Finding the right funding source for your e-commerce can be a daunting task, and one that requires serious research and planning. From angel investors, venture capitalists, crowdfunding platforms, grants and banks – there are countless options available to entrepreneurs needing capital for their e-commerce store launch. In this post, we will showcase these various funders to provide founders with helpful guidance on how to find the best fit for your business model.
E-commerce funding can be incredibly advantageous to businesses looking to rapidly scale their operations. It is a type of financial vehicle that enables companies to access capital in order to support growth, such as launching new products, increasing inventory or acquiring more customers. Usually generated through banks, venture capital firms and angel investors, e-commerce funding can provide resources which otherwise may have been difficult to access.
For a business considering pursuing e-commerce funding, it's important to understand the terms of the agreement clearly and prepare documents outlining your business model and financial projections. Furthermore, having a detailed plan that describes the methods used to operate and grow and understanding your customer base will make a successful application much more likely.
Though it can sometimes take time for applications to be approved, closing the deal presents numerous exciting opportunities for businesses with ambitious growth plans.
Starting an e-commerce business requires significant capital to invest in inventory, marketing and other business costs. Thankfully, entrepreneurs today have a variety of funding sources available for e-commerce businesses. debt financing and venture capital are two of the most common types of e-commerce funding used by new founders.
Debt financing gives entrepreneurs access to debt or loan debt from banks or investors without sacrificing equity in the company. Venture capital is also an option, where you give stakes of your company in equity to gain capital.
Venture capital is a type of e-commerce funding that comes from venture capital investors. VC investors are willing to take on the risk of e-commerce startups in exchange for equity, or a percentage of ownership in the company. This type of e-commerce financing requires careful consideration and due diligence before closing a deal with a venture capitalist.
Venture debt is another e-commerce funding option, which gives e-commerce businesses access to debt financing without giving up as much equity in the company. This type of e-commerce financing can be beneficial for e-commerce entrepreneurs because it helps them grow quickly while still maintaining control of their business.
If you're looking for e-commerce funding, angel investors may be the right option in the early stages. Angel investors are wealthy individuals who invest their own capital in e-commerce startups in exchange for equity or a percentage of ownership. Before approaching an angel investor, it's important to have a solid business plan and understand their investment criteria.
Bootstrapping is another e-commerce funding option, where entrepreneurs raise capital through their own efforts. This can include generating revenue from existing e-commerce businesses.. Bootstrapping often takes longer than other e-commerce financing options but has the advantage of allowing founders to remain in full control of their e-commerce company.
Bank loans are also an e-commerce funding option, and can be a great way to secure working capital quickly. They offer entrepreneurs the flexibility to repay their loan on their own timetable but also remain all equity in their business.
More and more e-commerce businesses are turning to data-driven debt funding as a solution for their financing needs. With availability of precise data captured through multiple sources becoming increasingly accessible, lenders are now able to make quicker and more informed decisions while underwriting businesses. At Gilion, we do this by allowing our customers to connect their e-commerce stack of tools to AIM, our growth forecasting platform.
Data driven lending has recently become a great source of capital for e-commerce business owners looking for value, transparency, along with low rates to fuel their growth endeavors in an ever-changing business landscape. It's not based on who you as a founder know or how good you pitch deck is, but based on your raw numbers and data.
Securing e-commerce funding for a business venture isn't always an easy process, but with the right approach and resources it can be manageable. Before embarking on this journey, there are several important steps to take. First, set out a strong business plan that outlines your short and long term goals. This helps you assess cash flow needs and determine appropriate sources of capital.
Next, research funding options available to you based on your specific business. Many founders seek venture capitalists who specialize in e-commerce companies, but also grants and debt providers to ensure a great mix of capital to minimize dilution of their business.
We tend to look at this in a different way. We let customers connect to our analytics platform AIM to do the evaluation of the company and based on the performance of the e-commerce provide funding options.
When seeking e-commerce funding, it is essential to know which metrics are important. Having insight into metrics like gross margin, customer acquisition cost, customer lifetime value, average order size are all key indicators of the e-commerce’s current and prospective state and worth.
Gross Margin – The difference between a product’s selling price and its cost of production. It can be used to measure e-commerce’s profitability.
Customer Acquisition Cost (CAC) – The cost incurred to acquire a new e-commerce customer. It includes all costs associated with marketing and sales activities, such as advertising spend and sales representative salaries.
Customer Lifetime Value (CLV) – The total value a customer brings to the e-commerce over their lifetime. It includes revenue, upsells and referrals.
Average Order Size (AOS) – Measures the average amount spent on e-commerce orders per customer/transaction.
Customer Retention Rate (CRR) – Measures e-commerce’s ability to keep customers over time. It is calculated as the percentage of e-commerce customers who return and make at least one more purchase.
Growth Rate – Measures e-commerce’s year over year growth in orders, revenue, etc. It is a metric that investors often focus on to understand e-commerce’s trajectory.
Customer Concentration – Measures e-commerce’s dependence on a few customers for the majority of their revenue. It is important to calculate this metric to identify e-commerce’s risk if they lose a few of their key customers.
These metrics also provide investors or partners with an understanding of how large of a capital investment is necessary for e-commerce success and at what point profits will be gained to either pay back the loan or increase the equity value for investors. Knowing what areas to focus on when inspecting financial growth data is critical before initiating an e-commerce funding campaign so investors can make educated decisions about supporting the enterprise. If you're interested in getting your core metrics for your business for free, check out our analytics tool Gilion.
What are the options in e-commerce funding that are non-dilutive?
Non-dilutive e-commerce funding options include grants and regular debt loans.
Grants: Grants are provided to e-commerce companies by government agencies or private organizations that support specific research initiatives or encourage entrepreneurship. They are non-dilutive in nature as the e-commerce company is not required to give up equity or use a repayment plan.
Debt Financing: These are loans taken out from financial institutions or private lenders which e-commerce companies must pay back. Debt financing is a non-dilutive form of e-commerce funding as the e-commerce company does not need to give up equity and only needs to pay back the loan amount with interest.
Ultimately, e-commerce funding is an important aspect of running your e-commerce business and having a great mix of capital to minimize dilution of your business is key. To maximize e-commerce success, it’s important to understand what metrics are important when looking for e-commerce funding as well as the non-dilutive e-commerce funding options available. By doing so, you can make sure that your e-commerce business is adequately funded and ready to succeed.
How has the landscape for e-commerce funding changed in 2024?
The e-commerce funding landscape has changed drastically over the last decade. With e-commerce becoming increasingly popular, there are more and more investors looking to fund e-commerce businesses.
There is also a trove of new venture capital funds dedicated solely to e-commerce companies, as well as an increasing number of non-dilutive e-commerce funding options available. Moreover, advances in technology and analytics have made e-commerce businesses more attractive to investors as they can use data to better understand a e-commerce business’s prospects.
Finally, e-commerce funding is now much easier to acquire through online lending platforms that are streamlined and offer competitive terms for e-commerce businesses.
What are some key elements to think of when raising funds for your e-commerce?
Dilution is when e-commerce investors take equity in the e-commerce business in exchange for funding. This is important to consider as e-commerce founders may be giving up a portion of their ownership and control of their e-commerce venture.
Payback time of your loans:
The e-commerce business needs to understand the time frame for repayment of the loans. This will give e-commerce businesses an idea of how much cash flow is needed on a regular basis to ensure that loans are able to be paid back in a timely manner. Many options availible within debt financing for e-commerce are having short repayment horizons. At Gilion, we aim long re-payment horizons to increase the flexibility for our e-commerce customers with re-payment times of up to 7 years.
The e-commerce business should consider the interest rates being offered in e-commerce funding. Higher interest rates can be very costly for e-commerce businesses, so e-commerce founders should negotiate for the lowest possible rate when looking for e-commerce funding.
Flexibility to use the funding as you want:
When e-commerce businesses are considering e-commerce funding, they should also consider the flexibility of how they can use the funds. Some e-commerce funding options may require e-commerce businesses to use the funds for specific purposes or in specific ways, while others may be more flexible with how e-commerce businesses can use their money. With our e-commerce funding here at Gilion, we offer flexibility to use the funding as our e-commerce customers want for whatever purpose they like.