BVP has participated in each successive wave of innovation in retail since the mid-1980s, starting with our investments in big box retailers including Staples, The Sports Authority, Dick’s Sporting Goods, and Eagle Hardware & Garden. In the late 1990s, we funded several first generation Internet retailers. Some of these early-stage investments, like Blue Nile, became successful public companies and went on to embody the initial promise of online retail. Others, like eToys, burned bright but faded quickly in the face of the uneconomic customer acquisition model that plagued many pioneers. Together with the e-tail industry at large, we learned a lot of hard lessons about building a sustainable and valuable e-commerce business by focusing on the smart development of a consumer brand through profitable customer acquisition and extraordinary customer service. We are actively seeking entrepreneurs who share our excitement for the long-term growth of Internet retail and an appreciation for the key challenges of building an online brand.
When we made our Series A investments in Staples (1986) and The Sports Authority (1987), those chains had yet to open their first stores. We believed strongly that the advent of the mini-computer would revolutionize the fundamental structure of retail by facilitating a command-and-control structure and creating an opportunity to build what is now known as a big-box “category killer.” Today, Staples is the world’s largest operator of office superstores, and The Sports Authority has more than 400 stores in 45 states.
In the late 1990s, a conventional wisdom emerged that the retail experience was transforming from bricks to clicks, a change that would happen almost instantly. Over the past ten years, it has become clear to us that many early Internet retailers operated under two misguided assumptions:
1) Although many predicted retail spending would shift from offline stores to online Web sites in a fast, two- to three-year revolution, in reality, the change appears to be occurring over a steady, 15-year evolution; and
2) Early online retailers spent millions trying to build consumer recognition overnight (remember the sock puppet and countless other pricey Super Bowl ads?). But only Amazon – with its first-mover advantage – emerged from this era with a real brand. When the easy capital of the late ‘90s dried up, virtually all of the big-spenders went out of business. Building consumer recognition for an online retailer is still of paramount importance today, but the smart way to do it is one penny at a time.
Today, we want to invest in Internet retailers targeting segments large enough to sustain a meaningful new consumer brand. Our portfolio company Quidsi, which operates Diapers.com and Soap.com, is a leading example of an emerging category killer. We also believe there are opportunities to help existing off-line brands leverage the Internet as a powerful distribution channel. Our investments in Delivery Agent and OneStop Internet are consistent with this theme.
Moreover, we continue to invest in other types of category-leading companies that play in the e-commerce ecosystem, like Criteo and Convertro, which are making indispensible tools to help e-tailers exploit the increasing complex opportunities in online marketing.