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The rapid growth of the ecommerce industry has made such solutions an inevitable part of everyone’s lives. But, the growing competition has made it much more challenging for ecommerce startups to stand out from the crowd.
Building a platform, managing inventory, and running compelling marketing strategies require substantial financial injections, which you can secure in several ways.
Join us as we dig deep into the six most popular funding solutions for ecommerce startups.
Getting financial backing for your ecommerce startup
Securing funding for your ecommerce startup is a cornerstone of building a successful online venture.
You can always rely on standard financial solutions like bank loans, or finding interested parties such as venture capitalists or angel investors. Asking for donations or securing the funds yourself are also possible options. Whatever you choose, you’ll need to showcase your unique value proposition and your company’s potential in the market.
Now that we know our options, let’s explain them in more detail.
1. Bank loans
Traditional bank loans are still one of the most common sources of funding for ecommerce startups. Such loans involve borrowing a specific amount of money from the bank, which has to be repaid over a certain period, with interest.
Getting a loan is a way to secure finances to cover initial expenses like equipment, inventory, and operational costs while keeping full ownership of your business.
You need a bulletproof business plan even to be considered for a loan. It’ll show your startup’s potential to repay it fully.
Banks will look at your credit history, and even maybe ask for collateral. Asking for personal or business assets will assure them you’ll be able to secure the loan.
Securing a bank loan for a startup can be tricky. Banks usually prefer established companies with a solid track record and consistent cash flow.
So, as a startup, you have to provide proof and financial projections that you can be profitable to convince them you’re worth the risk.
If approved, you’ll get funds to launch and grow your startup. These loans usually come with fixed or variable interest rates and require regular payments over a set period.
2. Crowdfunding
Crowdfunding has become one of the most popular ways of collecting funds for startups, individual businesses, charities, and nonprofits.
However, it’s not only a means of securing the financing of a business idea but also a platform to validate and test it out in front of your target audience.
By starting a crowdfunding campaign, you’re asking for a financial contribution from a larger pool of people. These individuals who find your idea interesting are willing to donate a smaller amount of money for you to achieve the campaign goals.
Crowdfunding platforms allow you to showcase your plans and ideas and gain feedback from your target audience. The responses from your peers are the answers you need. Maybe your ecommerce startup has a solid foundation and trajectory, or it needs to be refined and adjusted before it reaches the market.
3. Equity financing
Equity financing for startups refers to raising funds by selling company shares to investors. Startups can get the financial aid they need without taking on debt.
However, it means giving up a part of the ownership in the company, and possibly some control. Usually, startups seek equity financing through angel investors, crowdfunding platforms, venture capitalists, corporate investors, and initial public offerings.
One huge benefit of equity financing for ecommerce startups is the option to automate equity financial reporting. It refers to using specialized software or platforms to handle tracking and reporting of equity ownership, dividends, and other financial aspects related to shareholders.
Automating these processes boosts accuracy, saves time, and ensures compliance with regulatory requirements.
It lets your startup manage investor relations and provide transparent financial insight to shareholders.
By automating these tasks, your startup can focus more on strategic growth, all while maintaining strong relationships with investors.
4. Venture capital
Venture capital (VC) is a type of financial backing where VC companies collect money from various partners and invest it in startups that show promise of ROI.
In return, VC investors receive a share of the company, hoping that its value will skyrocket in the near future.
With venture capital, your ecommerce startup can speed up progress by investing in technology, expanding the range of products, and finding new ways to help the customers.
However, there’s more to venture capital than just money. Startups can benefit from this approach by getting useful advice, strategy guidance, and connections with people within the industry.
Last but not least, having well-known VC investors can make your startup seem more trustworthy, and attract more investments in the future.
5. Angel investors
Angel investors provide financial assistance to early-stage startups and businesses, in exchange for a share of the company. Investing their own funds is what separates them from venture capitalists.
Most angel investors aim their investments toward smaller startups, expecting to get their return on investment through a possible sale of the business, or through selling stocks and shares when the company goes public.
Since they can’t know whether they’ll achieve ROI in your business, buying a piece of your startup comes with its set of risks.
That’s why angel investors tend to have a more hands-on approach and participate actively in your operations. Mentoring, providing access to valuable contacts, and project management are just some aspects that angel investors bring to the table.
Getting attention from an angel investor is not easy. Luckily there are multiple ways to find them. We’ll list the four most popular:
- Angel groups and networks: Attending forums or investor networking groups allows you to pitch your idea, and gain traction before even meeting investors in person.
- Industry events: The investment game is all about networking and meeting the right people. Introducing yourself to investors and other industry experts at conferences can provide valuable contacts for the future.
- Attending startup events: Pitching your ecommerce startup at a startup competition can help shine a light on your business. Even if you don’t win, you can still gather contacts, refine your pitch, and learn from other attendees.
- Joining an incubator or accelerator: If you get accepted to a startup incubator or accelerator, you’ll find that many angel investors attend these to get a chance to find the next innovative solution. Startups that use cutting-edge technologies like Elysia battery intelligence can make an impression in these programs by showing their dedication to tech progress. Eventually, it could boost their chances of getting financed.
Make sure you come well-prepared to these meetups, whether online or in person. Do your due diligence and find out if an investor matches your plans and goals.
As much as you need funding, you don’t want just anybody to share or take partial ownership of your company
6. Bootstrapping
Bootstrapping in business is all about starting and growing your ecommerce startup using your own money or the money the company makes, instead of relying on outside funding like investments or banking loans.
Such an approach allows you to keep control and ownership of your business, but it also means being frugal, creative, and strategic with finances.
You can use your savings and assets to kickstart your business, and then reinvest any profits back into it to drive growth.
Bootstrapping has many benefits, like maintaining full control over business decisions and avoiding debt and interest payments. It also allows for more flexibility, as your startup can adapt quickly without having to please outside investors.
However, it does have its challenges. Limited financial resources can restrict growth opportunities. Also, there’s a personal financial risk if the business doesn’t work out.
Growth might also be slower compared to businesses with external funding, as it can put a lot of pressure on operations, often requiring long hours and personal sacrifices on your behalf.
Taking the leap and seeking investments
Before you even try to secure funding for your startup, first you need to think deeply about several matters. What are your financial needs? Can you sustain the pressure of being in debt?
Are you willing to share equity with other parties? Do you have enough personal funds to stay independent?
All of these are valid concerns that need evaluation on your side. Once you get a clear picture, you can go ahead and give your startup a financial boost.
Image Source: Pexels, Unsplash
Further Reading:
Exploring Career Opportunities in E-Commerce Logistics and Supply Chain Management
