Crowdfunding – A creative way of funding your app development and marketing

by Moms With Apps on September 28, 2011

Our feature this week is written by Jim McClafferty, the founder of Brain Parade, and the creator of See.Touch.Learn.™ Jim has been a software company CEO, has run his own consulting business, and has spent his career in various business and technology roles. He started Brain Parade in 2010 to build innovative mobile education applications. After reading this post I was thankful yet again about the diverse experiences our MWA members continue to share. At the end of the post he requests your feedback. Don’t be shy, he’ll write back. 

I attended the AppNation forum in San Francisco last September 2010 met a number of very interesting people and companies.  One of those companies was appbackr.  They had just won the first PayPal X Developer Challenge with their innovative solution – a digital wholesale marketplace for apps where developers and “backrs” could connect.  At its most basic level, the marketplace provides a mechanism for developers to raise money and for backrs (investors) to share some of the profits from app sales.  It’s kind of like Kickstarter for apps.

The way it works is that developers list their app, or their concept for an app, and offer backrs the opportunity to “pre-purchase” copies of the app for less than list price. Backrs get paid back at a premium when the app actually sells in the iTunes or Android stores.  (It’s important to understand that the backrs don’t actually buy the app in the true sense, they just buy the rights to some of the revenue associated with the actual sale when it happens)  It’s a pretty simple but powerful concept.

Developing and marketing apps isn’t cheap (never mind the fact that many buyers expect all apps to be $0.99!) and the funding options available to developers are scarce, often cumbersome, and almost always onerous.  Venture Capitalists are in the business of maximizing return on their investments so they will want control of their investment and will negotiate terms that put them squarely in charge.  That of course assumes that you can interest them in your small business in the first place.  They have the money, which means they have the leverage.

Appbackr brings the “crowd” factor to the equation and aims for the sweet spot where VCs don’t play.  If you are looking to raise some cash up front to fund your development or marketing campaign without having to deal with VC’s term sheets and give away an ownership stake in your company, then appbackr is a great option.

Brain Parade’s experience with appbackr

Brain Parade launched See.Touch.Learn.™ in March 2011.  It is a free app with multiple in-app purchases.  We’ve been very happy with the success of the product (100,000 downloads in the first six months), and we were ready to move on to the next phase of our plan – See.Touch.Learn.™ Pro.

Pro is designed for schools, teachers and other professionals who want all of the in-app features for a single price.  Pro will also allow us to participate in the Apple Education Volume Purchase plan for the first time (in-app purchases are not compatible with the program) and will be priced at $24.99.   Development was underway and I was exploring some options to fund some of the extras I wanted to put in the app as well as some marketing activities around the launch.  I contacted appbackr in August and setup See.Touch.Learn.™ Pro in the appbackr marketplace.  The whole process was pretty straightforward and the folks at appbackr were very responsive and easy to work with.  I set the maximum amount to raise at $10,000 (you can also set a minimum reserve, but that wasn’t necessary in my case) and the backrs started backing the app immediately.

What I get from this arrangement is money up front in exchange for a smaller share of the revenue when the app sells.  Each time a backr backs my app, I instantly get money transferred into my paypal account.  I also get additional publicity and promotion of my app.  Appbackr constantly promotes itself, and the apps on it site through blog posts, twitter posts, promoted tweets (7 Twitter Marketing Campaigns to Learn From ), and an app newsletter.  In addition, the backrs themselves promote the app through their own channels – it’s in their best interest to drive sales so that they get their return on investment.  Once the app sells in the Apple app store I send appbackr the agreed upon split and I keep the rest.

Ultimately, for each unit that was backed by appbackr and sells in iTunes, I will now net 45% vs. the 70% I would get if I didn’t use appbackr.  (The numbers are different if your app is in the concept stage and not for sale in an app store yet) Once all the backrs have been paid, I go back to keeping 70% like before.  Some might argue that this is a steep price to pay, and ultimately it is your call to make based on your business, but 1.) you get money up front, 2.) you don’t have to give up any ownership stake in your company and 3.) once you pay all the backrs, you keep all the revenue.  Try getting that deal with a Venture Capitalist!  Below is a Pro/Con analysis from my perspective on using appbackr with an iTunes app.

With appbackr Without appbackr
Benefits Benefits
I receive 35% of the sales price as soon as a backr pays (before the app has sold) and the remaining 10% when the app sells in iTunes I keep 70% of the sale in
I get additional publicity and promotion from appbackr and the individual backrs of my app
Disadvantages Disadvantages
I pay out an extra 25% of my sales revenue I must wait as much as 60 days to receive revenue from a sale in iTunes
I don’t receive additional promotion by appbackr and the backrs

 

The Results 

See.Touch.Learn.™ Pro was listed in the appbackr marketplace on August 25th and on September 20th we were backed for the full $10,000 target!  During the time we have been listed, appbackr sent out emails promoting our app and we were also featured as the App of the Week.  It has worked just as advertised and every time a new backr sent money to appbackr, my portion immediately showed up in PayPal.

I’d love to hear what others think of this crowdfunding model.  You can reach me at [email protected]

-Jim McClafferty

 

 

{ 13 comments… read them below or add one }

Dan Slanger/321Speak September 28, 2011 at 11:06 am

Thanks, Jim. You suggested sales success strongly correlated with Appbackr. Could you say a bit more about how your own marketing efforts might have changed (in addition to Appbackr’s efforts) during this same period? What sort of marketing were you doing before?

At any rate, seems like an interesting alternative to VC’s.

Jim McClafferty - Brain Parade September 28, 2011 at 12:09 pm

Dan, the sales I spoke about are for the existing See.Touch.Learn.™ Free product. I listed the See.Touch.Learn.™ Pro product on Appbackr. It will be available in mid October. I have not done any any marketing for Pro yet.

Sarah Towle September 28, 2011 at 12:22 pm

Great post! Very clear! Sounds like an interesting new model. Would you suggest this for an app that’s already in the app store or one that’s in development?

Jim McClafferty - Brain Parade September 28, 2011 at 12:27 pm

Sarah, that really depends on you. If you are looking to raise some money for a marketing promotion or development of some new features or even a new product, then you might want to consider it. If you don’t need the money in advance, then you need to determine what additional exposure you can get from Appbackr and the individual backrs who back you, and whether it is worth sharing 25% of your future revenue.
-Jim McClafferty
Founder – Brain Parade

Jeremy Eyman September 28, 2011 at 12:42 pm

Jim,
I would like to first thank you for your article and how you used appbackr. I’m a first time developer with several concept ideas focusing on children’s education and publishing. I have heard of appbackr, but have yet to look into it. So my dilemma, probably like many other first time developers, is the cost to develop. So, if I read your posting correctly on MWA today, appbackr allows conceptual ideas? If so, what advice would you mind giving to someone who has an idea and wants to move forward to raise the funding on appbackr.
Thank you so much for your time and I look forward to hearing from you soon.

Best Regards,
Jeremy Eyman

Antwon Lincoln September 28, 2011 at 1:06 pm

Great post! I was curious about the service. I have reached out to the company (Matthew Gonzales) as well to inquire about the services. Very nice and excited about the potential (I am too).

I did not back Brain Parade. But I did see it when it launched. Right now there are 10 education apps within in the Appbackr Market Place. With some aggressive advertising and connection with the right community I see this as a win-win. I look forward to more education apps appearing on the Appbackr’s site.

Jim McClafferty - Brain Parade September 28, 2011 at 1:20 pm

Thanks Antwon. I worked with Matthew and with Sarah Cornwell. It was a very pleasant experience. In addition to listing See.Touch.Learn.™ on appbackr, I’ve also backed a few apps and plan to continue to do so. It’s a great way to stay on top of what’s new and innovative as well.

-Jim McClafferty,
Founder – Brain Parade

Jeremy Eyman September 28, 2011 at 2:05 pm

I’m a first time developer with several concept ideas focusing on children’s education and publishing. I have heard of Appbackr, but have yet to look into it. So my dilemma, probably like many other first time developers, is the cost to develop. So, if I read your posting correctly on today,Appbackr allows conceptual ideas? what does that conceptual idea allow…graphics?, etc? If so, what advice would you mind giving to someone who has an idea and is wanting to move forward to raise the funding on appbackr.
Thank you so much for your time and I look forward to hearing from you soon.

John Tran September 28, 2011 at 2:35 pm

Thanks for sharing Jim! I’ve been thinking of a way to jump into developing apps full-time. Obviously can’t do it without a solid source of revenue coming in while our next app is in development and this is an intriguing option.

- John

Jim McClafferty - Brain Parade September 28, 2011 at 2:58 pm

Good luck John!

Jim McClafferty - Brain Parade September 28, 2011 at 4:35 pm

Jeremy, first of all, welcome to the education app developer community! It’s a lot of fun, hard work and rewarding. There are a bunch of great people that you can connect with in this community.

You are correct in your understanding – appbackr does provide a marketplace for you to raise funds for an app that is in the concept stage. You’ll need to give up a bigger slice of the future earnings however – potential investors are going to seek a higher return to offset the higher risk. And remember, appbackr just provides the mechanism for you to seek the financing – they don’t guarantee that you will get it.

It’s more difficult to get investors for a concept app than one that has a track record. You need to sell potential investors on the concept and its viability. There are many things a potential investor would want to know in lieu of actual app statistics. Any potential investor would want to know about you and the team (if there is one) that are developing the app, what your experience is, your qualifications, and any relevant accomplishments that you can point to that demonstrate that you are a good potential investment. They’ll be investing in you as much as in the concept. They’ll also want to understand the app and things like what makes it special, why people are going to buy it, how you plan to market it, how many you expect to sell, what you expect to price it at, etc. They want to know that you’ve done your homework and have some research to back it up.

If you are going to seek funding for a concept app, you’ve got to build a compelling case for an investor. It’s not easy, but the good news is that there are plenty of examples on appbackr of concept stage apps that have been funded. Take a look at the successful ones and the pitches they put together to learn what seems to work.
Good Luck
-Jim McClafferty,
Founder – Brain Parade

Harsha Kumar September 29, 2011 at 6:09 pm

Jim – excellent post… thanks for sharing your experiences with us… and Congrats on the success of Brain Parade – very exciting! Let’s catch up…

Ari Frankel October 3, 2011 at 11:22 am

enlightening thread. Thanks so much, Jim!

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