5 Ways to Secure Funding for Online Business Growth

When You Think You’re Ready To Raise Funding, Think Again

Online businesses come in many shapes and sizes, from content websites to Software as a Service (SaaS) startups and e-commerce stores. At one stage or another, most founders ask themselves, “Should I secure investment or raise funding to accelerate growth?” 

Although some businesses stick with bootstrapping — growing organically without investment — it’s worth taking the time to assess your investment and growth financing options.

Securing funding is a process. 

It takes time. 

And not every business is successful. 

Even if you don’t raise funding, the feedback you receive from potential investors or investment platforms should help you refine and strengthen your business model.

You’ll be better prepared to try again in the future. 

If you are successful, the cash injection should dramatically accelerate the growth of your online business. 

Do you need funding or investment to grow? 

Carrie Rose, CEO of Rise at Seven, raised a 5-figure investment from an angel investor after failing to get a place on the BBC’s popular business reality show, The Apprentice

Rise at Seven grew remarkably quickly over three years.

Now they generate 7 figures in revenue, with over 100 staff, 3 UK offices, and they’re opening a US office in New York City.

In an unusual move, they paid the investment back after 3 months. 

In an interview, Carrie said: “Money makes everything simpler; it buys time, people, tools, and everything you need to grow a successful agency. However, I don’t think you need investment to grow any business. But, investment can give you confidence.” 

As a founder, investment will give you confidence. Fundraising is worth considering, especially if you have ambitious growth plans and a large target market. 

How do online business owners raise investment or funding? 

Online business owners raise investment or funding in several ways. Despite the countless times you hear about startups raising funds from Venture Capital (VC) or angel investors, there are other viable options. 

The following are worth consideration:

  1. Co-founder or Non-Executive Director (Seed, Angel) Investment 
  2. Angel & Venture Capital (VC) Investment 
  3. Equity or Rewards-based Crowdfunding
  4. Peer-to-Peer (P2P) Lending (P2P Loans)
  5. Revenue-based Financing (RBF)

We cover every option in more detail below, but let’s start by taking a closer look at the current investment climate and how this might influence your fundraising strategy. 

We also outline what you need to do before attempting to secure funding from people outside of your business. 

What are the market conditions for fundraising?  

Since 2010, the investment climate for startups has been buoyant. It’s been a ‘golden era’ for fundraising and investment — with 2021 setting a record of $630 billion deployed by VCs into startup businesses.

Last year, over 150 unicorns (startups worth over $1 billion) were created every quarter. 

Unfortunately, those days are over. 

Startup investment dropped 11% in Q1 (to $162 billion) 2022 compared to Q1 2021. In Q2 of this year, funding declined a further 26% to $120 billion, according to Crunchbase data

Crunchbase notes, “YoY comparisons are against 2021, which was a record year for venture funding. Funding for the second quarter of 2022 still exceeded every quarter in 2020.” Data has yet to be compiled for Q3. 

Y Combinator, the world’s leading startup accelerator, told founders to prepare for the worst — saying they shouldn’t expect to raise new investment for at least 2-3 years. 

Although the US is not officially in a recession, the world’s leading economy is struggling to maintain sustained economic growth.

The International Monetary Fund (IMF) warned that we face more economic challenges than those encountered during World War II. 

A perfect storm of economic turbulence is heading our way: inflation, higher interest rates, lower consumer and business spending, and capital restrictions for startups and small businesses. 

For startups, this is the worst possible time to raise investment.

Or is it? 

Startups have consistently raised money during downward trends. Even after the Dotcom crash (1999 – 2001), viable startups continued to attract investment. 

Yes, the barriers to entry are higher. Term sheets get tougher.

VC and Angel investors offer less, and at more onerous terms. But that doesn’t mean you can’t find suitable investors or raise money in other ways, such as peer-to-peer (P2P) lending, crowdfunding, or revenue-based financing (RBF). 

Before you start pitching to fundraise, there are several steps you must take.

8 Steps to Prepare Your Online Business for Fundraising 

What makes your business unique?

It’s a significant question to ask before seeking investment. Here’s a quick formula to ensure that your unique selling point (USP) and market offer are clear: 

1. Outline your unique selling point (USP)

  • What are we experts at?
  • What problems do we solve? 
  • What’s our product or service? 
  • What’s our value proposition? 
  • Who are our customers? 
  • What market do we address? 
  • Why do customers buy from us, and keep coming back? 

After completing this exercise, you should end up with a simple single sentence that describes who you are, what you do, and what makes your company unique. Here’s an example:

 “[Company name] is a [type of business, e.g. accountancy software] that provides [unique offering] that gets [results for clients].” 

Here’s the sentence used by a 7-figure SEO agency: 

Rankings: The SEO agency of choice for personal injury law firms.” 

It’s clear, simple, and effective. 

Your startup needs an equally powerful market offer and USP. 

You can apply this format to both product and service-based online businesses; it doesn’t matter whether you sell hand-made organic clothes from eco-friendly suppliers or software and consultancy services to small and medium enterprises (SMEs). 

We suggest working with a copywriter or marketing agency to refine your offer and USP along with your web copy, sales copy, and marketing materials. 

2. Prepare cashflow forecasts and projections

Investors, lenders, and crowdfunding platforms demand cashflow forecasts and projections. Preparing these forecasts before you commence fundraising is mandatory.

In most cases, a 3-year projection is a minimum requirement. You must show investors how the money raised will be allocated to drive growth, and the impact this funding will produce on revenue and profitability. 

3. Complete an actionable sales & marketing strategy

A sales and marketing strategy is your growth roadmap. If this isn’t your area of expertise, work with team members or consultants to create an actionable and achievable strategy that’s relative to the amount of money you raise. 

Be realistic. You won’t achieve Uber levels of global growth with seed-stage funding. As a founder, you need to work with what you’ve got, and within the resources at your disposal. 

4. Competitor analysis 

Founders should have a clear idea of their competition. Software startups must show investors that there’s already a market for their products.

Competitor analysis is one of the best ways to demonstrate that.

Competition data is widely available through public sources, such as social media, press releases, and competitor websites.

For SaaS startups, research AngelList, Crunchbase, and Product Hunt to find competitors in your sector.

E-commerce stores can uncover competitors on platforms such as Shopify. Compile everything you find and include this comprehensive competitor research in your business plan and pitch decks.

5. Assess the total addressable market (TAM)

Your startup’s Total Addressable Market (TAM) represents the total revenue opportunity that’s available to a product or service.

TAM usually applies to business-to-business (B2B) companies, although e-commerce brands can also use this calculation to assess the potential market demand for their products. 

Calculating your TAM is tricky. 

And, in many ways, it’s only the first step. Starting with a TAM calculation allows you to figure out two additional key growth fractions: Serviceable Available Market (SAM) and Serviceable Obtainable Market (SOM)

SAM is the number of potential companies within your addressable market that actually need your product or service. 

SOM is the number of potential customers within the SAM that your team could realistically reach — with your current level of investment and growth-based activities. 

For example, your TAM might be worth over $1 billion. However, with your available resources, you might only reach $10 million in this market (your SOM).

Use growth-based resource allocation to outline your annual sales targets, and then map out the quarterly and monthly targets for the company and sales team. 

6. Outline your traction 

Every comprehensive business plan and pitch deck needs to outline the traction you’ve gained so far. Investors will ask these key questions: 

  • How did you get here, and what have you achieved to date? 
  • What proof do you have, e.g., revenue, customers? 

Projections and plans demonstrate your goals. But a history of how you got there, and the milestones you’ve achieved to date, is equally useful.

Your results show potential investors your successes, any revenue generated, your customer testimonials, and your team’s commitment to a long-term vision. 

7. Provide team details & background 

It’s widely accepted that investors invest in people, not businesses. From an investor’s perspective, your product and vision are only as strong as the founders executing the mission.

Show them who you are, why you’re passionate about building this business, and why your team is the right one to successfully grow your company. 

8. What’s your ask? The investment required to grow

Growing any business requires cash. How much you need depends on a wide range of factors and there’s no one-size-fits-all approach to growth. 

Be clear on the amount you expect to raise and how you will use those funds to achieve your growth targets. 

Be realistic. Include every potential cost in your projections, including salaries, sales and marketing expenses, technology, and anything else required to grow your business. 

Now, let’s dive into the five most popular avenues digital businesses use to secure investment. 

5 Ways to Secure Investment and Raise Funds 

1. Co-founder or Non-Executive Director (Seed, Angel) Investment 

One way to raise investment at the seed stage is to hunt for a co-founder or Non-Executive Director (NED) who’s looking to invest in early-stage startups.

A co-founder plays an active role on your leadership team, whereas a NED is a passive position.

You need a co-founder or angel investor with experience relevant to your startup; ideally, one with cash to invest after exiting a successful startup.

An investor co-founder is an entrepreneur who supports you with their expertise, connections, and funding. 

What’s the benefit of this approach?

It’s not the conventional approach, but it may prove effective. There are thousands of millionaire, serial entrepreneurs who re-invest in promising new startups.

When you secure investment in this way, it strengthens your credentials and should give you access to valuable mentoring during every growth stage. 

How do I raise money this way? 

Start by seeking out mentors.

A mentor-based relationship could turn into an investment opportunity. Alternatively, if you impress your mentor, they might refer you to potential angel investors.

This method takes time but comes with massive payoffs if you connect (and work well) with the right investor. 

2. Angel & Venture Capital (VC) Investment

We’ve grouped these because VCs usually prefer to have angel investors participate in funding rounds — especially in the early stages.

Angel investors are high-net-worth individuals looking to invest their cash into startups. 

Larger investment firms, such as private equity companies and pension providers, invest their capital in VC funds, giving VCs the financial firepower to bankroll startup growth.

In some cases, VCs invest their own money or pool together with other investors to make joint investing decisions.

VC success is measured against a fund’s aggregated returns over a 5 – 10 year period.

In return for growth capital, investors take shares in a startup relative to what they think the business is worth.

An equity stake gives investors a percentage of ownership in a business while diluting the equity of the founders and other shareholders. 

How VCs invest depends on several factors. These factors include the market conditions and the amount of risk the limited partners (LPs) are willing to assume.

At present, LPs and VCs are risk-averse, meaning it’s more difficult for startups to secure funding.  

Angel investors risk their hard-earned cash.

The majority of active angels cut checks in the $20,000 to $100,000 range, although some invest as much as $1 million in a single deal. 

What’s the benefit of this approach?

Angel & VC funding is the traditional way for SaaS startups to raise investment.

Although some VCs and angels are open to supporting other types of businesses, SaaS and tech-based business models are more closely aligned with VC financial modeling and forecasting.

For founders, raising investment from VC firms with successful track records is a massive boost.

How do I raise money this way?

One way to locate angel investors is to use online investment platforms like SeedInvest, Ourcrowd, AngelList, Startengine, and Fundersclub. Angels and founders frequently connect on these platforms.

Finding VCs who are willing to accept your pitch is more time-consuming.

VCs have deal pipelines so it takes perseverance and networking to reach them. It often comes down to who you know; who can push your pitch onto a VC’s desk. 

If you get that far, you’ll be involved in pitching, negotiating term sheets, valuations, growth targets, and undergoing due diligence. It can take 6-12 months to raise investment this way and there are no guarantees of success. 

3. Equity or Rewards-based Crowdfunding 

Crowdfunding involves seeking investment from hundreds (or thousands) of individual investors.

You can offer investors an equity stake in your business (a percentage of ownership) or provide a tiered series of rewards relative to the amount invested. The latter is usually offered by product-based businesses.

An equity-based approach is a similar process to pitching investors, except these investors write smaller checks.

Despite the current investment volatility, equity crowdfunding is beating expectations with $215 million invested into crowdfunded startups between January and May 2022. 

A look at the most recent statistics shows that this market is worth $13.35 billion, at a compound annual growth rate (CAGR) of 11.65%.

The size of the crowdfunding market is expected to reach $25.93 billion in 2027. 

What’s the benefit of this approach?

Crowdfunding is a fantastic way to create an active community of supporters for your business.

It’s a powerful means to gain early-stage traction, generate marketing momentum, and raise cash to drive growth. 

How do I raise money this way?

Equity-based crowdfunding platforms include Startengine, Fundable, and Wefunder. If you prefer rewards-based crowdfunding, Kickstarter is still the most popular.

Raising funds via crowdfunding doesn’t happen quickly. 

Ideally, you should prepare a 6-month marketing, social media, email, and PR strategy prior to launch.

A pitch deck, business plan, and cashflow forecast are essential assets for this fundraising process. 

Crowdfunding platforms have stringent financial and due diligence requirements; they must ensure that your business is viable before offering it to prospective investors.

Once your proposal is approved, your crowdfunding campaign can proceed. 

4. Peer-to-Peer (P2P) Lending (P2P Loans) 

Peer-to-Peer (P2P) lending platforms provide a path for investors to lend money to startups and small businesses.

P2P lending generates sound returns for investors because investments are spread across dozens of startups within a portfolio.

At the same time, P2P lenders offer lower interest rates to startups and SMEs than banks do (usually in the 5.99-30% range). 

What’s the benefit of this approach?

Taking a loan can be risky. Not every entrepreneur or business is eligible for a loan, and you must also meet certain ‘affordability criteria.’

Lending platforms need to determine whether or not you can afford the monthly repayments, including the capital and interest components. 

How do I raise money this way?

There are numerous P2P lenders internationally. Consider the best options for your business, read the reviews, create an account, and submit an application.

You need to pass Know Your Customer (KYC) standards and affordability checks as part of the application process. 

Lending Club is a P2P lending platform that lets you borrow between $1000 and $40,000 to fund your business.

The repayment period ranges from three to five years, depending on the amount borrowed and the interest rate the platform sets for the loan.

5. Revenue-based Financing (RBF)

Are you looking for investment but don’t want to dilute your equity? 

Revenue-based financing (RBF) could be the best option — but only if you’re a startup or e-commerce company that’s already generating revenue. Unfortunately, pre-revenue startups can’t access this type of financing. 

What’s the benefit of this approach?

The amount you raise is dependent on your company revenue. Revenue-based financing means that you give an agreed percentage of your revenue to investors in return for growth capital.

It’s a useful method for companies looking to build on their existing success. 

How do I raise money this way?

RBF funding providers specialize in niche-market sectors such as business-to-business (B2B), direct-to-consumer (D2C), and software-as-a-service (SaaS) startups. 

Pipe focuses on D2C businesses.

For e-commerce brands, Silvr offers a way into revenue-based financing. Additionally, PayPal and other payment providers offer revenue financing to online retailers. 

Levenue is now one of the best platforms for UK and European SaaS startups to secure funding after their acquisition of Requr in January 2022.

RBF providers require proof of revenue (from bank statements and payment platforms), financial projections, and a business plan. 

Summary & key takeaways

As you’ve seen, there are several funding options available to startups, e-commerce brands, agencies, content marketing websites, and other digital businesses. 

Take time to consider whether raising investment is right for you. Founders often choose to bootstrap and postpone the option to secure funding until a later stage.

Each of the methods we covered takes time. Expect it to take twice as long as you think.

There are no guarantees, even when you have a strong, revenue-generating business that’s already profitable. 

Before you begin seeking investment, create a pitch deck, business plan, and cashflow forecasts that include the following eight sections:

  1. Outline Your Unique Selling Point (USP)
  2. Prepare Cashflow Forecasts and Projections
  3. Complete an Actionable Sales & Marketing Strategy
  4. Competitor Analysis
  5. Assess the Total Addressable Market (TAM)
  6. Outline Your Traction 
  7. Provide Team Details & Background
  8. What’s Your Ask? The Investment Required to Grow 

Depending on your business type, stage of growth, operating and revenue models, and the amount you require, begin with these five primary choices for online business funding: 

  1. Co-founder or Non-Executive Director (Seed, Angel) Investment 
  2. Angel & Venture Capital (VC) Investment 
  3. Equity or Rewards-based Crowdfunding
  4. Peer-to-Peer (P2P) Lending (P2P Loans)
  5. Revenue-based Financing (RBF)

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Dom Wells

Dominic Wells is the CEO and Founder of Onfolio. Dom is responsible for developing and implementing Onfolio’s long term business strategy. He is a serial entrepreneur with more than a decade of experience investing in and building digital businesses. Dom has grown Onfolio from a startup to a NASDAQ listed company. For Onfolio’s investors, Dom has built a diverse and profitable portfolio of online businesses that deliver consistent returns. Dom is passionate about entrepreneurship and regularly speaks on digital business strategy, online business investment and profitable growth opportunities. For Dom, diversification and exceptional talent are the keys to sustainable growth.

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