Issue No. 87: P&G misses out, GM edges Tesla, Dollar Shave strikes gold

Last Word: On eCommerce Exits

ecomm-annual-financing
eCommerce financing is projected to land at a two year low in deals being done and a three year low in the aggregate price of those deals. Analysts have long communicated that this is indicative of a weakness in the eCommerce space but I’ve long sensed the opposite.

Over the last 12-16 quarters, Amazon has secured itself as the inevitable marketplace queen, venture and banking investments have been dispersed throughout exciting new fields like chat, AR and AI. And lastly, the sexiness of eCommerce has dwindled over the years due to unmitigated failures like FAB.com and that startup’s affect on investors who were captivated by their inflated numbers and ease of fundraising.

By 2015, eCommerce was no longer a prime investment space. All the while, eCommerce operators have been functioning in ways that much of the rest of the startup community should have been imitating. Rather than optimizing for valuation (which Fab.com proved meant nothing), brands and platforms began optimizing for profitability. This, knowing that raising funds early stage capital would be more difficult.

In effect, eCommerce startups shrinked fundraising goals because cashflow was assisting their growth. To analysts that see deal size as strength, this would indicate a sector weakness. I’ve seen it as a strength. eCommerce founders have been aware of the laws of retail physics. Bigger deals meant fewer exit options.*

Over the next 4-6 quarters, zero sum eCommerce startup founders will begin to see exits again, especially in the consumer packaged goods and accessories spaces. Whether through acquisition by marketplaces like Flipkart, Alibaba, or Amazon. Or by incumbent brands who’ve been slow to achieve the same online footprint as their younger challengers. Dollar Shave Club’s sensible success has opened the door for companies who have begun to achieve the same “niche” traction.

P&G paid $57B for 60{e2c96f1c2aa7b6d7f3092c9a6fa26d51c514b7e4abf11af5894da02a08d33fce} of the market when they purchased Gillette. Unilever just paid $1B for 15{e2c96f1c2aa7b6d7f3092c9a6fa26d51c514b7e4abf11af5894da02a08d33fce} of the same market. The economics are in the favor of both the acquirer and the acquired.

* 2015’s aggregate deal size was greatly impacted by Jet.com‘s funding, which I cannot defend.

See more of the issue here.

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