The rise of the eCommerce industry has spurred a new financing sector. New financing products have been tailored to eCommerce sellers – on Amazon, Shopify and Wayfair, among many others. At the same time, investments in eCommerce has expanded significantly, both traditional and non-traditional. eCommerce investors are constantly looking for new opportunities.
The popularity of eCommerce has helped create new platforms matching businesses with investors similar to what we do here. And investors come in several forms. Here, we will go over eCommerce investors and how they might be able to help you.
The Basics Of eCommerce Investors
eCommerce investors simply provide capital for eCommerce businesses. This comes in three forms
- Equity, in the form of giving up ownership in your company to them.
- Financing backed by future revenues (i.e. selling a royalty to them in exchange for future revenues), or financing inventory
- Business laons
From the investor’s perspective, investing or providing capital to an eCommerce business can be risky. There are no guarantees of success and unlike loans, investments don’t come with collateral. Prospective investors will investigate your business and decide if they want to invest in equity, future revenues, or finance your inventory. They will use several parameters to evaluate the potential for high returns offered by your business. But each eCommerce investor is different. They all have their own parameters and investment philosophies. They will typically search for:
- Unique competitive advantages
- A potential exit strategy
- Strong branding that sets you apart from the many other eCommerce businesses
- Potential for fast or even immediate growth
- A transparent and competent team behind the business
Types Of eCommerce Equity Investors
The biggest eCommerce investors are venture capital firms. These are the firms that are looking for the next Amazon or Alibaba. They have the highest requirements and are typically more localized.
Angel investors are also commonly known as “seed investors” or “private investors”. They are typically high net worth individuals that financially back small startups in exchange for equity. They are not investing with institutional funds. They’re investing their own money.
Angel eCommerce investors are often the main source of funding for startups. eCommerce startups that seek angel investors are often trying to avoid more expensive sources of funding. That’s because while angel investors might be hard to impress, they offer favorable funding arrangements for young companies.
Crowdfunding is a means of raising funds through online business communities. First, you pitch your eCommerce idea to the community. If the online platform you’re using has any interested individuals, they will invest in your eCommerce business.
Crowdfunding is an increasingly popular method for raising money for eCommerce companies. The broader crowdfunding phenomenon has injected billions of dollars into the global economy. Now, there are many crowdfunding platforms you can use to raise the funds you need.
Royalty Based Financing for eCommerce
Selling ownership in your business might not be for everyone, as such you should look into selling a royalty in your e-commerce business. When you sell a royalty, you get capital up front in exchange for a piece of sales, over a fixed period of time. This financing is best used for marketing. You can apply for royalty based financing here.
Inventory Financing for eCommerce
Another popular option is inventory financing, obviously best used for buying new inventory. If you go this route, you must have inventory that can be used as collateral, meaning it can be re-sold to another eCommerce company if you fail to pay on your loan. The money is guaranteed by the inventory, which is used as the collateral for the loan. Important to note, if you have razor thin margins on inventory, this type of financing will sink your ship. It’s also available for very large eCommerce brands too.
We have access to eCommerce inventory financing firms, apply here.
How eCommerce Investors Can Support Your eCommerce Business
There are a lot of possibilities for raising money for eCommerce startups. Ideally, you can raise the funds you need yourself or look to friends and family that are willing to work with you. But failing that, you’ll need to look for other sources of funding. And those funding sources will typically cost you.
Finding funding for your eCommerce business will always carry some risks. Loans must be paid back, typically with at least 6% interest. And finding investors isn’t a surefire way of making sure your business will have the funding it needs. But when it comes to startup and working capital expenses, eCommerce investors can be the ideal source of funding.
What You Need To Remember
Unlike business loans, eCommerce investors won’t always provide clear requirements for funding. If your credit score and revenues are high, you can see which lenders will work with you. You can ask for a quote to see the rates they’ll offer. But for investors, eCommerce represents a large risk, often with meager rewards or a loss. That’s why setting your business apart is critical. Investors will be more willing to invest in your business if it isn’t another generic drop shipping business. Show them what you have to offer. Show them your well-thought-out plan. And make sure you set yourself apart in a meaningful and profitable way. So, use any technological, product, or branding edge you can.