Let’s Drop the “E” and Talk Commerce
Catalyst has recently spent time researching the commerce sector, including B2B models (commerce enablement software platforms, retail analytics) and B2C models (social, marketplaces, eRetail). As we developed our investment theses, we determined that omni-channel retail (the seamless approach to the consumer experience through all available shopping channels, including online – via computer, tablet and mobile, brick-and-mortar, kiosks, television, radio, direct mail and catalog) is a key driver in expanding the environment for business beyond in-store or online and in broadening the nomenclature from “eCommerce” to simply “commerce.”
Check out our commerce market map and research report highlighting the key trends in commerce (including the focus on omni-channel retail), and see Catalyst’s top three themes in commerce outlined below:
- Platforms – We are interested in commerce enablement software platforms because they are similar to the SaaS models with which we are familiar yet still provide exposure to the rapidly growing omni-channel commerce market. It is common for platform companies (e.g., Demandware, Brightpearl) to charge a minimum subscription fee as well as a variable transaction-based fee based on the percentage of gross revenue processed through the platform, which allows platforms to benefit from their customers’ growth. This hybrid revenue model is attractive as it provides the stability of recurring subscription revenue and the upside of transaction- based fees.
- Marketplaces – We are interested in the marketplace model due to the high operating leverage and powerful network effects. Unlike the “hit-driven” model of most B2C commerce businesses, marketplaces provide a platform that brings together both buyers and sellers with low capital intensity and no inventory risk. B2B2C marketplaces (e.g., Miinto, Shoptiques) are particularly interesting as they generate both platform fees from businesses participating in the marketplace and transaction fees from consumer purchases. As such, B2B2C marketplaces yield higher margins than B2C marketplaces due to the recurring platform revenue.
- Differentiated Merchandise eRetail – We are interested in eRetailers that are able to carve out a sustainable market niche by providing a unique product assortment (e.g., The Clymb, Pet360) and/or proprietary merchandise (e.g., Bonobos, BaubleBar). Such eRetailers attract a highly engaged audience and build a community around their differentiated products and experience, which yields loyal followers and repeat customers. Additionally, differentiated eRetailers generate higher gross margins and are less prone to commoditization and competition from Amazon, which, due to its scale and competitive pricing, would otherwise win.
Catalyst Investors employs a proactive, research-based approach to investing. We target sectors that are experiencing above-average growth. If you are a growth-stage commerce company seeking investment, our team would love to start a dialogue. Please send inquiries and business plans to [email protected].