And the Silver Goes To…
Posted at 0:00h, 16 Aug 2016 in Advice by Bonnie Halper No Comments 135 Likes Share

It’s August. The Olympics are on. Why not?

Americans – and tech entrepreneurs, in particular – are conditioned to always go for the gold in the winner-take-all world of tech, but there were two exits lately – both on the East Coast – where tech companies were acquired by corporates for $1 billion or more: Unilever’s acquisition of Dollar Shave Club, and Wal-Mart’s picking up Jet.com for $3.3 billion to challenge/defend itself against Amazon.

For the record, Unilever was also the fourth non-tech acquirer to buy a venture-backed U.S. company for $1 billion or more in the year, according to CB Insights data.  CB Insights goes on to say that “that’s compared to 2014 when tech giants including Facebook, Google, and Oracle made up five of the six acquirers of U.S. venture-backed companies for $1B or more.”

The Jet.com deal was also the largest exit for an e-commerce company.

There seems to be a change in the air, and as ER Accelerator Managing Director Murat Aktihanglu pointed out at our most recent SOS Investor Breakfast, while $7B was invested by VCs last year, once you take Uber and Airbnb out of the equation, venture spending in general was down.

Not that it was Jet founder Marc Lore’s first time at the carnival. He sold diapers.com to Amazon in the Web 1.0 days (for $540M), and while Jet did not exactly achieve profitability – and many investors say that they avoid the consumer space as it tends to be unpredictable – a $3.3B (in cash) acquisition hardly counts as a loss and as Founder Collective’s Micah Rosenbloom pointed out, “the Bentonville behemoth just paid $3B to retain the services of Jet/Quidsi CEO Marc Lore, who helped build Amazon’s strength in the diapers, toys, soap, cosmetics, pet care, and home furnishings. Lore spent five years competing with and three years working with Bezos. How many other executives could bring Walmart that depth of understanding about their chief rival and the entrepreneurial skills to grow a nine-figure business? $3B starts to look like a bargain. It turns out that buying an expert in Marc Lore who understands the next gen of retail is worth a lot to Walmart.”

There’s not doubt that the industry is in something of a contraction, given the number of acquisitions that we’re seeing in general, and not just these two in particular. Jet.com may have been far from reaching profitability (according to CB Insights, “Jet was said to be on track for $1.1B of GMV (gross merchandise value) this year. Note: GMV is not be mistaken for revenue”), but neither was Amazon anywhere close to it when it was a 2+ year-old sprout.

Speaking of silver, according to the New York Times, “For Walmart, buying Jet may not be about beating Amazon at its own game, according to Charlie O’Shea, the lead retail analyst for Moody’s.

“We view this as a race for second,” Mr. O’Shea said. “Amazon’s lead is so great that it’s going to be virtually impossible to catch them, but you can compete with them.”
While legacy retailers continue to struggle with how best to compete online, e-commerce represents only 8 percent of all sales, Mr. O’Shea said. “All Walmart has to do is be better than the other brick-and-mortar guys.”

It may be time for tech to shed its winner-take-all obsession, and perhaps follow the advice that First Round’s Wiley Cirelli gave when he spoke at our Investor Breakfast last year: “Know your superpower. Everyone has one.” As Micah Rosenbloom suggested, “position your company as an alternative to Amazon and you might find yourself in a valuable position like Mr. Lore at Jet.” Given the number of startups in any given space that simply die on the vine, well, that’s a problem, so all things considered, nothing wrong with being another company’s solution. It may feel like winning silver, but truth be told, it’s as good as gold. We know that founders like to shoot for the moon. Nothing wrong with simply being a star. Again, just something to consider as we go onward and forward.