Starting an e-commerce business can be incredibly rewarding. With enhanced internet access, the number of Americans doing online shopping has dramatically shot up to 80% of the population. Because of this, the e-commerce industry in the U.S. generated a revenue of $599.2 billion in 2021, making it the second largest market behind China and ahead of Japan.
As the numbers surge, startups and thriving e-commerce businesses are expanding at a high rate. Starting and running an e-commerce business can be expensive due to many associated costs such as working capital needs, web and design, marketing, staff costs and expansion.
This discussion explores funding options for e-commerce start-ups & thriving e-commerce businesses. Keep reading.
Bootstrapping
Most entrepreneurs fear bootstrapping due to the impression that it’s impossible to sustain a business without external funding. But what is bootstrapping, and can it work for startups and thriving e-commerce businesses?
Bootstrapping is doing business without an investor and relying on your resources. The revenues you earn from your business finance your operations and growth. Indeed, bootstrapping is the only way to do business if you don’t have funds. For instance, MailChimp, Spanx, GitHub, Shopify, META, Microsoft, and The Wirecutter are some companies that started with little or no funding and grew into the big names they are today.
One of the major advantages of bootstrapping is that you maintain total control of your businesses in terms of ownership and management. It’s also an option for startups who may not access funds from banks due to a lack of personal guarantees and security. You can get quick cash to fund your operations as long as you have a good customer base.
Nonetheless, pundits argue that a lack of external capital can limit your business’s chances of scaling up quickly.
Crowdfunding
As the name suggests, crowdfunding involves collecting funds from a group of people which can be done through online platforms or offline events. By gathering funds, e-commerce businesses can reduce their reliance on traditional sources of financing such as banks or borrowing from loved ones.
A perfect example of crowdsourcing is a U.K. plant-based meat company THIS™ that smashed the crowdfunding record by hitting up to £1.5 million through Seedrs, an online equity crowdfunding platform. Another example is M3D company, a U.S.-based firm that raised $3.4 million through the Kickstarter crowdfunding platform in 2014.
Whether you’re just getting started or have been in business for many years, you can use some of the popular crowdfunding platforms, including;
- GoFundMe was founded in 2010 and has raised more than $15 billion.
- Kickstarter is a Newyork-based public benefit corporation that mainly funds aspiring startups.
- Indiegogo is a crowdfunding website that started in 2008. It’s popular with startups because it allows individuals and businesses to solicit funds based on an idea.
Venture Capital and Angel Investors
Some of the largest e-commerce companies have raised funds through the venture. This strategy is keen on selling a part of your company’s equity in exchange for funding. The investors are mostly experts with a track record of funding various companies.
The media is filled with success stories of Silicon Valley businesses on the frontiers of innovation that have benefitted from venture capital equity funding. As with many myths, this kind of story has a lot of truth. As you probably know, some early venture capitalists were key in funding the modern tech industry.
Notably, the American venture-capital sector is envied globally, where investors put their money in a startup or existing company’s balance sheet until it attains optimal size and capacity. As an e-commerce business, the venture capitalist will buy a stake in your idea, nurture it and finally exit.
Some top venture capitalists funding e-commerce businesses include Tiger Global Management, Sequoia Capital, and Plug & Play Tech Center. Most of these investors are a blend of accelerators, debt funds and family offices.
Debt or Bank Financing
Debt financing is a common method for startups and thriving e-commerce businesses. It can be a useful tool for companies to grow and expand their operations. The decision to take out a debt depends on factors such as market trends, business cycles, and macroeconomic influences.
An example of a successful E-commerce startup that took out debt is European-based Heroes, which raised $65 million in a big funding round in 2020.
Startups may not have the security they need to take out loans, making it risky. However, with the right precautions in place, an online credit loan can be viable for getting the funding you need.
Conclusion
Most e-commerce startups that die before their first birthday is due to a lack of funds for growth. With so many options for funding, you only need to seek the funds from the sources mentioned. The options for a thriving E-commerce are endless, and money can be useful for your business with proper systems in place.
