I get asked all the time about the impact of the credit crunch on the venture capital industry, and one of the things I quite often say in reply is that good VC is all about investing in fast growth markets, and that sure they will be affected by the downturn, but there should be enough growth there in the first place that even if the growth rate halves the market will still be an interesting one.
Or put another way good VC is all about getting behind long secular growth stories that are driven by structural changes in society. These changes play out over 5-10 years or more and whilst the rate of change might slow in a recession it won’t grind to a halt.
eCommerce is a good example of this. Technology (the web) is changing the way we shop and will continue to do so for many years to come. Projections out from Forrester have it that US non-travel eCommerce will grow 11% in 2009 – down from 18% last year, but still a respectable growth rate for a market this size.
Moreover, when you break the market down there will be some areas that are more mature (books, DVDs, where eCommerce penetration is I believe around the 30% level) some that are in the midst of their fast growth phase (e.g. clothes – look at ASOS and Net a Porter here in the UK) and some that are just getting to the exciting point (e.g. eyewear where 1800Contacts has made great headway in the US over recent years and London based Glasses Direct is doing some interesting things under the leadership of my friend Kevin Cornils).
These newer categories are the ones that lend themselves less obviously to the web – and the startups that are being successful are the ones that are innovating to overcome the disadvantages of losing the instore experience. For clothes etailers generous returns policies have been key to overcoming the problem of not being able to try things on, and similarly Glasses Direct has a ‘try at home‘ programme.