E-commerce roll-ups are the next wave of disruption in consumer packaged goods

This year is all about the roll-ups. No, not those fruity snacks you used to find in your lunchbox; roll-ups are the aggregation of smaller companies into larger firms, creating a potentially compelling path for equity value.

Right now, all eyes are on Thrasio, the fastest company to reach unicorn status, and its cadre of competitors, such as Heyday, Branded and Perch, all vying to become the modern model of consumer packaged goods (CPG) companies.

Making things even more interesting, famed investor and operator Keith Rabois recently announced that he too is working on a roll-up concept called OpenStore with Atomic co-founder Jack Abraham.

Like any investment firm, to be successful, a roll-up should have a thesis or two providing it with a cohesive strategy across its portfolio.

Thrasio has been reaping the benefits of the e-commerce market’s Cambrian explosion in 2020, in which over $1 billion of capital was invested in firms on a mission to acquire independent Amazon sellers and brands.

This catalyst can be attributed to a few key factors, the first and most notable being the pandemic accelerating spending on Amazon and e-commerce more broadly. Next is the low cost of capital, a reflection of interest rates making markets flush with cash; this has made it easier to raise both equity and debt capital.

The third is the emerging and quantifiable proofs of concept: Thrasio is one of several raising hundreds of millions of dollars, and Anker, a primarily Amazon-native brand, went public. Both stories have provided further validation that a meaningful brand can be built on top of Amazon’s marketplace.

Still, the interest in creating value through e-commerce brands is particularly striking. Just a year ago, digitally native brands had fallen out of favor with venture capitalists after so many failed to create venture-scale returns. So what’s the roll-up hype about?

Roll-ups are another flavor of investing

Roll-ups aren’t a new concept; they’ve existed for a while. In the offline world, roll-ups often achieve much greater exit multiples, known as “multiple arbitrage,” so it’s no surprise that the trend is making its way online.

Historically, though, roll-ups haven’t been all that successful; HBR notes that more than two-thirds of roll-ups fail to create value for investors. While roll-ups are often effective at building larger companies, they don’t always increase profits or operating cash flows.

Acquirers, i.e., those rolling up smaller companies, need to uncover new operating approaches for their acquired companies to increase equity value, and the only way to increase equity value is to increase operating cash flow. There are four ways to do this: reducing overhead costs, reducing operating costs without sacrificing price or volume, increasing pricing without sacrificing volume or increasing volume without increasing unit costs.

E-commerce could present a new and different opportunity, or at least that’s what investors and smart money are betting on. Let’s explore how this new wave of roll-ups is approaching both growth and value creation.

Channel your enthusiasm: Why every roll-up needs a thesis

Like any investment firm, to be successful, a roll-up should have a thesis or two providing it with a cohesive strategy across its portfolio. There are a few that are trending in this particular wave.

The first is the primary distribution channel upon which a company grows. Evaluating companies with a common distribution channel can be helpful for creating economies of scale, focusing marketing and growth resources in a specific channel versus diluting resources across several.

On the downside, these companies become reliant on this distribution strategy and any changes could create vulnerabilities for their portfolio companies. As a study, let’s take a look at how two companies take different approaches:

#amazon, #business, #column, #e-commerce, #ec-column, #ec-consumer-applications, #ec-ecommerce-and-d2c, #mergers-and-acquisitions, #roll-ups, #tc

0

Amid pandemic, Middle East adtech startups play essential role in business growth

The pandemic’s impact on the business world encouraged adtech startups and digital marketing agencies to collaborate more, helping brands survive the pandemic by bringing businesses closer to consumers.

Although overall spending on advertising slowed in 2020, it is expected to recover in 2021 and reach $630 billion in 2024. According to Statista, North America spends the most on advertising, with second place going to Asia and Western Europe. The rest of Europe, Africa and the Middle East lag behind.

Although overall spending on advertising slowed in 2020, it is expected to recover in 2021 and reach $630 billion in 2024.

However, the Middle East embodies great potential. According to Statista, it boasts the highest growth, with a 600% increase in digital advertising in the MENA region between 2010 and 2015. Although consumers in the region used to prefer traditional advertising channels, the internet took over in 2020, with 44.2% of the total ad expenditures, while TV dropped to 30%.

Here are several essential characteristics of digital advertising in the Middle East region:

  1. According to a PwC report, 39% of shoppers in the Middle East use social media to find inspiration for purchases, compared to the global average of 29%.
  2. Due to the existence of a shadow economy, political regulations and unofficial business, the amount of digital ad spending in the MENA region ranged from $1 billion to $1.2 billion in 2020.
  3. Paid social is the leading category in digital advertising expenditures in the MENA region. Saudi Arabia and Egypt are the largest in terms of active YouTube users.
  4. There are more than 500 digital agencies listed in the region. UAE is leading in terms of big advertising agencies, while Egypt and Saudi Arabia are famous for small- and medium-size agencies. Most digital marketing talent and creative resources reside in Egypt, Lebanon and Jordan, while most adtech startups are born in Israel, UAE and Qatar, according to digital marketing consultant Yasser Ahmad.
  5. E-commerce is driving growth, hitting $17 billion in the Middle East in 2020, according to Statista, with many online shoppers increasing the frequency of purchases during the pandemic.

#adtech, #advertising-tech, #column, #digital-marketing, #ec-consumer-applications, #ec-enterprise-applications, #ec-market-map, #middle-east, #online-advertising, #social-media, #tc

0

Our favorite companies from Y Combinator’s W21 Demo Day: Part 2

We’ve reached the end of Y Combinator’s biggest Demo Day, which saw more than 300 companies pitching back-to-back over eight hours.

Earlier, we highlighted some of the companies that caught our eye in the first half of the day. Now we’re back with our favorite companies from the second half. From a marketplace to help you resell formalwear to a startup that offers self-driving street cleaners, it’s quite the mix.

If you’d like to browse all of the companies from this batch YC has a catalog of publicly-launched W21 companies here.

Terra

Heading into this particular demo day, I had my eyes peeled for startups focused on delivering services via an API instead of offering managed software. Happily, there have been a number to dig into, including Pitbit.ai, Bimaplan, Enode and Terra.

Terra stood out to me because it solves a problem I care deeply about, namely fitness data siloization. My running data is stuck in one app, biking data in another, and my weight-lifting data is stuck in my head, though I doubt Terra has an API for that interface quite yet.

What Terra does is permit fitness app developers to better connect their services, which permits the sharing of data back and forth. Presenters likened their startup to Plaid — a popular thing to do in recent quarters — saying that what the fintech startup did for banking data, Terra would do for fitness and health information.

Getting developers to sign on will be tricky, as I presume all of the apps I use in an exercise context would prefer to be my main workout home. But I don’t want that, so here’s hoping Terra realizes its vision.

— Alex

AgendaPro

Calling itself “Shopify for beauty and wellness” in Latin America, AgendaPro wants to help small businesses in the region book customers online and collect payments. 

The company’s idea isn’t as radical as some companies that we heard from today — Carbon capture! Faster drug discovery! — but the company did share several metrics that made us sit up. First, AgendaPro has reached $152,000 in MRR, or just over $1.8 million in ARR. And representatives shared that its gross margins are 89%. As far as software margins goes, that’s pretty damn good.

The startup has more than 3,000 merchants using its service at the moment, and it claims that there are more than four million businesses that it could service. If AgendaPro can get software and payments revenues from even a respectable fraction of those companies, it will be a big, big business. And who doesn’t love vertical SaaS?

— Alex

Atom Bioworks

One of the holy grails of biochemistry is a programmable DNA machine. These tools can essentially “code” a molecule so that it reliably sticks to a specific substance or cell type, which allows a variety of follow-up actions to be taken.

For instance, a DNA machine could lock onto COVID-19 viruses and then release a chemical signal indicating infection before killing the virus. The same principle applies to a cancer cell. Or a bacterium. You get the picture — and it looks like Atom Bioworks has something a lot like this.

#ec-cloud-and-enterprise-infrastructure, #ec-consumer-applications, #ec-consumer-health, #ec-ecommerce-and-d2c, #ec-marketing-tech, #ec-news-and-analysis, #startups, #tc, #y-combinator

0

Our favorite companies from Y Combinator’s W21 Demo Day: Part 1

It’s that time again! Today is Demo Day for Y Combinator’s latest accelerator batch — its largest to date, with more than 300 teams getting a minute each to pitch their companies to an audience of investors.

This is the third time YC has held its Demo Day via a Zoom livestream and the second time the entire program was entirely virtual. YC president Geoff Ralston outlined their thinking for this latest batch — and how/why they’ve expanded the program to over 300 companies — in a post this morning.

Want to see all of the companies? YC has a catalog of the entire Winter 2021 batch here (minus those that haven’t publicly launched), filterable by industry and region.

If you don’t have time to skim through it all, we’ve aggregated some of the companies that really managed to catch our eye. This is part one of two, covering our favorites from the companies that launched in the first half of the day.

As Alex Wilhelm put it last time we did one of these, “we’re not investors, so we’re not pretending to sort the unicorns from the goats.” But we do spend a lot of time talking with startups, hearing pitches and telling their stories; if you’re curious about which companies stood out, read on.

Prospa

Prospa is building a neobank for small companies in Nigeria. The startup charges customers $7 per month and has reached $50,000 in monthly recurring revenue. That’s some pretty darn good traction. We found Prospa notable because Nigeria’s economy and population are rapidly growing, neobanks have succeeded in a number of markets thus far, and the company’s clear business model and early traction stood out.

And Prospa isn’t targeting a small market. It said during its presentation that there are 37 million so-called “microbusinesses” in its target country. That’s a lot of scale to grow into, and it’s really nice to hear from a neobank that isn’t going to merely pray that interchange revenues will eventually stack to the moon.

— Alex

Blushh

Image Credits: Blushh

Blushh, built by a team of ex-Google, Amazon, Harvard and BCG professionals, is creating a directory of short, sensual audio stories for women in Asia. The startup believes that there is a massive unmet need for adult content created for women, instead of men, signing up 100 paying subscribers within its first month on the market.

During their pitch, co-founder Soy Hwang said Blushh wants to do for sexual wellness what “Spotify and Audible did for music and audio books.” This startup stands out because it is taking on an untapped market ridden with stigma and lack of innovation. It’s a risk on several levels, and considering the fact that many venture capitalists today still have a “vice” clause that prevents them from investing in sex tech, it will be key to see how Blushh funds itself to keep growing.

— Natasha

BrioHR

TechCrunch caught up with BrioHR a few weeks ago when the startup announced that it had closed a $1.3 million round. During its presentation, the company announced that it had reached $13,000 in monthly recurring revenue (MRR), or $156,000 in annual recurring revenue (ARR).

The company is building human resources software for companies in Southeast Asia, a market it considers fraught with old software and outdated business processes. The company is doing two things. First, building software to help manage and pay workers. The latter part of its work requires lots of localization, so it’s rolling out more slowly than the rest of its software.

If Southeast Asia is as fertile ground for modern HR software as the United States has been shown to be, BrioHR could find more than enough room to grow. I’m excited to see how far the company can scale its ARR with the round that we recently covered.

— Alex

Charge Running

Strava walked so Charge Running could, well, run. The startup, founded by a former Navy SEAL, app connoisseur and kinesiology specialist, is an app that offers live virtual running classes. The consumer play is being framed by the team as a “Peloton for running” with motivation and social engagement during the run.

#ec-cloud-and-enterprise-infrastructure, #ec-consumer-applications, #ec-fintech, #startups, #tc, #y-combinator

0

Clubhouse UX teardown: A closer look at homepage curation, follow hooks and other features

Clubhouse, the social audio app that first took Silicon Valley by storm and is now gaining much wider appeal, is an interesting user experience case study.

Hockey-stick growth — 8 million global downloads as of last month, despite still being in a prelaunch, invite-only mode, according to App Annie — is something most startups would kill for. However, it also means that UX problems can only be addressed while in “full flight” — and that changes to the user experience will be felt at scale rather under the cover of a small, loyal and (usually) forgiving user base.

In our latest UX teardown, Built for Mars founder and UX expert Peter Ramsey and TechCrunch reporter Steve O’Hear discuss some of Clubhouse’s UX challenges as it continues to onboard new users at pace while striving to create enough stickiness to keep them active.

Homepage curation

Peter Ramsey: Content feeds are notoriously difficult to get right. Which posts should you see? How should you order them? How do you filter out the noise?

On Clubhouse, once you’ve scrolled past all the available rooms in your feed, you’re prompted to follow more people to see more rooms. In other words, Clubhouse is inadvertently describing how it decides what content you see, i.e., your homepage is a curated list of rooms based on people you follow.

Except there’s a problem: I don’t follow half the people who already appear in my feed.

Image Credits: Clubhouse

Steve O’Hear: I get it. This could be confusing, but why does it actually matter? Won’t people just continue to use the homepage regardless?

Peter: In the short term, yes. People will use the homepage in the same way they’d use Instagram’s search page (which is to just browse occasionally). But in the long term, this content needs to be consistently relevant or people will lose interest.

Steve: But Twitter has a search page that shows random content that I don’t control…

Peter: Yeah, but they also have a home feed that you do control. It’s fine to also have the more random “slot machine style” content feed — but you need the base layer.

The truth about aha moments

Peter: In the early days of Twitter, the team noticed something in their data: When people follow at least 30 others, they’re far more likely to stick around. This is often described as an “aha moment” — the moment that the utility of a product really clicks for the user.

This story has become startup folklore, and I’ve worked with many companies who take this message too literally, forgetting the nuance of what they really found: It’s not enough to just follow 30 random people — you need to follow 30 people who you genuinely care about.

Clubhouse has clearly adopted a similar methodology, by pre-selecting 50 people for you to follow while signing up.

Have you noticed that some people have accumulated millions of followers really quickly? It’s because the same people are almost always recommended—I tried creating accounts with polar opposite interests, and the same people were pre-selected almost every time.

And at no point does it explain that following those 50 people will directly impact the content that is available to you, or that if your homepage gets uninteresting, you’ll need to unfollow these people individually.

But they should, and it could look more like this:

Steve: Why do you think Clubhouse does this? Laziness?

Peter: I think in the early days of Clubhouse they just wanted to maximize connections, and by always recommending the same people (Clubhouse’s founders and investors), they could somewhat control the content that is shown to new users.

#clubhouse, #developer, #ec-consumer-applications, #ec-how-to, #social, #social-audio, #startups, #tc, #usability, #ux

0

Social+ payments: Why fintechs need social features

Social+ companies are upping the stakes for everyone by giving consumers multiple benefits at once: products that serve a purpose but also meet our need for belonging to a community.

But what exactly is a social+ company? One for which social engagement is an inextricable component of the product. That is to say: If you removed the social element, the product would cease to make sense. You can find plenty of examples in gaming (Fortnite), fitness (Strava, Peloton), commerce (Pinduoduo), audio (Clubhouse) and more. As noted in Andreessen Horowitz’s recent series Social Strikes Back, “The best version of every consumer product is the one that’s intrinsically social.”

Social+ products are seeing mass adoption because they marry community with functionality.

The benefits of a social+ company

Social+ products are seeing mass adoption because they marry community with functionality. Users form meaningful connections — and engage in value-adding conversations — within the context of the goal they’re trying to achieve. Whether it’s shopping for a deal or growing their assets, social+ products help users gain new knowledge, find motivation, garner status, form friendships and generally feel like they’re part of something.

Companies that base their business model on social+ products enjoy a variety of benefits:

Growth

When the social aspect of a product is integral to its function, users will often drive growth on their own steam, inviting their friends and family to join the community.

Members of highly engaged communities are inspired and fired up by their interactions with other members, and when they’re fired up about something, they talk about it. Participating in these communities makes users feel like they’re part of something, which can have a powerful effect on your growth.

Retention

Relationships matter. The relationship your users have with your brand is ultimately what will determine whether they stick with you or leave you for a competitor offering the same service — particularly at a more attractive price. If you provide your customers with access to a community they relate to and resources that make their lives easier, they’re more likely to be loyal.

The beauty of social+ is that embedding social interaction within your product or app allows you to own that conversation and build a community around your brand. In the absence of built-in communities, these users are forced to turn to places like Reddit or WhatsApp to discuss, among other things, the relative advantages of competitors’ apps.

Harnessing the creativity of your users

User-generated content (UGC) is the lifeblood of any social+ product, driving user engagement and fostering connections among users. UGC means the company can harness the creativity and popularity of its users and doesn’t have to expend as many resources creating content users find valuable. Plus there’s the added bonus that authentic UGC — whether it’s a screenshot or a meme — lends the product far greater credibility than any marketing initiatives you could launch.

#api, #column, #ec-column, #ec-consumer-applications, #ec-fintech, #finance, #payments, #social, #tc, #user-generated-content

0

White-label voice assistants will win the battle for podcast discovery

Americans are bored, housebound and screened out. This has created a golden opportunity for audio as consumers turn to podcasts, voice assistants and smart speakers – often at the same time.

Roughly 128 million Americans use a voice assistant at least once a month. Smartphones account for most voice assistants, but there are also nearly 160 million smart speakers in American homes.

One of the hottest forms of audio content is, of course, podcasts. Listeners have never had so many choices for smart and compelling podcast content, with new exciting shows emerging daily. On the consumption side, monthly podcast listeners topped 100 million for the first time in 2020, a 40% increase in just two years.

Listeners get their podcasts from dedicated podcast apps (such as Stitcher), publisher apps (like NPR’s), music apps (such as Spotify), or their default phone app or voice assistant. With more than 1.7 million podcasts being produced today, even the most dedicated podcast listeners can’t listen to every episode in their queue.

This is where voice assistants come in.

The major voice assistants – Amazon, Apple, Google, Microsoft and Samsung – dominate, but they face increasing competition for users from white-label voice assistants. This has become a battle that will be decided by whichever company can provide the best quality of service.

That’s why the voice assistant that can personalize podcasts and help listeners search, sample and discover content through shareable bite-sized pieces will win the voice wars.

A familiar battle over users

Early consumer electronics battles for users were waged over the operating system – Windows vs. Mac. Voice is another form of operating system, and the battle over voice is no less fierce.

Apple’s Siri was the first modern virtual assistant to reach the masses. Amazon and Google have also heavily invested – often at a loss – to own voice activation for users, grab market share and protect their turf (e-commerce for Amazon and search for Google).

Amazon took 24% of the virtual assistant market in 2018, followed by Apple (22%), Google (20%), Microsoft’s Cortana (10%) (largely confined to desktop), and Samsung’s Bixby (6%).

These five major brands were early pioneers, but the next phase of the voice wars will be white-labeled, with voice assistants incorporated into all devices and brands.

The rise of white-label voice assistants

Unable to develop their own voice assistants, hundreds of device manufacturers must resort to Google or Alexa if they want to add voice functionality to their products. But in a way, this is a Trojan horse: Adding Google or Alexa voice enhances products but undermines user relationships.

#artificial-intelligence, #column, #ec-column, #ec-consumer-applications, #ecommerce, #podcasts, #smart-speaker, #virtual-assistant, #voice-assistant

0

3 adtech and martech VCs see major opportunities in privacy and compliance

Between a pandemic, the emergence of new media business models and upcoming privacy changes in iOS, this might seem like a terrible time to get into digital advertising and marketing. Nevertheless, we spoke to top venture capitalists who said they still see investment opportunities.

When we surveyed adtech and martech VCs last summer, we focused on the impact of COVID-19. This time, we asked them to update us on whether deal flow has recovered (MathCapital’s Eric Franchi said the last two quarters have been some of the firm’s most active yet) and to look ahead at the possibility of additional regulation and the most promising new tools.

Regulation, they agreed, presents both a risk and an opportunity. For example, Christine Tsai of 500 Startups noted that as advertisers face more restrictions, “The easiest way for marketers to comply with these rules will likely be through software.” And of course, we asked about what they’re looking for in their next investment. You can read their full responses below.

Here’s who we surveyed:


Digital advertising spend seems well on its way to recovering from the initial downturn during the pandemic. Are you seeing the same with adtech and martech deal flow?

Eric Franchi: Absolutely. Q3 and Q4 2020 were amongst the most active we’ve had in three years in terms of new investments and follow-ons. This seems to mirror the shape of many of our portfolio companies’ 2020 commercial results.

Scott Friend: There seems to be plenty of activity in adtech and martech, particularly across the commerce ecosystem with tools that support monetization for small merchants. Attentive (one of ours) continues to be a standout. I’m also seeing what appears to be a resurgence in digital OOH activity … maybe now’s its time?

How much time are you spending looking at adtech and martech startups right now? Are you more focused on one or the other?

#500-startups, #adtech, #advertising-tech, #bain-capital-ventures, #christine-tsai, #ec-consumer-applications, #ec-investor-survey, #eric-franchi, #martech, #mathcapital, #saas, #scott-friend, #venture-capital

0

Spotify Group Session UX teardown: The fails and their fixes

In July last year, Spotify extended its shared-queue feature, Group Session, to support remote usage. Essentially a “party mode,” the feature offers a way for participants to contribute to a collaborative playlist in real-time and control what’s playing across everyone’s devices.

As TechCrunch’s Sarah Perez explained, Premium users are able to tune into the same playlist or podcast together at the same time, even if they’re not in the same place. Prompted by the coronavirus pandemic, Spotify, like a spew of other tech companies, is trying to create more shared online experiences that are lockdown-proof, and as people are being forced to spend more time indoors and online.

In our latest UX teardown, with the help of Built for Mars founder and UX expert Peter Ramsey, we highlight some of Spotify Group Sessions user experience failings and offer ways to fix them, as well as a number of UX features that are done right. Many of these lessons can be applied to other existing digital products or ones you are currently building, including the need to remember the difference between usernames and display names, when it makes sense to combine common actions into one, and how to use “react and explain” on-boarding.

Usernames and display names

Always remember the difference between user names and displays.

Image Credits: Built For Mars

The fail: If you created a Spotify account using Facebook, then you’re arbitrarily assigned an 11-digit display name. This is then shown to everyone you invite and is totally meaningless.

The fix: Prompt the user to set a real display name when they create their first session. It avoids confusion and creates a more real experience.

Steve O’Hear: This looks really sloppy and unprofessional, as well as being useless from a usability point of view. However, I’m guessing this is technical debt of some kind; any idea what’s going on here?

Peter Ramsey: Yes, it happens when usernames go from being irrelevant (i.e., Spotify) to suddenly relevant (i.e. when they add social features). But by that point, the database/infrastructure is already in motion.

Can you think of an example where this has been done right?

Twitter is the perfect example of this done right. There can only be one @jack, but loads of people with the display name Jack. Otherwise basically every tweet would be by some obscure name and the world would feel like Reddit (i.e., anonymous).

Combining common actions into one

#developer, #ec-consumer-applications, #music, #spotify, #tc, #usability, #ux

0