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UNYBRANDS
JUNE 24, 2022

An Insider’s Look at E-Commerce Venture Capital Trends

As an e-commerce seller, maybe you just started your e-commerce venture because you had a brilliant idea. Having to dive into the world of investments, e-commerce venture capital, and other financial jargon may not be your definition of a fun time. Wherever your feelings lie, understanding what e-commerce venture capital is, and how it impacts your e-commerce brand is pivotal.

Venture capital (VC) is a type of financing and private equity that investors provide to help start small businesses and companies that show the potential for long-term growth. Usually, venture capital will come from wealthy investors, banks, or e-commerce financing companies. Venture capital is helpful when you are ready to scale your online business, but you may not have the financing to do so.  It is also a great way to receive expertise from business professionals who also have an interest in your success and growth. 

Here we’ll take a look at some of the e-commerce venture capital trends going on in the e-commerce space to help guide you through choosing the right VC partner for you!

What Do Investments In E-Commerce Look Like Today? 

Over the last few years, consumers have become more and more comfortable shopping online. In 2021, we saw US e-commerce sales reach $960.1 billion totalling an 18.3% year-over-year growth comparison from 2020;  in 2022 this continues to grow. For e-commerce venture capital firms this trend is a brilliant time to invest in e-commerce businesses. Globally, VC investments into e-commerce brands were a record of $140 billion with the United States being the number one country invested in with India coming in second. A total of $329.6 billion was invested by VCs in 2021.

 The e-commerce space is projected to continue this high growth rate giving investors the green light to invest in companies they see high potential and high growth rates in. 

So What Do VCs Look For? 

Let’s break down the way e-commerce venture capital works. First, the people who invest their money into these businesses make their money back on interest and management fees.  They commonly collect around 20% of profits from the private equity fund and the rest goes to the VC partners. The money that venture capitalists invest is usually pooled through outside sources such as investment companies, large corporations, and pension funds. Typically, it is that outside money that is invested and not that of the venture capitalist. Venture capitalists will make the final judgement on where to invest. 

Like any major business decision, the goal for venture capitalists is to earn profit. Usually, they are invested in a start-up for 8-10 years providing ample time for the startup to grow and therefore drive an increase in revenue.

Investments

Finding The Right Partnership 

When looking for the right e-commerce venture capitalist partnership for your business whether you’re primarily an Amazon seller or have your direct-to-consumer (DTC) site, keep some key qualities in mind:

      1. Proactivity for Growth

Finding a group or person who believes in your vision and the potential of high future growth is important,  as is their willingness and ability to help move the company forward on that path of high growth. VC partners who want to be proactive in their support and can help bolster weaker areas of the business are ideal. 

     2. Complimentary Resources

Similarly, partnering with a VC that has expertise in a specific subject matter pivotal to your business can help bridge the gap between Having expertise in certain subject matter that would be of help or other available resources are great to complement the resources of the founding team.

     3. Value Alignment

E-commerce venture capitalists that you share a strong rapport with, and ethical stances/ values are a few things to think about. Not being in alignment with your VC could bring hardship in future decision-making. 

     4. Connect with Their Network

VCs who have large networks and give you access to these networks are equally valuable when choosing your partnerships. Knowledge of the market and market dynamics and expertise in helping to build a company is critical. 

Being strategic in your preparation of first-round funding will help you in securing future rounds. Thinking about the above will help place you in a great position for future growth.

Product Sourcing

With Every Pro, Comes a Con 

Once you have obtained funding from an e-commerce venture capital investment firm there are some challenges that you could potentially face. Some hurdles you might want to prepare for could involve scaling your order fulfilment, product sourcing, growing sustainably as well as customer retention and acquisition:

     1. Scaling Your Order Fulfillment 

When thinking about the packaging and shipping of an item to fulfil customer orders, you need to think about how to tackle potential problems that may arise. These can include losing customers to bad delivery experiences, shipping costs being too high, stockouts, and trying to scale your fulfilment globally.  

     2. Product Sourcing

Making sure there are enough products to fulfil your (now scaled) orders are a priority. If you can’t fulfil what you promise you to have a problem. It’s imperative your product is consistently available – this is a major representative of your ability to grow and scale and is a key factor VCs take into consideration when deciding who to fund. 

     3. Growing Sustainably

These days sustainability is key. Ensuring you have a sustainable model for future growth and scalable growth is important to think about while building the future of your business. Think about what kind of product you have-  Is it a repeat purchase item like coffee or tea, or is it a purchase you only buy once every few years? 

In The End…

These are just some of the things to keep in mind when looking for funding with an e-commerce venture capitalist. All in all, it's important to take the e-commerce venture capitalist partnership decision seriously and take your time doing your research when choosing a partner for your business. Your business will be intertwined with them for quite some time and it's important to your future success to make the right choice for you in that partnership.  

Have more questions on all things VC related? Reach out to our team at growth@unybrands.com, and we’ll help direct you to the right partner. We’re here to be a resource for your business. Chat with us and we’ll see how we can help you continue to scale your business.

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