Category: venture capital

Traffic to Flash Sales Sites Falling Off

chart-of-the-day-flash-sales-site-traffic(1)Business Insider featured the flash sales space in their Chart of the Day on Friday (October 11, 2013). The above chart is bad news for sites like, which recently raised $165Mil at a $1Bil valuation (total funding: $336Mil).’s earlier fundraising and the beginning of their move away from flash sales was documented in this previous post: + $105Mil: No Longer a Flash-Sales Site. Business Insider also confirms this move in their analysis of the above chart. still has one of the best shopping experiences on the web. But it appears they may need to broaden their selection away from “design friendly”, sometimes gimmicky, products to deliver on their $1Bil valuation (i.e. an exit >$3Bil). has ~5% the unique visitors of Zulily (Compete, August 2013), which will IPO later this year. Zulily recorded $331Mil in sales during 2012 and has recorded $272Mil during the first 6 months of 2013. Assuming Zulily turns $750Mil in sales in 2013 then their end of year valuation will be around $1.5-2.6Bil, using bullish P/S multiples for retail (2×-3.5x).

In response to the above chart Fab’s PR team mentioned “In e-commerce, especially at Fab, it’s about quality of customers, not quantity. And we are VERY happy with the quality of our customers (they’re buying, repeatedly).” While this may be true, some simple assumptions make it hard to believe that the lifetime value of a customer is dramatically higher than a Zulily customer. For example, moms are known to be stickier customers than “design friendly” customers.  Also, it is hard to believe that’s contribution margin is massively higher than Zulily’s, which it would need to be based on the above traffic numbers. In line with the above traffic data, Zulily reports they have 2.2Mil customers, which spend an average of $210 per year.

Looking forward to watching how this space unfolds over the next 12-18 months.


RetailMeNot Valued @ $1.5B post IPO

retailmenotThe online coupon site RetailMeNot went public last Friday and its shares are now 32% above their IPO price. RetailMeNot is a coupon marketplace that was founded in 2007 and started on its current trajectory after being acquired by WhaleShark Media. WhaleShark Media was started as a coupon rollup play by ex-MySpace VP John Faith and ex-BankRate COO Cotter Cuningham. WhaleShark was founded in 2010 with an initial investment from Austin Ventures of $750K. WhaleShark then embarked on a buying spree that included the purchase of 10 coupon startups, including sites in the UK (, Germany (, Netherlands (, and France ( WhaleShark changed its corporate name to RetailMeNot in 2013.

RetailMeNot’s investors include Google Ventures ($12.5M), Austin Ventures ($37.3M), IVP ($50M), Norwest Venture Partners ($50M), and Adam Street Partners ($15M). RetailMeNot raised $280M over 4 rounds before going public and had 2012 revenues of $144M. The company is currently valued at 9.3x sales (i.e. $1.5Bil). Below are some more statistics on the company’s IPO and venture funding. This business will be fun to watch as a public company.


Data Source: SEC: Form S-1
Further Articles:
Bloomberg: High Rollers After RetailMeNot Whats Next for Austin Ventures
WSJ: Coupon Site RetailMeNot’s IPO Soars 32% in First Day
Crunchbase: WhaleSharkMedia


Fred Wilson’s PandoMonthly Interview

Check out Sara Lacy’s interview with Fred Wilson on PandoMonthly. Fred’s comments on e-commerce are especially interesting. Forward to the 1:20.00 mark for the e-commerce Q&A.

I completely agree with his thesis for investing in marketplaces over e-retailers. This is exactly why I joined Amazon’s Merchant Services business last month.

I also think he is spot on when he states that “Most e-commerce companies fool themselves into thinking that the lifetime value of their customer is in excess of their acquisition cost when it’s not…and the only reason that they stay in business is that venture capitalist keep getting seduced into thinking that too…giving them money at higher and higher prices and then the whole thing is eventually revealed to be an emperor that has no clothes.” Learn more about the LTV/CA ratio in my previous post: The Most Important Formula for Startups.



E-Commerce Now Represents 4.9% of Retail Sales & VCs Invest the Most in Retail Since 2000

Below is a quick rundown of some interesting statistics that were just released.

Last Friday, the Department of Commerce reported that e-commerce sales were up 17% YoY in Q3 ’12. Retail sales were up 4% during the same period. The Department also announced that e-commerce sales now represent 4.9% of retail sales, which is up from 4.3% of retail sales in Q3 2011 and 3.3% during Q3 2007. Below is a chart summarizing the DoC’s statistics since Q4 1999, which is when they started tracking e-commerce.

E-Commerce Sales as a Percent of Retail Sales Q4 1999 – Q3 2012Data: Department of Commerce

This Monday, Bloomberg published an article titled “Most E-Commerce Froth Since 2000 Stirs Up Investor Doubts: Tech.” Based on that article I decided to dig up the NVCA/PwC statistics on VC investments in retail over the past 13+ years. The below chart summarizes these statistics. Note that the average deal size in Q3 2012 is almost as high as it was during 2000. That said, the number of deals per quarter are below average. There were an average of 15 deals per quarter during 2011 and 2012, this is down from an average of 20 per quarter since 1998. Most notably, the industry has already raised more in 2012 than in any year since 2000.

Annual VC Investments in Retail/Distribution Companies Q2 1997 – Q32012 |Data: NVCA/PwC MoneyTree
Quarterly VC Investments in Retail/Distribution Companies 1998 – Q32012 | Data: NVCA/PwC MoneyTree

Lastly, in honor of Black Friday. It is worth looking at IBM’s Benchmark report on Thanksgiving shopping. Earlier today, IBM released an estimate that Thanksgiving e-commerce sales are up 17.4% versus 2011. I don’t have my hands on the actual data at this point, but here are some good articles on the subject: Business InsiderInternet Retailer and Seeking Alpha.


The Most Important Formula for Startups

There are numerous metrics to focus on when launching an e-commerce startup. There are also several hypotheses that you will want to prove during the early months, but the most important hypothesis to make and prove is that your customer’s Lifetime Value divided by your Cost Per Acquisition is greater than 2x. This multiple holds true for numerous other startups, not just those in the e-commerce space.

While it is extremely important to continuously grow your daily Unique Visitors (i.e. shoppers) and number of Unique Buyers (i.e. customers), the LTV/CPA multiple will determine the scalability of your business. Note that 2x is what some would consider the minimum for investing. Aim to be at least in the 2x to 3x range.

My most important piece of advice related to this metric is to focus your efforts on increasing the LTV side of the equation. Too often I meet startups, typically with inexperienced entrepreneurs, that are not concerned about their low LTV because they anticipate using viral marketing to keep their CPA low. The web does make it possible to build a business based on a low LTV and CPA, but it is much harder and not as attractive. The one CPA aspect that you should pay attention to is the time to recover your CPA: aim to recover your CPA within the first 12 months. This will keep your working capital requirements down.

There are several levers you can pull to increase your customers LTV. The obvious ones are: increase cart-size, increase frequency of purchase, and move customers to higher margin products. One of the less obvious ways is to market third party offers to your customers. These are just a few of the things you can do to increase the LTV, which in its simplest form equals your Average Sale Price*Net Profit Margin*Purchases/Customer.

Lastly, their are different variations of an LTV calculations. Agree early-on what LTV calculation makes the most sense for your business, and start hypothesizing about your customers LTV, CPA, and the resulting multiple. Inherently, a large piece of your LTV calculation will be a forecast, and as with other startup forecast, it will be wrong, but the sooner you can create a hypothesis about your customers behavior and begin to test it…the closer you will be to proving your business model and attracting more capital.

Check out this infographic if you don’t know how to calculate your LTV.

And as always, check out some resources from other VCs:
Fred Wilson:
David Skok:


13 Years Later Cafepress Completes IPO

Cafepress went public this morning after 13 years in the making. This is in stark contrast to the 6.5 years it took the average venture backed company to reach IPO in 2011 (DJ VentureSource). Fortunately for cafepress’ early investors, the company only required $18Mil in venture financing over the past 13 years, which is a fraction of the $85Mil that the average venture backed company needed to reach an IPO in 2011 (DJ VentureSource).

Cafepress is an e-commerce platform for custom printing and production. In it’s simplest form it allows you to print custom t-shirts for your student club or custom coffee mugs for your small business. Cafepress’ “secret sauce” allows it to ship custom orders within 72 hours of placement, and sometimes within the same-day. The company’s streamlined operations also allows it to complete orders of any size with minimal setup costs. Cafepress’ 15Mil members have created over 320Mil unique designs to date.

Cafepress also owns and operates,, and

Here’s a look at cafepress by the numbers.

Cafepress’ venture investors consisted of Institutional Venture Partners, New Millenium Partners, PacRim Venture Partners, Staenberg Venture Partners, and Sequoia Capital. Most notably, Sequoia did not sell any of its stake during the IPO and now owns ~17% of the company post-IPO.

Congrats to the team at cafepress on their recent IPO.


I won’t sign your NDA! {not yet at least}

We’ve all had the experience of discovering a new product or business and thinking…I had that idea years ago. This is especially true with new consumer products and consumer facing businesses. Knowing that, I can understand why first-time entrepreneurs are so nervous about having their ideas stolen. However, what these first-time entrepreneurs fail to realize is that there is a massive difference between having an idea for a business and successfully gaining market share. Turning an idea into a business and successfully launching it to the masses requires an enormous amount of EXECUTION and at least a teaspoon of dumb luck.

Numerous articles have been written on the topic of Non Disclosure Agreements, but this continues to be an issue for first-time entrepreneurs. I was recently approached by an undergraduate student at the University of Michigan (Go Blue!) who wanted help with his e-commerce startup. The conversation only lasted ten minutes because he wouldn’t tell me anything more than that he was working on an e-commerce startup. He wouldn’t disclose anything about his idea unless I signed an NDA. Needless to say, I didn’t sign the NDA, and unfortunately wasn’t able to help him out. Following this experience, I thought it might be helpful to publish a list of articles on the topic of NDAs.

In summary: VCs don’t sign NDAs because they are constantly evaluating businesses and will often be looking at 3-5 companies in the same space as they decide where to place their chips. Also, a typical VC might look at close to 1,000 businesses a year, and it would be a nightmare to manage the paperwork and conflicts associated with signing NDAs. Lastly, and most importantly, ideas in and of themselves are useless and proving their origin is impossible.

There isn’t much I can add to what the below guys have already said. I will say that a company’s ability (and need) to require an NDA changes as it matures. Of course a late-stage startup like Facebook has the right to demand an NDA before disclosing information to potential investors.

Hope the following list is helpful.

On NDAs and Confidentiality – Mark Suster
Why VCs Don’t Sign NDAs – Fred Wilson
Why Most VCs Don’t Sign NDAs – Brad Feld
The Venture Capitalist Wishlist – Guy Kawasaki
Perfect Your Pitch – Brad Feld
Going to Raise VC? Here’s a Primer on Process, People & Powerpoint Deck – Mark Suster
Why a VC Will Take a Lighter to Your NDA – Startup Lawyer
Why Startups Shouldn’t Ask Investors to Sign NDAs – Jerome Gentolia