Bootstrapping vs Crowdfunding vs Venture Capital Firms

Virtually all businesses require some form of investment to get off the ground. It’s certainly true for iPhone app developers — although depending on the type of startup, the financial figure required can be anywhere from a few thousand to a few million.

In this post we’ll walk through the three most common types of startup funding methods and highlight which type of funding best fits which type of mobile app developer.

Bootstrapping

Not everyone has access to vast funds right out of the gate, and so many startups begin their journey as “bootstrapped” businesses — leveraging the modest personal finances of the founding team to establish enough credibility to gain a foothold among users and begin attracting investors.

The biggest commodity risked by bootstrapped startups is usually the time of the founding team, who usually work for little or no financial reward based on the presumption that the venture will pay off in the long run once the iPhone app gets traction in the Apple App Store.

Traditional investment

Most fast-growth startups, even if they start out bootstrapped, will eventually move on to gather funding from traditional sources, including venture capital firms like Andreessen & Horowitz and individual “angel investors” like Chris Sacca. The reason behind this is that unlike traditional brick-and-mortar businesses, most startups have to scale at a highly accelerated rate in order to survive the incredibly competitive mobile app marketplace.

Fast growth requires a lot of up-front capital but promises a big payoff in terms of equity for those who get in early. Therefore, traditional investment sources make the most sense for iPhone app developers who aim to conquer a large market in a short period of time.

Crowdfunding

Crowdfunding doesn’t have a great reputation among Toronto iPhone app developers thanks to its association with dodgy Kickstarter schemes, but when done correctly crowdfunding can be a great way to engage the potential customer base while preserving equity for future funding rounds. Generally speaking, crowdfunding is best for products that offer a firm deliverable to beta users — which is why sites like Kickstarter tend to highlight hardware and gadgets.

If your iPhone app is useful enough to potential users, however, it can be a great place to start out. (Particularly if you have no savings to coast on during the first few months of full-time commitment.)