For this chapter, we spoke with Jonathan Sailor of Runnstr, an app for hardcore runners.
Gunner Technology: Funding was one of the main things we spoke about when building out Runnstr.
Jonathan Sailor: Absolutely. There were multiple waves of funding, but up front budget was tight.
GT: As it usually is.
JS: So really we needed to be very strategic about what we built.
GT: What was the source of that initial funding?
JS: Up front it was money I had saved up along with some loans from family and friends. I was definitely lucky in that sense that I didn’t need to do something like take a loan from a bank or anything like that. It took a couple years, but I had enough cash on hand – again, along with that help from family and friends – that we were able to build enough of a proof of concept that we could raise additional rounds of funding.
GT: And how did those additional rounds go?
JS: Well, at this point, it’s just been the one round. I remember we looked together at various incubators and investment funds, but ended up going with an angel investor that I knew pretty well from back in the day. We explained the concept to him and showed him what we built and he was super gung ho and totally on board. The whole relationship since then has been incredible and we’ve really been able to grow the product.
GT: And hopefully it’s just the start!
JS: Fingers crossed!
If you want to grow your app, you’re gonna have to pay some serious dough. You could hope for lightning in a bottle, but at that point you might as well play the lottery. So how do you go about raising the funds your idea is going to need?
The first thing to keep in mind is what type of app you’re building, because the monetary requirements will be different.
Social apps, for example, are going to need multiple rounds of funding. The goal there is to grow a massive user base, and you’re just not gonna do that with one initial round.
With service apps, on the other hand, the import is on acquiring paying clients. You’re going to want to spend money acquiring clients who will pay you going forward. You’re not worried about the number of users you have, but you are worried about having a roster of paying clients.
Either way, you’re going to need money for marketing. At the end of the day, you’ve got to market your product or service effectively. And that’s going to cost real money.
The primary initial source of funding, in our experience, comes from personal finances. Usually this is on the order of $10,000 or so and is from funds that have been saved up or borrowed from friends and family. This initial round is great because it’s low-risk, high-reward – generally you’re spending some fun money on a dream idea you’ve had for a long time.
(And as an aside, Gunner Technology offers 30 days of development for free, which makes it that much easier to get your idea off the ground. Give us a shout with your next big idea!)
If your idea is starting to take off and you’re running out of funds, 9 times out of 10 (or 99 times out of 100) you’re going to have to bring in outside investments. There are several ways to do this.
Angel investments come from people who have made a bunch of money and want to give some back to build out ideas that they like. A lot of Angel investors are in Silicon Valley and looking for that next, world-changing idea to pour money into. They probably want a return, but at the end of the day they’re buying into a vision.
Venture capital is more focused on the P&L of your company. They’re all about dollars and cents. They’re hoping for a large payday from IPOs and acquisitions. (And obviously have a much lower rate of success.) Venture capital is probably going to be less involved, so it’s important to make sure to include them as much as possible and encourage their engagement with your company.
Private equity is even more profit-driven than venture capital. Most of the time, they’re going to want 51% of your company so they have complete control. Their goal is to infuse your company with cash to get it back on track and then to flip it for a tidy profit. (And around 80% of the time they’re successful.) Private equity wants to buy your company and run it. Most of the time, they’re not looking for a true partnership.
One other good way to raise funds is through an incubator. The best part about incubators is the help and resources they provide. You’ll get HR, legal services, tech support, and a whole host of other niceties. And you’ll often have access to industry veterans who can provide you with a wealth of knowledge and experience. Incubators are often the best option when trying to raise money – we can’t recommend them highly enough!
One final important factor to keep in mind is the timing of your fundraising. The most important thing to keep in mind is to raise money from a position of strength and need. You want to raise money when your company is doing well. And you want to raise money when you really need it. If your company is floundering or you’re not running a massive deficit, don’t bother raising money. Instead, focus all of your efforts on growing your company.
When you get to the point where you need money, for a specific growth idea, then you can start reaching out for funds. But until then, you’ve got to focus on your company. If an infusion of capital wouldn’t make a tremendous difference, then it’s not the time to raise money. If you have to have those additional funds to take your company to the next level, then pursue some or all of the avenues we’ve talked about here. Whatever it takes to make your company succeed!