It’s always challenging to give up part of your brainchild regardless of the reason, especially if you never intended to do so from the onset.
That’s why many entrepreneurs have reservations about getting investors for their ecommerce businesses or outlets.
You may also be in this situation, feeling reluctant to part with part-ownership of your company. Aside from the initial inertia, you may also be troubled by the possibility of investors taking over the company from you.
Or, you may worry the partnership won’t work out, which will affect the business negatively.
All these concerns are understandable but aren’t grounded in facts. Interestingly, the upsurge of ecommerce trading volumes following the recent pandemic has spurred more people to take an interest in ecommerce.
Hence, onboarding investors is a good strategy for your business now. The following sections explain why investors are a good idea for your venture.
Why Investors Are Good for Ecommerce Businesses
Regardless of the nature, investors always bring several benefits and opportunities to the ventures they join. That’s why several business owners dedicate hours and resources to getting investor attention.
To address your scepticism about getting investors, let’s look at some of their advantages for your ecommerce venture.
Access to Larger Funding
The pandemic shook the global economy, and the UK was one of the worst hit. It recorded one of its heaviest impacts when the nation’s GDP shrank by 0.2% in the second quarter of 2022, as reported by Bloomberg. That meant trade volumes dropped, and businesses struggled to raise funds for survival.
As such, a primary problem many ecommerce businesses face (especially now) involves financial constraints. So, considering the economic climate, you’re also in a position where you need external funding to keep your business afloat.
Nevertheless, if your business is doing fine now, you can always use extra cash. Cashflow is every business’s lifeblood; it keeps it ticking and moving as it should.
Additionally, reserve funds always come in handy for expansion and growth. Investors will provide some well-needed funding for your ecommerce business. And in the business world, you can achieve anything if you have enough financial strength.
Improve Brand Reputation
The right investor will bring you more than funding; they’ll also bring you the limelight. For example, if you get a local investor who is popular in a specific community, you’ll improve your recognition in that community.
It’s even better if the investor has global recognition; that puts your business worldwide.
For context, imagine a notable investor like Warren Buffett putting equity in your ecommerce business. That action gives you more than the money or expertise at his disposal.
It, first of all, puts your ecommerce business in the same mention as Warren Buffett. So, whenever someone looks at Mr. Warren’s portfolio, they’ll find your business there.
Okay, let’s backtrack a bit; you may already be thinking, “how do I get investors like Warren for my ecommerce business?” Depending on your business size, you may have to wait.
However, you should still reach out to all the investors you know who may have an interest in your niche. You may start slow, but the right investor will bring you as much recognition as necessary to scale your business.
But of course, you must also consider a VC’s reputation before bringing them on your board. The investor’s industry reputation will affect how people will perceive your business.
If the VC has a solid image, that’s awesome. If the public opinion about them is subpar, you should rethink your relationship with them. However, if they have an average reputation, you should weigh the pros and cons before getting in bed with them.
Better Connections and Network
This point is very similar to the last one. However, there’s one primary difference between them. The previous advantage is for the brand image and reputation; this point deals with you as the business owner.
So, your ecommerce business will enjoy increased popularity off the investor’s influence. Simultaneously, you’ll enjoy something similar in getting access to the social strata the investor belongs to.
Primarily, the relationship will elevate your social circle and status. As a result, you’ll meet people through the investor’s network and connect with them.
The saying goes, “connections are golden,” and there’s a widespread belief that you can become a millionaire depending on your connection. But, even if you don’t believe it, remember that the right connections will significantly improve your chances of success.
So, aside from the investors, you’ll also have access to some of the best minds they have relations with.
That way, sourcing insights for growing your ecommerce business will be easier. You have the investor and can also talk to their friends/acquaintances through their influence.
But again, that brings us back to the need for you to choose the right investor. That someone is willing and has the money doesn’t make them the right fit for your business.
Instead, look for consultants with relevant skills in your industry. And, of course, examine their networks too to see how beneficial it will be when you get them on board.
Considering the first three points, it’s not difficult to see how getting ecommerce investors will give your business a competitive advantage.
Being in the ecommerce world means you’ll have competitors regardless of the goods you provide. So, you’ll need to beat the competition somehow to maximise your profits.
Interestingly, almost everybody knows all the marketing tricks and tips available online. Additionally, they’re all also applying these strategies to improve their chances. So, at this point, the ol’ “SEO, SEM, Social Media Marketing Tips” won’t do much to differentiate you from competitors.
As a result, you need external props to get ahead in the game. And that’s just another one of the few perks investors will bring to your ecommerce business.
So do I need ecommerce investors to secure an advantageous position compared to my competitors? Yes!
Investors provide leverage for you to fly right past your competition. You get the funding, connection, brand recognition, expertise and all the necessary motivation to move ahead. Of course, the more suited your investors are, the better your chances.
Valuable Expertise/Resource in Your Disposal
We mentioned expertise earlier, but we needed to get into the details of how investors’ expertise can be good for your ecommerce business. Most investors are industry experts who take their time to study trends and make forecasts.
That an investor is willing to put equity in your business already shows you’re on the right path. At least in the investor’s opinion, you’re on to something worth putting money in.
So, when you get investors on your board, they bring the results of their market research and analysis to the table.
They offer you insights into the market you can’t discover by yourself. Additionally, they bring a fresh perspective from a neutral or third-party’s view.
But the best part is that their views are not simply those of customers who only care about themselves without considering your profitability. Investors juxtapose their desire for profitability with the customer’s complaints and suggest solutions based on it.
As such, getting investors for your ecommerce business signs you up for free unlimited expert consultation.
Consider this if you think you don’t need such expert opinion in your business. Nothing accelerates processes like experience.
You’ll go faster if you can learn from someone who has previously taken the same path.
You’ll learn to avoid their mistakes, pick the correct route they threaded and follow it straight to the goal. Working with investors creates this effect for your ecommerce business.
Motivation and Morale Boost
Getting investors on board your ecommerce business can also give you the motivation and good ideas for pushing it harder.
For example, losing part-ownership of your company means you can no longer keep all the profits to yourself.
So, to get as many personal returns as you used to, you must make more returns. And to make more, you need to think differently while improving your processes.
Then again, having more experienced people around you increases accountability. But of course, it also means you don’t have to make difficult decisions or bear the consequences alone.
Furthermore, there’s always a possibility that investors can oust you if they deem you incapable of running the business. Again, to avoid that, you must put in the work and give them no excuses or reasons.
Lastly, investors may also pull out their funds if they stop seeing the profitability of doing business with you. Yes, you’ll gain 100% business ownership back, but you lose all the perks that come with investors’ funding.
Equity Financing Is More Flexible Than Debt Financing
Most people will rather go for debt financing than investors when they need additional funding for their ecommerce business. Admittedly, it provides instant financing without diluting equity. However, it has a rigid framework for repayment.
With debt financing, you’ll have to pay at the agreed time regardless of business conditions or risk accruing late payment charges on your instalment.
Equity financing, on the other hand, gives a more flexible remuneration option depending on the contract agreement with the investor. Often, the deal will be that investors will get a percentage of your profit.
So, if you make a loss or have a disappointing profit margin, you’ll only need to repay investors according to whatever is available.
As such, you won’t have to take out the capital to satisfy the dividends. That way, the business cash flow will remain unaffected if you don’t make significant losses.
Then again, investors tend to be relatively patient individuals who are more interested in maximising returns than meeting specific repayment schedules.
They’ll mostly give you the freedom to explore avenues for profitability even at the expense of their short–term dividends.
Investors Are Interested in Ecommerce Businesses.
Instead of asking, “do I need ecommerce investors?” a better question would be “Can I find investors who will take an interest in my venture?”
Fortunately, the answer is yes, you can and will if you look in the right places. Like we said earlier, the recent upsurge of ecommerce trade volumes has gotten more VCs showing interest in ecommerce equities.
So, what’s driving investors’ interest in providing funding for ecommerce businesses? Let’s consider why investors think ecommerce businesses are a good idea for their portfolios.
Growing Consumer Demands Create More Profiting Opportunities
A report released by financial technology leader FIS projects the UK ecommerce market to increase by approximately 26% between 2021 and 2025.
That increment will raise the total revenue from the industry to 260 billion GBP.
Translation; ecommerce is growing and fast becoming the preferred shopping method for buyers. People appreciate making purchases and getting the items at their doorsteps with little effort.
Ecommerce is profiting from this mass desire for convenience and snowballing. Most ecommerce business owners (including yourself) saw this advantage and took it.
Many investors also recognise this opportunity. But instead of creating a business from scratch, they’re more interested in buying part of an existing one. So, they’ll be willing to give you funds in exchange for equity in your business.
More Expansion Opportunities
Investors are always looking for opportunities in companies poised for growth and expansion. Why? Because they get to ride the current if they provide fuel for the ship.
That’s why investors take more interest in ecommerce businesses; because of their propensity for growth and expansion.
On the flip side, it takes much planning and consideration for a physical store to set up outlets in multiple locations. Ecommerce businesses have it easier to expand into international and multichannel markets.
And, of course, riding those waves gives the investors opportunities for global recognition along with your ecommerce business. That’s if they still need to gain such popularity in the first place.
Greater Competitive Advantage
Not all investors are venture capitalists or angel investors simply looking to expand their portfolios. Some seek businesses to improve their competitive advantage by adding to their offshoots.
Usually, such investors come looking to buy the company from you. However, you may be able to get them to settle for shares depending on your negotiation ability.
So, if you play your cards right, you can get prominent corporation execs to purchase equity in your business. Doing such will improve their competitive advantage as they increase their reach through your ecommerce channels. And you’ll also get the benefits as you can ride the company’s influence to improve your brand recognition.
Still Afraid Investors Will Take Over the Business?
By now, you should see why investors are a good idea for your ecommerce business. However, if you still have doubts, it’s presumably because you fear investor mutiny.
Investor mutiny or takeover is a situation where investors vote to unseat you as the head of the director of the business. Usually, the decision has to be unanimous, meaning all the investors must vote to oust you.
It’s a massive possibility in business, but you can easily avoid it if you play your cards right. Let’s look at ways you can protect yourself from investors’ takeover.
You make investors co-owners of your business in exchange for the funding they provide. That makes it imperative for you to find people you can work with to be co-owners with you.
As a part-owner, you won’t have the liberty to decide on things yourself. That means you’ll hold several meetings with the investors regarding any and every decision you intend to make for the ecommerce business.
So, it would be best if you had investors who are always on the same page.
Investors’ takeovers often have their roots in disagreements over some decisions. It can start from a simple interest difference, which may fester into a major rift, eventually mutiny. To prevent such situations, it’s best to find investors you share several values with.
Essentially, you want to ask yourself some questions when considering investors for your business, such as:
- Do I have the same goals for my ecommerce business as this potential investor?
- Can I find common ground on decisions with the prospective investor?
- What will it be like if things are going sideways?
- How patient can the investor be?
If one investor on your shortlist has qualities that give reassuring answers to your questions, then they’re the perfect match. So, you can avoid a hostile takeover by finding people who won’t even consider the option in the first place unless it’s vital.
Build A Cohesive Board
Don’t be too eager to bring any available investor on board. You may just set yourself up in the process. Instead, carefully think about and plan for the type of board you want to build.
Consider the values you wish the board members to have and the characteristics they should possess.
For example, you should consider bringing in objective investors who can provide a balanced viewpoint for your ecommerce business.
You should also avoid egoistical individuals as those have natural tendencies to want to take power for themselves. Hence, it would help if you found effective and engaged individuals to be part of your board.
Raise Capital Prudently
Again, it helps to have reserve funds for projects for your business. Hence, raising as much as possible in as few funding rounds may seem like a good idea.
But don’t do it! And if you must, be conservative in your approach to it.
Admittedly, the first funding rounds usually involve a lot of money, and that’s reasonable. However, the subsequent ones require prudence. Why? The more funds you raise, the more you put yourself at the mercy of the investors.
Raising more funds means you’re bringing more investors on board and giving up larger equity.
Aside from that, having more investors means managing more egos and perspectives to consider when making decisions. So, to keep a hold on your business, it’s better to have as few investors as possible and retain majority ownership.
Don’t Hold On for Too Long
This step requires as much objectivity as you can muster because it’s always challenging to step aside and let someone else take charge. But, you must consider your competence in running the company.
Admittedly, you grew the business to where it is, but there’ll always be someone better suited to run the company than you. And if there’s a possibility of employing such a person, it would be best if you did.
Stubbornly holding on even when it’s apparent you’re not the best option for the CEO role is an easy way to lose control.
Of course, you can continuously improve yourself to be more competent. However, giving the board members no excuses to incite a takeover is best.
Investors are Great for Ecommerece Businesses
Investors bring more to the table than for you to deny your ecommerce business the opportunity to grow. They provide much-needed funding for business growth, valuable business connections and industry expertise.
Here at Axis Shift, we offer the opportunity for an investment partnership that focuses on maximising your ecommerce company’s profitability. Call 020 805 05795 to discuss investment partnerships with our experienced team.