10 smart ways to fund your app idea in Australia

Startup ecosystems are on the rise from locations all over the world. Many entrepreneurs have been able to build profitable businesses from small towns by getting funded through angel investors and venture capitalists.

The same is not yet true for Australia where a significant portion of startups either relocate or pivot their teams towards India or Silicon Valley to get the initial funding they need to grow their business.

But here’s the good news: there’s now a growing interest in early-stage investments in Australia as more companies look to invest in interesting ideas. Venture capital firms that previously only looked at software as a service (SaaS) startups, are now showing an interest in other product-oriented companies as well. 

“Most Australian startup founders aren’t aware of the potential benefits of seed funding. Even the ones who are aware, see seed investment as a last resort,”Seed funding is not easy to get in Australia, but it can definitely give your business a head start.”

In this article, we look at 10 ways Australian entrepreneurs can raise funds for their startup idea.

1. Bootstrapping 

Although this might seem counter-intuitive, bootstrapping is perhaps the best method for getting early-stage funds because it forces you to focus on revenue generation.

“Bootstrapping can be tough, but focusing on generating revenue from day one makes good business sense,” 

BlackStar has bootstrapped its entire operation over the last 12 years without any external funding. “And we are very happy with this decision because starting out with zero money means that every dollar we earn goes back into our business.”

 Also many entrepreneurs don’t realise how difficult it can be to start a small business. They tend to underestimate the amount of work needed before their companies start seeing profits and overestimate the amount of money they’ll make through investments.

Running your own business is much harder than many people think, especially if you are doing it alone, You need to be committed and patient because it takes time to establish your company.

2. Fundraise from friends & family

There are many sayings about making money, but the old ones are often the best. The same holds true for funding your startup – if you can get other people to fund it, it’s probably the quickest way to get an early injection of capital into your venture. Crowdfunding sites have made this easier than ever before. KickStarter, one of the most well-known crowdfunding sites in Australia, hosted around 26,000 projects and raised over $690 million since 2009.

A major advantage of this method is that there isn’t an expectation on you to give up equity, nor is there any need for documentation or financials (although they may provide useful information). You can also get valuable feedback from people in your network.

3. Seek government funding programs

The Federal Government has a number of grant schemes in place to support entrepreneurs and startup companies in Australia. These include R&D grants, Commercialisation Australia Program grants, Enterprise Connect grants, HR & More grants and Mentoring for Investment grants. There are also other state and territory government programs that can give you a leg up. Do your research and find out what’s available to support early-stage companies in the industry you’re involved with.

4. Seek equity crowdfunding

Equity crowdfunding is a relatively new concept; it only became legal in Australia on 1 January 2015, but has been taking off since then. The idea behind it is that anyone can invest small amounts of money into a startup business for an equity stake, as opposed to traditional models which required large investments from wealthy individuals or institutions. One example of equity crowdfunding in Australia is CrowdfundUP, who launched their product late last year after working closely with the Australian Securities and Investments Commission (ASIC). On their website they claim that in the next five years there could be up to $500 million in equity crowdfunding deals.

However, some of the challenges associated with using a crowdfunding platform include: 

• You need to build and market the campaign yourself. 
• Campaigns tend to be more successful when they offer rewards such as preorders or discounts. 
• It’s not easy communicating with your audience on crowdfunding platforms – engagement is low compared to social media channels such as Facebook or Twitter.

5. Treat your startup like a consultancy

Seed money is often hard to come by at the beginning, but you don’t necessarily need it if your startup begins as a consultancy business – people will pay you simply to give advice and formulate a plan for them. Start small and show potential clients that if they hire you for this service, then they can avoid wasting time and money on their project. Once you have some momentum going with one client, others will start looking into hiring you as well.

6. Seek investment from angel networks or incubators

Angels are high-net-worth individuals who find investing in early-stage startups attractive due to the amount of potential for growth. Although they’re generally willing to take more risks than most people, angel investors are looking for strong ideas with a strong team behind them. You can find angel networks by contacting organisations with an interest in your area or industry, or you can seek out incubators who have already begun investing in early-stage companies. However, it’s important to know that like crowdfunding, in the eyes of the law you are still seen as a shareholder and so there is risk attached to this method.

7. Seek assistance from innovation & science agencies

Industry Innovation and Science Australia (IISA) is an organisation that focuses on identifying and building relationships between Australian entrepreneurs, scientists and innovators. IISA can refer entrepreneurs to sources of funding such as grants and angel investors once they have determined if their idea has potential or not. They provide advice on regulatory requirements for any new product or service, and help determine growth potential. Most importantly, IISA is a free service. You can find out more about this on their website.

8. Seek investment from venture capitalists

Venture capitalists look at potential opportunities and see whether they can get into a new market before anyone else does. The difference between them and angels is that VC investments tend to be larger ($1 million minimum), but there are greater risks involved and also higher returns. This means that VC firms are often not suitable for early-stage startups but are worth approaching once you’ve reached the proof of concept stage.

9. Seek investment from your customers

Use discounts to incentivise your customers to buy into your idea early. You could give them a discount or give them a small percentage of equity. The advantage of this approach is that you don’t have to worry about giving away too much equity because you can simply refund their cash if your idea doesn’t materialise.

You may want to consider launching a crowdfunding campaign instead of applying for a grant or running a beta-test round. There are many sites where companies can crowdfund from backers and investors, such as Kickstarter, mentioned above, or Pozible These options give you the ability to raise money at a faster pace than traditional funding models.

10. Get a mentor

Having someone on your side who understands your business is vital when you’re getting started, especially if they have successfully navigated the startup process before. Find someone who has relevant experience in your industry and nurture the relationship by keeping them updated on all aspects of your startup. If you can’t find anyone through networking or online, consider spending some of that seed money on coaching sessions. Even one hour a week talking about how you run your company could help accelerate your progress when starting out. There are also various websites (such as www.mentormate.com) that match mentors with mentees.

To sum up…

There are multiple ways of getting seed funding for your startup, all with different levels of risk and return. The best option depends on the type of idea you have. 

The moral of the article is that it’s definitely worth seeking funding from various sources. The more avenues you explore, the more likely you’ll be to fund your startup.

And if you’d like to book a one-on-one coaching session with an expert who’s helped multiple startups get off the ground, get in touch with us today.