How would you define the journey of an e-commerce business that’s seeking funding?
It’s fundamental to have your house in order before you invite people in to take a look around. Organised data, historic and forward-looking financials, and a clear vision and strategy your team is aligned to are key pillars to build a fundraise on. A key element is a commercially driven and robust forward-looking financial model which shows, in three to five years I can turn your investment into something great. All this is then distilled down into a compelling pitch deck to tell your story, sell your vision and make people want to come on the journey with you. It can’t be overstated that fundraising is a time-consuming process so must be well-planned to avoid disrupting business as usual and growth.
What’s the typical timeframe for e-commerce brands to reach exit from investment, or is it completely individual?
This can and will vary for individual founders and businesses. At a Series A raise, you’re typically looking forward and modelling for a period of three to five years where you’re supercharging a business with a significant investment. A Series A brings far more than just funding; a well-aligned funding round will bring connections, people and insight into your business to guide it through a period of rapid growth to the next level of scale and maturity. It then becomes a personal decision of whether founders want to be part of something bigger and in what capacity.
Are there trends on the horizon for the sector?
A key trend I have seen is a diversification of their digital spend portfolio. Given the seismic shift to online shopping throughout COVID, there has been a sustained increase in demand for advertising on social media platforms to drive sales. Social media companies squeezing in more advertising, displaying suggested posts and sponsored content in front of consumers’ eyes means it becomes noisier, so businesses need to work harder to cut through the noise for their brand to be seen and heard.
To combat this, businesses have started to run their campaigns on a wider range of digital channels, with SEO and data-driven email marketing to reactivate customers in their database. I’ve even seen a move offline to traditional paper post for key campaigns.
There’s a clear trend towards greater use of video to engage with customers.
What advice can you give from a financial perspective to e-commerce brands looking for investment with all of that in mind?
Start early - you don’t want to go cap in hand and running out of cash in a month or two. You certainly won’t get maximum value for your business.
Get organised – get your house in order, build your data room and develop a compelling three to five year investor model which speaks to, and agrees with, your pitch deck and story.
Make time - fundraising is a time intensive and often emotional process.Make sure your team is taking care of the day-to-day operations or you and your business will suffer. You want to be able to focus to make the raise are sounding success. A few key advisors you can trust are also valuable as a sounding board.
Be picky – view an investment as a partnership. It will be a key relationship in your business, so it must work both ways. A great investor will bring more than just money into your business, and they could be with you a long time.
What key things are VCs looking for at the moment when reviewing a business that’s looking for investment?
Metrics, people and a compelling story. They’re looking for driven and motivated people and something exciting to grow. While you don’t need to be profitable or cashflow positive, strong fundamentals are key. You need to be all over your historic numbers and future metrics. Do you know your LTV:CAC ratio? Do you understand your margin components and what you will do in the future to improve them? How well will your business scale?
Final thoughts
I could talk about this for hours and still not cover everything but the key to success is to get advice and get it early. Be challenged by the people you can trust. You don’t know what you don’t know so connect with those that have skills and experiences you don’t have and learn from them to drive success.
