When first starting your ecommerce business it can difficult to generate capital to help grow your ecommerce business. Money is the bloodline of any business and a lack of funding may be the difference between success and failure.
Luckily, there are a number of ways to generate capital for your ecommerce store. How you go about depends on what you’re comfortable with and your store’s situation. That said, some options are better than others but each one listed is definitely worth considering.
Here is a comprehensive list of 8 ways to generate capital for your ecommerce business.
Bootstrapping is when you fund your company from the ground up with nothing but personal savings. Over 80% of startups are funded by bootstrapping founders. Bootstrapping is great for ecommerce stores to get started. $1000 of bootstrapped cash is usually enough to set up your website and cover initial costs.
Before seeking any external capital always use your own money first. Nothing will get you more motivated in making your ecommerce store a success than having your own money on the line.
Ask Friends and Family
This one is a little bit outside of the box when it comes to funding but funds coming from friends and family account for 38% of funds raised by startups. Your friends and family are the people who are closest to you and if you have a cool product they might just chip in to make your vision a reality.
Friends and family are also great if you just need a helping hand running the business. Maybe your sister is a great digital marketer or you have a friend who can take professional photos. Leveraging the talents of your friends and family is definitely the way to go.
Crowdfunding is a method of raising money online through the support of different financial donors. Owners of crowdfunding campaigns choose a specific amount of money as a goal to raise in order to begin an enterprise. (Like an ecommerce store)
Although the crowdfunding boom is over in Australia, crowdfunding is still incredibly popular. There are two main methods to crowdfunding; the first being rewards-based crowdfunding and the other equity crowdfunding.
Rewards-based crowdfunding is when individuals or companies raise capital from as many participants in return for rewards if the company hits their target. Rewards range from limited editions of the product to basic branded accessories. In most cases, rewards are proportional to the funded amount.
The biggest benefit of this type of crowdfunding is that the company does not lose equity. It is also a great way to test the market to see if people will actually like your product when you launch.
Equity crowdfunding means to raise funds from many individual investors by selling shares in a company.
Equity investment allows companies to not only gain investors, but also feedback and a group of brand advocates that will follow the success of your ecommerce brand.
These types of capital raises are usually uncommon for pure ecommerce players. However, for ecommerce business who are looking at expanding their brand to bricks and mortar stores these type of capital raises are becoming more and more popular.
For pre-revenue ecommerce businesses, getting a bank loan is probably not the best idea. Putting yourself under unnecessary and risky debt is a sure-fire way to fail before you start.
However, for established online stores that have a proven track record for orders, a bank loan may be a great option. At the time of writing, interest rates are at record lows, which makes getting a business loan in Australia an affordable option. Loan marketplaces like Valiant Finance make finding the best loan option for your ecommerce store a breeze.
PayPal Working Capital
PayPal Working Capital is a business loan with a single fixed fee that you repay using a percentage of your PayPal sales.
The amount that you can receive is based on your PayPal sales history and the share of your sales that PayPal takes in chosen by you. This makes PayPal Working Capital a flexible capital for ecommerce business particularly if you are using the money to invest in new product lines or more stock so you can make more sales.
When first starting out your ecommerce business, a great way for you to generate capital for your store is to accept pre-orders for your product.
Collecting pre-orders can help you forecast how much product you need to produce or order and give you the funds upfront to do it. Accepting pre-orders is a great way to make sure that you don’t end up with a ton of excess inventory when your product launches.
If you have structured your ecommerce store as a company an ” investment round” is a great way to generate capital. An investment round is a general term referring to when a company is raising funds through the sale of company shares from the companies pool of shares.
There are many different types of investment rounds here are some of the most common for ecommerce businesses:
- Seed Round- A seed round is often the first funding round. Often used to inject capital to cover expenses and get traction until a startup begins to generate revenue.
- Series A- The first round of shares offered to external investors during early-stage investment. At this stage, professional angel investors, venture funds or VC funds may invest in your business. More about this below.
- Series B onwards- Similar to Series A but here the objective of the funding is to scale the business and increase market share as well as grow the team.
Angel Invesment/Venture Capital
One way you can generate some capital for your ecommerce business is to approach an angel investor or a Venture Capitalist.
An angel investor (also known as a private investor, seed investor or angel funder) is a high net worth individual who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company.
A venture capitalist (VC) is a private equity investor that provides capital to companies exhibiting high growth potential in exchange for an equity stake.
Before we go any further on this type of funding receiving funding from an angel investor or a VC is difficult. Fortunately, most major cities have an angel investment or VC community. where startups and established business have the opportunity to pitch for investment.