You are an e-commerce entrepreneur possessing a high potential niche and desire to pitch your business idea to investors. You are on the road to success; the birds are singing, the sun is shining and they all inspire you to spread your wings. However, attracting and engaging an investor are likely to be more complex and harsh than your expectations. Here are 7 strategies to make your e-commerce business more attractive to investors.
Define the need for investment
Sure, extra cash is always welcome, but it's also critical that a company has a clear and appealing vision and can explain why funds are required and how they will be allocated. Brands will frequently sketch out annual or multi-annual goals, recognizing various situations (low, mid, and high cases). People, processes, technology, marketing, and operating costs will be outlined as part of this, and where there is a gap between what can be created organically vs. what is necessary to attain a higher chance - an opportunity for capital will be identified.
Identify why your brand needs investment
How can e-commerce investors know if a business opportunity is worthwhile? Each firm has created its own approach, techniques, and criteria when identifying its necessity for investment.
Acknowledging the investment landscape
Navigate the investment landscape
Fundamentally, e-commerce investors desire a positive return on their financial assets. Unlike debt funding, investors get a piece of the company they choose to support in the form of equity. It's important to know the following terms:
Venture capital (VC): Typically, venture capital organizations invest in enterprises that are in the early stages of development. This could be a unique concept (pre-seed), a proven product-market fit (seed), or the start of exponential growth. VC firms typically take on more risk, invest a minority interest, and provide advice and experience to help businesses mature. Typically, these businesses strive for a 10x return.
Private equity: In general, private equity firms will invest in companies that are more mature or even in decline, with the purpose of raising top-line revenue (via additional products, marketing, or innovation) while lowering bottom-line revenue (through efficiencies and shedding debt). They can take a minority or majority position in a company depending on the opportunity and, like venture capital firms, provide advice and expertise to help the company enhance its performance. Typically, these businesses strive for a 2-5x return on investment.
Ecommerce investors make decisions based on a trade-off between expected returns and probable risks, as well as a time frame—often many years or longer—in which they expect to see a profit.
Your brand can engage a significant quantity of audiences
The investors want to know what the investment's revenue potential is. This will include a review of past performance, as well as an attempt to calculate what the company's mid-and long-term potential might be. This necessitates an awareness of the offering's uniqueness:
Is it a competitive market?
Is it defensible?
Is there a large number of potential audiences?
Is there a growth strategy in place for the company?
How are the sales going?
What are the present and projected rate of growth?
Understand the customer lifetime value and increase it
Investors will look at historical data, but they'll also want to grasp the function and arithmetic behind it: what is a customer's lifetime value (LTV)? What is the cost of acquiring a new client (CAC)? What are the differences by channel, and what has been done to improve the ratio? What extra expenses will be required to generate future revenues? Is there a clear plan in place for the company's profitable growth? Is there a positive return on every dollar spent?
Investors will want to meet the founders and leadership team, and they may anticipate open and honest discussions about the company's strengths and problems. Capability gaps are fine, and investors appreciate organizations that acknowledge them and layout strategies to fill them with talented, diverse, and effective team members. Investors can assist in the introduction of new personnel, possible partners, and other people in their network.
Investors want to know that e-commerce companies are aware of the technology they will need to develop or integrate in order to fulfill their long-term objectives. Many successful brands do invest to power everything from marketing automation and conversion optimization to shipping solutions, returns management, customer experience, and loyalty programs. Professional enterprises can use applications, programs, or anything similar to facilitate the above matters automatically and inexpensively.
Aware of your developing technology
Furthermore, technology includes the method to serve and support the customers. E-commerce customers wish to browse products, see multiple photos and visualizations, understand return policies, and ask questions about the product before they buy. Luxury bed linen brands, for example, may have similar customer experiences to high-end home decor brands, with customers desiring to view all product images, zoom in, and check the return process or ask for product’s materials or maintenance prior to purchasing. In comparison, brands that sell lower-priced but larger-volume items, such as cosmetics or stationary, have a bigger profit margin. Customers may want to read shopper comments, view user-generated content of the product in practice, and learn about loyalty programs. Different sorts of products will have different approaches to engage the audiences and turn them into customers.
Onwards and upwards
Clear roadmap for the future growth
The fundamentals that investors seek to remain the same: companies that have discovered a market niche that they can serve better than anyone else, as well as a clear roadmap for future growth. They want to know that the leadership team understands the basics of the economy and has a clear strategy in place: Is the company aware of the most effective channels and tactics? Will the company's product line be expanded as a result of this? Getting a foothold in new overseas markets? Changing the delivery model, such as switching to a subscription plan or selling through wholesale channels.
Searching for new and potential investors who can help to expand your brand is a long-term task. Enhancing your brand recognition and performance along with the above strategies will fundamentally increase the chance to achieve a promising investment.