The world today is a touch away – thanks to the plethora of apps in our mobile devices. From food to fashion and from medicine to music, mobile apps are raging the internet space creating a major shift in customer behaviour. To make most of this reality many enterprising individuals are focusing their careers around mobile app building, quite logically so. However, as with every start up, getting funds for developing these apps often remains a challenge.
At Entrepreneur we are constantly looking for solutions to conundrums faced by start-ups and first generation enterprises. After a detailed tete e tete with two very successful start-ups in mobile app making business - Dipanjan Purkayastha of Tygr and Fahad Khan of Technology 9 Labs - we have come close to cracking the puzzle on how to get funds for making mobile apps.
Having 20 years experience in technology space across US and India, Dipanjan Purkayastha’s previous role in the corporate sector was VP & Global Head- BFS and BPO, for Tech Mahindra. Relocating to Kolkata from US in 2012 to invest in the Indian start-ups space, he is now an active player in the ecosystem. He has co-founded the mobile app Tygr, which recently raised $3mn in its first fundraise round. Tygr is a multi-mode transport platform that provides four key elements of automation, through a simple and easy-to-use app interface.
Here is what he shared -
Traditional Funding Route Might Not Be The Right Fit
Dipanjan’s venture was faced with a situation where, on one hand, he had an ecosystem which moves in the typical angel (~10-50l) -> seed (~50l-2cr) -> pre A (2-5cr)-> series A (~10cr-100cr) process; where the model structurally fit into the angel/seed stage. On the other hand, he had a platform that could only demonstrate at a scale which needed him to spend at least 7-8cr upfront. At the same time, he was solving the problem of reaching beyond Tier A cities by adopting a franchisee-based distribution model, one of the first Indian tech start-ups to do so as a core element of his go-to-market strategy.
“We were clear from day one that given the scale of the market we were trying to cover from the get-go, the traditional funding route might not be the right fit for us. At the same time, logistics is a sector where you cannot even start sub-scale, because the value is all about how many dots you are able to connect, and how efficiently,” he informs.
Look For Smart Money And Investors With Domain Expertise
“The idea that worked for us was to be clear from day one about chasing smart money, and to make sure we looked for investors that also brought in significant domain expertise and access to network,” shares Dipanjan who besides being an entrepreneur is an angel investor on LetsVenture and a guest faculty for Entrepreneurship and Innovation at leading institutions like IIT- Delhi and IIM- Calcutta.
Franchise India, Dipanjan’s partner for the model and one of the largest franchise development firms in the world, at some point realized the complementing aspect of what he was trying to solve and their own focus on growing their footprint in the tech space.
“That's when the conversation turned from a vendor relationship to investment-led partnership. Eventually, a consortium of global investors led by Franchise India, invested $3mn in what was essentially Tygr's first fundraising round,” enthused Dipanjan. The investors eventually understood the space well, and for them, the investment was a far more strategic one than it would have been in the case of a VC fund. In addition to the institutional fundraise, the franchise model allowed Tygr to capitalize the regions it targets, giving the company great cash-flow liquidity, and oxygen for early-stage start-ups.
Fahad Khan, is a product junkie and first generation entrepreneur. He has incubated, founded, funded, advised and validated new business ideas across finance, consumer internet, media, food, fashion, CRM and digital marketing - some of which have grown into established businesses. He founded Technology 9 Labs, a start up studio based in New Delhi in 2005. Product development being the forte, the start up develops ideas internally and those brought in by entrepreneurs to build scalable businesses which are technologically sound. They are creating an ecosystem for entrepreneurs by adding strategic partners to support the inception of companies of the future. Technology 9 Labs has already developed nine mobile app building businesses and is working on four more.
His Take -
Fahad feels that funding for a business, whether web or mobile, is a function of the team, market size and the idea-- Exactly in that order. These are fundamental principles of investment and they do not change with the choice of platform. However, there is a big shift in the user behaviour where more people are using mobile devices to access the Internet today compared to desktops. He prescribes some key points which will ensure your mobile app is funding worthy-
Only The Fittest Would Survive
Though there are myriad business opportunities for entrepreneurs in mobile app business, they come along with a key challenge. The challenge is that there are a finite number of apps that the users can/will install and keep on their handheld devices. Only the fittest would survive and many more mobile businesses would perish than their desktop counterparts. The deaths would be much swifter as well because unlike a website that can expect an occasional visit from a referral link or SEO etc., accessing mobile content involves downloading & installing the app which consumes time and data.
The Mobile App Ecosystem Is Unforgiving
If your app crashes a lot or has usability issues, the users would, mostly, uninstall it, bringing the hard earned and often, expensive app install to a naught. The good old website can be updated centrally without the dependence of an intermediary distribution system like Google Play & Apple iTunes. You could do quick fixes and constantly improve your platform without bothering the users. On mobile, you have the pressure to get an app right from the beginning. At the very least, it has to be bug free and usable.
How Compelling Is The Need ?
When I evaluate mobile applications for funding, my first criteria is ‘how compelling is the need’ for its target group. Will it be used frequently? Does it have the potential to because the default for that specific need? Does the team understand the unforgiving nature of the ecosystem and are they detail oriented? You have to be Uber in the space to do well, you may survive and compete as Ola but no one knows what the third taxi app is and, frankly, no one cares.