneur or an individual with enough money to support a startup in its birth stage. He or she can even be someone known to you by friends and family. They work independently.
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A venture capitalist, on other hand, is linked with a company or firm and invests other people’s money in promising ventures. For this reason, venture capitalists prefer growing startups with an established business model to fund.
According to Money Crashers, Individual venture capital firms receive more than 1,000 proposals a year and are mostly interested in businesses that require an investment of at least $250,000.
You can either go with angel investment or venture capital according to the development stage of your software business.
You can also look for a person interested in partnering with you as a co-founder to build a unique software solution. One of the co-founders can bring in the financial capital while the other one can offer his or her technical expertise to develop the software product.
A prominent example of co-founding a popular software application is of Snapchat cofounders where cofounder Bobby Murphy developed the application that was a project of other two cofounders, Reggie Brown and Evan Spiegel.
According to Small Business Trends, the chances of a startup’s success increase with 30% more investment and 3 times more customer growth when there are two founders.
An ideal co-founder will be interested in your software idea, share the same values, and be motivated to make the idea a success. Co-founders will help you refine your business plan and bring in value in terms of expertise and/or money.
Crowdfunding platforms help startups with no funding to realize their business idea. Investors and entrepreneurs invest in startups through crowdfunding platforms in return for some profit. Some investors invest just for the sake of supporting innovative startups they are interested in.
You can sign up to a crowdfunding platform and pitch your software project. People who like your software idea will back your software development project.
There is no guarantee that you will meet your funding goal, nevertheless, a motivating pitch can help you find supportive individuals and software companies interested in your business idea.
Crowdfunding platforms offer two types of models: flexible and non-flexible crowdfunding.
A popular and leading crowdfunding platform, Kickstarter, is an all-or-none fixed funding platform. You either reach your target funds amount on the Kickstarter platform or you get nothing. In the latter case, the collected funds are redistributed to the investors.
Another platform, Indiegogo, offers both flexible and fixed funding opportunities. You can either return the collected funds if you fail to meet the target or pay higher fees and keep it. RocketHub and AppsFunder are some other crowdfunding spaces.
The benefit of crowdfunding is that you get access to a range of potential investors from individuals to big businesses who can get inspired by your software idea. The success of your crowdfunding depends on how well you communicate your software idea.
Making use of visuals, a short video, etc., is always good to convey your thoughts effectively.
Governments offer grants and financial assistance to startups in order to support the growth of technology. Government universities also offer entrepreneurship courses and workshops that can help you land a good accelerator program or connect you with a potential investor to whom you can pitch your software idea for funds.
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You can also take a bank loan, but you need to show a strong financial history or put up your assets for collateral. According to the US Small Business Administration, 75% of new businesses and startups use bank loans and business credit for funding their sustainability and growth.
With government grant programs, it may take a while for your application to go through the procedure but you will not have to put up any of your equity.
Final Thoughts on Raising Money For Your Software Business
As the saying goes, no dream is too big, and no dreamer is too small. Your dream software product is also achievable. However, the secret is to work on your product idea, formulate a solid business plan, draft a compelling pitch, and start connecting with people who can fund your software idea into a reality.
The funding options are many, from personal savings, bank loans, and angel investors, to accelerator programs, funding contests, venture capitalists, crowdfunding platforms, and government grants.
If you plan to find a cofounder for your software development project, a software development company can be a reasonable choice too. They have the product development skills and expertise and can assist you in drafting a good development plan.
As a startup business owner, there is a 40% chance that you are spending time on work like hiring and HR tasks that do not make money for you directly.
A reputed software development company will provide you with multiple benefits. You save time for hiring technical staff, access high-quality development services and experience to deploy similar software solutions in the target market, get proper team management and collaboration channels, etc.
If you are still looking for a reliable and experienced software development partner for your next software project, take a look at DevTeam.Space, a community of field-expert software developers.
All the software developers are experts in the latest development technologies and thoroughly vetted for their skills. They are managed by senior developers and their work is guaranteed by the software company.
Moreover, the company follows an AI-powered project management process to enable better collaboration between team developers and clients. You can easily partner with us by sending us your initial software project specifications, and one of our account managers will get in touch with you for more details.
Read our blog for more details on how many developers your startup needs for a successful software development project.
FAQs on How to Raise Money For a Business to Develop a Software Product
A popular way of raising capital for a SaaS is through a crowdfunding platform or bootstrapping, which means using your own money to get your business going. In 2018, 77% of startups were funded by personal funds.
Refine your SaaS idea so that it solves a problem that users are facing in the market, perform competitive market research, test the reliability of your proposed solution, decide on a monetization model, figure out required investment and funding options, draft a development plan, build a team, and start developing your SaaS solution.
Some ways that can help raise money for small businesses include connecting with angel investors or venture capitalists, bootstrapping with personal finances, taking a small business loan from a bank, finding cofounders like a software development company, joining an accelerator program, signing up with a crowdfunding platform, applying for a government grant, etc.