The state of now – new Adobe data shows mobile almost matching desktop

By | Ecommerce | No Comments


With all the talk about mobile taking over the world it’s easy to forget that there’s still more traffic on the desktop. This holiday season just released by Adobe shows that on some days there was more traffic on mobile than desktop, but that mostly the desktop is ahead. If you turn to sales rather than visits then the desktop remains totally dominant with 73% of transactions.

Some of our companies see as much as 90% of their traffic on mobile I’m sure we will see more of that as devices and networks continue to improve, but this data shows us that having a well functioning website is still important for most ecommerce and marketplace businesses.

Forecasting ecommerce multiples at exit

By | Ecommerce, Exits | No Comments

Ecommerce multiples

Mahesh Vellanki from Redpoint put up an interesting post yesterday about ecommerce valuations. His major point is that revenue multiples aren’t that high, largely because the market is highly competitive and margins are low – often because of Amazon.

As you can see from the chart above, in Mahesh’s sample most of the companies have revenue multiples in the 1-2x range. Etsy is arguably more of a marketplace than an ecommerce company and marketplaces have higher margins, more defensibility and hence attract higher multiples, so I would discount them. Similarly at the bottom end Groupon and Overstock are troubled companies that we can safely ignore on the assumption that any of our businesses that achieve big exits will be succeeding.

The major drivers of multiples are growth and margin. Fitbit enjoys a 3.3x revenue multiple because it’s strong on both these metrics. They reported 168% YoY revenue growth in the Q3 earnings report and their EBITDA margin is 19%. 1-800 Flowers, meanwhile is valued at 0.6x revenues because growth is much lower – forecast at 5-7% next year, and their EBITDA margin is 8%.

Apologies for getting a bit finance-geeky, and you may want to skip this paragraph, but a bit of corporate finance logic can explain the link between revenues, growth, and margins. At the end of the day a business is worth the net present value of future cash flows, EBITDA is a good proxy for cashflows, and future EBITDA is a function of revenues today, revenue growth and EBITDA margin. Hence the revenue multiple is directly linked to growth and margin.

For ecommerce startups assuming that if the business is successful the revenue exit multiple will be in the region of 1-2x is the way to go. Faster growth, and particularly higher margins will get you to the top of the range. Coupling this analysis with a view on market size and likely market share generates an exit value which in turn should determine the financing strategy. Most good VCs only want to invest in ‘fund returners’ which means that the exit value multiplied by their stake should be around the same size as their fund.

Evaluating markets for ecommerce category killers

By | Ecommerce | 2 Comments

Alex Malorodov (@amalorCBS), an MBA candidate at Columbia University who recently completed a summer internship at Gotham Ventures penned a great post about ecommerce category killers on CBInsights last week. His conclusions came from analysing seven top ecommerce category killers: Dollar Shave Club, Harry’s, Warby Parker, Frank & Oak, Bonobos, Casper and Helix Sleep.

The bit I liked best is that Alex found they all operated in markets with favourable conditions, which he lists as:

  • Total Addressable Market > $2B in US: offers opportunity for new entrant to gain share and build brand prior to incumbent retaliation;
  • High Concentration: > 50% of the market is controlled by ≤4 incumbents;
  • Limited Brand Allegiance: existing companies focus on selling product rather than lifestyle;
  • 3rd-Party B&M channels: incumbents typically distribute their offerings primarily via brick-and-mortar locations of other brands; little focus on e-commerce distribution;
  • High Headcount: > 60,000 employees each for the incumbents; and
  • High Price Point: the incumbents generally enjoy high margins and distribution involves several middlemen — a structural mitigator to lower prices.

The first one of these says that the market must be big enough, and the next five are characteristics of markets open to disruption.

The only thing I would add is that the incumbents offer a ‘so-so’ product. That’s arguably captured in the limited brand allegiance point, and Alex goes on later to say that the seven companies he analysed all offer great customer experiences and have high Net Promoter Scores, showing the importance of offering great product. ‘Great product’ is a relative concept though and unless there’s space to be way better than the competition life will be difficult. That difference can be price point – e.g. Dollar Shave Club and Warby Parker –  or it can be product quality – e.g. Frank & Oak and Harry’s.

Alex’s analysis ports well to the UK and Europe, and the biggest challenge we have from a venture perspective with many ecommerce ideas is potential market size. If a market is $2bn/£1.3bn in the US then if we pro-rata based on population is will be $400m/£265m here, which, depending on margins, is on the small side to build a £100m+ business. (10% net margin on a 10% market share yields profit of £2.65m – a good business, but probably not a £100m exit.)

Hence we either look for larger UK markets or the ability to expand internationally.

Two areas of opportunity in ecommerce

By | Ecommerce, Forward Partners, Startup general interest | No Comments

Kara Nortman of Upfront Ventures has just published an interesting and well grounded post on the future of ecommerce which got me thinking about where we see opportunities. I think there are two broad areas (Kara lists four, but I merged her four into two).

Brandtech – new brands that change stodgy industries

Simplified formula for success:

  1. target a large and valuable segment with poor product or unsustainably high margins
  2. deliver a great product and brand

As Kara notes this formula has played out well for numerous companies, including Warby Parker, Transferwise,, Just Eat and many others, but there are still many verticals with space for innovation, including food, soft home goods, furniture, toys, and educational products.

Forward Partners investments in this area include Lost My Name, Spoke, Zopa, Wool and the Gang, and Makers Academy.

Modern merchandising – new services that revolutionise how we shop

Simplified formula for success:

  1. target a large and valuable segment with a poor customer experience
  2. deliver a wow customer experience

This formula has also played out well for numerous companies, including Netflix/Lovefilm back in the DVD days, MoneySupermarket,, Uber, and many others. Once again there are other verticals that are still ripe for disruption, including many of the ones listed as open under Brandtech.

Forward Partners investments in this area include, Top10, Appear Here, Edge Retreats, Snaptrip, Live Better With, and The Gifting Company.

There’s obviously a lot more to building a business than the two simple steps I’ve listed hut the themes of great and/or radically cheaper product and radically better customer experience are big ones for Forward Partners.


Volume of global ecommerce exits growing nicely

By | Ecommerce, Startup general interest, Uncategorized | No Comments

CB Insights posted this chart on Twitter today. As you know at Forward Partners we’re ecommerce and marketplace investors, so we like to keep tabs on all aspects of the ecommerce market.

Historically there haven’t been many exits in ecommerce, so it’s good to see the number rising. I think this trend has some way to go because ecommerce penetration is still only in the low teens in the UK and US and is lower still in many other countries.

To really kickstart the exit market we need a few more huge ecommerce businesses to compete with Amazon. That would unlock the sort of strategic exits we’ve seen in software and consumer internet over the years.

Until then it’s important to make sure the fundamentals of a company add up so that they will be able to make substantial profits once they hit scale.

The UK is still hot for ecommerce

By | Ecommerce | No Comments

Us Brits are famously a nation of shoppers, and that’s translated into being a nation of online shoppers. For a while we’ve spent more online per head than other developed economies and created more than our fair share of ecommerce winners as a result.

New data out from eCommerce Europe shows the picture hasn’t changed and that there’s still a lot of growth to come:

  • in 2013 the UK spent $142bn on eCommerce, third in the world on a gross spend basis behind the USA and China which have much larger populations. Germany, the next European country on the list, was two places behind the UK with $84bn spend. Germany has a population of 81m and the UK has 64m people.
  • Global eCommerce is forecast to grow at 23% 2013-2014 and 18% 2014-2015. Within that the UK eCommerce is forecast to grow at 17% 2013-2014.
  • There are 7.4bn people in the world of which 4.2bn are online and only 1.0bn are e-shoppers. The equivalent figures for Europe are population: 881m, online: 564m, e-shoppers: 331m.

Lots of eCommerce markets have now been ‘done’ from a venture perspective, but there’s still lots of opportunity ahead of us.

Solutions for closing the gap between browsing and buying on mobile

By | Ecommerce | 18 Comments

Yesterday I wrote about the yawning gap between the 60% of retail browsing and the 15% of purchases that occur on mobile. Michael Haynes commented:

one of the biggest pain points in mcommerce currently is how difficult it is to fill out all the forms – especially if checking out on a new website and factoring in that many sites require registration. It becomes a nightmare that most people will just leave and checkout on a desktop

That makes sense to me. The pain in filling out forms is the biggest reason I sometimes move to my laptop to complete purchases, and bear in mind I’m more patient than many other users because I’m professionally curious about mCommerce. When I do abandon a purchase on mobile it’s either because filling out the form takes too long or because it’s buggy on mobile.

Conversely the beauty of apps like Uber and Amazon is that they have my data already and I can check out with one click.

The key to getting people to purchase on their phones, then, is to take care of the site registration and form filling. There are two broad types of solution getting talked about at the moment:

  • AI based assistants based in the mobile OS – Google Now and Siri lead the pack
  • Messaging clients – Facebook and WeChat are out front here, but services like Telegram and Snapchat are also interesting

I think these all have stated ambitions to enable commerce from a chat style interface, but aren’t doing it yet in volume. Ultimately they will store your personal information and credit card data for you and supply it to ecommerce companies when you want to buy something.

The big question is how discovery will work. If I want to buy flowers on Whatsapp what options will I get? Best case for me is I search and get a full list of providers who have integrated with an open API, appropriately ranked. Worst case is I get to choose between a small number of companies that Facebook has chosen to partner with.

Search currently happens in the browser of course. An alternative solution would be for my data to be stored in the browser and made available to automatically fill out forms. That would keep the open-ness of the web, which would be great for discovering new services. Nobody’s talking about this idea though, at least not that I’ve heard.

Mobile has 60% of retail browsing and 15% of purchases

By | Ecommerce | 7 Comments

I swore out loud earlier today when I read this statistic.

60 percent of retail browsing happens on mobile devices, those devices only account for 15 percent of dollars spent

That’s a massive opportunity, right there.

And what’s interesting is that it’s still with us. Mobile first has been here for years now.

We have good mCommerce models now for regular purchases – Uber and Amazon are two great examples – but for more occasional purchases apps don’t make sense and mobile browsing in its current form clearly isn’t working.

One approach, as taken by our portfolio company Stylect, is to combine entertainment/content with commerce to build an app that people visit daily and purchase from occasionally, but I don’t think this will work for every vertical and what this headline statistic tells us is that there’s a big opportunity to innovate and a large prize for the company that gets it right.


The ecommerce and marketplace opportunity is growing like crazy

By | Ecommerce | No Comments

Screen Shot 2015-06-04 at 11.01.24

In the last five years we have seen three new ecommerce and marketplace companies worth $10bn+, whereas in the last twenty years there were six US public companies in those sectors worth the same amount.

At Forward Partners we focus on ecommerce, marketplaces and related SaaS.

There are two takeaways:

  • The ecommerce and marketplaces opportunity has been yielding huge companies for two decades now
  • The rate at which $10bn+ companies are created has accelerated significantly

The inspiration for this post was Bessemer’s recent presentation about current valuations.

The future of mobile ecommerce

By | Amazon, Ecommerce, Facebook | 3 Comments

We’ve been doing a good deal of thinking about the future of ecommerce as the world goes mobile. As we all know people are increasingly accessing the internet and shopping from their smartphones (one of our more recent investments has 81% of it’s traffic from mobile), and within mobile people are spending a larger and larger share of their time in apps at the expense of browsers. That presents a challenge for retailers of occasional purchases whose customers don’t use them often enough to download an app. On the web these retailers found their customers via search, but that doesn’t work as well on mobile.

So how will discovery work on mobile?

In a couple of different ways, I think.

Firstly some apps will aggregate goods from lots of retailers and discovery will happen in app. Amazon is the best example here, but different types of discovery are appropriate for different types of purchase and whilst Amazon works well for commodity goods it doesn’t work so well for higher value goods where the purchase is emotionally driven. That creates space for startups to build discovery experiences focused on specific verticals. Good examples include Houzz in interior design, and Stylect in fashion, and Top10 in travel. We have invested a lot on this theme and the last three examples are partner companies (note Thread is working on their mobile app).

Key to success for these companies is building a loyal customer base with high life time values. The aggregation needs to be broad enough that transactions occur frequently but narrow enough that product discovery is truly engaging. Strong brands will be built on the back of great product ranges and strong discovery experiences.

Secondly, some companies will focus on a small range of their own products. They will be primarily web based (including mobile web) and may not need an app. Strong brands will be built on the back of amazing products and first class marketing. Facebook is the best channel for many of these companies, for now at least. Bonobos in the US is a good example, and amongst our partners I would point to Lost My Name, Big Health, and Spoke.

An interesting question for the first group is whether the aggregation moves from apps into the OS layer, or something similar. There are lots of hints we are headed in this direction:

  • Baidu surfaces recommendations from maps
  • Facebook’s Instant Articles pulls news discovery into Facebook
  • Amazon’s Echo device enables re-ordering via voice command

If aggregation does move to the OS layer then in the short term partnerships will become critical drivers of traffic and custom, and in the long run I hope we will see a meritocratic discovery process emerge.

Update: Benedict Evans argues here that the trend within mobile towards apps is concentrated in a small number of apps (mostly Facebook and YouTube) and hence less significant for ecommerce companies than one would think