From ideation to execution of an online marketplace platform, one thing remains unchanged—“your need for cash!” Raising funds for your online marketplace is not easy, but also not impossible. All you need is the right funding resource to kickstart your journey on building the best online marketplace platform.
But how to do it?
Well, here we are with some exciting ways to do it. Before we start, here is data that you should keep in mind—about one-third of startups fail due to a lack of financial resources. If you don’t want to go all out on the marketplace startup and spend all your savings, you can opt for a lean startup approach.
Wondering what a lean startup is?
Lean startup: The shippable marketplace
There is a common term related to iterative development of products—MVP or Minimum Viable Product in the business community.
It is an approach to build iterative versions of a marketplace and add feedback from consumers to create a better version each time. With each, the startup adds more features and policies to its business model, making it the way your consumers want.
With a lean startup approach, the need for funds is divided into several phases. So, you don’t have to get a large amount of funding at the initiation phase. The approach also reduces the online marketplace platform’s uncertainty and encourages constant innovation in the business model.
Now, let’s look at some of the top fundraising methods to use for your online marketplace platforms.
- Bootstrapping the Marketplace
Bootstrapping a marketplace means relying on your savings or personal finances to fund the startup and even find an outside investor. You can start your business as a SaaS project and slowly gain organic customers to monetize business operations.
The biggest issue with bootstrapping is “burnout.”
Burnout is a considerable reduction in your finances on your startup with restricted revenue. So, you are experimenting and spending heavily on the idea without much monetary success. You can reduce burnout by decreasing the rate of cash burn. Here is how you can calculate the burn rate for your online marketplace platform.
Burn Rate = Total Cash Position Change/Specified Time Period.
Bootstrapping is a high-risk strategy for any online marketplace platform as the weight of investment lies from a single source.
Crowdfunding is an approach to raise funds through a community-based investment. It needs a campaign that promotes your online marketplace platform to be the common solution for many different people in the community, making it an excellent platform for raising funds and increasing brand awareness.
Many platforms offer crowdsourcing facilities for raising funds. You can use them to showcase your solutions, products, and services to attract investors. The only drawback with such platforms is that they have a limited period of about 60 days.
Here are some crowdsourcing platforms that you can try to build a marketplace.
It is one of the biggest platforms for crowdsourcing. The platform has been helping entrepreneurs and startups raise money for their ideas since 2009. Kickstarter helped many entrepreneurs raise more than $5 billion for about 189000 projects.
The only obstacle is verification. Whether you are building a multi-vendor marketplace platform or a ride-hailing on-demand business, the platform verifies your startup before allowing you to raise funds.
If any crowdsourcing platform can be called “the runner up of crowdsourcing platforms.” The platform offers two fundraising options; fixed and flexible. With a fixed funding model, you need to meet the goal, or your donor will retrieve the investment. At the same time, flexible fundraising does not demand any such commitment.
Rockethub is a global community of entrepreneurs that you can leverage to attract new investors to your idea. You can even use their blog for reaching new consumers and get new ideas around your online marketplace platforms.
- Venture Capital Funding
If bootstrapping is more about your money and crowdsourcing about community-based investment, venture capital explores equity-based fundraising. Here, a venture capital firm will invest in your online marketplace platform for higher returns and earning potential.
It is a limited partnership of liability for your marketplace startup, and in return, they possess equity sharing in your firm. Take an example of Flipkart’s $62.8 million funding from Tencent Holdings, a tech company mainly dealing with value-added internet, mobile, and telecom services.
With venture capital funds, you don’t need to pay the investor any fees, but they do have a share of your online marketplace platform. The only downside of the venture capital approach is the intervention of investors into decisions of your business.
Here are some top VC firms for online marketplace platforms,
- Angel Investors
Angel investors are not so different from your VCs. Most of the angel investors are influencers in specific markets or someone with higher financial resources. They invest in your online marketplace platform for a share of profit or equity.
One of the most significant advantages of going with an angel investor is that they may be peers in that industry. So, you get an expert’s funding and experience for taking your online marketplace platform to the next level. Here is a list of the best angel investors by Forbes that you can use for your startup.
- Incubator Programs
From Y-Combinator to 500Startups, there are many incubators or accelerator programs that you can use to create the best online marketplace platform. These incubator programs are an effort by different organizations, VC firms, investors, and government agencies to help startups grow. In the US one-third of the startups undergo an incubator program at least once during their entire lifecycle.
Let’s look at some of the most famous incubator programs.
- Y- Combinator
It is one of the leading incubators in the world, which has helped companies like Airbnb, Coinbase, Doordash, and Dropbox. The incubator platform has been successful in helping more than 1500 startups with a total investment of about $80 billion. Every year the platform chooses around 200 to 300 projects for their program and invests around $150,000 in each one for a 7% share.
500 Startups is another global platform for the incubation of startups and businesses. It has helped firms like Neighborly, Punchd, RapidAPI, RealtyShares, Setter, Shippo, and Talkdesk. The platform offers an investment of around $150,000 for a 6% stake in your business with a fee of $37,500.
StartupBootCamp offers incubator programs for IoT(Internet of Things), Fintech, InsurTech, and Food technology businesses. It is a great incubator program for a multi-vendor online marketplace platform that is rapidly growing as it conducts an incubation every three months. It offers around €15,000 of funding for a 6-8% share of your business and six months of a free collaborative workspace.
From VCs to angel investors, and even the incubation programs, one thing that can help you attract funds easily—the right business model. If the business model for your online marketplace platform is strong, then investors will always be interested to earn more profits.
It is also essential to gauge the amount of intervention an investor will make because that can change the very solution for which you will build a marketplace. So, now that you are ready to attract some investors, and raise funds, start your journey towards success! Sign up for Yelo’s free trial today.
Subscribe to our newsletter
'Jungleworks Entrepreneur's Den' to get access to the latest industry & product insights.