State of Ecommerce

Operator / VC perspective

What do VCs get wrong?

• VC capital chases trends/TAMs inflating valuations

  • Web3/Crypto is a prime example - there is massive dispersion in manager performance

  • Amazon FBA is seeing this play out with Thrasio* - its valuation dropped 50%+ in 2H 2022

  • When hype cycles end, founders who have yet to reach profitability often have to shut their companies down

• The lack of focus on fundamentals was not only seen in valuations but also in operating practices

  • Focus on unicorn hunting causes many to overlook immediate economics

  • Most failing businesses go under because they were overreliant on paid ads / were failing to engage their customers

  • Important to track LTV/CAC, content engagement and conversion metrics

• Most VCs fail to offer genuine value-add to portcos

  • Nik Sharma plugs companies he back into his growth agency

  • Donald Nitti used his macro expertise in 2021 to help portcos prepare for a slow-down in venture

What’s the story with Thrasio?

• At the outset they were able to make acquisitions at 1.5-2x EBITDA

• As hundreds of competitors launched, raising over $15B, valuations rose to 5-6x

• Gains from economies of scale were found to be far more limited than expected

• OpenStore, the first major roll-up on Shopify, will be interesting to watch

How is the ecosystem evolving?

• It is not enough to have a product driven approach to marketing; brand and community are critical, and these are difficult to build.

• Some interesting work:

  • Superordinary - influencers’ take rate is typically 10%; bumping it to 20%, still cheaper than paid media

  • Bored Ape - launched NFTs jointly with celebrities to unlock new value from existing followers

  • Fabletics - footprint expansion driven by emergence of supercustomer clusters

• We have been seeing a shift in spend towards video (TikTok, streaming platforms like Hulu, etc) but just as Facebook did not displace Google 10-15 years ago these newer entrants are likewise unlikely to outright displace FB/IG

Public markets perspective

What have hedge funds been seeing?

• Most ecomms have had healthy top-line, but rising costs have caused a set of EPS misses

  • Investors were accustomed to guidance being beat, but even guidance has been subject to revisions lately

  • “Peak bearishness”: SHOP’s Tobias tweeting that an earnings miss should be reframed as a sell-side failure

• Macro data collection is antiquated, especially with national stats census bureau surveys

  • Data allows you to get ahead of reports like monthly advance retail sales, inflation, and more

  • Broad adoption of digital currencies can be a game-changer – would provide real-time, high-resolution insights

What trends are you seeing around alt data?

• Most timely datasets over the past few months:

  • Spot freight prices

  • Scraped inventories

  • Discounts and promotional activity

  • Consumer side inflation.

• Often using pre-COVID numbers as a baseline instead of anchoring to YoY changes

• Innovation has waned, there is little incremental value to be gained from acquiring the Nth card panel

  • To be clear, transaction panels are still relevant - but seen more and more as table stakes

  • Incremental data sourcing efforts mostly around B2B