Funding your eCommerce startup is not as easy as it used to be just a few years ago. After you’ve exhausted your own finances and friends and family have given you “the look” when you ask them for help, it’s time to find an alternative way of supporting your business. The web has made it that much easier to find not only the money you need, but the market as well.
How to Find Your Own Angels
These are affluent private individuals who fund start-ups with their own money in exchange for ownership equity or convertible debt. Basically, they can own a piece of your business or can loan your business their money for a period of five or ten years, at which time they will cash out. For start-ups that are looking for $20,000 to $1 million that can’t be raised from their own resources, angel investing is a way to go. According to a paper from Harvard Business School, angel-funded business ventures are more likely to survive that 5-year survival benchmark. Growth of the funded business is also a lot stronger. Your first meeting with a potential angel doesn’t need to be bogged down with an executive summary or a complete business plan. Instead you should have a well-prepared investment pitch that answers questions like, what’s in it for the investor, strategic plans, exit strategy, and your competitive advantage.
Take Your Idea to the People with Crowdfunding
Thanks to the Jobs Act of 2012, crowdfunding for business got a little boon. Crowdfunding is when groups of anonymous investors, like consumers, fund startups. When the President signed the Act, the Securities and Exchange Commission (SEC) opened the figurative floodgates, expanding and extending the opportunity in ways that would see crowdfunding sites like Kickstarter and Crowdfunder fund more projects. The overdue SEC ruling allowed companies to sell shares via crowdfunding portals. The net worth of an investor determines the amount of equity she can contribute. For smaller eCommerce businesses, this is a great way to raise money and build a customer base.
How Crowdfunding May Fare in the Future
Everyone dreams of being or investing in the next Microsoft or Google and the chances of repeating that kind of success exist–but you have to know what it looks like. Crowdfunding allows a lot of unsophisticated investors to take a chance by believing in an idea that could fall into that 75 percent fail category. The businesses that rely on crowdfunding may get average returns at best which may not be attractive to people who want a hefty payday. Larger projects with backers with proven success may get the lion’s share of support while others with good ideas may wane and die from lack of funding.
The other side is that because these unsophisticated investors are consumers, they have no choice but to judge a startup by its idea. As consumers, people are always looking for better and faster ways to do things. If a business idea solves the problem that people didn’t know they had, it will survive the initial round. Numbers are important but helping consumers solve problems doesn’t necessarily follow a formula.
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