Why No One Wants To Fund Ecommerce Companies Anymore

Amazon is sucking all the proverbial oxygen out of the retail space and venture capitalists are nervous about investing in anything that is potentially competitive, which means virtually anything related to consumers. JL

Kurt Wagner reports in Re/code:

No one wants to fund ecommerce anymore.There’s been no shortage of e-commerce companies that have failed recently. Amazon is on a tear. They make good products that are private label. The last vertical that a lot of these retailers haven’t tackled yet is health and beauty, and that’s where the margin is. "Amazon is a wonderful partner of ours [but] I’m always nervous.This isn’t a friendly game.”

When Tristan Walker decided to raise venture capital money for his new startup, a health and beauty company that makes products for people of color, the fact that he was running a tech company — not a retail company — was key.

“When I started, I said we’re a tech company. That’s bullshit,” Walker said. “If you go to any kind of venture capital firm on Sand Hill Road and you say you want to build a retail business, you’re not going to raise any money. So to say that you’re a direct-to-consumer e-commerce business focused on subscriptions ... it allows us to really talk about how we kind of focused on tech.”

That strategy worked. Walker’s startup, Walker & Company, has raised $33 million from well-known VC firms like Andreessen Horowitz and Google Ventures; its flagship brand Bevel, a line of razor blades and lotions for people with “coarse and curly hair,” is sold in major retail stores like Target.

But Walker says that, despite his company’s success and home runs like Dollar Shave Club’s recent $1 billion sale to Unilever, raising money as a commerce company hasn’t gotten any easier.

“It still is difficult,” Walker said. “No one wants to fund e-commerce companies anymore. There’s been no shortage of e-commerce companies that have just failed recently. No one wants to fund a retail business.”

Walker & Co. is not failing, though, or at least he’s optimistic that things are just beginning. The company plans to come out with its second brand later this summer — a line that will include 10 new products — and has found success by selling its products a la carte. Bevel used to sell via subscription only, but Walker expects retail sales to make up 50 percent of his business in 2017.

And even though Walker relies on Amazon for lots of those sales, that doesn’t mean he isn’t hyper aware that he’s working side by side with the potential competition.

“Amazon is on a tear,” Walker said. “One thing that people don’t understand about Amazon and don’t give them enough credit for is that they make good products themselves that are private label ... Really, the last vertical that a lot of these retailers haven’t tackled yet is health and beauty, and that’s where all the margin is.”

“Amazon is a wonderful partner of ours [but] I’m always nervous,” he added. “This isn’t a friendly game.”