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The Ecommerce Issue September 2023

Building a customer-oriented ecommerce business through better human interaction

Building a customer-oriented ecommerce business through better human interaction


Five funding options for founders: Choosing the right path for your business

Five forms of funding

Just as there’s no one type of founder, there’s no one type of funding, either. Here are five varying forms of funding to explore — and some useful advice from experts, too.

    Venture capital (VC) investment gets a lot of air time, but it’s not the only game in town for founders looking to scale. While it’s possible to find VC firms that share your values and vision, there are other funding options that may align better with founders from underestimated and historically underrepresented backgrounds.

    While it may seem intimidating, thinking through these different options with intention from the outset creates clarity around what your business will need to grow and how you want to get there. 

    To help you get the lay of the funding landscape and settle on the funding route (or routes) that work for you and your business, we’ve created this brief guide to explain five varying forms of funding, debate their pros and cons, and showcase a whole slew of related resources.

    Five different forms of funding, explained

    1. Bootstrapping

    Bootstrapping is the DIY approach that requires funding a business with personal savings and then reinvesting revenue into the business to support and sustain its growth. 

    On top of it being potentially the best (and maybe only) way to fund your business if you want to maintain control over all the early decisions, bootstrapping is hugely rewarding, personally and professionally speaking. The scrappiness allows you to experiment and improvise, and the metaphorical and literal payoff of retaining full ownership can definitely be gratifying.

    That said, bootstrapping is no easy feat. From the start, you will be responsible for coming up with an initial injection of cash and ensuring that the revenue stream starts early to be able to continue to fund the business. Furthermore, being the captain of the funding journey can be isolating at times, and you may feel overwhelmed or frustrated by the responsibility of both funding and learning all you need to know to grow the business. 

    Not all bootstrapped businesses remain bootstrapped forever, though, and if you go this route,  you may decide you want to raise investment down the line to secure longevity. This is what tech giant Atlassian did: After reaching over $50 million in annual recurring revenue in eight years, the bootstrapped company took on $60 million from venture capital firm Accel in 2010. In a Crunchbase interview, co-CEO Scott Farquhar explained that the funds provided a way for the company’s employee shareholders to bank the growth in value of their shares, and they helped the company grow its board to work toward longer-term growth and goals. All this to say, once you’ve successfully bootstrapped, you can eventually look into additional funding options, depending on your goals.

    To help gauge if bootstrapping is right for you and your business, the folks at Courier have written a short list of tasks and corresponding questions to ask yourself. Here are the three most important:

    • Assess your financial position. How much are you willing to inject into the business? How little can you live off while the business is prioritized?

    • Have a clear business model. What does your business model look like? A model that focuses on recurring cash flow is a necessity for bootstrapping — as is having a product or service that doesn’t require a significant amount of cash to get set up or developed.

    • Determine demand. Are there enough folks interested in buying your product or service? Find this out before dropping a sizable amount of money and time. Pitching your idea to a small group of ideal customers — or even launching a campaign somewhere like Kickstarter — can aid with clarifying demand. 

    Despite its toughness, bootstrapping needn’t be a lonely or overwhelming experience. There are collectives and communities that offer support and knowledge to bootstrappers, such as Black & Brown Founders and MicroConf

    2. Crowdfunding

    Tapping into a community of people who support your company’s mission, values, and product can provide another path to investment. Crowdfunding is a method that enables passionate folks to become a part of your business’s success story by financially contributing to its growth.

    Like bootstrapping, crowdfunding is a more democratic approach than traditional venture capital investment, and it can help you raise finances quickly. Additionally, there are nifty benefits like having your service or product thoroughly verified by others and the ability to carve out an independent community around your business.

    However, the crowdfunding route is highly competitive. You’ll need to take time to create an authentic and well-thought-out campaign — which is essentially your business pitch — to get supporters emotionally and financially on board with your idea. 

    Crowdfunding doesn’t work for everybody or every business. Here are three initial questions to consider:

    • Is your business crowdfund worthy? Some businesses are inherently ripe for crowdfunding — say, an independent brewpub or bookstore (or both!) — as brick-and-mortar businesses have the advantage of directly benefiting local communities. A B2B SaaS product? Not so much — unless it promises a unique or specific benefit that will inspire enough consumers to get involved from the beginning.

    • Do you have people already interested in your business? Having a few supporters ahead of publishing your campaign can go a long way. Their enthusiasm can help spread the message and, ideally, kick off the financial contributions.  

    • What rewards can you offer financial contributors? On rewards-oriented crowdfunding platforms, perks can make or break a campaign. What special and enjoyable experience, event, or item can you offer contributors along the way?  

    There are a plethora of ways to secure investment within the crowdfunding route, including several different models — like equity crowdfunding, where stakes are sold to investors in return for investment; peer-to-peer lending, where the money is paid back with interest and functions like a loan; donation-based crowdfunding, where people invest out of goodwill; and so on. The European Commission has written this quick explainer if you’d like more information.

    Beyond types of crowdfunding, there are also myriad platforms you can use, like Indiegogo, which is rewards-based, Honeycomb Credit, which helps businesses crowdfund loans from their local communities, and many more.

    Crowdfunding advice from Honeycomb’s George Cook

    Honeycomb Credit’s platform empowers early-stage businesses to tap into local communities and gain funding from folks who want to support independent businesses ​in their backyards. The funding works in the same way small business loans do; you’ll agree to terms that allow you to raise (“borrow”) a specific amount from a group of investors, which you’ll pay back, with interest, over an agreed-upon time period. 

    Community and funding are in Honeycomb co-founder and CEO George Cook’s DNA — his family has run a community bank in rural Appalachia for 130 years. But, as the banking industry consolidated and community banking began to disappear, he wanted to create a community bank for the 21st century, ultimately helping small businesses thrive and simultaneously keeping money in the local economy. 

    Honeycomb has so far worked with over 200 businesses; George has seen the recurring issues founders run into when crowdfunding, and has advice for how to overcome them. The most common early misstep, he said, is entrepreneurs not taking the time to put their strategy for growth ideas on paper, and not having a documented, referenceable plan of action for their business. Having a vision for where you want to go (and how) is key for preparing and launching a campaign — folks won’t invest if the founder doesn’t present a clear and actionable plan for what’s ahead. 

    “It doesn’t need to be a 50-page business plan binder,” George said. “Just writing down a couple pages of notes, to include things like ‘I’m going to buy this piece of equipment,’ ‘I’m going to open a location in this neighborhood,’ or ‘I expect to earn this amount of revenue,’ is really important for entrepreneurs who are crowdfunding. It’s surprising how often folks haven’t done that.” 

    The second issue George has noticed is entrepreneurs underestimating the amount of sustained work a campaign will require. Simply launching and then hoping traffic rolls in, followed by sufficient contributions, isn’t enough. Instead, he said, it’s crucial that founders regularly utilize social media and leverage their networks (family, friends, early supporters) to share the campaign link in their own circles — then offer visitors engaging multimedia content when they land on the campaign page.

    As George said, “It’s not 20 hours a week, but it is about five hours a week. It's not a Field of Dreams, if-you-build-it-they-will-come situation. You’ve got to be willing to roll up your sleeves and get the word out about your campaign.” 

    3. Pitch competitions

    Pitch competitions are where entrepreneurs take to the stage and, through the art of storytelling, data, and a solid business plan, explain why the judging panel — normally seasoned business leaders and investors — should provide their business with funding. Winners of a pitch competition generally receive a cash prize — in the form of a grant — and sometimes get coaching and mentoring (either in lieu of or in addition to money), too.

    Despite the specific and differing entry requirements (e.g., “The business must be generating revenue but have less than $2 million in funding,” etc.) and the application forms you’ll need to submit, pitch competitions generally offer a more merit-based path to funding. They can be a great route for founders from historically marginalized backgrounds who face more systemic challenges on the path to an investor audience. For instance, Draper Competition for Collegiate Women Entrepreneurs, the National Black Business Pitch, and the Minority Innovation Weekend Pitch Competition and Innovation Marketplace are just three of many.

    Finding appropriate competitions — either to your industry, geographical area, or characteristics — requires a little effort due to the absence of an updated, one-stop library of pitch competitions (at least at the moment!). For that reason, it’s crucial to tap into other founders’ knowledge and experiences. If you don’t know the existing range of pitch competitions available or new competitions being launched, community is key. Whether you make connections with local founders or utilize the likes of Twitter or LinkedIn to foster relationships with founders from further afield, check with other values-aligned founders in your industry about what pitch competitions they’re aware of and/or can recommend. 

    Preparing for and speaking at pitch competitions can be intimidating due to the performative, public-speaking aspect. They’re a gamble, too, as there’s no guarantee that you’ll be selected to participate, let alone win. But the exposure and a boost in early funds can be rewarding. If you’re interested in pitch competitions, here’s a useful and actionable pitch worksheet from Techstars, one of the most lauded accelerators in the U.S.

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    4. Accelerators

    Accelerators are intensive, time-limited programs where cohorts of innovative companies with traction receive mentorship, guidance, and introductions to investors (usually at the culmination of the program, known as “demo day”) so they can grow at speed.

    The wealth of support, knowledge, and connections that accelerators can offer is particularly valuable for first-time founders — as is the seed funding that these programs often provide. The funding offered can range from around $5,000 to over $100,000, usually for a slice of equity. According to Silicon Valley Bank, accelerators usually look to take between 5% and 10% of equity for the training and initial funding. However, they do vary when it comes to funding and equity amount — some accelerators may even provide equity-free funding.

    The main drawback of accelerators is the equity you’re potentially parting with. But all things — not least when it comes to business funding — have pros and cons. So, ask yourself this: Does the potential trade-off sound beneficial in both the short and long term?

    If this route sounds interesting, here’s a short list of accelerators to check out:

    Advice on joining accelerators from TinySeed’s Rob Walling

    Rob Walling, alongside Einar Vollset, is the co-founder of TinySeed, a year-long, remote accelerator specifically for SaaS bootstrappers with more than $500 monthly recurring revenue. If you’ve bootstrapped your way to some initial traction and want to maintain optionality and not (at least immediately) jump on the VC treadmill, TinySeed enables you to grow your business into one that’s sustainably profitable without a VC’s financial input. 

    Rob has some useful advice for those wanting to join an accelerator. His first piece of wisdom? Be proactive about acting on your business idea, turning that idea into something tangible, and establishing a customer base before you apply for an accelerator program. You should be able to show the accelerators you’re applying to that you have solid foundations and your product or service is already valued by customers.

    “One issue that we see is folks who are not getting any traction on their own, and haven’t proven that they can do it by being scrappy bootstrappers: if you just have an idea and you’ve been building a slide deck, you don’t really have much. So, the advice I give folks is to build a business rather than a slide deck — monthly recurring revenue tells the best story,” he said. 

    But what about when you’re actually accepted into an accelerator, and you’re being fast-tracked, with business maestros at your side, and potentially with a sizable sum of money? Rob suggested being intentional with the funding that the accelerator provides you — by leaning on the advice and expertise from your newfound network for how to best use the cash.

    “When someone who’s been bootstrapping and doing it on their own in an extremely cash-strapped and capital-efficient way gets inside an accelerator, oftentimes they have money (read: a low six-figure amount) for the first time. It’s worth taking the time to think through the best way to spend it so you’re not irresponsible with it, but you’re also not too conservative. If you raise funding and you don’t spend any of it, then why did you raise? It’s important to have advisors, mentors, and other folks who're not just giving you a check, but also helping you be the best steward of that money, and spend it in ways that grow your company faster.” 

    5. Values-aligned VC funding

    VC funding isn’t right — or equitable — for all founders or businesses. As WomensVCFund II Advisory Board members Ilene H. Lang and Reggie Van Lee mentioned in their Harvard Business Review article, VC investments have quadrupled over the last decade and the number of women-owned companies and entrepreneurs of color have increased in the U.S., but women, Black, and Latinx founders are still receiving an incredibly low and disproportionate slice of overall funding.

    That doesn’t mean venture capital should be disregarded entirely, though, as VC firms luckily come in various shapes and sizes. Many VCs, like Pride Fund 1 and Clean Energy Ventures, strive to invest in businesses with high growth potential that also have planet- and/or people-positive missions at their core.

    Having the backing of VCs who understand and care about what you're doing and why is hugely advantageous: You’re less likely to have to budge on your mission, and your values-oriented culture and ethos will be better preserved. What’s more, you’ll gain the benefits that normally come with VC funding — a sizable (and debt-free) lump sum of cash, the ability to immediately scale, and the valuable connections and networks that VCs bring to the table. 

    That said, it’s good to also acknowledge some of the cons: You’re trading away equity, thereby reducing the percentage of ownership that you and any co-founders hold and could offer out in the future. Additionally, the act of raising funds — which includes researching VCs, practicing your pitch, delivering your pitch, and undergoing lengthy discussions afterward — can be grueling due to the rejection involved. (But then again, rejection is part-and-parcel of many other funding forms, too.)

    At the end of the day, values-aligned funding should be evaluated just as carefully as any other funding source. Even if you find a VC with similar values, this route may not work with your business model. But, if you think that you’d like to pursue this path, here are a few tasks that’ll help you be more intentional with the process:

    • Create an ideal VC investor persona. Just as you’d create personas around ideal customers, create a persona for the type of values-aligned VC investor from whom you’d most like to receive funding. 

    • Do your due diligence. If you’ve met a seemingly promising VC, do your research: Speak to a handful of other companies in their portfolio, and ask them about their experiences with the investor. 

    • Be transparent about values — and expectations — during negotiations. It’s important for the VC’s values to match yours, but both parties also need to be aligned when it comes to the expectations for the company/investment relationship and the company’s overall goals. Asking questions about these topics early on (How hands-on/off will the VC be? What’s a manageable timeline for goals to be met?, etc.) will help reduce friction.

    Additional funding-related reading and listening

    Settling on which funding route(s) to take can be straightforward for some but tougher for others. Take a look at these resources as you prepare to make funding decisions.

    1. Fundraising for the Reluctant Founder

    Fundraising for the Reluctant Founder is a concise playbook written by Nick Francis — the co-founder and CEO of Help Scout — for mission-driven entrepreneurs who lead with their values and don’t want to compromise in the name of explosive growth. The playbook comes in the form of a five-part, weekly newsletter, and it transparently delves into how Help Scout raised $28 million over 10 years — all while doubling down on their people-oriented mission, ethos, and values. 

    2. Bootstrapped Digest

    Bootstrapped Digest is a 25-episode podcast and treasure trove of honest advice and anecdotes from Ashley Baxter, a Glasgow, Scotland-based bootstrapping entrepreneur who founded With Jack. With Bootstrapped Digest, Ashley describes the rollercoaster highs and lows of bootstrapping her own company and prioritizing slow, organic growth above overnight success.

    3. How Venture Capitalists Make Decisions

    If you think VC funding could be a part of your business’s future — or even if you’re just interested! — here’s a Harvard Business Review article by Paul Gompers, Eugene Holman Professor of Business Administration at Harvard Business School, et al. It provides a transparent look, aided by recent research, into the art and science of how VCs go about their funding decision-making.

    Going down the best funding road

    How you fund your business will have a deep and lasting impact. Being intentional about your next steps is pivotal, and George Cook, the CEO and co-founder of Honeycomb, has some helpful parting advice on the matter: “It’s about taking a step back, being honest with yourself about what game you’re playing, and then figuring out what type of funding is right for your business,” he said. “It might be debt, or it might be revenue share, equity, grants — but making sure your funding sources are aligned with your strategy is critical.”

    Identifying your business’s needs and running in that appropriate direction might look different from what you initially imagined. Make your funding decisions with purpose, and you’ll be able to double down on your values and mission — rather than steer away from them.

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