The ecommerce retail landscape is constantly evolving, making new opportunities regularly spring up. The consistent evolution provides enabling situations for new businesses to spawn. At the same time, it incentivises startups to grow larger.
However, most ecommerce startups often face a particular challenge in their early stages — lack of funds. Fortunately, the problem is not without solutions, as there are people willing to help businesses in such situations. We’re referring to investors who provide funding for companies in exchange for a share of profits or ownership.
Then again, investors are meticulous people; they won’t put their money into any and every business that pops up. They only sign the cheque for ventures that they find profitable.
Hence it falls to businesses to make themselves attractive to investors for a better chance of securing funding.
A Bit Into the UK Ecommerce Business Landscape
Online retailing is booming in the UK as consumer ecommerce accounts for 30% of total retail sales in the UK. That makes internet shopping more popular in the UK than in any other country.
To further buttress the fact, it’s worth noting that 82% of the UK population bought at least one product online in 2021. And when you consider it in the context of the total revenue generated, which is over $120 billion, it’s a fantastic feat.
But that’s not all there is to the UK ecommerce industry. While the general ecommerce market may be booming, it hasn’t been all rosy for startups.
For example, the triple disruption, Brexit, the general elections and the global pandemic severely damaged many budding businesses.
Hence, ecommerce businesses that started sometime within the last three years haven’t had it easy. For instance, the number of small businesses in the UK declined from 5.9million in 2020 to 5.5 million in 2022.
Admittedly, the UK business investment cycle hasn’t been at its best lately. The trend has been a bit wobbly, with the graph rising and falling and rising again.
For context, business investment in the UK rose in the second quarter of 2021, fell in the first quarter of 2022, and rose again in the second quarter of 2022. Nevertheless, ecommerce brands can secure significant competitive advantage if they know how to attract investors.
Below are some strategies for that.
Start by Understanding the Investment Landscape
It doesn’t make much sense when you’re trying to position yourself for something you don’t recognise. You can’t make your business attractive to investors you don’t know.
Yes, you may be lucky that an investor may pop out of the blue and offer to fund you, but those are rare cases.
Hence, you must first understand the investment landscape and know the investors you want to attract to your business. To that end, it’s worth understanding who ecommerce investors are and the types available to you.
Ecommerce investors are people who specifically look to invest in online buying and selling businesses. They have significant capital and are willing to give them to ecommerce ventures in exchange for equity.
Ecommerce investors come in different categories. There are angel investors, venture capitalists and private equity providers. Needless to say, each of these has specific ways they approach ventures, as we’ll consider in a moment.
But more importantly, it helps to know how to make your ecommerce business attractive to investors in each category.
Angel investors are often individuals who provide funding from a personal wealth pool. For example, an angel investor can be a business tycoon with a lot of money who decides to invest part of the money in other businesses.
Angel investors are often niche-specific as they look to invest in ecommerce markets they’re familiar with. Not only that, but they also tend to show more interest in startup businesses. Hence, you have an excellent opportunity to make your business attractive to such investors.
Most times, angel investors aren’t interested in actively participating in business operations. So, they may not bother about your operational methods as long as the business keeps running correctly.
Additionally, angel investors often select ecommerce businesses based on three things.
- The growth propensity
- Founders’ expertise
- Business plan execution
Hence, you must position your business with these three things in mind to make it attractive to investors in this category.
Venture capitalists are firms or similar setups that provide a platform for individual investors to pool their money.
The firms then identify profitable enterprises and invest all or part of their capital pools. Hence a venture capital firm can be a group of several angel investors.
Typically, venture capital firms like to invest in the early stages of a company’s growth. For example, a company that’s just starting can raise VC funds to facilitate a product launch.
Additionally, VCs can absorb larger risks; hence they have more inclination to take on riskier projects. And overall, they generally aim for significant ROIs, up to 10x their initial investment.
Private equity may not be for you if you’re only a year or less in the business. Private equity firms tend to be more interested in mature or declining industries. They’re often looking to increase a business’s top line or decrease its downline.
Like VC firms, they also have a large capital pool. Hence, they can absorb more risk. But they’re generally more disadvantageous than the other two options.
The most significant disadvantage of PE firms is they tend to buy out companies they invest in. That may be why they show more interest in troubled businesses that are often easier to buy out.
Nevertheless, some PE firms still settle for minority stakes in businesses while providing expertise and professional advice for performance improvement. So, they’re still viable options you can consider when looking for investors.
Define The Need For Investors
Ask any startup owner if they need more money for their business; they’ll probably tell you yes. But if you ask them why they need it, they may not have clear and coherent answers for you. As an investor, you’ll not be so eager to get into deals with such businesses, will you?
Hence the first hack to attract business investors is to define why you need the money. You must have a clear and compelling vision for your venture. But more importantly, you must be able to articulate how you intend to apply the funds to the said vision.
Identifying why you need external investment should be pretty straightforward.
Often, brands with proper structure map out their goals based on specific metrics. The objectives can be long, medium or short terms with different scenarios (low, mid or high cases).
Such outlining will also point out the resources necessary to achieve said objectives. Hence, it helps you to determine the people, systems, technologies and other necessities to hit the target.
With such an approach, you can quickly identify the gap between what you can achieve with your available resources and what you need external help with. Essentially, it helps you to clearly see why you need to find ecommerce investors for your business in the UK.
Let the Investors See Why You Need Them
Defining why you need investors isn’t enough to make your business attractive to them; You must make them see it. Investors like to know that their funds are coming in to impact the business immediately.
Why? Investors love to see fast results and will be more inclined to provide funding when sure the returns will come back quickly. So, put your business out there as one ready and ripe for investment.
Furthermore, one of the things investors love to see in businesses is a readiness to scale. An investor will be less likely to invest in a company that has yet to sort its priorities.
But of course, making your readiness visible to investors is easier said than done. It involves rightly positioning your business by putting out attractive content and results.
However, be careful not to give off the idea that you’re desperate for funding. Positioning your business to look ready for investment differs from setting up as one who can’t survive without it. While investors may still be interested in helping revive your venture, it puts you in a difficult position during negotiations.
In such cases, seeing your desperation may incentivise investors to buy the business from you instead of providing equity. Or, they may look for other ways to take advantage of you.
Essentially, what makes your business attractive to investors are the things they like to see. And that will lead us to examine what investors want to see in companies.
What Investors Like to See in an Ecommerce Business
Most times, you have to do the work to get ecommerce business investors. However, it doesn’t always have to be that way. You don’t need to be the one chasing after VCs. Sometimes, you only need to take the correct positioning to make your business attractive to investors.
Below are some things that may attract investor interest in your business.
A Founder’s Passion
Most startup owners are passionate about their products or services in the initial stages. It is normal to see high energy levels from the founders during the early stages of a business. At such times, the founders are excited, and everything looks perfect.
But things don’t always go in a straight line. Soon, life hits the business, reality sets in, and it becomes apparent that running a venture is more challenging than people make it out to be. At such points, most begin the descent that eventually leads to their demise.
But then, some founders still stand their ground in such moments. These people genuinely believe in their products and will stand by them to the very end. These are the type of people investors love to see manning enterprises.
Angel investors especially love to see ecommerce business owners with skin in the game.
They want to see beyond your plans, projections and forecasts. In addition to all of that, they want to know that you have the tenacity and passion to see it through regardless of what you have to go through.
Furthermore, an investor can develop an interest in your business because you refused to accept no for an answer. Your willingness to keep going even after getting NO several times may convince the investor to bet on your business.
Another thing that can make a business attractive to investors is the volume of the ground it covers. Investors like to know a business’s potential before investing their money. As a result, they’ll review your past performance and use it to calculate your future potential.
Primarily, investors will consider the following benchmarks to gauge your business’s profitability.
- The business’s ability to compete in the market
- The business’s long-term viability
- The potential audience
- The company’s growth plan
- The sales performance history, and
- The current growth rate
All these factors point to your traction, a primary element investors consider before partnering with businesses. Needless to say, improving your traction is an excellent hack to attract business investors and customers.
Lastly, your traction provides proof of concept to convince investors that you have a fully functional venture. Hence, knowing and building your business economics puts it in an excellent light for prospective investors.
An Extensive Market Size
Most investors will be more inclined to partner with an ecommerce business that has a very high propensity for growth. Hence, your work will be cut out for you if your total market reach is only a few kilometres wide around your operational base.
Essentially, you must have a market base with a significant size to make your business attractive to investors.
For context, your reach should go beyond a city or state. To attract business investors, you should have a target market spanning regions and international borders.
But your market size will also depend on your product’s nature. For example, if you sell surfboards and beachwear, most of your customers will be people who live close to the coastlines and other large water bodies. Conversely, if you sell skiing equipment, then you’re looking at people who stay close to or frequently visit snowy mountains.
For both scenarios mentioned above, an investor may be sceptical about investing in the ecommerce business, especially if your operational base is not close to the target market. Hence your chances of attracting business investors for it may be slimmer.
However, consumer products like quality home appliances or gadgets often have widespread demand; hence your market opportunities with them are higher.
In such cases, investors may see the profitability possibilities and be more interested in the venture.
But that doesn’t mean businesses that sell surfboards and beachwear have no chance of securing investors. Interestingly, such niches are often targeted by investors with peculiar interests, and those businesses get to leverage that.
Overall, it would be best to consider selling products with a large enough market for economies of scale to affect margins and profits significantly. This factor will make your business very attractive to potential investors and customers.
Competitive Advantage Through Product Differentiation
While serving a large market seems to be the best strategy at first glance, you’ll also be dealing with several competitions. And your competitors are trying to make their businesses attractive to investors just as you’re doing.
That leads us to a question every business owner must ask themselves; Why should an investor choose to invest in you over other ecommerce ventures in the same market?
The answers should lead you to identify the positive peculiarities of your venture that your competitors don’t have.
The easiest way to gain such an advantage is through product differentiation. You can start that by selling product alternatives that other businesses don’t have. Alternatively, you can use an effective customer service method nobody else uses.
It is crucial to provide value that no one else provides and make it a unique selling point for your business. Doing so can make your business attractive to ecommerce investors and customers too.
A Well-Structured Team
Startups tend to limit staffing to save costs and reduce total overhead. In the first three years of their lives, many businesses only have the founder and one or two individuals running the entire setup.
Now, that’s not necessarily bad; it doesn’t matter if a business has two or twenty employees. What matters is if key company roles have competent hands managing them.
For example, as an ecommerce business owner, you should have someone handling logistics and item delivery on your behalf.
Another similar aspect you want to pay attention to is operation control. Investors want to be sure you have policies and procedures to guide your operations.
It guarantees that your business is no longer operating a “fake it till you make it” or trial and error model, and their investments won’t go to waste or frivolous use.
So, an excellent way to make your business attractive to investors is to build a well-structured team. You don’t have to employ many workers.
Instead, ensure you have capable individuals managing critical aspects of the business. That gives your business a more formal and convincing structure.
Use of Modern Technology
The ecommerce industry exists primarily on modern technology, so it’s constantly evolving as innovations spring up. Hence, you must consistently identify and incorporate innovations in your setup to stay relevant.
Ecommerce investors also recognise this fact and consider it when looking at prospective partnerships. Your chance to attract an ecommerce investor may hinge on how ready your brand is to find and incorporate new technology into its systems.
Aside from that, new technology gives you a competitive advantage in the industry. It pushes you forward and better positions you to find and take advantage of new opportunities. Investors love to see this, and it encourages them to invest in your setup.
Have you ever sat next to a stranger in a public place, and even though you have nothing in common with them, you somehow just seem to connect with them? That unexplainable or seemingly random connection is the X-factor.
Sometimes, investors can find themselves attracted to your ecommerce business without any specific reason.
It may be something about how you design your store, handle customer interaction or something more specific to your industry generally. But inciting that connection can help you strike partnerships with investors.
Choose Your Investor and Design Your Business To Catch Their Eyes
Most business owners try to kill multiple birds with a stone when they structure their business. Yes, that sounds interesting and productive.
But most times, it’s not practical; you have a better chance of targeting and killing one bird with one stone.
In this context, the main idea is to choose an investor or a group of investors who fit a specific demographic and then curate your business to something they’ll find attractive. You have a better chance of catching their eyes when you intentionally set up for that reason.
You can easily get the financing your ecommerce business needs without doing much pitching or lobbying. You only need to put a few things in place and make your business attractive to investors. Then, sit back and wait for the investors to come to find you.
Of course, when putting said things in place, ensure that you research and identify the correct type of investor to target. It may take a little while, but we’ve already shown you how to make your business attractive to investors in this blog. So you only need to adapt the ideas here to your ecommerce business.
Or you can take the shorter route of partnering with Axis Shift. Ours is an ecommerce investment outfit specialising in turning struggling ecommerce firms into profit powerhouses. Contact us today to learn more!