What Angel Investors Consider Before Investing in E-Commerce

There are an estimated 12 to 24 million eCommerce sites across the entire internet, with more and more created every day. If these numbers make you think it’s a competitive market — don’t worry. Less than 1 million of these sites sell more than $1,000/year, so there’s tons of room for growth.

Obviously, like any other business owner, your primary concern is capital – where do you get the funding to jumpstart that growth?

More often than not, banks turn aspiring entrepreneurs away. On top of that, your own pockets are about as deep as the half-full glass fueling your ambition.

Luckily, there is a savior – the angel investor.

An angel investor is a wealthy individual who provides funding for a startup, often in exchange for an ownership stake in the company. In many cases, angels are the last option for a whole host of startups that don’t qualify for bank financing and may be too small to interest a VC.

They will invest in the range of $25,000 to $500,000 to help get a company started, and while they obviously don’t want to lose their money, they aren’t typically as focused on making a quick buck, unlike VCs. Angel investors are more concerned with the commitment and passion of the founders and the larger market opportunities they have identified.

Sounds too good to be true, right? That’s because it kind of is. Angels are generous, but they’re also cautious experts vary about their business ventures. And when it comes to eCommerce, they see an industry with massive potential, but substantial risk.

If you get inside the mind of an angel investor, you will find that each one has their own investment thesis and philosophy. But there are a couple of issues that all eCommerce investors seem to want.

Who doesn’t want to get rich quick? Everybody, but investors, in particular. Not all stages in a company’s lifecycle are suitable for investors. They prefer to come in at a point where some infusion of capital will result in a significant uptrend in sales and other metrics. Are you at that point in your lifecycle?

It is tough to differentiate an eCommerce business. Right from technology and products to marketing and branding, most eCommerce businesses seem to be cookie-cutter replicas. So, what are you doing to stand out?

In many cases, having a unique competitive advantage can be the difference that propels you to success. For Zappos, it was their exceptional customer service. For Beard brand, it was their unique story-telling that carved a unique brand identity for the business. So, how do you stand out?

Is your entity flexible enough to adapt to a constantly changing world of business? Angel investors require business plans that confidently cover any challenges you might encounter, both in the short and long term.

That is because technologies evolve, and customer preferences change. ECommerce is a dog-eat-dog industry, with competitors viciously grabbing onto whatever market share you let slip out of your fingers. That’s why you need to be vigilant to changes in your business environment and respond to them immediately.

At the end of the day, appearances do matter. Angel investors wish to be confounded by your philosophy, impressed by your experience, and captivated with your ambitions.

As an aspiring entrepreneur, you should have clear end goals in mind for your business, and be motivated to take it through all the way. You should also be humble, and cognizant of the challenges you would inevitably face.

In today’s cautious economic climate, angels can be the difference between an eCommerce business’s growth and closure. But just like business owners need someone to bet on them, investors need returns.

That’s why, beyond making business plans, it’s even more crucial for entrepreneurs to actually execute them. Because, at the end of the day, how you choose to use the funding will majorly determine your growth and the angel’s profit.

And that should be simple enough – after all, who doesn’t want to please the angels?