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

 

 

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