While spending online continues to increase, the vast majority of retail expenditure still occurs offline. And this has driven the interest in Online-to-Offline (aka O2O) technologies and commerce. Buzzwordy’ness aside, the ability to bridge the online world to drive offline sales is and remains a major opportunity. When Groupon came onto the scene and was the “fastest growing company of all time”, one of the reasons pundits saw potential in the firm was because it might close this online-to-offline gap.
With daily deals en vogue, the chatter and interest around online-to-offline commerce took off. But with Groupon’s quick spiral downward, investment also slowed down as 2012 saw Online-to-Offline Commerce investments at about $383 million across 73 financings, a drop of almost 85% in funding and 45% on deals (first graph below). 2011 was the heyday for the daily deal space so the drop should not be suprising. And the YoY comparison is hurt further by mega-fundings in 2011 especially Q2 2011 which was a gargantuan quarter for the space with mega-financings to LivingSocial and China’s Lashou Group (funded by Tenaya Capital, Norwest Venture Partners, Milestone Capital and GSR Ventures among others).
But Online-to-Offline commerce is not just about daily deals. Of the $383 million to O2O in the last year, almost 70% went to O2O companies that have nothing to do with daily deals or group buying. And there appears to be renewed interest in the O2O space as deal activity has been seeing healthy levels with significant early-stage financing activity (more than 75% of the financings in O2O were at the Seed and Series A stage in 2012).
While financing activity has been showing some signs of life, exit activity in the O2O space less daily deals has been trending downward over the last year averaging four per quarter. 2012 wrapped up with just 2 exits in Q4’12 as it saw Qype, a European user generated reviews site acquired by Yelp and also saw ThinkNear which came out of TechStars get acquired by Telenav.
2013 looks to be shaping up as a big year for investment into Offline-to-Online commerce companies and for what we’d call Retail Tech overall. Lots more to come on Retail Tech.If you aren’t already a client, sign up for a free trial to learn more about our platform.