Each week, we seek out expert advice to help a small or medium-sized firm overcome a key issue.
It’s hard for the average smartphone app to get much love. With more than 850,000 applications in the Apple store alone, it’s easy to get lost in the shuffle. For app creators, raising capital in a market full of larger and better known competitors is especially difficult.
That’s the dilemma facing Mindr Mobile Inc., a Waterloo, Ont., company. Its app can call for help in an emergency and is marketed to senior citizens, students, women, those with a medical condition, or people working alone in a potentially dangerous job.
Here’s how it works: Mindr’s app allows users to set it for automatic check-ins at, say, every 30 minutes. If the user cannot respond to the prompt – by tapping the phone screen – an alert containing the user’s GPS location and activity details is sent by text message and/or e-mail to the user’s predetermined contact person, said the company’s co-founder, Bob Young.
“A phone call will also be launched to the person’s contact. For the app user, the problem being solved is ‘no one knows that I need help,’” he said.
The company, which was founded in 2011, is having trouble securing financing. “We’re looking for anything in the range from $25,000 to $150,000 in angel investment,” Mr. Young said.
One of the roadblocks is that potential investors want proof that customers are using the application. Mindr Mobile’s app has had about 8,500 visits from users in 83 countries, most in the United States and Canada. But many prospective clients are using it only for the first 30 days when there is no charge, and then not renewing when it comes time to pay.
Investors are skeptical that the company can carve out enough of the security market to justify the financing. “They’ve said things like, ‘It’s a very crowded market space. We see other products similar to yours, but they’re not getting uptake, so we don’t think yours will,’” Mr. Young said.
A third problem is that investors don’t want to be the first ones in – they are willing to participate only in a joint venture with other angels. Consequently no one wants to take the first step, which creates a vicious circle.
The Challenge: How can Mindr Mobile overcome these obstacles and stand out when approaching angel investors?
THE EXPERTS WEIGH IN
Janne Chung, associate professor of accounting, Schulich School of Business, York University, Toronto
If I were a financier, I would have the same questions. I would be very reluctant to give people money if they can’t demonstrate a pick-up in the business. So they need to demonstrate they are serious – they need to go out there, pound the pavement, so to speak, and recruit customers. There are no shortcuts outside of sweat equity.
In this case, Mindr Mobile is asking for only a relatively modest amount, even at the upper range of $100,000 to $150,000, so recruiting a key, well-known client might do the trick.
One idea would be to recruit a 24-hour business, like a gas station, grocer, or restaurant, for example, who might be concerned about the safety of employees working alone. This will allow them to get a foot in the door and demonstrate to investors they are on the right track.
In fact, this would alleviate all three of the concerns that financiers had expressed, because in addition to demonstrating they have customers, this strategy also illustrates they are capable of grabbing a market niche. And it is more likely to convince financiers to be first in, rather than waiting for others to take the lead.
Evan Lipton, vice-president and director of MNP Corporate Finance Inc., Toronto
Mindr Mobile might want to consider presenting their business plan in a different way. For example, instead of pursuing a subscription-based service, they could consider a strategy involving licensing their technology with other security providers – something like a home monitoring company, which could offer Mindr Mobile’s app in addition to their existing services and provide a greater distribution reach.
Mindr Mobile might also sell directly to businesses in need of this sort of technology, such as gas and oil-field service companies with people working alone in remote locations.
It is difficult to gain customers selling one unit at a time. Larger corporate customers present the opportunity to sell thousands of units at once, and would increase the attractiveness of the business to investors. It would illustrate to them that this technology can be scaled in large numbers, and would also alleviate concerns that potential investors may have about Mindr Mobile being able to establish a market niche.
Marilyn Henschel, founder, Henschel Business Services Inc., Ottawa
Mindr Mobile should consider other avenues when seeking funding because long-term financial numbers will emanate from having a solid business plan.
The term angel financing could mean a lot of things, so Mindr Mobile should do its research and be creative in terms of finding new sources of cash. The Business Development Bank of Canada has a good role to play with startups. So might certain organizations that specifically fund high tech-related businesses – and these organizations might also offer mentoring services. Look for that type of source in the Kitchener-Waterloo area and develop a personal relationship with them because the entrepreneur’s track record and credibility are very important.
Mindr Mobile is doing the right thing in asking for help and laying it out on the table to say, in effect, “This is where we’re at.” But you can’t just go to the first potential source and expect they’re going to lend you some money. You’ve got to keep going to the next guy and the next guy and to the next guy. Eventually, somebody might know somebody and offer helpful advice. Find that person.
It’s really tough. I’ve been there myself. But you have to keep trudging away through every avenue you can.
THREE THINGS THE COMPANY CAN DO NOW
Connect with a well known business
Such as a 24-hour gas station, or oil-field service companies. This will help them demonstrate to financiers they are on the right track.
Consider a partnership
Partnering with a larger corporate customer such as a home monitoring company will present the opportunity to sell thousands of units at once and would increase the attractiveness of the business to investors.
Become creative about financing sources
Look for special organizations that help finance tech startups, and develop a strong personal relationship with them because they place a lot of emphasis on the credibility of entrepreneurs.
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Interviews have been edited and condensed.