Buyer’s Remorse? Smart Money VCs E-Commerce Deals Hit New Low

Smart money VCs’ interest in e-commerce deals fell off a cliff in Q1’16, with deals involving them dropping to a five-year low.

And in 2016 year-to-date (6/16/16) the top VCs participated in just 16 funding rounds to physical goods e-commerce companies, deals that totaled only $59M in aggregate. That means 2016 is on a pace that will put it at roughly 35 e-commerce deals with smart money VC participation, which is less than half 2012’s e-commerce smart money VC deal volume.

That’s a sign of e-commerce’s lost shine and maturity as a category, as it contrasts with 2014 and 2015, when smart money VC e-commerce deal activity was relatively stable at 80+ deals in both years.

We define e-commerce as companies using websites or mobile apps to sell physical goods, as well as e-commerce enablement companies that help build these sites and apps. We excluded companies focused on services, such as Uber, or those delivering food and groceries (see our food delivery category for trends there).

For more on how we selected our 24 smart money VCs, please see the explanation and full smart money list at the bottom of this post.

Annual trends

Smart money VCs slowed their e-commerce financings dramatically so far this year, putting them on track for a five-year low in deals. Their activity in this space peaked in 2014 (ahead of the 2015 peak for activity by investors overall) with 81 deals worth over $2.9B.

Accel Partners’ participation in Flipkart’s $1B Series G drove the 2014 jump in funding from deals involving smart money VCs.

In 2015, deal count was flat, while funding with smart money participation slipped to $2.2B. Founders Fund participated in smart money’s largest 2015 deal — a $500M Series C to Wish.

Jet.com, Wallapop, and Warby Parker also raised $100M+ mega-rounds with the help of smart money VCs in 2015.

So far this year, smart money VCs have shown scant interest in e-commerce.

In fact, if deal pace continues at its current rate, 2016 should set a record low this year of fewer than 40 deals. Individual deals with smart money participation top out at $30M to date — Kleiner Perkins Caufield Byers participated in Tradesy’s $30M Series C, and General Catalyst Partners participated in BigCommerce’s $30M Series E.

Quarterly trends in smart money e-commerce investment

Smart money VC e-commerce activity dropped to a five-year low in Q1’16 with just 9 deals adding up to a slim $59M. Deal count peaked much earlier, in Q2’12, while funding from deals with smart money VCs hit a new high in Q3’14 due to the $1B Flipkart round, mentioned previously. Activity hovered at around 20 deals from Q2’14 to Q3’15, before beginning its recent decline.

Business social graph

We used our Business Social Graph to visualize how smart money VC investors and their portfolio companies in physical goods e-commerce are interrelated. Since 2012, smart money VCs have co-invested numerous times, including in Dollar Shave Club (Kleiner Perkins Caufield Byers, Andreessen Horowitz, and Battery Ventures) Teespring (Khosla Ventures and Andreessen Horowitz), and Shoptiques (Andreessen Horowitz, Benchmark, and Greylock Partners).

Accel Partners was the most active smart money VC in the space, while Union Square Ventures invested in just one physical goods e-commerce startup — Etsy, now public. See the full visualization below.

Please click to enlarge – image includes investments from 1/1/2012 – 5/31/16.

Note: To analyze smart money trends, we looked at the activity of 24 top VC firms, selected according to portfolio valuations and investment outcomes. Some of the investors are linked to relevant research briefs. Here’s our full list of 24 smart money investors:

1. Sequoia Capital
2. Benchmark Capital
3. Accel Partners
4. Greylock Partners
5. Andreessen Horowitz
6. Union Square Ventures
7. First Round Capital
8. Bessemer Venture Partners
9. Kleiner Perkins Caufield & Byers
10. New Enterprise Associates
11. Founders Fund
12. Lightspeed Venture Partners
13. Foundry Group
14. Index Ventures
15. Khosla Ventures
16. Social Capital
17. Emergence Capital Partners
18. True Ventures
19. Floodgate Fund
20. General Catalyst Partners
21. CRV
22. Spark Capital
23. Battery Ventures
24. Redpoint Ventures

Want more data on VC activity and e-commerce financing trends? Login to CB Insights or sign up for free below.