ecommerce: Ecommerce enablers emerge as hot picks for investors amid D2C boom

Bengaluru: As online shopping grows, a bunch of early-stage startups, which provide software tools to fledgling direct-to-consumer (D2C) brands as well as online marketplaces, is gaining the interest of risk investors. On Wednesday, two such platforms— Shopflo and GoKwik — said they had raised fresh funds.

While GoKwik said it had raised $ 35 million led by RTP Global and Think Investments – its third fundraise in less than year, Shopflo announced that it has picked up $ 2.6 million in seed funding led by Tiger Global and TQ Ventures. Both startups help merchants improve conversions at the checkout stage.

In March, this year, Commerce IQ, which provides software to brands that helps them sell better on ecommerce platforms, mainly on Amazon, racked up $ 115 million led by SoftBank Vision Fund 2, valuing the ecommerce Software-as-a-Service (SaaS ) startup at more than $ 1 billion

With the pandemic giving a boost to online-first brands, ecommerce software tool providers mopped up close to $ 496.3 million in equity funding last year, a five-fold jump compared to $ 94.4 million in 2019, according to data sourced from Tracxn.

Several venture capital funds told ET that the growth of online-only brands and omnichannel play by fast-moving consumer good brands (FMCG) brands, has given way for these software tools providers to gain steam. Ecommerce infrastructure providers do not own the storefront or website, nor do they operate payments, but help in enhancing customer experiences and the merchant’s supply chain.

“The thesis behind this sector is that the share of non-marketplace business for D2C brands is growing very fast and new vertical commerce players are also emerging globally. To compete effectively with the horizontal marketplaces, these brands and vertical players need to offer a similar or better shopping experience to the consumers, ”said Rajat Agarwal, managing director, Matrix Partners India. “With the advent of e-commerce enablers, these players no longer need to build various tools in-house,” he added.

Discover the stories of your interest



This year alone ecommerce software providers have racked up close to $ 475.6 million in funding, if unicorn rounds of ElasticRun and CommerceIQ are to be accounted for.

“Since these businesses are software infrastructure providers, they are essentially like toll roads for ecommerce enablement in the country. They have strong underlying business models since there is not much direct cost to build these businesses, and take a cut on every transaction, with potential to earn more as they improve efficiencies, ”said an investor who spoke on condition of anonymity, and was evaluating some deals in the space.

While the ecommerce enablers are gaining traction on the back of D2C brands, there are pockets opening up from even larger FMCG players. Larger brands and retailers are also veering towards a dedicated ecommerce strategy. Hence they need these enablers to help them, ”said Kapil Makhija, chief executive officer (CEO), Unicommerce, which provides supply chain solution to online marketplaces and D2C brands.

Ecommerce enablers, however, face increased challenges posed by – changing ecommerce models, price disruption, as increasingly startups shift focus on this space. “Enablers in the pre-purchase journey have to be careful about evolving ecommerce models and have to cater to a variety of clients to create diversity and those with just a vertical focus can be impacted. Further with the market getting competitive it is important to create differentiation. We see some of these enablers to not have a sustainable pricing, ”added Makhija.

For a D2C brand like The Souled Store, new-age enablers fall short of the inhouse capabilities built by these brands started a few years back. “Today ecommerce tool providers can definitely help in the journey of a newly started D2C brand. However, there aren’t many platforms out there which are catering to our scale, and providing better outcomes since we have also invested in building several ecommerce functions inhouse. There is also a dearth of supply-chain procurement enablers, with the middleware still broken, ”said Vedang Patel, cofounder of merchandise brand The Souled Store.

“In our research we saw that the integration for some of the e-commerce enablers is not as straightforward unlike a payments business and it needs time to get it right. But that also means that for such players, once they are integrated, churn is likely to be lower, ”Agarwal of Matrix Partners said.

Globally, in April this year, Fast which provides online checkout products shut down operations, while its rival Bolt is under scrutiny for inflated metrics, The New York Times reported earlier this week. “Owing to the maturity of ecommerce, we are seeing a new generation of software companies building new software products for enabling ecommerce and its ever expanding use cases. The opportunity is large and very global in nature. Ecommerce checkout players Bolt and Fast are isolated examples and will not change the view of the global macro factors and tailwinds pushing ecommerce innovation, ”said Vaibhav Domkundwar, CEO and founder, Better Capital which invested in Shopflo.

.

Leave a Comment

News Msuica