What Convinces VCs To Invest In Your eCommerce Startup

It is a fascinating phase when budding entrepreneurs get a thorough epiphany about a business idea or a project. We spend hours and days, plotting and ideating and expanding our business concept (by now it is still in the embryonic stage). Post this, we conduct research online to scour existing competition. Then we gather people whom we trust and exchange the business concept, just to get a feel about how well people receive your plan. Once you are through with this phase, you consider INVESTMENTS.

Hang on a minute! Have you considered all aspects of your future business, such as technology, logistics, Ecommerce, Packaging partnerships?

All these aspects will drive and determine the true cost of the investment you are about to seek.

“Before you try to convince VCs to invest in your ecommerce startup, then question yourself, if your research and understanding of your idea, the market, the industry, the competition, manufacturing, etc is sufficient to approach an investor and ask for his or her money.”

In the world of business, when you need to understand how someone thinks, it’s a good idea to understand that person’s business structure,and hence it’s important to know your VC and their working style. Every VC has LPs(limited partners), who lend money to them for a long duration which typically lasts for 8 to 10 years. And in this time, VCs are expected to invest money in promising startups which are expected to become valuable business in near future. Vc firms sell its stake in the company on investment maturity and return money to LPs along with the minimum return of 3x the investment . Hence a VC firm is responsible for the money borrowed from LPs, all with appropriate returns. If the VCs fail to return the money to its LPs then such VC would lose the trust of the LPs and LP would become unlikely to invest more funds.

Here are few factors which convinces VCs to invest in your ecommerce startup

How robust and innovative is your business Idea?

With an ecommerce startup, the only idea is to sell products or service. But many others are already doing that and have already captured a good segment of the market, then how is your idea different and why a VC should invest in your project? The answer is your USP. Research the market, analyse and brainstorm on what you can offer which is different from the current offerings OR how you can offer the product in a different way.

What is the market scope?

India’s eCommerce market is expected to reach $100 Billion by 2020. Hence e-commerce has immense scope in the coming years. Thus, convincing your VC on the market scope of the industry is not a BIG task as increasing internet usage, convenient shopping styles, mobile penetration all has created a huge bucket of opportunities for ecommerce players.

How big or concentrated is your customer base?

Telling the investor how huge is the demand of your product is, OR how the different approach of providing the same product or service will lure most of your target group, can help you take the first step to convince the investors.

How deep is your entrepreneurial knowledge and experience?

Investors might prefer more experienced and older entrepreneurs to invest in rather than a young tech team, who is inexperienced and is rather new in the field. If as an established businessman you are looking to go online, you definitely hold good experience in your field. Similarly, you might hold a good command over your work, if you are a professional artist, designer or posses some exceptional art and skill. But eCommerce is not just selling and manufacturing, it is about selling online, Hence,  a young novice tech team can overcome this part by bringing an experienced co-founder onboard. An experienced tech entrepreneur on your team bodes well to gain investor trust. Being truthful is the key to convincing. Enticing the investors with the best-case scenario might not always work, but revealing the capacity through rose colored glasses definitely can.

What is the quality and versatility of your team?

The team is an important part of any startup that the investors evaluate. It may seem tempting initially to launch an ecommerce store all alone and thinking to try to brave the waters single handedly. However, being a businessman or an artist, it is not possible to look into the depth of the technological aspects as smoothly and expertly from a technology view point, or to serve the customers to each part of the nation all alone, you need a good logistic partner for the same. Having a great team and partners allow you to be more productive and creative. Several characteristics which are considered important by the investors are:

  • Team members should have the knowledge about the industry.
  • Team members should have common Vision and capability to work.
  • Team members should be coachable and adaptable to learn new things.
  • Team members must be flexible to change and must show commitment.

How do you plan to execute your idea?

“Worth of an idea is zero, but worth of a better execution is in millions”

A great idea can do nothing until it is planned to execute well. The risks of investing in a new company are so high and the chances of getting a reward are so small, that investors can’t afford to bet on ideas that won’t surely have huge returns.

Show the big picture, the market size, future demand expectations, expected growth etc.

What to do now?

There are fascinating case studies about entrepreneurial successes and failures, on the web. There are many VCs and investors who share their wisdom and tips about investing in startups and the pitfalls they fall into. These are just two simple ways to get into the mind of an investor, to see things, to perceive things as they do. Remember, if you are seeking people to invest in your business, you are also asking them to invest in you. If you are not well informed, chances are that you may get a polite email from investors explaining why they are not considering to invest in your business. Here are some websites you should read and refer to constantly.


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