In two years’ time, retail innovation will be led by start-ups more than by corporations, a panel comprised of venture capital firms stated on the closing day of SXSW Interactive.
Eurie Kim of Forerunner Ventures, Janie Yu of Fung Capital and Stephanie Palmeri from SoftTech VC, each have a foot heavily placed in the retail space thanks to investments with companies including Warby Parker, Birchbox, Wanelo, Bonobos, Poshmark, Fitbit, Fab, Olapic and more.
They took to the SXSW stage to discuss how, why and where they’re investing in retail innovation. Mobile payments, disruptive shipping models and opportunities around predictive analytics were the core areas they said they were looking to. They advised the start-ups in the audience as to how to bring those ideas to their attention.
Here’s a recap:
Build your brand first
“We try and see 80% to 90% of things that are out there. As a result, all the ideas that come through we’ve probably seen before. If not, then it’s probably too early for them,” warned Kim. She called for start-ups to approach VCs once they have their team in place and a great brand they can prove they’re building. “The best move is to do a friends and family round [of funding] first, and demonstrate that you can stick around.”
Develop customer relations
The VCs are looking for founders who are extensively in tune with who their consumer is, and is focused on relationship building with that consumer. “It’s not enough to just have a good product as someone else will also be doing that,” Kim added. She’s looking for a management philosophy that tracks this closely and develops accordingly.
Ensure renewal rates
Evidence of customer acquisition is one thing, but in growth phase what VCs are really looking for is not just the fact there are those prepared to pay for your solution but also renew it, said Yu. “We want to see that something meets the criteria on product side so you have customers willing to pay for it, and then importantly pay for it again.”
Know the retailers
Numerous start-ups come in and assume retailers don’t realise what problems they’re facing. The truth is they’re very aware of the issues, but they can’t just make flip decisions to try something new as it affects so much, panellists agreed. “We look at how much someone knows retail and really understands it,” said Kim. A company that is already piloting with retailers and can prove they know them is always going to be more appealing.
In terms of making connections with VCs, the panellists advised to go through people you know. “We look to thousands of opportunities a year and meet with hundreds. We then do one or two deals a month, or about five a quarter. The chance of standing out with a cold email just doesn’t happen,” said Palmeri. It’s good to demonstrate you’re connected in the market, she added.
Prove why you
It’s worth remembering that VCs have a great overview on the industry; they know where the pain points are and what needs solving, said Yu. When they’ve found the right product therefore, the decision as to whether to invest or not often comes down to whether it’s the right person to do so with. Kim emphasised the fact what she really asks is “why this founder” and not just why this problem or this solution.
This post first appeared on WGSN.com/blogs