How To Get Funding For An Online Marketplace Startup

・6 min read
How To Get Funding For An Online Marketplace Startup

It’s not enough to have the products, the experience, and the market knowledge to open your own online store. You need to have the funding.

The greatest USPs and most innovative product’s features never find an audience if there’s no one to pay to keep the lights on. Acquiring funding for your online marketplace startup can be incredibly tricky, especially if you’ve never tried to finance a side hustle or business before. If asking for money makes you uncomfortable and anxious, that’s entirely normal, but it’s a hurdle you need to get over to get your marketplace started.

Your dreams shouldn’t fall apart just because you don’t have the cash to hand right now. Let’s explore some ways you can fund your online store startup.

Crowdfunding

In the last decade, crowdfunding has emerged as one of the most effective ways of financing an online marketplace or any type of business for that matter.

The idea of complete strangers funding a business or concept they’re excited by has been fully normalized thanks to the popularity of platforms such as Kickstarter and GoFundMe. While these sites have played host to stories of people improving their personal finance for medical bills and the creation of lifelong art projects, it’s businesses that have thrived from their popularity.

Startups enjoy this platform for the flexibility and freedom it offers. You’re not indebted to investors or a bank, but regular people who are already interested in your products and service. Rather than paying off a significant loan, you’re merely offering people who donate a reward based on the amount they invested (which can generally be used as a marketing opportunity when it comes time to deliver them).

Where this model falls is the lack of support it provides. It can be hard to ask for additional funding you couldn’t foresee once your initial target is met, and failure for crowdfunding projects can be high profile and disastrous for your opportunities of pursuing a new venture. There’s also a lack of mentorship that a lot of alternative forms of funding can provide as a bonus, meaning you’re largely left to your own devices.

Tip - Do your research

You must make good use of the time spent waiting for the funding to roll in.

Online retail is an incredibly crowded and challenging market to find a niche in. To succeed, you need to have a full understanding of not only what you’re selling, but what has been effective for potential competitors and other startup eCommerce stores.

Use this time to research competing stores and take advantage of the significant amount of online material out there designed to help give entrepreneurs looking at opening their own online marketplace a head start. From free courses on building a business to creative tips to set your branding apart, there is so much knowledge out there to give you a head start.

Take advantage of incubator or mentoring programs

It’s hard to go it alone in the business world, that’s why many first-time entrepreneurs and online marketplace founders have turned to incubator and mentoring programs to help them acquire funding and guidance for their projects.

These schemes have primarily been used by US startups, but are gaining traction internationally, mainly through online programs. These schemes allow aspiring business owners access to invaluable resources, tools, and professional guidance from seasoned professionals to help them acquire future funding.

Being on one of these schemes helps you get noticed, and sometimes the right eyes on your business plan are all you need to get the financial injection you’re looking for.

Business line of credit

Entrepreneurs may sell themselves as business visionaries, but they can’t see into the future.

In the early days of business, it’s impossible to tell where you’re going to be a month, 6 six months or a year down the line. Online marketplaces, in particular, have varying degrees of success, often predicated on a unique selling point or creative marketing campaign. The problem with this is estimating how much funding you’re going to need over a specified period.

A business line of credit is an excellent solution for this, acting as something of a hybrid between a traditional bank loan and a business credit card. It allows you to withdraw funding as you please and within your own means. From a pre-approved amount, you can remove a section of cash and use that to pay for what you need most, whether it’s products or a website redesign.

This stops you from getting ahead of yourself or finding your business, spending its way into unnecessary debt. Such a method is popular in the US, and similar schemes have popped up in the EU, primarily through specific age group grants. The beauty is lower credit scores will be accepted, however, they do come with higher interest rates.

Tip - Start with low investment

The key to a sustainable online marketplace startup that doesn’t instantly launch itself into significant debt is to kick things off low investment.

To really thrive you need to cut non-essential costs to a minimum. Think about where you’ll be working and how your business can be restructured to be more cost-effective. Models such as dropshipping are excellent for this, as they take a lot of the financial and structural demands of an online store out of the hands of the business owner, with products shipping directly from the supplier.

Venture capital funding

On the high investment end of the scale sits venture capital.

This is where startups receive private equity from a venture capital firm looking to invest in them for a potentially high return. Generally used to help get inventive and disruptive businesses off the ground, the aim is that they will become the new normal and thus highly profitable as an investment.

Such a strategy is ideal for online marketplaces who are thinking big and in it for the long haul. You can’t just flush a venture capitalist investment down the drain or hope to go about your dream business quietly, and they’ll want financial return and influence in your business for their investment. One to consider in the right circumstances, but certainly not for everyone.

Start saving

It feels obvious to say, but if you don’t want to get locked into high-interest debt and want the freedom to do your business your way, the best avenue to go down is self-funding through saving.

Saving isn’t easy, but in doing so, you have more time to research your market and make sure you’re selling the best products at the right time. Tools such as Google Trends can help make sure you’re making the right choice.

As you can see, there are several ways to acquire the funding you need to get your online marketplace going and open yourself up to new customer bases. All of these come with their own unique pressures, whether reputational or financial, so make sure to do your research and have a convincing business plan and structure ready.

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