Going to try raise 20k (18k USD) For e-commerce start up, What return do investors usually look for?

[Lukebrisbane]

I'm looking to raise about 18,000 USD for my e-commerce start-up in the mens grooming industry.

I was wondering if anyone knew how much I should offer as a return and over how many years?

Like i'm not looking for you to tell me the exact amount I know that's up to me, but rough industry guides.

I've put about $1400 into building the website/store so far, and will probably slowly purchase products but it's going to need a decent bit of cash to get it where I want it to be.

Cheers,
Luke

 

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[ZCP]

Do you have sales?
Have you completed several other similar businesses?
What was last years profit?

If your answers are similar to cricket noises....... you will give up too much equity or get no investment at all. Bootstrap it.

 

[AgainstAllOdds]

You don't want to give up equity for $18k. That's dumb. $18k is a pittance is the grand scheme of things.

Take @ZCP's comments:

Do you have sales?
Have you completed several other similar businesses?
What was last years profit?

If your answers are similar to cricket noises....... you will give up too much equity or get no investment at all. Bootstrap it.

Investors are looking at a return relative to risk. If you have no experience, then they'll want a minimum of 20%. If you don't know how to raise money, then probably closer to 50%. If they give you better terms than that (with no experience), then they're idiots.

Now let's run through your numbers.

At 20% for $20k (Australian), your valuation is at $100k.

At 50% for $20k, your valuation is at $40k.

What's the minimum wage in Australia...$35k a year, right?

E-commerce businesses typically get valued at 2.5x earnings. You need to be earning at least $35k minimum to pay yourself a wage. So $87.5k ($35k * 2.5 = $87.5k) is the intrinsic value of the business if you'll be doing at least a year's worth of effort, and are worth minimum wage. In that scenario, 20% is barely fair. 50% is not fair at all.

Both numbers don't work for either you or the investor.

Start with a couple grand. Prove the concept. Then add fuel (investment) to the fire once you know how much you could reasonably take on.

And to be honest...you won't need investment if your business is worth a damn.

Let's say you can get 50% returns on your initial $2k (50% is reasonable at a low scale). Then let's assume that you can sell out of product, re-up, and continue growing every 3 months. In that case, here's how the math looks:

Year 1
Jan 1 - $2,000
Apr 1 - $3k = $2k * 1.5
July 1 - $4.5 = $3k * 1.5
Oct 1 - $6.75k = $4.5k * 1.5

Year 2
Jan 1 - $10,125
Apr 1 - $15,187.50
July 1 - $22,781.25

If you start out with $2,000 and kind of know what you're doing, then it will take you a year and a half to get to that $20k that you need. Are you really going to give up 1/5th or 1/2 of your business for that $20k, especially when you don't know what you're doing?

And let's say things are going well early, and you're confident, then here's another scenario. You start hustling an extra 20 hours a week and applying that cash straight to your business: ($17.70 minimum wage * 20 hours * 4 weeks * 3 months = $4,248 a quarter).

Year 1
Jan 1 - $2,000; Side hustling: $4,248 injected on Apr 1st.
Apr 1 - $3k + $4.24k = $7.24k
July 1 - $10.86k + $4.24k = $15.1k

QUIT JOB HERE

Oct 1 - $22.65k

Basically 6 months of side hustling 20 hours a week. Shit sucks, but a lot better than pissing equity down the toilet because you were too lazy to hustle - in which case your business probably didn't work out anyways.

 

[Lukebrisbane]

Do you have sales?
Have you completed several other similar businesses?
What was last years profit?

If your answers are similar to cricket noises....... you will give up too much equity or get no investment at all. Bootstrap it.

Thanks for your reply. Puts in perspective.
No sales yet, the store is getting built by a shopify setup business. I know that was an expensive way to go about things but I wanted to get it right from the start.
Have tried similar e-commerce businesses and well they haven't exactly worked out.

 

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[Lukebrisbane]

You don't want to give up equity for $18k. That's dumb. $18k is a pittance is the grand scheme of things.

Take @ZCP's comments:



Investors are looking at a return relative to risk. If you have no experience, then they'll want a minimum of 20%. If you don't know how to raise money, then probably closer to 50%. If they give you better terms than that (with no experience), then they're idiots.

Now let's run through your numbers.

At 20% for $20k (Australian), your valuation is at $100k.

At 50% for $20k, your valuation is at $40k.

What's the minimum wage in Australia...$35k a year, right?

E-commerce businesses typically get valued at 2.5x earnings. You need to be earning at least $35k minimum to pay yourself a wage. So $87.5k ($35k * 2.5 = $87.5k) is the intrinsic value of the business if you'll be doing at least a year's worth of effort, and are worth minimum wage. In that scenario, 20% is barely fair. 50% is not fair at all.

Both numbers don't work for either you or the investor.

Start with a couple grand. Prove the concept. Then add fuel (investment) to the fire once you know how much you could reasonably take on.

And to be honest...you won't need investment if your business is worth a damn.

Let's say you can get 50% returns on your initial $2k (50% is reasonable at a low scale). Then let's assume that you can sell out of product, re-up, and continue growing every 3 months. In that case, here's how the math looks:

Year 1
Jan 1 - $2,000
Apr 1 - $3k = $2k * 1.5
July 1 - $4.5 = $3k * 1.5
Oct 1 - $6.75k = $4.5k * 1.5

Year 2
Jan 1 - $10,125
Apr 1 - $15,187.50
July 1 - $22,781.25

If you start out with $2,000 and kind of know what you're doing, then it will take you a year and a half to get to that $20k that you need. Are you really going to give up 1/5th or 1/2 of your business for that $20k, especially when you don't know what you're doing?

And let's say things are going well early, and you're confident, then here's another scenario. You start hustling an extra 20 hours a week and applying that cash straight to your business: ($17.70 minimum wage * 20 hours * 4 weeks * 3 months = $4,248 a quarter).

Year 1
Jan 1 - $2,000; Side hustling: $4,248 injected on Apr 1st.
Apr 1 - $3k + $4.24k = $7.24k
July 1 - $10.86k + $4.24k = $15.1k

QUIT JOB HERE

Oct 1 - $22.65k

Basically 6 months of side hustling 20 hours a week. Shit sucks, but a lot better than pissing equity down the toilet because you were too lazy to hustle - in which case your business probably didn't work out anyways.

This is incredibly helpful to read.

You are 100% right. My rational about raising capital was I only have about $1000 to put into products right now, I didn't see how i could even get going with that. I guess I could try start with 1 product, run facebook ads. I do have a business plan written up and was going to use 1 of those angel investing websites to try get some attention.

 

[AgainstAllOdds]

This is incredibly helpful to read.

You are 100% right. My rational about raising capital was I only have about $1000 to put into products right now, I didn't see how i could even get going with that. I guess I could try start with 1 product, run facebook ads. I do have a business plan written up and was going to use 1 of those angel investing websites to try get some attention.

As of now you're not ready for any kind of investment. As a "gambler", would you bet on yourself if you didn't know yourself? Because I am a gambler, and I wouldn't.

You have $1k to your name. Your previous e-commerce ventures were a failure. You're spending $1.4k on a "store getting built by a shopify setup business"... You spent 58% of your budget on creating a shopify site instead of just getting a $29 a month shopify site going (which you'll probably have to pay anyway)? Come on man!

Step 1 is doing stuff, so you're on the right path.
Step 2 is learning.
Step 3 is continuously reiterating and improving.
Step 4 is becoming successful.

You're on the right path. Keep going. But don't look for an investment at this point. Study as much as you can. Get as good as you can. Put your own $1k up. Learn from your mistakes. Reiterate. Finally get some traction. Then once you know what you're doing, consider getting an investment.

It might take you a couple years before you even know what you're doing, but it's good that you're getting started now.

 

[ZCP]

..... I only have about $1000 to put into products right now, I didn't see how i could even get going with that.....

Search for the hustle threads. Sell some crap you don't need. Go to the thrift shop and buy/sell on ebay. Get a job. Create value.
FIND A WAY. ..... that is what bootstrapping is!

In the meantime, study / test / try / fail / try again. This is like that last step out before you slip and your head goes under the water..... You have to want it more than you want to breathe.

 

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[Lukebrisbane]

Thanks guys for your responses, that mean a lot.
Yeah I did blow money getting my shopify store custom made. But I wanted to get things right.
I'll order about $1000 worth of product and put my money from cleaning and delivering pizzas into Facebook ads.
Will probably start a progress thread once I've bought products and the site is live, I'll take lots of pictures, document what i'm doing and trying to do and hopefully get some really helpful feedback from people who have already done it.

 

[sparechange]

make sales on your own dime and fund yourself. get a job (or if you have one) dump your money into your brand. i recommend you to read the book by lori grenier (person from shark tank) talks about inventing, creating, marketing and selling your product. cheers m8 u silly wank, bloody hell 20k with 0 sales eh!

 

[sparechange]

also you should check this out...

$1 Billion for Dollar Shave Club: Why Every Company Should Worry

 

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[Lukebrisbane]

make sales on your own dime and fund yourself. get a job (or if you have one) dump your money into your brand. i recommend you to read the book by lori grenier (person from shark tank) talks about inventing, creating, marketing and selling your product. cheers m8 u silly wank, bloody hell 20k with 0 sales eh!

Thanks you cheeky brah. Yeah well bloody hell it was an idea okay, probably not my smartest but at least i'm taking action right? I appreciate you giving me some tips, but don't call me a "silly wank" because of a decision I made early on. Everyone makes mistakes, and i'm all for feedback, just no name calling. Seriously it's hard enough to be vulnerable and ask for advice as it is.

 

[sparechange]

alright, so what is your next action?

 

[sparechange]

and why $1k into products? how about a smaller amount and making a few sales first rather than risking capital

 

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[Lukebrisbane]

Well I'm going to wait till the store is set up, then i'm going to contact a supplier of 1 product and buy about $1000 worth. I'm going to try focus on high quality items from Europe or America, because my target market is 35+ affluent, educated, stylish men.
Czech & Speake | Luxe Bathing (@czechandspeake) • Instagram photos and videos
Hopefully something like that, but at the same time a lot of the "Luxury" brands in mens grooming only want to be in stores that reflect their brand. So I guess beggars can't be choosers. I just don't want some low quality stuff off Alibaba from china.
Next Facebook ads, Instagram ads, backtest relentlessly. I'm actually thinking about contacting some mens lifestyle blogs in Australia, maybe if i can find blogs about certain hobbies my target audience would read and see if they will let me banner advertise on their site. I'm not sure how effective that'll be but there's only 1 way to find out.
So the next step at the moment is reading over product descriptions in my niche, trying to understand fully how to talk to my ideal customer. I probably should be writing articles for a blog on the site, but i really don't see that being much use. I'd rather wait to make my e-mails so i can tailor them to my products I stock.

 

[ZCP]

Start the progress thread.

Start making progress.

 

[Walter Hay]

Start, but start small.

When I started my first business I had A$47 total in the bank, but I took the plunge and spent $25 of that on absolute necessities for the business (Letterheads and an old typewriter). I never looked back. If I could have done it by spending $5 instead of $25 that's what I would have done. Don't risk all of your $1,000.

Walter

 

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[sparechange]

wha happen

 

[mom]

I'm looking to raise about 18,000 USD for my e-commerce start-up in the mens grooming industry.

I was wondering if anyone knew how much I should offer as a return and over how many years?

Like i'm not looking for you to tell me the exact amount I know that's up to me, but rough industry guides.

I've put about $1400 into building the website/store so far, and will probably slowly purchase products but it's going to need a decent bit of cash to get it where I want it to be.

Cheers,
Luke

who V.C.? No-one but a close friend/family member would enter into such a small deal..my worry would be...why not get a loan/c.c. for such a small amount if you have so much faith in it?

How much equity are you giving away? Why will it be a success? What's your past record? and much,much more..for such a small amount...forget about it.

 

[maverick]

I'm looking to raise about 18,000 USD for my e-commerce start-up in the mens grooming industry.

I was wondering if anyone knew how much I should offer as a return and over how many years?

Like i'm not looking for you to tell me the exact amount I know that's up to me, but rough industry guides.

I've put about $1400 into building the website/store so far, and will probably slowly purchase products but it's going to need a decent bit of cash to get it where I want it to be.

Cheers,
Luke

A month has passed. Progress?

 

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[mom]

A month has passed. Progress?

Another dreamer....

I am off...forums seem full of B*Sers and dreamers.

 

[AgainstAllOdds]

Another dreamer....

I am off...forums seem full of B*Sers and dreamers.

Lol.

You're in a thread with a guy that's at the beginning of his journey, yet are ignoring the countless of threads on this forum where people go from nothing to something. @Lukebrisbane has zero obligation to post updates so that you can read them.

This forum, much like this world, is not about you but other people. And if you want to make it about you then put in the time to read the GOLD or INSIDERS progress threads.

Good riddance.

 

[Greg R]

Another dreamer....

I am off...forums seem full of B*Sers and dreamers.

@mom!!! Meatloaf!!!

I bid you farewell.

 

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[Lukebrisbane]

I didn't know this was a progress thread.
www.arroleosi.com.au
progress is finished the website, have about 25ish products i stock in person. $10 a day on facebook ads, got a blog post made up.
2 sales so far.
Continue investing money from my day job into products and advertisements while testing ads, thinking about getting someone proficient in facebook ads to help me out.
Contacted a few local magazines offered to write some content for their store. Trying to think of social media influencers just in Australia i can reach out to.

I guess what I have to keep in mind is it's a long game. I can't get upset if my ad budget eats up my profits, at the same time I have to not be afraid to test test test and see if i can find a winner. I'll let facebook ads run to $100 (10 a day) then switch it up. I got the 1 sale through afterpay being on their directory.

Tips on how I should go about marketing the store would be beneficial, like i am learning, and i am taking action.

 

[lowtek]

Make sure you're using remarketing. People may visit but not be ready to buy. Keep hitting them with ads until they die or buy

Congrats on your first sales - that's awesome.

 

[Lukebrisbane]

Thank you, I'll look up how to do remarketing, yeah cheers the sale meant a lot to me. My facebook ads have already eaten away that profit today, but OH well. Lowering my expectations at the start is key I think. Over the years i've always been like "wtf not successful in a month give up" sort of thing. From what I can see e-commerce is a long game. I do have an email marketing button on my store, i wanted to wait till i get a bit of a following before adding some type of pop-up email collector.

 

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[Elif]

Why $1k into products? how about a smaller amount and making a few sales first rather than risking capital

 

[AgainstAllOdds]

Why $1k into products? how about a smaller amount and making a few sales first rather than risking capital

$1k isn't a lot of money.

At the minimum wage rate in Australia, it's an extra 52 hours of hustling.

I'd rather take a $1k gamble and expedite my learning rate by a month than adopt a lower risk threshold.

 

[Elif]

$1k isn't a lot of money.

At the minimum wage rate in Australia, it's an extra 52 hours of hustling.

I'd rather take a $1k gamble and expedite my learning rate by a month than adopt a lower risk threshold.

Oh I see, Thanks

 

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[rpeck90]

I'm looking to raise about 18,000 USD for my e-commerce start-up in the mens grooming industry.

I was wondering if anyone knew how much I should offer as a return and over how many years?

Like i'm not looking for you to tell me the exact amount I know that's up to me, but rough industry guides.

I've put about $1400 into building the website/store so far, and will probably slowly purchase products but it's going to need a decent bit of cash to get it where I want it to be.

Cheers,
Luke

As someone who's pitched to investors before, let me tell you the only thing they want - money.

All the talk of them helping businesses etc is bullshit. They want profit.

The majority of investors (at in least in Europe - it may be different in Australia) are ex-finance. They don't care about your product/business, only that it's going to make (a lot of) money. They'll invest into a steaming pile of elephant dung if they thought they could achieve a 500%+ return on it (best evidenced by the swathes of "crypto" idiots).

It's a bitter pill to swallow, but once you appreciate that money begets money, you'll see that raising startup money for an eCommerce store is one of the worst things you can do (why are your products/traffic sources unique/special? <-- that's the core answer that will determine the validity of what you're doing, what margins are you running? why didn't you get a loan? don't you have credit cards?).

Rather than repeat what others have written, I'll give you one (well, actually three) sentences I heard from Tim Draper in a video...

Investors (in Silicon Valley) typically justify an investment based on their ability to recoup their initial money. Draper don't worry about any "extra" profit they make just as long as they feel the business is able to return the original cash [at some point]. The speed and scope through which this initial capital is able to be returned (through profits in the business) will generally determine how much they're willing to put in - if at all (with Draper holding onto its equity in the process).

I'm not in finance, so maybe this is common sense in the industry.

I know this a progress thread, but it may help others. If you're looking to grow an eCommerce store, you'll be FAR better to work a day-job and put the money you'd otherwise be using for savings/trips/etc into the business (inventory and traffic sources -- remember the veracity & uniqueness of each of these will determine how successful the venture is). If you don't have a job and/or money, eCommerce is the last thing you'll want to be focused on... you need personal cash flow before starting to play around with business.

This will start to compound over time; ride the winners + ditch the losers.

I thought this was the video, but he doesn't say it. Either way, good resource:

View: https://www.youtube.com/watch?v=2z0rkVXl_rY