It is a great time for launching an e-commerce startup, as the skyrocketing growth in e-commerce that began during the Covid-19 pandemic is only continuing to move forward. According to recent reports, e-commerce sales in the US are expected to hit $1 trillion by the end of 2022. Worldwide, sales are expected to exceed $5 trillion by year-end.
The biggest challenge e-commerce startups will face is securing Series A funding. Favorable conditions in the marketplace mean e-commerce startups face considerable competition, with some estimates placing the number of global e-commerce sites as high as 24 million.
In addition, startup financing is starting to show a decline across the board. The $62.7 billion invested in startups in the second quarter of 2022 marked a 27% decline from the first quarter. To stand apart and inspire investors, it will be critical to develop an effective funding strategy.
Laying the foundation for a solid funding strategy
Before you seek funding for your startup, you should have a solid business plan. An e-commerce business plan does not need to have too many moving parts. Establishing what you are selling (and to whom) should not be difficult to determine or explain. If you have yet to lock in on a target, you should note that business-to-business e-commerce has emerged as the fastest growing component of the market. A recent report shows that the B2B market grew 131% in 2022.
Regardless of the market you choose, establishing a viable plan for sourcing may be the component that is most challenging to those looking to launch an e-commerce shop in today’s market. The supply chain issues that bloomed during the Covid-19 pandemic, for instance, continue to have an impact on e-commerce businesses. Competition for raw materials is fierce, the labor force that produces them is lacking, and the delivery networks that move them seem to be constantly overwhelmed, especially when it comes to last mile delivery.
A viable business plan will have a solution to supply issues, but an impressive business plan will have redundancy when it comes to supply chain management. According to one recent study, manufacturing production will suffer from disruptions every 3.7 years, on average. If your business relies on manufacturing, investors will want to see how you plan to deal with disruptions in the supply chain.
Setting and supporting projections for how your business will scale is also important when seeking funding, so avoid the temptation to be overly optimistic. It is better to be conservative and realistic than to overreach and communicate that you really don’t know how your business, consumer market, or industry works. In the end, make sure that you can explain how expenses, revenue, and cash flow will come together to grow the business.
Establishing a strong brand voice is equally important. By leveraging your brand voice, you encourage customers to connect with your company — not just your products. Remember that there are potentially 24 million other e-commerce brands out there with whom you are competing. Having an honest and authentic brand voice can help you to stand out to customers and investors.
Using your plan to build a pitch
Storytelling is the heart of successful pitching. Investors need to hear more than your plan; they need to hear your passion and what makes your business unique. If you don’t nail the storytelling, you will lose them.
Craft a pitch that will help investors to understand your industry and the unique vision you have to thrive there, and include all of the data you can. For e-commerce startups, almost everything can be captured, including active users, conversions, time spent on site, and retention, to name just a few. Leverage all of the tools that you can to collect all of the data that you can, then use it in your storytelling.
You can also include relevant industry data that supports your business plan. For example, recent stats show that e-commerce in Latin America saw a 25% increase in 2021, up from $68 billion to $85 billion. If your plan includes selling to Latin American markets, that will be relevant and supportive data.
Keep in mind that potential investors will be assessing the business plan as well as the founder. If you present meaningful metrics, it will show that you know what needs to happen for your launch to be successful. If you are excited enough about your potential to get investors excited, you will have a much better chance of securing some funding.
Strengthening connections with potential funding investors
With the foundation laid and the story developed, you are ready to start connecting with potential investors. During this step in the process, building and nurturing relationships is key. Establishing meaningful relationships with potential investors will (almost) always prove invaluable. If you have already had the opportunity to make relevant connections, they should be the first people on your pitch list.
If you haven’t made relevant connections, perhaps someone in your network has. Let your colleagues know that you are pursuing funding and ask them to help you build your list. The angel investor or venture capitalist you need might only be one connection away.
Beyond connections and introductions, do some research. Find investors online who seem like they would be a good fit and add them to the list. When you get 50 or 60 on the list, you are getting started. That may sound daunting, but the reality is that the bulk of investors to whom you make a pitch will decline. Securing investment will involve building a big list, asking a lot of people, and learning along the way.
As you are building your list, make sure you make notes about each investor’s particular area of interest. This will help you to tailor your pitch accordingly. Any amount of personalization you can add to a pitch, such as highlighting how the investor has invested in businesses that are similar to yours, will show that you are the type of entrepreneur that does her homework.
Avoiding the most common mistake fundraisers make
If you are a perfectionist, you need to let it go. Choosing perfection over progress is one of the most common mistakes that startups make in the funding process. The natural progression of a startup is refining and elevating over time — no one starts out perfect. Don’t hold yourself back by spending too much time sweating the small stuff.
If you do find yourself suffering from analysis paralysis as you consider all of the details that need to be worked out, choose instead to focus on one step at a time. Treat your fundraising journey like a project: build out a timeline with a series of phases and incremental goals, then stick to it. This will help you to avoid getting stuck in an endless fundraising loop. The time needed for the process will vary depending on the stage and size of your startup, but a good standard is to plan on fundraising for no less than three to four months.
Moving beyond a successful fundraising round
Once you’ve secured your Series A funding, it’s time to really get to work. Immediately after closing your Series A round, start working with your investors on upcoming milestones and KPIs for future funding rounds. By this point, you will have learned much that can help you to plan for the next round and future success.
Overall, you need to accept that you will never arrive at a true destination. I believe in constant iteration, innovation, and improvements when it comes to building a business. If you are always learning and adapting to the changing landscape and consumer needs, you will be forever improving your offering, growing your customer base, and increasing your appeal with investors.
— Maggie Adhami-Boynton is a 15-year startup veteran and CEO and Founder of ShopThing, one of North America’s first live video commerce platforms. Maggie is focused on creating a culture of diversity and inclusion, supportive of all identities and backgrounds. The ShopThing leadership team is 75% women and 100% persons of color. Prior to founding ShopThing, the Harvard University Master’s graduate helped scale one of Canada’s most awarded mobile app agencies, Plastic Mobile, as Vice President of Operations. She became a member of the Havas Worldwide executive team following their acquisition of Plastic Mobile in 2015.
