Why Inbound VC Interest is Kryptonite for App Founders
At first, the sudden influx of venture capital (VC) firm contact can be exciting, flattering, and in many cases irresistible. App developers can understandably get very much caught up in this VC buzz. But the distraction that can come with what seems to be a genuine interest to invest can be damaging, or even fatal, for many promising apps.
As a founder, if you are lucky enough to get your app into the top download or top grossing charts, you can expect to receive a lot of inbound enquiries from VCs. Join me in this brief article as we look at what you can expect to happen after hitting the download charts and how to respond best to drive your continued growth.
After all, getting your app to this stage is a remarkable achievement. Now is the time to avoid distractions, redouble focus and build out your success.
Understanding VC intentions
Up to now, you’ve probably got used to ignoring the noise of spammy ad networks and similar such service providers vying for your attention. But when a VC investor comes knocking, app developers can often mistake their approach for immediate interest to invest. While it may happen, albeit rarely, the reality is that these initial VC approaches are by and large an exercise in scoping out the market.
The appeal of inbound VC interest can be difficult to resist at this point. Many developers see it as deserved recognition (and rightly so) after months or years of hard work to get their app so far up the charts that others take notice. But the truth is that contacting the founders of budding apps that hit the charts is all part of their information-gathering process.
Unfortunately, most if not all the time, VCs are not contacting you at this stage because they want to invest any time soon. You are merely one of the many conversations they are having as part of a monitoring strategy in search of the next big thing to hit the market.
When making contact, VCs benefit from common app developer belief and enthusiasm that “a VC is interested in my app”. This allows them to gather as much data and information as possible from developers eager to impress, and who don’t hold back when it comes to divulging details about their app and their all-important metrics.
How to handle inbound interest from VCs
Armed with a better knowledge of a VC’s true intentions when making their approaches, you can make a more informed decision on how to manage them. You might still be tempted to explore initial VC interest anyway - it may make sense for the business to seek equity financing, but allow us to explain why this isn’t necessarily in your best interests right now, and what to do instead to qualify the interest, and keep focused.
While an impressive feat, you simply don’t spark genuine VC interest by reaching a high position on download charts. Rather, you have provoked mild VC curiosity. The primary reason why they are in any way intrigued is because of your user acquisition success - what has led to thousands or even millions of people to download your app?
The key at this point is to compartmentalize VC overtures, limit the time spent on these discussions and keep doing what you have been doing up to now that has facilitated your success. This means maintaining concentration on your core business and on advancing further user acquisition as quickly and efficiently as possible.
Tending to VC approaches at this stage can result in app developers becoming detached from their core business and losing focus on the day job. What they often end up with is having wasted weeks or months offering up their app secrets to VCs and their business suffers as a result of their loss of focus. Closing a VC round typically takes at least three months of intensive effort so it’s important to factor this into considering when you are ready to raise.
It’s necessary to qualify the interest really early on, and ask the tough questions around the VC’s intentions, what other apps they have funded in the genre, what they like about your app, and flush out their level of genuine intent. It should be fairly easy to qualify out those who are just fishing, and also the seniority of the person making the approach will be a good indicator.
Doubling down at this point is what separates long-term successful apps from those that ride high temporarily before disappearing again. Focusing on continued scaling by maintaining a strong user acquisition rate through the most capital-efficient methods is what you can choose to dedicate your efforts to. For instance, accounts receivable (AR) financing is one such technique that allows developers to access their app store/ad network earnings early - rather than wait 45-60 days - in order to fund increased user acquisition.
The main reward is that you will grow your app organically, but the second consequence is that VCs will be much more impressed further down the line, having seen your ability to stay focused and grow your user acquisition. Also, they will see that you have a strong understanding of capital efficiency and reading your own metrics, which they should actively look for and value.
Keep your eye on the prize to maximize your app’s success
The idea of a number of flush VCs suddenly approaching you can be instantly gratifying, which is why many app founders are seduced by it. But their business often suffers as a result, due to the time distraction and ultimately not closing a round. The wise move, that leads to optimized success, is to continue to focus on user acquisition through capital-efficient means. You will grow your business and as your app's KPIs strengthen, genuine VC interest is far more likely to follow, giving you more leverage in the process.
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