5 questions to ask yourself before you seek eCommerce funding

February 5, 2024

Just as moving home or buying a new car are major financial decisions that involve a lot of thought, toil and time, the process of seeking an injection of capital for your eCommerce business is one that shouldn’t be taken lightly.

In this article, we consider five key questions you need to ask yourself at the earliest possible opportunity if funding is on your mind. These issues act as a checklist to ensure you choose the right investment option, make the most of the money flowing into your business and get the outcomes you desire.

1. What do you need the money for?

For some owners and CEOs, the prospect of tapping into a venture capital market that’s awash with funding for eCommerce businesses is irresistible. After all, eCommerce venture capital deals were said to be worth more than $30bn by the end of 2022. Who wouldn’t want a piece of that pie?

Yet it’s crucial to firstly consider the purpose of your funding application. In eCommerce this could be a need for inventory or stock. The goal could be national or international expansion, or boosting your wider marketing strategy plans. Or you might need the money to improve cashflow during off-peak periods. Know your reason for receiving funds, and keep it clearly in mind throughout the process so that your often hard-won investment doesn’t get diluted by unintended use.

2.   How much investment do you need?

Your specific need for investment is one key question. But it’s also vital to figure out the size of the financial boost you’re looking for. This might seem obvious, but when funds are readily available it can be easy to overshoot to a higher total than you initially anticipated securing. And that means repayment schedules and sizes, or a timeline to prove return on the investment, might be tougher than you’d like.

Having a clear idea of your eCommerce business’s present financial health is a perfect start point. How does your cashflow look? What are your revenue projections? If you don’t know, or can’t get to the answers, you may need some support to paint a sharper picture. Only then can you understand exactly what level of investment you require, or help investors understand where your business is headed and why they should commit.

3.   Are you prepared to trade equity for investment?

If you’re seeking capital from investors there are lots of questions they’ll want answered. It’s best to give deep thought to these in advance. What does your current management structure look like, and do you anticipate this changing? What’s the opportunity in your market, and what sets you apart from rivals in your space? eCommerce is forecast to constitute 41% of global retail sales by 2027, so the competition isn’t going away. Investors want to know how your company stands out.

Have you considered whether you’d be happy to trade some of your business in return for funding? Investors often want to take a stake in organizations to have a measure of control and guide growth. Is relinquishing equity something that would sit well with you – or are there other options?

4.   Do you have a clear strategy for the funds?

If you have good intentions for using the capital which will soon be at your disposal; you’ve considered exactly what scale of investment you need; and you’ve also started to think about where you’d like the funds to come from, it’s critical to consider a roadmap that will make the money work as hard for your business as possible.

Make detailed plans that link growth stages of your business – however predictive they may be, accounting for known future revenue fluctuations as much as you’re able – and allocate the capital against each step. You had a business plan for the early days of your eCommerce venture. Now that you’re seeking financial support to solve business problems or make the most of multiple opportunities, it’s time to have a clear new view of where you’re headed, and how the cash can help you get there.

5.  Can someone with experience advise you?

Entrepreneurs find it hard not to feel financial pressure. Indeed, it’s said that around half of business founders suffer from stress at the thought of having a crisis of capital. You may add expert advice onto your investment if fund managers are prepared to help you spend it wisely. But before you even get to that point, it’s worth seeking support from your network.

Who do you know who’s already been there in business and has experience they can share? Your peers may have sought investment before – and can show you the way to make the right choices.

Why revenue-based financing (RBF) might answer all your eCommerce funding questions

Of course, there are many other factors at play when you’re seeking investment and choosing the best funding option. But if you can answer the questions set out above you’ll be well on the way to preparing for exciting, though sometimes complex, conversations about your capital requirements.

Getting straight in your mind how you want your eCommerce business to use the funds and what the ideal future looks like for your venture is vital. So too is committing to the right option among the wide range of funding opportunities out there.

With revenue-based financing (RBF), your eCommerce company can benefit from rapidly raised funds that you can meticulously plan to pay back when it best suits your business. It’s a relatively simple process, too: you receive capital in exchange for a percentage of your future revenue.

This means you can retain ownership of your business and control of your operations without the pressured oversight of investors. What’s more, the aims reflect your own. If your revenues grow well with the support of your RBF provider their returns are higher. It’s a win-win for you and for the people backing your business.

Bear RBF in mind when you answer the checklist of questions above. The answers to all five of them speak to a need for flexibility, simplicity and immediacy of funding, as well as continued control of your business. This will help you frame a financial future for your eCommerce business, bringing you success and a feeling of satisfaction that money can’t buy. 

Contact Stenn today, and read our report on RBF, to find out how we can support your business.