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Big Commerce Guest Blog - Private Equity and Ecommerce

  • 5 min
  • August 29, 2019
    • Venture Capital & Private Equity

Private equity investment in the e-commerce space continues to accelerate and for good reason. As an industry, we’re at a really interesting stage where traditional retailers and brands are being disrupted by emerging upstarts. As the buzzword “digital transformation” continues to dominate discussions at traditional retailers and manufacturers, for PE firms there are a few different opportunities to invest and capitalize:

  • Legacy retailers struggling to innovate and adapt to the new digital landscape 

  • Manufacturers, CPG companies, and distributors needing a direct-to-consumer

  • Antiquated wholesale and distribution models needing a B2B digital commerce strategy

  • DNVB brands competing in a crowded space loaded with venture capital funding

  • Expanding the addressable market by adding new channels and international markets

  • Roll-up opportunities aggregating a number of independent smaller online retailers in a category to become more operationally efficient, expand reach, and increase cross-sell 

As private equity firms continue to see huge opportunities with e-commerce, they are employing the same fundamental business strategies to a rapidly evolving space. PE firms make money primarily by identifying companies or segments that would benefit from a playbook of improving operational efficiencies and scale to increase revenues and reduce costs. A key strategy in that playbook is to streamline technology that can be applied to multiple companies within their portfolio. For e-commerce, that obviously presents an opportunity to look at the underlying technologies powering the website along with warehouse management, fulfillment, tax, shipping, marketing, search engine optimization etc. 

At BigCommerce, we have engaged with a number of private equity firms and their portfolio companies to help them reduce the total cost of ownership. In almost every one of those situations, the private equity company was faced with disparate brands and teams managing their business on a variety of different software platforms, many of which are outdated, bespoke, and expensive to operate. With multi-tenant SaaS platforms like BigCommerce, PE firms can drastically reduce the cost and complexity of their ecommerce operation.

When choosing the right platform to consolidate to, it’s important for PE firms to ensure that the tools are easy enough for business users to manage in smaller or less sophisticated brands, while scalable enough that the larger brands in the portfolio still have the ability to integrate with sophisticated back-office ERP and warehouse management applications.  Beyond flexibility and performance, the platform also needs to be able to serve global markets. There are very few options that can truly address the needs of scaling ecommerce businesses at all stages of growth. 

In addition, PE firms are looking to apply more “lean startup” strategies to legacy business models to help them compete in the digital arena. That requires the ability to move quickly, apply test-and-learn strategies, fail fast, and do it all in an agile fashion without tremendous upfront cost. If a house of brands wants to test new regions or micro sites, they need nimble technology that doesn’t require six to twelve month IT roadmaps to get a new project off the ground. We’ve seen similar approaches work very well for large traditional CPG and manufacturing conglomerates as well. 

To recap, PE firms should consider moving their portfolio companies onto a single multi-tenant SaaS e-commerce platform to:

  • Reduce operational and licensing costs

  • Reduce complexity by streamlining technologies across brands and portfolio companies

  • Eliminate downtime, compliance headaches, security concerns, as well as maintenance and upgrades

  • Allow lines of business to focus on product lines, marketing, and test-and-learn strategies

  • Unlock global markets and new channels

  • Increase sales by gaining access to cutting edge innovation such as integrations with Instagram and other social channels for shopping 

 

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