How to Finance Your App’s Growth with Martin Macmillan

little bit of a bus I gave you I guess inadvertently a little bit of the background of the company and what we're all about so developers we've got good metrics who are ready to scale we provide effective form of capital by advancing money to the developers against the money they do from the app store receipts so basically as quickly as you're earning it and this can be on a daily basis we can allow you to recycle that money back in to spend a muse requisition the what we often see in this was a problem I had myself is like you are generating revenues on the App Store that for App Store read apps or or ad networks as well these are two interchangeably you're generating revenues but you don't have visibility of it for 30 60 sometimes 90 days depending on the of the network so the problem that I had my business related might have user acquisition and then I've got a few different options do I

try and raise equity for user acquisition which just seems crazy you go to a VC and say I've got this formula I need this much to put into it what most people would normally do but it's actually with our model you've got a pile of cash in the corner of the room that you can see accrue you can see it you can smell it but you can't touch it and what we do is we allow you to basically use that use that cash to fund user acquisition as opposed to either going to a publisher and giving away a crazy revenue share or going to the season doing a crazy dilution so it's a very very capital efficient way so I guess my kind of mission here is to try and get and writing all sorts of content at the moment to try and get companies in the app space to think about every dollar you raise what's the risk profile wants to return for that dollar if we're talking about funding user acquisition one funding a 90 day or 60 day cycle of

lifetime value you're crazy to go back and fund that with equity capital so the background so obviously see that excuse me paid you a is really important for most apps there's obviously a few stories here and there with someone just knocks it out of the park with some kind of viral hit but for the rest of us paid you a is a really important strategy if you want some any kind of certainty around ability to scale this is easy tough the two really key things here you've got to understand lifetime value what it looks like that's very easy if your app is paid it's much more difficult if your app is is freemium so we we basically I'll show you in a second we build some lifetime value modeling tools for freemium apps because we found that most developers we spoke to you didn't have really much of an idea about how to calculate them I remember sitting in meetings with companies that raised more than ten

million dollars in funding conceding stand-up arguments in terms of a set of metrics and what that meant for lifetime value between the analytics guys and the CEOs and so let cetera so the one key thing for us with a lot of people just didn't really have much of a clue how to calculate lifetime value so it's one of the things we we helped do the other thing is how long is the lifetime how long does it take you for every dollar you invest in you a how long does it take you to get that dollar back most people think of you or wielkie leaders are sort of like a standalone metric they're not thinking what it means in terms of the financing cycles of business the other thing a CPI again everyone knows of those where you need to pay Facebook or Google to actually acquire a user obviously you've got quality reach you've got it audiences and so on you've got the different ways whether it's an install

or an action you'll paying for but it's the two kind of the variable factors you know can to put a dollar into you a you get more than the dollar back result happiness you put a dollar into you a you get less than a dollar back result misery so just really simple obvious fact unless you've figured out a way to spend profitably just don't spend at all just keep figuring it out that obviously there's a few kind of gray areas where you know you might be slightly unprofitable but because the organic help list you get there so yeah that's that's fine that's accepted but as a as a strategy if you're putting money into something that mathematically you're setting out to lose money it's not a great strategy so the key things that we look for in companies app companies that we finance is a very clear understanding of user acquisition cost and strategy and that's something we actually we help with us

well we don't do it for you but we cannot help expected revenues and also so first of all shape of the lifetime value curve and then how long before you actually get the revenue so using that you may have million dollar Facebook credit lines and the timing issues just not not an issue most people are maxing out their credit cards applying for credit lines with the ad networks without the trading history to support etc so when you actually get paid for this stuff is really really important yeah thank you so in terms of a sale is taking place on on the absolute whether it's on an iOS or in Google Play your waiting up to hiding the number 67 days on Apple but if you sell it beginning in the cycle then you get paid the start of the third cycle with Google it's up to about 45 days so slightly better but the the principles are same with the ad networks the earliest we've seen it is it's 15 days after the end of the month so net

15 and sometimes it goes to net 60 even 90 days before that money is actually collected so I use the analogy before think of the think of the money you're earning every day on the absolutes whether it's ad revenue or it's it's absolute an asset and when you're thinking about how you finance the business then you might want to use your own money for it you might want to max out your credit card you may want to go and raise venture money to a publishing deal whatever but just all I'm urging is like think of this as an asset in the mix and and if you've got if you've got the formula of where you can grow using that you're boring against that as an asset is most likely to be your absolutely cheapest cost of capital to allow you to grow so this was and this is after funding close to 100 developers and talking to probably several hundred over the last few years since we've since we set up the business we realized

it was a really burning need to help developers calculate lifetime value so the install cost piece is easy the how much you're going to make was much much harder to model so we created call a financial forecaster so this is all online people can people can try it out there's no email gates there's no nothing it's very very simple to you so so we could built up some really sophisticated financial modeling tools of our own this isn't intended to be you know a super sophisticated model this is supposed to be almost like a traffic light signal the just paid you a make sense or doesn't it and then if it does then you can kind of drill down and you can we can help you kind of model some more interesting scenarios that so what we start doing is you know which platform of platforms you're monetizing on up there obviously super important metric most people have this information pretty readily to hand install cost

again it's not like I mean we all know install costs rise the more you buy except receipt is supposed to be like a sort of a headline sniff test marketing budget how much you're going to start off with so this isn't how much you spend that it's early overtime just like if you feel nudging the ship out of port what do you have in the bank to actually do that with an estimate of of the royalty of the organic uplift for every paid user how many free users does that bring the unit in aggregate so you need to have some attribution to understand that and then most important of a royalty the the retention curve so and again people will people know that again it changes over time this isn't intended to be like a dynamic model that's more of a static model but the the key thing you know up there and then how long people stay in your app then you've got the basics of the lifetime value curve the first thing we do here is we're

going to show you basically what that well that curve looks like and literally just a visual representation of it which is something that that most people don't necessarily think of so the first of all point is like well where do I cut off at what point if I'm if I'm making as you can see here I'm getting money out fairly quickly at what point does it flatten off to the point I don't really care anymore so we've done a 95 if you look at between day 208 and day 330 on there it's almost totally flat so let's just get discount a lot the last piece of the curve and we're going to say 95% of all predicted LTV is reached after two hundred two hundred eight days so another thing we're seeing that is your in your investing that dollar I meant gives a dollar 20 in user acquisition and you are you're getting your money back in this case the CPI break-even is pretty short it's day 38 or something in this example it means I

could in a dollar I got a dollar back in 38 days so think about that in terms of how many times can I do that in a year then you then everything else beyond that is profit and then how quickly does that does that profit come in what do I need to do obviously the operation or sucking into supporter overtime to make sure that that cohort does deliver but you can start to model and start to understand what your curve looks like and also feed it back into your development process you know if you're trying to get people say let's say beyond level 25 and again that's the gate that's either you know start serving ads if people refuse to pay or all that you make it so difficult that people are going to start paying whatever so you can use this information to feed back into developments like whether it's a game it's an app or whatever then the other thing is here is this is business really helped us

articulate our proposition a lot better so if you look at the physical blue line on the bottom this is just your net cash position as a business right so let's say you start on day one of us of an apple fiscal cycle here you've got your ten thousand dollars and you're going to spend that ten thousand dollars over a seven day period that's going to be your initial kind of marketing push so you spend that ten thousand dollars then for the next 60 days you're sitting there totally flat so it's white flat lines in the bottom so you're waiting there because you haven't had any money back in from the app store the ad network at that stage you get a bump you get a bump of cash back in but what you're doing is this is assuming a constant reinvest rate of 50% of your revenue so as soon as you get the revenue you're investing 50% of it back into user acquisition now again we can dial up to 100 down to 10

whatever you want to do in the more sophisticated models but we just took her we just took an example of 50 and so you can see the bottom bottom one sawtooth up gently over time and you know whether it's a four week or a five week cycle the quarter that's why that's why it's not just completely predictable jagged line and then you see at the end of the year you see the amount of cash was sitting in the bank with having spent that much in user acquisition over time and then the top line is if you're taking if you're not waiting about 60 days but you're taking the money out quicker if you've got a you if you've got an ROI positive formula user acquisition then what we're talking about is every seven days and this is nest of the financing fees and so on as well now every seven days you are taking the money then you're recycling it back in you're taking your recycling for that particular LTV curve

so basically the if you're doing that you notice a couple of things you know the point at which you go cash flow posters which you don't have to have you know your own money or someone else's money outstanding to do that but then you also note the growth trajectory now obviously this assumes that all of these all of these metrics stay completely static over time that's not going to happen hopefully they improve over time so that top line there is basically your your growth for your cash position if you are if you're if you're using what we call revenue recycling as a funding method to grow the great thing about this is this isn't some machine learning algorithm or AI enabled chat but it's just mathematics right if you acquire user here they're going to make this much from you but your payment cycles are like this if you can shorten the payment cycles and use that money to reinvest mathematically you're going to make more

money so that's the kind of best to combine this stuff is online people can people can try it out and the we're currently getting out three or four hundred people a day coming they're putting metrics now for a lot of people actually the it just doesn't stack up that you can help them stop spending money on profitably on you a but just mathematically proving to them they're setting out to lose money so that that's the first thing so we now got all the ad networks saying hey come here can we start using this because ultimately if I'm an ad network and I know that someone's heading out to lose money's fine I might make my number this month but I'm not see these guys back next month or the following quarter however if I can concert while stay with a level of confidence actually these metrics these numbers back up and they look pretty good you should be spending more than the ad guy can think well actually you

know I could go help grow this business from a 10k to 100k or 100k to $1,000,000 a month so it just provides a lot more certainty to do that so the the overall kind of method if I'm trying to encapsulate the whole kind of the whole like the whole thinking behind this is which is it's when you've got a formula that works it's just the mechanism to do it quicker without relying on anyone else but yourself so you're extracting lifetime value more quickly instead of waiting 60 days or every seven or even every day we've seen scenarios where the growth is being so so high and the developers wanted to recycle the money back in every day which is something we've been able to do we take a seed directly from the app store and we use that to to adjust the amount that that will invest whether the will your front or sometimes it just goes literally straight into the ad networks of the spend can be immediate

so you're extracting lifetime value more quickly you're reinvesting it back into advertising that you know is profitable you're acquiring more users more users more lifetime value more quickly so just the whole thing is about velocity of money so this is something that's really kind of dear to my heart because I've been in so many meetings for the developers not you know they're not read is they've not really taken the time or whatever to understand and work with us to understand sort of what we do and I've seen rather you know rather than pay up you know a few percent and financing margin away some was happily giving away another twenty five percent of their business to you know big-name VC just because they think that's what they should be doing so the it's it's really galling to see people go out and raise venture money dilute themselves needlessly when there's actually other forms of capsule out

there so in terms of if you want to go and raise venture money abuse it goes back to I said too far but think about the risk and return profile so if I go to a negative II since they have got a great idea I want to raise the money to see if there's a market for it or I want to do some product market fit or I want to you know hire teamm or make an acquisition that's like proper at-risk stuff and you should absolutely raise venture money for you and we we've got some fantastic most of our deal flow comes from venture funds who say well look we funding the team the IP or is't but we don't want to fund the marketing spend because it's just a really silly way to deploy capital on the other side of it you know from the fans from the from the Sanders and the the entrepreneur point of view is once you've got lifetime values that are known and clearly understood then depending on the length of that lifetime

I mean I could if my lifetime though is going to be three or five years because I'm doing some SAS product whatever it's it's harder to do right there's a lot more risk of things that can happen in three year or two years four years whatever it might be but if I'm going to someone and saying that with a 90 X percent confidence interval I put a dollar into user acquisition I make a dollar fifty within 30 days or 45 days when you've got something that is a scalable and be pretty predictable and not a lot of other things could go wrong because you're only talking about 30 or 40 or 60 or 80 days then using venture money to do that as advert just a very very inefficient way to deploy capital and ultimately is going to be a lot more cash out of your pocket at the other end it's going to talk you through a case study this is this is a great company that we working with for about 15 or 16 months in total and I think that the

numbers of those numbers actually continue to go on a lot from there but it's actually it was the case study numbers feel like were 260 k2 1.3 million dollars a year a month in eight months and actually did the trajectory was longer we did this in like August last year so what Pig sonic did is they had a it was an invested business I think they just raised one round of money and they had figured out a formula for proper user acquisition on largely Facebook there are a few other platforms in there but you know I think it's mostly Facebook for that game 6v6 PvP game called war robots it was originally walking war robots and what they did is they said hey we've figured out this formula every time you put in a dollar we get a dollar fifty back I don't remember the exact numbers they went back to the VIII season said hey we need to raise around here because we need to front loaded marketing spent and

the decease correctly said hey does have really you know you shouldn't be doing that you should go and sort of the guys at pollen in London and we started working with them just a couple of weeks later so there's no kind of expensive DD and stuff to get them started and what they did if you look at their if you look at like an app a knee or a priori data reported what these guys have been doing they grown almost linearly to the point that they got into the top hundred grossing games and this is still a relatively kind of small team of people based in Moscow and then of course once you start to get onto that radar you become you know you get on to lots of acquirer radars as well so they they took a business that was a pretty modest in science and certainly not an impossible or a really attractive business if you like to one that was generating so much cash on the App Store and it fell onto the acquisition target

and they got a quite by mail dot Ruth or thirty million bucks at the end of last year so basically we were financing the growth all the way up they didn't take any additional equity dilution the investors didn't take the dilution and the management didn't take the dilution as well so this is they all ran it's a good thing do it was a great story for us we remain really good friends of them and but ultimately when when you get off the off the ramp at the other end and you sell your business to a big public company then your your requirement wanes so the thing that we kind of though that we're helping doing is people and it can be really early we we had a we put a case study out for a dating app a subscription dating app a couple of weeks ago that started offer literally just a couple of thousands was a UK come a couple of thousand pounds a week and they are doing now hundreds of thousands

a month in revenue so I think it's fourteen hundred percent in a little under two years again subscription model just kept adding users during UA overtime really understood the metrics and it was a it was a great journey and again no additional dilution so I'm obviously around I've just got here but I'm around a little bit this is certainly all tomorrow probably not so much this evening but around tomorrow so if that kind of resonates with anyone and you never have a chat about it then I'm around if not anyone can go to the calculator anytime we're going to be releasing some different calculators well we're about to do one for subscription apps as well so as you've got that kind of recurring revenue tips and the parameters are different than normal freemium acquisition so that's the next one and you know any kind of feedback or ideas in product roadmap for us to be really useful so then the other

thing is we do a lot of a lot of content we're trying to sort of evangelize about you know how we help and where we help lifetime value modeling is clearly a big part of it and then capital efficiencies when when to raise money and the right type of money to raise for the right type purposes something is pretty close to to my heart so and you ask if there's any questions if we can be helpful at all at the that'd be great [Applause]