post by:
Donna Cohen
As the eCommerce industry continues to grow, funding has become a critical aspect of starting and scaling an eCommerce business. While traditional funding options like loans and investments are still viable, there are also other out-of-the-box funding options to consider, such as grants, incubators, and accelerators. In this article, we’ll explore each of these funding options and discuss their pros and cons, so you can make an informed decision on which one best suits your eCommerce business needs.
Grants
Grants are likely the most familiar and straightforward. A grant is “free money” that is given to businesses in order to start or grow. This money comes without strings and doesn’t have to be repaid. It’s fairly easy to see why securing grants is an appealing funding source for startups.
With that appeal comes competition, so securing a grant can be a lot of work upfront. That being said, if your work ends in being awarded a grant, the capital can deeply impact your business’s ability to grow quickly.
If you’re based in the United States, grants.gov is a database for U.S. government grants. Grants are usually awarded by different government agencies to businesses that align with the agency’s mission. If you’re starting an education company, grants sponsored by the department of education are what you would need. This website also provides tips on grant writing and has other resources to help business owners start the process of applying for grants.
Another source of grant funding is through larger corporations. Larger corporations often will provide grants to small businesses as a type of philanthropy. Sometimes these grants come with services or benefits like consulting or promotion in addition to the grant money. Some of these grants are niche and give only to businesses in a specific sector, while others are broader in their potential recipients. While there are far too many to list here, Fedex Small Business Grant Contest, Visa Everywhere Initiative, and NASE Growth Grants are all great places to start.
Incubators
An incubator is a cohort of small businesses and startups that are looking to grow. Incubators are programs that provide much more than financing. They work with entrepreneurs on various aspects of businesses from market research to compliance and funding. While every incubator program is different, generally speaking, an eCommerce startup can stay in an incubator program until it’s reached a level of growth that’s independently sustainable.
Incubators can be run by colleges and universities, venture capital firms, or nonprofit development corporations to name a few. Small business owners will move through the program with the rest of their cohort until the program culminates (usually in a pitch competition) and the winner receives funding. While your startup may not win the competition, being part of an incubator will provide many intangible benefits as well as networking opportunities that can help your business grow over the longer term.
UPenn’s Wharton Startup Program and UC Berkley’s SkyDeck Program are two prestigious incubator programs that are operated through well-respected business schools.
Joining an incubator is a time commitment, but the opportunities for long-term growth are one of the largest benefits of these programs.
Accelerators
Like incubators, accelerators are cohort based and provide mentorship, training, and support to businesses in the start up stage. Accelerators are usually paid for with equity in your company, whereas incubators tend to be more fee-based for membership. This usually looks like the company receiving a certain amount of capital funding in return for a set amount of equity in that company.
In order to be accepted into an accelerator program, you must have a minimum viable product and must be further along in the process than with an incubator. Accelerators do just that, accelerate your company’s growth more rapidly than you might be able to do on your own.
Y Combinator (with alumni such as Twitch, Airbnb, and Stripe) and TechStars (Uber and Twilio were grown in this program) are two popular and competitive accelerator programs. Both programs have many successful companies that have participated in their programs.
When deciding between a grant, incubator or accelerator be sure to take a look at your company’s stage, the support (both financial and otherwise) that you are seeking, and what you are willing to give in exchange for funding you require. There is no one size fits all solution, and a combination of all three approaches might help you reach your goals most quickly.