AppBackr brings a cash advance to iPhone devs

AppBackr, which launches in invite only beta on Tuesday, is one of the most interesting investment projects to come up in the last few years if only for its premise. It plans to offer iPhone app developers a way to get an advance paid by investors who buy into future sales, then stand to make a profit on their investment; that is, if they get in early, and the app sells.

Those are some pretty big ifs, though the bootstrapped alternative means waiting until the sales come in before ever seeing a return on what could be months of work. On top of this, there's promotion through blogs and publications--or PR agencies that can do that work for them.

What AppBackr is trying to do is roll those two extra steps of financing and promotion into a single service, while at the same time giving developers with little or no money a way to get a cash advance in exchange for some of the eventual profits.

Here's how it works:
1. Developers pay a $25 fee (per month, the first of which is waived) to list their app in AppBackr's marketplace.
2. Developers sign up with Apple as a developer (if they haven't already), then share their iTunes Connect account credentials with AppBackr so it can keep track of sales.
3. AppBackr creates a bank account for that developer, where they can funnel revenue from app sales.
4. A developer can sell lots of their sales to investors who buy them wholesale and at a discount.
5. As soon as a buyer purchases that lot, the developer gets that money in advance to actually build the app.
6. When the app sells through each lot of sales, that buyer of the lot gets paid more than they invested. How much depends on at what stage they invested.

There are obviously quite a few more details in how this works, the primary one being how much a developer and investor stand to make after Apple and AppBackr take a cut. Developers can get a 25-cent advance (out of a 69-cent cut of a 99-cent purchase), then another 11 cents when it sells. In turn, buyers can earn a 53-cent cut of either a 45- or 35-cent investment--something that is determined on whether they poured money into the app ahead of, or after its release (respectively). AppBackr also takes a 10-cent cut of the 69 cents both before it's sold, then either 5- or 2-cent post-transaction fee depending on the whether buyers invested in it before or after it went to market.

But what happens if an invested-in app simply does not sell, or even make it past Apple's sometimes stringent reviews process?

AppBackr creator Trevor Cornwell, who CNET spoke with last week, says much of the success of the program revolves around commitment. "We've created an agreement between the buyer and the seller," Cornwell said. "Look at something like Craigslist transitioning into a marketplace like eBay. On eBay, you look for buyers--in this case developers who have a good track record. We are solving a problem for a group where there's been no simple function to be able to do that."

Cornwell says that part of the agreement of being a developer who works with AppBackr means you are obligated to sell those units purchased by AppBackr buyers, just like they're obligated to make sure that app makes it past Apple's approval process in the first place. "If they're rejected, they have to work on a commercially reasonable basis to reapply," he said.

As for developers who do find success in AppBackr's program, Cornwell believes there is reason to come back and use it again--even if they stand to make more money going solo. "If you speak to developers who have created a free or paid app, they have some features, but they want to add some more. They need a way to provide a consistent cash flow," he said. "I think that we will have developers that create a successful application then use us so that they can build these additional features."

To bring in those sales in the first place, Cornwell is expecting the wholesale buyers to play a part in actually promoting the app so it will sell. After all, it's in the buyer's interest to sell off not only their own units but any that come ahead of them. "What a developer wants us to do is identify buyers who will buy it and drive incremental traffic. For instance, [a developer] might be interested in finding five architectural bloggers who can drive 50,000 additional units of sale to their CAD app," Cornwell said.

The order of who invests is an important aspect of the process though and something Cornwell says is one of the hardest parts of the business to make sure is done fairly. "In terms of first looks and discounting, we set this up as a very developer-centric experience," he said. "You don't register as a buyer. With eBay, some of the people who are active developers are buyers. There's a nice way to profit...As we grow up, I think some of the obligation will come to us to decide how level we want to make it."

Cornwell says that buyers will eventually be able to choose to have their traffic tracked, as well as listed in AppBackr's marketplace, but that for now it's an opt-in affair. "What we're going to open up is to allow checkbox and say 'I want to make myself visible.' We'll also give them some sort of tracking URL, and we'll be able to show how effective they are." Cornwell says that's coming in September.

Cornwell hopes to have 1,000 apps invested in by the end of the year and 20,000 more in 2011. Considering Apple just announced that it had passed 225,000 apps on Monday, up from 50,000 the year prior, that's no small feat.