Options To Keep Your Equity: 6 Startup And E-Commerce Financing Alternatives To Venture Capital

Options To Keep Your Equity: 6 Startup And E-Commerce Financing Alternatives To Venture Capital

Options To Keep Your Equity: 6 Startup And E-Commerce Financing Alternatives To Venture Capital. Photo by Nathan Dumlao on Unsplash

Raising outside capital to scale a startup or e-commerce business has often been a reality for just one racial group with 90 percent of Silicon Valley venture capital funding going to companies led by white men.

Venture capital and private equity firms raise pools of capital from accredited investors known as limited partners to invest in privately-owned companies. Their goals are to increase the value of the businesses they invest in and then sell them — or their equity stake — for a profit. For founders, securing venture capital means giving up equity and a chance they’ll lose control of their companies.

Covid-19 has reshaped the finance landscape as offline commerce continues to move online, according to FinTechMagazine.

Underwriting models meant for offline businesses often don’t translate to e-commerce businesses.

Increased demand for products from online platforms has brought opportunities for companies. “Those companies need financing solutions to keep up with that demand or risk stockouts and poor customer experience,” said Keith Smith, CEO and co-founder of Payability.

Taking on business debt may seem scary but it can be a wise reinvestment in your e-commerce business, said Michael Ugino, co-founder and chief marketing officer of marketplace management platform Sellbrite.

Discover How Affordable Peace of Mind Can Be:
Get Your Life Insurance Quote Today!

As the U.S. economy reopens, consumer-facing Main Street small- to medium-sized businesses are waiting to see if top lines and cash flows will return.

There are options to keep your equity. Here are six startup and e-commerce financing alternatives to venture capital.


Brex has created a corporate charge card for early-stage startups that rejects traditional underwriting methods. Instead of credit scores, it focuses on the funding of the business itself, Nerd Wallet reported.

There’s no personal guarantee and you don’t need to provide a Social Security number or pay interest, but you do have to pay the balance in full each billing cycle. The card connects to your corporate bank account which is automatically debited for the balance, so you need to have money there.

Brex says it can issue cards faster, and with higher limits (10 to 20 times higher) than other options. The card works on the Mastercard network, there are no annual fees or foreign transaction charges, and cardholders can earn rewards. It has perks and rewards for small business owners working from home to earn bonus points on services such as Slack, Zoom and food delivery.

Brex could be a good fit for startups that have a minimum of $100,000 in the bank, are comfortable giving Brex access to bank account and other funding information, and might need access to a high line of credit.

PayPal Working Capital

PayPal Working Capital is a business loan only available to PayPal sellers based on their PayPal account history, with no credit check required and no interest. Like the names implies, the funds can be used for day-to-day functions of the e-commerce business such as paying rent and payroll.

There’s a fixed fee for the loan. You pay a percentage of 10-to-30 percent of daily sales and you choose the repayment percentage. The higher your sales, the faster you repay. On days without sales, you don’t pay anything but you have to repay a minimum of up to 10 percent every 90 days to keep the loan in good standing.

You can expect to repay $0.01 to $0.58 in fees for every dollar borrowed (according to PayPal’s sample calculator), Merchant Maverick reported. Borrowers can’t save money by repaying the loan early.

Lighter Capital

Seattle-based “alternative VC” firm Lighter Capital helps entrepreneurs raise funding without traditional venture capital. Since launching 10 years ago, it has invested $200 million in 350 U.S. companies using an innovative process known as revenue-based financing.

Revenue-based financing (RBF) lets early-stage startups raise cash without giving up equity or board seats, Geekwire reported. It’s a relatively new form of funding for tech companies that have monthly recurring revenue. The funding model “mixes some aspects of debt and equity. Most RBF is technically structured as a loan. However, RBF investors’ returns are tied directly to the startup’s performance, which is more like equity,” according to Lighter Capital.

“RBFs are essentially dressed up debt rounds,” Techcrunch reported. The difference is, “investors are more incentivized to help the companies they invest in because they are receiving a certain portion of that business’s monthly revenues, typically 1-to-9 percent. Eventually, as is explained thoroughly in Lighter Capital’s RBF report, monthly payments come to an end, usually 1.3 to 2.5X the amount of the original financing — a multiple referred to as the ‘cap.’ Three to five years down the line, any unpaid amount of said cap is due back to the investor. When all is said in done, ideally, the startup has grown with the support of the capital and hasn’t lost any equity.”

Lighter Capital says it gives access to up to $3 million in capital

Shopify Capital

Shopify Capital is a lending program for Shopify merchants with funding in two forms: loans and merchant cash advances. With loans, you get a lump sum and repay it over 12 months with payments automatically withdrawn from your account, Sellbrite reported.

The money can be used to buy more inventory, boost an advertising campaign, or fund a new venture such as expansion.

With cash advances, repayment is more closely tied to sales. Shopify lends you money in exchange for a percentage of your future daily sales. 

 In Q4 2019, Shopify Capital made $115.9 million in merchant cash advances and loans, 61-percent more than Q4 2018.

To qualify for Shopify Capital, you must sell on Shopify, be considered a low risk, use Shopify Payments or a third-party provider and process a minimum amount of sales, though Shopify doesn’t disclose exactly what this benchmark is.

It’s easy, repayment is simple and you don’t have to have good credit. However, Shopify’s repayment plans and interest rates can be expensive compared with other funding options—especially if your company grows quickly, according to Sellbrite. You also lose future revenue. Forecasted sales might look good but you’ll have to hand over some of your profits until the loan is paid back.


Only available to e-commerce sellers, Payability funds sellers on Amazon and other online marketplaces. No credit scores are needed, rates tend to be inexpensive, there are no extra fees and there are discounts for early repayment, according to a MerchantMaverick review.

Listen to GHOGH with Jamarlin Martin | Episode 73: Jamarlin Martin Jamarlin makes the case for why this is a multi-factor rebellion vs. just protests about George Floyd. He discusses the Democratic Party’s sneaky relationship with the police in cities and states under Dem control, and why Joe Biden is a cop and the Steve Jobs of mass incarceration.

There are two products. One works like invoice factoring by providing you with daily payouts for your marketplace sales. This means you don’t have to wait for weeks to get money earned from your sales. The other loan product is similar to a merchant cash advance. Payability purchases future sales and provides you with a lump sum payment.

Payability says it has provided more than $3 billion in funding to thousands of e-commerce sellers. 


The typical small business has enough cash to pay 27 days of its usual bills, according to a study by JP Morgan Chase. Many take out loans to cover these payments — if they can get credit, Wired reported. During economic downturns, payments slow down and the “net terms” economy hurts small and medium-sized businesses.

San Francisco startup Fundbox offers a combination of a credit card and a payment system like PayPal for small businesses. Fundbox extracts data directly from a business’s bank and accounting software, using machine learning algorithms to predict whether a business will pay up. 

Fundbox may be a good option if your business needs cash fast — as soon as the next business day — and you don’t meet requirements for other financing. But it requires a minimum annual revenue of $50,000 and at least three months of invoicing history with a supported accounting software or business checking account.

The credit score requirement has a low minimum — 550 — but rates are high compared to traditional banks, according to a Nerdwallet review. No personal guarantee is required for business lines of credit under $50,000, which means you’re not personally responsible for repayment if your business fails to repay a loan.

Also, Fundbox borrowers don’t have to provide collateral such as real estate for repayment of a loan.