We’re not going to lie, it takes a good amount of cash to fund the development of a high quality digital MVP. Before you start the process of trying to fund your MVP development, you need to sit down and figure out what your expected costs are to create this first iteration of your product. Once you know how much money you’re actually looking for, you can pin the funding options against each other to see what makes the most sense for you.
So, as an entrepreneur looking to build the MVP version of your digital product, which funding options do you have at your disposal? Here are a few you might consider to help you get your venture off the ground.
We know it’s way more fun to play with other people’s money. But sometimes, before you can play with other people’s money you need to play with some of your own. While we know you’re probably gung-ho to jump into the creation and marketing of your digital product full time, you might need to multitask for a bit until you get the product to a certain point.
To fund the development of your MVP, you might consider getting a high paying job for a while. During this time, you can work on your idea at nights and on weekends and use the money you’re making through your full time gig to fund the development of your MVP. Consider taking a job within the industry you’re trying to enter with your digital startup so you can simultaneously leverage the experience to extend your network of contacts and gain more industry-specific expertise. Once you multitask your way through the development of your MVP, this should give you what you need to establish proof of concept and get you to the point where investors will be interested in your product.
Sometimes before you involve unnecessary parties early on and start giving out equity like it’s Christmas, you want to make sure you explore all self-funding options. One of those options is to take out a bank loan to help fund the development of your MVP. When considering taking out a loan to fund your MVP development, there are two types of loans you might consider: a personal loan or a small business loan.
Taking out a loan can be an effective way to get your business started. This may feel like a risky approach and appear seemingly expensive in the short run, but if your company really takes off, it can save you a lot of money down the line in comparison to the equity you would have otherwise had to give up if you’d decided to bring in investors at such an early stage. Before you apply for the loan, make sure you clearly map out how much money you really believe you’ll need. You should also work on revenue projections to help you understand how soon you’ll be able to start paying the loan back.
In some cases, it can be tough to fully go at it on your own when trying to fund and build your digital product. If you’re not able to or don’t want to self-fund the development of your venture, you might consider bringing on a co-founder who can provide the funding and also bring relevant skills to the table. You can take this initial internal investment into account when establishing the initial equity arrangement.
One benefit of taking funding from a co-founder is you know that co-founder will be motivated to put in the legwork required to move the venture forward. This is often not the case with external investors who play a more peripheral role and primarily just provide the money and expect you to do all the hard work. It can be beneficial to have an internal investor in your court who is not just throwing money at an idea but will be there to collaborate with you on a daily basis and will put in the time and effort required to make their money grow. When looking for a co-founder or internal collaborator, you’ll want to look for someone who will complement your own skill set.
If you don’t yet have a clean prototype or MVP version of your product in hand, it might be a bit too early to go out and try to raise a full seed round of funding. If you do happen to go out and try to raise a seed round without a prototype in hand, you may find yourself landing a lower valuation than you otherwise would have received. Sometimes it’s better to be a bit scrappy early on and piecemeal funding together with the aim of building a testable prototype so you can collect some real user data before raising a full seed round.
So, if you’re not yet in a position to raise a seed round and don’t have the money to self-fund your venture, where should you turn to get the money? Well, one classic option is to have some conversations with your close friends and family members to see if any of them believe in the idea enough to get involved as an informal angel investor. If a few individuals give you enough money to develop your prototype and get your venture off the ground, you might consider giving them some equity in exchange for the funding. This can give you the money you need without bringing serious investors into the picture, which can give you time to really see if there is product market fit before you raise a seed round.
If you’re not ready to formally bring other people such as co-founders or angel investors into the picture and you don’t want to go into debt through taking out a loan, you still have another option! One way to raise funding to develop your MVP is to run a crowdfunding campaign. So what is a crowdfunding campaign? Well, it’s essentially a way to raise funding from a large number of supporters rather than a select few investors.
In order to run a successful crowdfunding campaign, you first need to figure out which crowdfunding platform you want to use. A few of the popular ones are Indiegogo, GoFundMe, and Kickstarter. Once you choose a platform, you’ll need to get your company set up on the platform, market your campaign, and lock in a few investments from family and friends at the very start of your campaign to create buzz around the company. In some cases, you might consider giving out rewards for different levels of investment. This can help to incentivize people to participate in your crowdfunding campaign.
As you can see, there are so many different ways you can source the funding for your MVP product development. So, don’t get intimidated when you sit down and calculate how much money you think you’ll need to make it happen.
Remember, you don’t need to choose just one funding option and consider it the end all be all. Rather, you can integrate several different funding sources to piece together the money you think you’ll need to make it happen. If you’re feeling stuck at any point throughout the fundraising or planning process, reach out to our team of experts to help you navigate the process and bring your digital product idea to fruition.