How to find investors for E-commerce business
July 18, 2022
Many new Founders believe the hardest part to starting a business is coming up with that ‘big idea’. But being an e-commerce entrepreneur involves being much more than just a visionary (although, of course, that’s important too). Founders have seen their businesses fail time and again not because they weren’t able to find investors for their company, but because they weren’t able to find the right ones. Investing in e-commerce should be a partnership, and it isn’t one-size-fits-all. Each business has a different set of needs and priorities and won’t benefit from the same investor types.
Let’s dig deeper in which e-commerce investor is best for your business.
What are e-commerce investors looking for?
Because investors are putting either their own money or their company’s money towards your business, they will do their due diligence to ensure they’re investing in something they believe will be a success. That means examining how your business is doing both financially and operationally, and making projections of how it will do in the future. Investors’ considerations include:
- Do you have a unique offering? Is there demand for it? If so, will it sell?
- Do you have a well thought-out business plan that includes market research and analysis, as well as a detailed layout of product execution?
- Is your management team experienced enough to achieve the business’s goals?
- Does your business have sufficient financial data, including to-date profits, expenses, and financial projections?
- Perhaps most importantly, how will the investor retrieve their money when the time comes?
E-commerce investor considerations
Prior to investing in a company, e-commerce investors will want to get a good grasp of the business’s financial health. Common metrics for investors to examine are:
- Sales revenue
- Gross margin
- Sales growth year-to-date
- Customer lifetime value vs. customer acquisition cost
- Average order value
- Churn rate
Investors will also want to assess a brand’s future growth potential, meaning understanding how the business stands out from the competition and its position in the market. Below we’ve highlighted a handful of key factors they are likely to evaluate.
A unique competitive advantage
Investors aren’t likely to invest in run-of-the-mill products of which there are many on the market. The reason? This type of product (or service) is unlikely to have a unique competitive advantage within the e-commerce space, which is already heavily saturated. Instead, they’ll want to see a business with a loyal brand following and world-class customer experience that sets them apart from the competition.
Operations that promote growth
In order for a company to scale, it needs to be set up from an operations perspective for growth. That means creating an optimized end-to-end user experience that leverages not only streamlined logistics but a multi-channel distribution network, alongside multi-pronged marketing strategies.
Use of modern technology
Any e-commerce investor will tell you that in order for a brand to grow, it needs to invest in technology. In fact, how a company uses technology to scale is one of the most important considerations for investors making funding decisions. It should come as no surprise, then, that the vast majority of e-commerce brands are using at least a portion of their capital towards:
- Mobile usability
- Site security and data protection
- Site load times, particularly if you’re scaling
How to fund your e-commerce business
It can be easy to feel overwhelmed by the range of options available to e-commerce companies in 2022. Conversely, if you’re a Founder with poor credit or a lack of financial history, you may feel that your options are fairly limited. The reality is that while there are many funding options out there for e-commerce brands, many of them come with significant barriers and stipulations. For that reason, you should carefully consider the best funding options that will help your business achieve its growth goals.
Below is just a handful of funding sources for e-commerce businesses:
- Venture capitalists
- Angel investors
- Private equity
- Crowdfunding and P2P lending
- Micro loans
- Personal finances
How do I find the right e-commerce investors?
The truth of the matter is that no reputable e-commerce investor is going to invest in a company that doesn’t have much growth potential. That means as a Founder it will be up to you to ensure this is adequately conveyed to investors. Here are a few ways you can best position your company to receive investor funding.
Get your business in order
Sometimes, it’s just too early to seek e-commerce investors. Make sure your business is ready for public consumption before making any investor inquiries.
Take advantage of search engines and social media
These days, searching for investors has become much more accessible to Founders with the help of search engines and social media. Depending on your business’s value proposition, you’ll be able to tailor your search to target investors in your niche.
Consider mentoring, accelerator programs, and pitch competitions
Not only do these programs offer a chance to secure funding, but they provide incredible networking opportunities. You’ll gain access to valuable tools and resources to help position your e-commerce business for investors. Plus, learning to pitch your business is one of the best ways to attract investors. After all, if you don’t have a good understanding of your business’s strengths, how will an investor?