What a cash advance on app revenue ought to do for developers

Shane Schick

If developers were invoicing the app stores, they might put a note on them that said something like, "due 30 days following receipt," but the truth is they're probably thankful if the money comes in at all. 

That's what makes a recent initiative called Velocity Capital so intriguing. It's a way for those making apps and mobile games to get an advance of sorts on the revenue they are likely to generate over the course of a month. Run by Pollen Capital Americas, the Velocity Capital program is intended to not only be a means of getting cash into developers' hands but to help them invest in their own future. 

A story in The Wall Street Journal explained how it all works: "Founded by Martin Macmillan earlier this year, Pollen has secured $150 million in debt from mostly family offices to bankroll advances on earned revenue to developers in 2014. The seven-person startup, which has offices in London and San Francisco, looks at sales and in-app purchases in app stores and then advances developers 95% of the total revenue earned every seven days. Pollen keeps the 5% when the app stores eventually pay out."

Macmillan told the Journal that Pollen could not only give out the 95 percent but help them grow their revenues by using the money on mobile advertising, marketing or analytics. There is some good logic at work here: Obviously it's difficult for most indie developers to ever operate on the scale of a Zynga, Rovio or GameLoft. If the money advanced by Pollen was at all significant, it could give them a head start towards their own success. 

On the flip side, the success of something like Velocity Capital would depend on a few important factors. First, it would probably work best with apps that have been in the market long enough to be making any money at all. There are plenty of apps and mobile games that are free but are still in the nascent stages of using things like in-app advertising or purchases to monetize. If you're making next to nothing, getting 95 percent of nothing ahead of time isn't going to matter much. Vision Mobile wouldn't be talking about an "app poverty line" if the situation were otherwise. 

The second factor--and this is the real wild card--is whether the developers who adopt the Velocity Capital program are seriously interested in using it to gain an entrepreneurial edge. Although some of them surely hope to become major business, there have been a series of studies showing developers are moonlighting or creating apps purely for the love. The danger here is that the Velocity Capital program becomes the mobile equivalent of a payday loan business, where some might overly rely on it as a form of credit. 

In many respects, Pollen is offering a real challenge to the developer community: If you've complained that indies can't effectively compete, this is an opportunity to pull yourself up by your bootstraps. Money talks, and how they make use of the Velocity Capital program will say a lot about whether they truly have what it takes to grow.--Shane