Photograph by Getty Images

Jet's acquisition could be good news for others in e-commerce.

By Leena Rao
August 8, 2016

Unless you are Amazon, things have been somewhat bleak for e-commerce startups of late. In January, Gilt sold itself to Saks-owner, Canadian department store chain Hudson’s Bay Co., for $250 million, a small fraction of its previous $1 billion valuation. Home goods site One Kings Lane, also once valued around $1 billion, sold for under $100 million to Bed Bath and Beyond. Add to that online makeup company Birchbox’s struggles, which include layoffs and challenges in raising more venture capital.

So this morning’s news that Wal-Mart is agreeing to pay $3.3 billion in cash and stock to buy Amazon-challenger Jet.com is likely bright news for many who have e-commerce startups. And Wal-Mart paid a premium for the two-year-old startup, which was last valued at $1.35 billion. Wal-Mart was clear that Jet’s value was its e-commerce capabilities, an area where Wal-Mart has been struggling to compete with Amazon. There’s also the talent acquisition of Jet.com founder Marc Lore, who sold his previous company Quidsi to Amazon for $545 million in 2010, and spent two years at the e-commerce giant afterwards.

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Although Amazon has a streak of large e-commerce acquisitions, in 2009 with Zappos and Quidsi’s Diapers.com in 2010, for the past year, there haven’t been any massive M&A for e-commerce startups. Instead, companies like Gilt and OKL have been selling for pennies on the dollar. The reality is that Amazon is a formidable competitor and e-commerce is a fragmented, challenging, and competitive space.

“Amazon has established a bar that everyone in the world of commerce has to meet, ranging to experience of finding produce on site, to delivery, to the back end,” explained Battery Ventures partner Roger Lee a few weeks ago. “Consumers now expect the same experience from every retailer, except many small startups and retailers don’t have as many resources and so they are forced to play in this difficult game.”

Even the fundraising environment for e-commerce companies who are still unprofitable and early stage has been tough of late. According to CB Insights, from January to June of 2016, private e-commerce companies have received close to $4.1 billion in funding, which puts the year on track for the lowest amount of funding since 2013.

Birchbox had trouble raising another round, but eventually was able to secure a loan, with unfavorable terms.

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Lee added that Battery Ventures, which has backed a number of e-commerce companies including Wayfair, Groupon, and Serena & Lily, is being cautious around e-commerce investing. “We are being careful. It is hard to build an e-commerce company right now, and Amazon is an amazing business and Jeff Bezos is a great leader,” he said. “If you are starting a me too e-commerce company whose product overlaps with Amazon, you will have a tough road.”

But the outcome of Jet.com, which very publicly competed against Amazon, could be proof that while Amazon may not pay a premium for a startup, others will. There’s hope that a large corporation, like Wal-Mart, could be willing to use its deep pockets to pay a premium so that it can compete with Amazon.

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