Return to search

VCs look to the familiar: e-commerce and mobile

The holy grail of consumer investing may be a new, voice-activated, augmented-reality-infused platform. But that’s not to say venture capitalists have given up on the platforms of the past, particularly e-commerce and the mobile internet.

Both remain targets of considerable investment activity and the beneficiaries of surprising innovation. Digital brands remain hot, such as Dollar Shave Club and Pinterest, and the creative use of text is taking hold.

Sure, it is hard to compete again Amazon, or to win minutes of online time from internet Goliaths, such as Facebook, Google, Snap and Twitter, where consumer attention has been consolidating.

But finding untreaded market segments where new businesses can flourish is open to the imagination.

This is particular true with digital brands, where “we see it as a decade-long theme that we’re just starting to see play out.” said Daniel Gulati, a principal at Comcast Ventures.

One firm with a pragmatic approach to consumer investing is Menlo Ventures, where online market places and e-commerce models remain of interest.

The firm backed pet-sitting service Rover.com and the fashion site Poshmark.

“We are focused on the market-place economy,” said Menlo Managing Director Venky Ganesan. “We feel that is the exciting place to be.”

Digital brands have meanwhile attracted the attention of Maveron General Partner Rebecca Kaden. Companies succeed when they create an emotional attachment for consumers and learn to access customers through sites such as Snapchat and Instagram. There could be more exits in the wake of Dollar Shave Club, Jet.com and Blue Apron.

Maveron has invested in wool shoemaker Allbirds, women’s plus-sized company Dia&Co and clothing company Everlane.

One modern twist on e-commerce comes from Mike Kwatinetz, a general partner at Azure Capital Partners, who favors companies with a unique and customized shopping experience.

“The big thing now is curation,” where companies offer the browsing experience of a boutique and make use of the data they collect, Kwatinetz said. “That experience is now being replicated more and more online.”

An example is the firm’s investment is Le Tote, a service where women select clothing and for a monthly fee receive items to wear. Data is used to make recommendations, select inventory and design company-branded goods.

Companies also may benefit from multi-channel distribution, with physical stores to accompany their online presence, he said.

Amazon offered proof of the model by agreeing to buy Whole Foods. Warby Parker also has stores.

“You’re going to see more of this combination of online and offline,” he said.

Another investor looking carefully at e-commerce is Rick Heitzmann, a managing director at FirstMark Capital and an investor in Pinterest and Airbnb.

It is still the early days for market places, with the internet facilitating the discovery of people and person-to-person commerce. Personalization and mobile commerce are still emerging, he said. “There is still a lot of the done.”

Similarly, mobile is not an investment dead end. For one, numerous pockets remain where content has not been adapted to mobile, with its small screen and on-the-move nature. In this vein, consumers have idiosyncratic approaches to mobile that companies can use to their advantage. For instance, people spend a great deal of time with headsets on, even in the office, and watch video on their phones from sites such as Facebook with the sound turned off.

“Those are the kinds of pockets we are looking at,” said Rick Yang, a partner at New Enterprise Associates.

Improving the experience requires making content more useful, perhaps using machine learning to tag items or creating content that is more interactive, Yang said.

One of NEA investments is meditation startup Simple Habit.

Gulati strikes a similar theme. He argues the right consumer product can benefit from personalized one-to-one communications, perhaps using text or SMS.

“The text medium is underused at the moment,” he said.

SMS has a mass audience, but is under penetrated by brands, he added. One investment is life-coaching startup Shine.

Meanwhile, the shift to online video grows in importance. People consume video over the internet more than ever, the so-called YouTube economy.

Investing here can be promising. Financial news streaming company Cheddar is interesting. So is video game streaming company Twitch.

Photo of Mike Kwatinetz, a general partner at Azure Capital Partners, courtesy of the firm