This isn’t 1999 anymore. Our technological capabilities and scale have grown exponentially during the last decade and a half. But the tech isn’t the only thing that’s different. Financing these innovations has changed quite a bit as well, with investor appetites and expectations looking nothing like the “old days.”
To speak to these changes as well as the role of trust in financing decisions, we interviewed Greg Bettinelli, a prominent venture capitalist with Upfront Ventures.
What are you seeing right now on the financing side of the e-commerce world?
I think as a whole, the investment community has become far more educated, or re-educated, around e-commerce and has a definite list of characteristics that companies need to have in order to be considered for investment. I think there is a greater appetite to see traction in the marketplace before investment consideration, meaning you’ll see very few pre-revenue or even early revenue e-commerce financing. I think we, as investors, want to see some level of transactional volume before really considering investment.
Other things that we’re looking for are really differentiated e-commerce concepts - concepts that won’t run directly into the wheelhouse of someone like an Amazon. We’re really looking for differentiated products, whether it’s from the functionality, from the design aesthetic, or most importantly, from the gross margin of the product.
On that note, what would you consider traction? At what level do you think a company has demonstrated traction?
Well, that depends on what round of financing we’re talking about. Let’s say beyond a “Friends and Family” round or any round of funding above a million dollars (and I assume it’s not someone who used to run Amazon), I think we want to see transactions around $100,000 per month. We’d like to see those transactions primarily driven organically. I’m probably less concerned with product margin at that point and more concerned with, if you spent $200,000 to get that $100,000, that’s not interesting. We don’t want to see customer acquisition and lifetime value in a Series C deck. We’d rather see that the product is differentiated; the market is speaking; you can put it in a box, ship it and scale that to some degree. We want to see that customers like it.
Me, as a personal investor, I’m less interested in businesses that are considered high fashion. I don’t mind fashion, but the idea of being a high fashion business is less attractive than other categories.
The other thing that we look for early on is, what is your unfair advantage? Why are you able to do things that no one else is able to do? That could be an authentic founder with a unique point of view. It could be that you have proprietary supply chain relationships. Access to incredible design talent. It could be that you have a product category that has a unique and protectable margin structure. Whatever it is, it has to be more than just a good idea and early traction, but also something that you can count on being your long-term unfair advantage.
How does trust play a factor when you’re looking at a company and deciding on financing?