E-commerce companies are capital-intensive, and capital constraints often leave revenue on the table due to missed opportunities. Securing capital is crucial for scaling operations, enhancing customer experience, and staying competitive.
Traditional equity funding through venture capital or private equity is limited in Australia. Direct-to-consumer brands are often seen as too volatile and commonly excluded from institutional investor mandates, especially at the early stage.
Equity crowdfunding is emerging as an attractive alternative for e-commerce companies. Raising capital through equity crowdfunding can be a game-changer not only for funding but also for driving revenue.
What is Equity Crowdfunding?
Equity crowdfunding allows businesses to raise capital by issuing shares to a large pool of investors, through a platform like OnMarket. Unlike traditional crowdfunding, where backers receive perks or products, equity crowdfunding provides investors with a stake in the company.
The Benefits of Equity Crowdfunding for E-commerce Businesses
1. Access to Capital Without Debt
Unlike loans, equity crowdfunding doesn’t require repayment, allowing you to channel your cash flow into growth initiatives. This is particularly beneficial for e-commerce businesses, where upfront costs for inventory, technology, and marketing are high and consistently fluctuating.
2. Building a Community of Advocates
Equity crowdfunding converts your investors into brand advocates. By owning a piece of the company, they have a vested interest in its success and are more likely to promote your brand to their networks.
3. Driving Revenue Alongside Capital
E-commerce businesses can strategically use equity crowdfunding campaigns to engage with their customer base, turning loyal customers into shareholders. These shareholders often become repeat customers, contributing to increased revenue.
4. Enhanced Brand Credibility
Raising capital through equity crowdfunding can serve as a powerful endorsement of your business model. A successful campaign demonstrates market validation and can attract the attention of institutional investors and strategic partners.
5. Increased Market Awareness
Equity crowdfunding campaigns inherently require outreach and marketing, offering businesses the chance to elevate their brand visibility. The buzz surrounding your campaign can drive traffic to your company.
Overseas Case Study: Percival
Crowdcube, 2024
UK based contemporary menswear brand Percival raised using equity crowdfunding early in 2024. They saw a gap in the market to launch a mid-market line that is premium but also affordable. It has grown by building a strong community. Investors resonated with their story and wanted to be part of their community.
Capital: The campaign raised £1.1m from 794 investors, giving the business the funds to focus on building clothing lines in collaboration with celebrities and sport stars, and expanding internationally.
Revenue: During and after the campaign, they had a spike in sales. Many investors, excited to own a piece of their company and use their investor rewards, purchase products for themselves and gift items to friends, driving word-of-mouth referrals.
Community: their brand now has 794 shareholders who are passionate about their brand and see the opportunity in the sector. These shareholders have exclusive access. Their "The Closed Circle" program provides members with direct communication channels with the Percival team, offering insights into product development and exclusive content, thereby enhancing customer loyalty.
This dual benefit of capital and revenue makes equity crowdfunding an incredibly efficient strategy for scaling an e-commerce business like Percival.
Summary
Equity crowdfunding is more than just a way to raise capital, it’s a tool for you to deepen your connection with your customers. By turning customers into shareholders, you can create a loyal, invested community that not only funds your success but also actively contributes to it.
For companies ready to scale, equity crowdfunding offers a compelling blend of capital and revenue. If you are interested to learn more contact Issac Newbold at issac@onmarket.com.au.