Listen to our PandoWeekly interview with Greg Bettinelli about the state of ecommerce and JustFab’s big acquisition
Greg Bettinelli has been operating and investing in ecommerce companies for ten years, with roles at eBay, StubHub, LiveNation, and HauteLook, before joining UpFront Ventures as a venture partner. And in Bettinelli’s view, the category is as healthy today as it’s ever been. Not all investors agree, but that’s fine with him.
“I don’t think [investor appetite is] anywhere near as good as it was two years ago, which I think is great, because it’s less competition.” he says. “Clearly the overall macro trends of ecommerce are not changing. I read a story today saying ecommerce is the only worldwide business that is greater than a trillion dollars, growing at a double digit rate. And that trend isn’t going anywhere anytime fast.”
Bettinelli explained his take on the big news of the week, first reported by PandoDaily, which was JustFab’s acquisition of ShoeDazzle. He wouldn’t have predicted the transaction two years ago when both companies were healthy and vying for the top spot among subscription women’s fashion businesses. Mergers of two successful ecommerce brands are almost unheard of, he says. But the deal was less surprising given ShoeDazzle’s recent struggles.
“If it didn’t make sense for them both, they wouldn’t have done the deal,” he says.
Unlike many people, Bettinelli isn’t ready to say that Lee or ShoeDazzle’s board messed up. Rather, he explains that raising large sums of money at high valuations results in potentially unreasonably high expectations. And in an effort to meet or exceed those expectations, companies are forced to take bigger risks. As Bettinelli says, and ShoeDazzle ultimately found out, those bets don’t always work out.
Bettinelli likes what he sees when looking at the overall ecommerce category in LA, saying that he’s currently tracking 60 companies locally between the accelerator and Series C stage. Bettinelli believes that there are a half dozen or more companies that positioned for nine (or even ten) figure exits. Among them, he cited JustFab and its sister company Sensa, as well as NastyGal, Honest, and Revolve Clothing. In the recently exited category, he cited Magento (acquired by Ebay), HauteLook (acquired by Nordstrom), JustFab sister company Dermstore (acquired by Target), and Society6 (acquired by Demand Media).
Finally, Bettinelli shared his keys for ecommerce success and a bit of his investment picking philosophy. He believes that to be successful in the category, any company must have an authentic founder (think NastyGal’s Sophia Amoruso), scalable margins, operational expertise, and organic demand. Not all of those things need to be present from day one, but the more that are, the better prospects a business has in his mind.
Ecommerce has gone through its boom and bust cycles, like any other category, with many of these periods tied to new business model and marketing innovations. Bettinelli gives ShoeDazzle founder Brian Lee credit for innovating around two of the biggest: subscription and celebrity. He also referenced flash sales, stuff in a box, and gamification as somewhat fadish models. But success in ecommerce can be boiled down to something much simpler: organic demand
The reality is, if there is not organic demand for what you’re selling, you can spend all the money in the world, but eventually that’s going to catch up to you. There has to be something that truly people want to talk about, share, and do so more. That’s what makes the unique ecommerce businesses we’re talking about special.
Enjoy the show, which, as always, is just 30 minutes long (Note: we lost Greg for about 15 seconds around the 23 minute mark, but he comes through clear for the rest of the call):