5 E-Commerce Startup Funding Options To Move The Needle

Ecommerce has been one of the most rapidly and consistently growing segments in the global economy. Reports suggest that e-retail sales worldwide crossed almost USD 5 Trillion last year. If that is not incredible in itself, studies estimate that almost 25% of all retail sales globally by 2025 will be through the online mode, giving you a glimpse of how large the eCommerce scope is currently and in the future. Considering building a startup in this sector makes all the sense, and the chances of success are high too. However, you must be conscious of the fact that there is cut-throat competition with multiple enterprises trying to gain access to the same, limited pool of resources. 

One of the paramount resources, in the success of any startup, is capital or funding. While an innovative business idea and a robust business model are both necessary, the influx of capital is much needed to help startups stay afloat, especially during their nascent stages. This is, as per reports, the most sensitive time with over 72% of startups folding down within this stage itself. E-commerce startup funding gives such firms the much-needed foundation to stand on and helps them make a name for themselves in the market. To help you along your journey, here are some e-commerce startup funding options that may be of use to you.  

Bootstrapping

The origins of this term come from a phrase used over a century ago – “pull yourself up, by your bootstrap”. This is what it means today as well, trying to face a challenge and getting the better of it. In the case of your startup, it means funding it with your own money to get it off the idea board and onto the real economy. Bootstrapping is one of the most popular ways of getting a startup business off the ground as it does not require any external resources. Usually, a business this early in its lifecycle will find it difficult to convince others to invest in it. Hence, using your own money is a good way to get it going, but the challenge here could be the limited savings you may have. Moreover, pumping too much of your own money in your business can lead to an unsafe situation wherein you are not ready for any financial emergency that may befall you, unannounced. 

Expert Tip: invest in your business, but always keep an emergency fund separate and untouched.

Family and Friends

An extension of bootstrapping is relying on family and friends to get some financial assistance to propel your business enterprise. One, you can expect to get higher amounts from them, to supplement your own bootstrapped capital. Two, the level of trust that exists with friends and family members is higher, therefore, leading to better terms of repayment. However, many people believe in the idea of never bringing money into relationships as it can sour them. And for this very reason, you may face some resistance while seeking the e-commerce startup funding you need.

Expert Tip: while borrowing money from family and friends, treat them with the same professionalism that you would offer to a formal lender or investor. Having a soft contract drafted for the amount taken can help keep their minds at rest regarding the repayment of the amount and any tensions or strains in your relationship with them.

Government or Corporate Grants

With further growth will come higher requirements for seed money. Your investment or borrowing from people close to you may just not cut it. This is where you need to seek additional support. Government or Corporate Grants are a very lucrative way of getting this e-commerce startup funding, as there is no need to pay the amount back. However, as with anything that involves an establishment run on firm rules, there is a lot of bureaucracy and red-tapism that needs to be dealt with. Moreover, there are very few such substantial funds while there is no dearth of startups vying for it. So, while this can be highly beneficial without the stress of repayment, it is not easily achieved or may take longer for the actual payout to happen.

Expert Tip: always have a backup funding option ready as these grants can be somewhat unpredictable. 

Banks and NBFCs

This is why many startup owners turn towards standard debt financing by seeking out loans from banks and non-banking financial organizations. Borrowing money from professional lenders may require you to put some sort of collateral, like a home or office space in the form of security. But it largely depends on the amount being borrowed. There will be a fixed term for repayment and an interest rate that will need to be paid over and above the principal. The options include taking out a personal loan or a professional loan with the terms and interest rate that work best to your advantage.

Expert Tip:  due to the presence of many competitors in the market, take your time to compare and opt for the one with the most flexible repayment tenure, terms and most competitive interest rates.

Investors and Venture Capitalists

While the aforementioned is an example of debt financing, there is also the option of equity financing. This is through the mode of getting high net-worth individuals, private equity firms or venture capitalists to invest in your business. The principal difference between them and the bank is that while investors may not charge you a direct interest, they will expect a return on their investment in the form of equity sharing, stock ownership, or a percentage of profits. However, they will be inherently more willing to take bigger risks and, being professional investors, might also be able to coach you through the financial and business journey of your enterprise. 

Expert Tip: have a well-drafted contract with your investors with clear stipulations regarding the ownership structure and exit criteria. While it may not seem as important at the moment, it will play a huge role later on, especially if and when you ever decide to go public with your enterprise. 

In Summation

While we have listed the prominent and popular startup funding options other avenues can be explored as well. There is no one solution that fitshoose different options based on your present needs, repaying capacity, and the stage your business is in. You can also choose to raise capital multiple times, as and when the need arises. It is worthwhile to check the requirements and eligibility for the different options listed here, to make a wise and fruitful decision.