Last Word: The (new) Lean Game of eCommerce
You’re looking at the top three investors in eCommerce. What you won’t see? Very many lean-operated eCommerce startups. When you read up on eCommerce trends on platforms like CB Insights, it will alarm you. “Smart money VC’s are backing away from eCommerce investment.” Or, “Investment in the eCommerce sector is the lowest since 2014.”
While there may be some truth in this, what I am seeing is a little bit different. The types of large scale eCommerce brands that need $100M – $250M of venture financing to achieve an exit are faltering. Why? The unit economics aren’t there. And while we are in a perceived IPO lull (except for Twilio’s recent magic), no one is going to acquire a company or take public a company with very little chance at profitability. I’m looking at you, Jet.com.
“But Amazon wasn’t profitable for a while,” you may be thinking. There isn’t another Founder / CEO in the world like Bezos. There won’t be another for a while and most would say that his re-investment strategy was deliberate. Profitability was an option, all along. Where there is hope and excitement in this sector? There are several startups in the eCommerce space that have grown intelligently, with gross positive margins, a path to profitability and less than $20M in overall venture financing.
Trunk Club was acquired for $350 million on ~ $20M in total financing. They were profitable and they had $8M of that $20M in the bank. No, this is not a unicorn exit. There won’t be many in eCommerce over the next five years. But there will be $150-$400M exits. In a bit of ironic contrast, I don’t see a positive outcome for Bonobos, a brand that has a cofounder in common with the other. Bonobos has raised at least $127M since it’s inception.
So eCommerce isn’t dead. Not even close. There will be a host of 50-60x returns on Series A VC financings to come. There is an increasing premium on frugality and path to profitability. There just won’t be many $1B+ acquisitions or IPO’s. If you ever hear a venture capitalist ask if you can build a $1B eCommerce company, it would be a fab time to end that conversation.
Bearish: eCommerce Startups that have raised $100M+ in venture financing
Bullish: eCommerce startups that are bootstrapping or have raised < $20M.
See more of the issue here.