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As Europe teeters towards a recession and customers tighten their belts, Ecommerce brands face hard times. The challenge to turn one-time customers into repeat customers grows bigger, while the means to do so shrink. CAC, iOS changes and supply chain nightmares are just a few of the problems brands are battling with on the quest to become profitable - an essential metric to secure Ecommerce investment.
In this piece, we’re unpacking the various ways brands can raise funding for Ecommerce, investigating what today’s investors are looking for and showcasing DTC brands who’ve been there, done it and got the t-shirt.
When applying for Ecommerce start-up funding, most brands turn to angel investors or VC seed investors. Angel investors are individuals who invest money themselves whereas VC investors tend to be large companies investing on behalf of customers.
Although both options provide funding for Ecommerce, there are several differences between the two options. We’ve distilled these differences into two simple tables, because life’s confusing enough.
In a nutshell, angel investments are better suited to the earlier stages of a start-up (the idea stage for instance) whereas VCs will be looking for evidence of business progression and growth, but often have more cash to play with. Angel investors are willing to invest in riskier businesses - they’re usually business owners who have been there and done it themselves. VCs on the other hand are investing other people’s money into your business, so it needs to be watertight.
The best funding endeavor to choose really depends on your business, and all investors will differ slightly so it’s critical to do your research before jumping into an application.
Whichever investment route you pursue, it’s important to note that we’re going through some of the most competitive times in DTC history. In the US alone, it’s predicted that there are over 120,000 DTC brands and DTC makes up 13% of all Ecommerce businesses.
With this in mind, we spoke to Angel investor, Nick Telson to find out how Ecommerce brands can become more attractive to Angel investors.
I tend to invest early, pre-seed evaluation. It’s tough to show lots of traction at this stage but retention rates is a key metric I’d look at. Some questions I’d have around this are:
Low repeat purchase, very big competitor set and no differentiation, lack of experience in Ecom or growth marketing. The aforementioned press but no sales. These are all the components.”
Now more than ever, show that traction and buying intent. If you don’t have a product yet, can you launch a community or have an early-access list? All of this will give the investor confidence.
If you haven’t got Ecommerce experience, find a co-founder who does or show that you’ve already got the team in mind for the important hires.
Retention - if you are selling, this is one of the key benchmarks that you can hold your customers and they’re sticking. That’s going to be key - you’ve built a loyal base, you’ve been smart about how you’ve activated loyalty. Also, are those customers sharing your brand and social selling for you because they love your brand?
Those are all really good markers that the brand is on the way to something special. Finally, i’d want to know: is there supplement products you can sell to increase the checkout spend, and is there consistent, steady growth?
Start-up life moves at the speed of light and sometimes you don’t have months to spare creating the perfect funding application to generate cash flow. In this scenario, there are a number of alternative funding options available on the market. We approached Pipe and Juni to tell us more.
Pipe enables companies with predictable recurring revenue, like DTC subscriptions, to trade that revenue for up-front capital. Whether you’re looking to hire, invest in marketing, or take advantage of a time-sensitive inventory opportunity, you can get the cash you need quickly without taking on a restrictive loan or giving up equity. DTC brands like MUD\WTR and Verma Farms use Pipe to finance marketing, operations, and even acquisition opportunities.
The beauty of a platform like Pipe is the speed and flexibility. Rather than spending weeks or even months on a debt or equity raise—complete with pages and pages of applications and pitch decks—Pipe relies on live integrations. First, you sign up for a Pipe account, which takes just a few seconds, then connect your billing, banking, and accounting software. The onboarding process can take less than five minutes, and businesses can get access to a trading limit (up-front capital) and a bid price (think cost of capital) often within 24 hours.
For DTC subscription businesses, timing is everything. The gap between inventory and marketing costs and bringing in the revenue can be the biggest hurdle. That can leave you scrambling for capital to fill the gap, or worse, offering steep discounts for up-front annual payment. By leveraging your recurring revenue, you can close that gap and invest in your own growth to scale faster.
Pipe charges a 1% trading fee to both sides of the platform. Institutional investors then bid on recurring revenue streams based on what they are willing to pay. Typically, we see bids between 93 and 97 cents on the dollar, compared to the 15-30% discounts companies often give their customers for up-front annual payment.
Juni is specifically built for ecommerce. Juni provides a full-suite of financial tools such as multi-currency bank accounts, debit cards with cashback, interest-free credit lines, virtual cards, insights and great features like auto-retrieving Google ads receipts and automatically syncing with Xero.
You can sign up via the Juni website. You’ll need to go through our KYB processes where you can submit a few documents to verify your identity so we can make sure we’re compliant with regulations and you can then connect your financial accounts and apply for credit. Instead of using outdated filed accounts, Juni underwrite based on open banking data so customers connect their financial accounts to the platform which gives read-only access to their finances for fast, accurate decisions on how much we can lend.
No. You can get up to 1% cashback on all your spend, you get great insights into your business, low FX rates, save time on admin and it’s completely free to use. There are no fees for using the Juni platform and the credit is interest free.
Connect all their financial accounts, from banks to credit cards to payment processors, so Juni have a full overview of their business. If we can only see one account, we may offer lower credit limits because we can’t see a whole other section of the business. It’s also helpful to let us know of any non-financial information that might affect eligibility, like a pending funding round.
When considering Ecommerce business funding, it makes sense to take a leaf out of the book of brands who have been there and done it. HUX Health is a DTC brand offering superfoods and hydration products, without the nonsense.
The UK-based start-up recently secured a £1M funding round. We caught up with Founder, Damien Hyrne of HUX to find out how they did it.
A team with a diverse set of complimentary, road-tested experiences. Our investors have also been able to see the clear white space we do - for highly effective, trusted, beautiful health supplements.
Healthy profit margins are much less relevant than repeat revenue potential. It does help though that we have a high value, dense product range that allows for a clear pathway to profitability.
Timing has been the largest challenge.... The last eight months have been materially harder to raise money than the prior few years - for all the known and obvious reasons of global uncertainty due to the war and high levels of inflation.
Investment is in people first, idea or product second. Purely digital acquisition costs are very expensive at the moment, so think more broadly about how you would complement this.
Not all businesses reach the golden echelons of growth, in fact 60% of new businesses fail within the first 3 years. DTC brands are not immune to this sobering stat. Motley launched in 2017 on a mission to disrupt the jewellery industry with affordable, designer-made gems but sadly closed its doors in May.
Despite building an amazing brand, co-founder Cecily Motley commented “What I didn’t know then [5 years ago] was how small the “good idea” slice is in the pie graph of success. Brilliant brand and operational prowess will only get you so far; cash, luck, category growth and timing must be right to propel you to the unicorn sphere.”
Ilana Lever, Motley’s other co-founder, cited the difficult iOS privacy updates of last year as a catalyst for the brand's economic downturn. “The financials only made sense at scale, and iOS 14 knocked those aspirations for scale on the head. We hadn’t realised the influence of Facebook on our business. As Facebook lost its effectiveness, our unit economics crumbled.”
As we hurtle towards the toughest economic challenges since 2011, only those with the most sustainable growth strategies will survive. At Relo, we believe driving more recurring revenue from your existing customers is the best way to futureproof your business.
Find out how we’re helping the world’s best DTC brands get their customers to buy again, try a subscription and stay on subscription.
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