Here’s How To Get Funding For Your E-Commerce Startup: Explained


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The recent two years have seen ecommerce transcend from being simply a convenient alternative for shopping to becoming an absolute essential. The lockdowns as well as social distancing norms have contributed heavily to the explosion of the ecommerce industry. Buoyed by this wave, the Indian startup ecosystem too has surged ahead in leaps and bounds. Most reports estimate Indian startups to have raised in excess of USD 42 Bn in 2021 alone, which witnessed an incredible 44 domestic startups gain the coveted unicorn status (a valuation of over USD 1 Bn). This made India the third largest startup incubator after the US and China.

If you are venturing in this space yourself and looking to raise e-commerce startup funding for your own enterprise, then this article is for you. Here we give you some handy tips and suggestions on the different ways you can seek e-commerce startup funding.

Why Do You Need e-Commerce Startup Funding

A study conducted by U.S. Bank discovered that cash flow problems resulted in the failure of a staggering 82% of small businesses. While bootstrap startups (financed by the owner’s own savings) may get you started it is unlikely to sustain your enterprise over the long term. To reach the next level of growth and to pay for operational expenses such as IT, inventory, transportation, storage, marketing, personnel wages, and other logistics e-commerce startup funding is quite essential. There are different options available for you to seek funding for your enterprise. What works for you will depend on a combination of the nature of your business as well your unique requirements and circumstances. However, here are a few popular avenues that you can explore.

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Venture Capitalists

Venture capitalists are organizations who will invest in your company at various points of its life cycle, most typically during the start-up stage. The initial stage, as is typical, is largely a loss-making one. VCs will suffer these losses as well, with the goal of profiting from their investment in the future. Unlike banks, VCs are ready to assume a considerably higher level of risk if they believe in your company’s future. Taking a bigger risk, on the other hand, causes VCs to seek higher profits in the deal and a percentage of ownership as well, in many cases.

Angel Investors

Akin to VCs, Angel Investors can invest in your business and provide you the much needed e-commerce startup funding. The main difference between Angel Investors and VCs is that while VCs are corporations, Angel Investors are mainly high net worth individuals.

CrowdfundinIf you have a business idea that can excite people around you, then you may explore crowdfunding as a means to get capital. Creating a social media buzz and having influencers spread the word of mouth are vital in order to get money from a large group of people (in varying amounts) to fund your operations. In crowdfunding there is no distribution of stake or ownership, and you are able to retain entire control of your enterprise. When it comes to crowdfunding platforms, there are a few different options to choose from. Platforms such as Kickstarter and Indiegogo have been a boon for entrepreneurs and small businesses and provide a way to raise money from many people, often in exchange for rewards or equity.”

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Banks Loans and Line of Credit

Banks offer mid to long term business loans for businesses to stand on their feet or even for proposed expansions. Long term loans come with more competitive interest rates as the money is paid off in 15-20 years, quite similar to a home mortgage. Mid term loans have slightly more aggressive interest rates and come with a horizon anywhere between 5-10 years.

For short term requirements, a Line of Credit is a helpful option. Think of LoC as a combination of 2 lending instruments, a business loan and a credit card. This form of e-commerce startup funding is quite useful for targeted spends like ad campaigns, adding to your inventory, IT upgrades etc. an LoC may have fluctuating interest rates and you may be required to pay a minimum monthly amount irrespective of your revenue stream for the month.

Ways To Enhance Your Chances To Get Funding

Let us not forget, that while we are seeing a record number of startups all over, there is a considerably larger number that were unable to withstand the storms of the market and the economy. Even though there are varied options available to seek e-commerce startup funding from, the startups competing for it are simply too many. So, what can you do to enhance your chances for the capital influx for your enterprise? Here are a few suggestions.

  • Innovative Business Model: Not every idea can be revolutionary, that’s true. But in the eCommerce space, businesses are predominantly products or services oriented. You need to have a business model that excites potential investors. This can be done by highlighting any disruptive business strategy, demonstrating a robust supply chain and sourcing model, showing identified areas of cost saving etc.
  • Market Scope and Research: By most estimates, the e-commerce startup funding space has crossed USD 100 Billion globally. So, you do not need to convince investors and VCs regarding the potential for growth here. What you do need to show, though, is your own understanding of the market segment you intend to operate in. Be sure to have researched reports showing statistics around the present and future demand and supply ratio, consumer demographics, your particular target audience etc. when you go to seek funding.
  • Knowledge and Experience: Remember that just like the business, funding too has evolved. Instead of making a quick buck, investors now desire to seek profits from sustainable growth of startups, hence a well thought out short-mid-long term plan is vastly desired. Since there are a lot of startups competing for the limited pool of e-commerce startup funding available, investors and VCs have become quite demanding in their expectations. Not only are they interested in your build model and market research, they are also keen to understand your own experience and the capability of the team you have built. Be mindful of this in order to highlight attributes that are likely to hold you in good light while seeking funding.
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