Top e-commerce venture capital trends in 2022
July 18, 2022
Venture capitalism is a major source of funding for many e-commerce businesses. Venture capital (VC) firms have historically prided themselves on investing in up-and-coming startups that have shown exceptional promise. If you’re an e-commerce Founder in 2022, you’re probably wondering what kinds of businesses VC firms are investing in. While we can’t read anyone’s minds, we can point out some prominent trends that have been dominating the VC funding world over the last year or so.
What do e-commerce venture capitalists look for in early-stage brands?
All e-commerce investors, including VC firms and angel investors, want to put their money behind business success stories. In order to do so, they need to be sure your brand is not only scalable but can withstand the waxing and waning of global e-commerce trends. The COVID-19 pandemic put the latter into sharp focus over the past couple years, and VC firms are investing in companies that can sustain supply chain disruptions now more than ever.
On top of that, VC firms will usually consider the following key factors:
- Your management team: Do you and your team have the experience and expertise necessary to run (and ultimately scale) a successful e-commerce business?
- Your product or service: Are you selling a product or service customers can’t do without that has a great competitive edge?
- Risk assessment: While a VC’s job is to take on risk, the firm will want to ensure they are taking on a smart one. This means assessing all the risks that will come with investing in your company, including any potential regulatory and legal tangles that may arise.
- The size of your market: VCs tend to favour companies that have the potential to take on large segments of a large market. The bigger the piece of the pie, the better.
- Your business concept and plan: This probably goes without saying, but you should have a solid, fleshed out business plan ready to present to VC investors. They will need to know that you’re serious about your business, and that you’ve done your homework.
Trend #1: E-commerce is overtaking brick-and-mortar retail.
Unsurprisingly, e-commerce sales are projected to skyrocket over the next few years. By 2040, it is expected that 95% of all purchases will be facilitated by e-commerce. E-commerce was well on its way to overtaking brick-and-mortar retail before the pandemic; this trend was accelerated significantly by COVID-19. In fact, the e-commerce space jumped 15 years in the span of a few months.
Trend #2: Zero-party data has become critical.
Privacy has become top of mind for e-commerce businesses across the board. Apple’s iOS update last year allows consumers to disable data tracking, forcing e-commerce brands to reimagine how they approach ads, especially Facebook ads. In 2022, VCs will be investing in brands that are nimble when it comes to privacy, thus future-proofing themselves for not only these changes, but even bigger changes in the future. This will likely mean collecting data directly from their consumers (also known as zero-party data) and leveraging it to create bespoke marketing.
Trend #3: Live shopping is going mainstream.
As a direct result of the rise of influencers, alongside the popularity of live video in 2022, live shopping has become a major channel for consumers—especially for avid shoppers. VC firms are investing in e-commerce businesses that have the finger on the pulse when it comes to non-traditional purchasing channels. Live shopping is a prime example of an up-and-coming distribution channel that’s broken into the mainstream over the last few years.
Trend #4: Treat customers like individuals, not broad segments.
Consumers have never been more demanding. In 2022, brands can no longer treat customers as broad segments like they might have done in the past. Personalization in marketing is crucial, and should be applied to channels across the board. VCs will be keeping an eye out for e-commerce brands that use social media, email, and technology to create a world-class, personalized customer experience.
Trend #5: Supply chains are recovering, but progress is slow.
2021 was a rough year for global supply chains, but we’ve got good news: 2022 is showing signs of recovery. That being said, progress is slow. Brands will need to continue to find workarounds to circumvent supply chain delays. VCs are investing in businesses that can prove they are able to adapt to changing global forces, including supply chain clogs.
Trend #6: Direct-to-consumer brands are shaking things up.
The rise of direct-to-consumer (DTC) brands has been disrupting the status quo in e-commerce for some time now. If you’re a DTC brand seeking VC funding, there has never been a better time to make your case. For Founders who are interested in 2022 trends in the DTC space, you’ll find a detailed breakdown here.
What does this all mean for my e-commerce business?
VCs are always on the lookout for the needle in the haystack: a company with so much potential that they’re willing to fork out large amounts of funding. And given the number of pitches they receive, it’s not wonder VCs are discerning with who they decide to back. Especially if you’re an early-stage venture, you’ll need to prove to investors that you’ve got the management team, business plan, and killer product/service that will leave your competitors in the dust.
Remember, VCs are looking for sustainable growth—not unicorns. Unicorn brands might seem promising at first, but they usually have such high customer acquisition costs that they end up burning through cash too quickly. As a Founder, you should be in it for the long run: that means building a profitable and sustainable business that will one day become a billion-dollar company.