Venture Capitalists Spring For E-Commerce As List Of Pre-IPO Candidates Grows

Includes: GRPN, PRSS, VIPS
by: Renaissance Capital IPO Research

There is little doubt venture capitalists had a strong appetite for B2B startups in 2012, but the craving for B2C e-commerce has remained surprisingly strong given the disappointing performance form daily deals site leader Groupon (NASDAQ:GRPN), once hailed the biggest name in e-commerce 2.0. Significant VC money was poured into flash sale/e-commerce 2.0 sites this year, with the most recent examples being large late-stage funding rounds completed by two IPO candidates earlier this week. One Kings Lane, a flash sales site for home décor, raised $50 million in a series D round, bringing its total funding to-date to $117 million. Wayfair, which operates a troika of home goods e-commerce sites and does more than $600 million in gross revenue, raised $36 million, bringing its total funding to more than $200 million.

Undeterred By The Daily Deal Site Flop

Recent funding rounds (and implied valuations) show many VCs seem undeterred by Groupon’s November IPO, which has shed more than -76% in market cap year-to-date. While private daily-deal sites such as LivingSocial have suffered similar valuation declines, ongoing investment in e-commerce/flash sales seems to indicate that VCs view the daily deals business model, which primarily serves as a traffic driver for third party businesses, in a different light compared to the e-commerce companies with actual consumer-facing sales operations. Overall, the private e-commerce sector has continued to garner strong interest from investors looking to capitalize on the new breed of online retail companies seeking to disrupt existing sales models or capitalize on large fragmented consumer industries.

When Will We See The E-commerce 2.0 IPO Wave?

While VC-backed IPO activity has fluctuated between 40 to 60 deals per year over the last three years, there has been a noticeable lack of e-commerce IPOs. Only seven e-commerce companies have gone public since 2007, four of which have lost over 70% from their offer prices, including 2012 IPO CafePress (NASDAQ:PRSS). Outside of Groupon, there has yet to be a US-based flash sales/e-commerce 2.0, but the aftermarket success of China-based flash sales site Vipshop (NYSE:VIPS) earlier this year could pave the way for an uptick in activity. Vipshop, whose March offering was initially poorly received by investors, has produced the largest aftermarket gains of any 2012 IPO (144%), and is currently trading 106% above its offer price.

Our Private Company Backlog currently holds 19 e-commerce companies that, in aggregate, boast over $4.3 billion in funding and $15.5 billion in revenue ,and each of which appears to be on the IPO track within the next 12 to 24 months. While two major e-commerce companies in China account for a large portion of these figures, there are over a dozen companies with more than $200 million in annualized sales. Notable e-commerce IPOs in our Private Company Backlog include luxury flash sales site Gilt Groupe, flash sales site for moms and children Zulily, and China’s largest online clothing retailer VANCL.