Season 1 Episode 1
December 9, 2019

[Step by Step] Retail Funding 101

Welcome to Step by Step, a 5-part series from Future Commerce to help walk you through how to launch and grow a successful business. This season, we're talking about funding. Today, Phillip and Brian are joined by Jamie Oliver and Jordan Knapp from Shopify Plus to talk about funding for your eCommerce store.

this episode sponsored by

Have you ever wondered how to get funding for your retail business? Wonder no more! In a new series from Future Commerce - the number one retail podcast - we walk you through all that you need to know in order to build and exit from a successful retail business. In partnership with Shopify Plus, we'll take you from zero to hero, Step by Step.

Show Notes

  • Brian and Phillip are joined by Jamie Oliver and Jordan Knapp from Shopify Plus to discuss funding for your eCommerce store in a new part of the Future Commerce Shopify series.
  • This series is targeted towards the merchants with online stores between the $1 million and $5 million range and entrepreneurs that want to think through the avenues of raising capital.
  • How do you choose what type of capital would be the best fit for your brand?
  • What are the steps my brand should take to attract an investor, and how do I make the investment process easier?

Main Takeaways:

Introductions and Dreams: Helping Merchants Achieve Their Goals:

  • Jordan leads the Market Development team but has been in eCommerce for the majority of his career.
  • A year and a half ago, Shopify set out to explore new channels and see where they could place Shopify Plus in the market to expand it in new directions.
  • One of the ideas between Jamie and Jordan was about the fact that very few of the merchants are selling on Shopify without bigger dreams or aspirations.
  • Their goal has been figuring out who the investors to empower Shopify merchants to get the funding best suited for their needs, and thus, in the Investor Collective was born.

Scaling and Growth: How Shopify Plus Grew:

  • Jamie joined Shopify in 2014 on the HR side was responsible for hiring for Shopify Plus just as it was starting.
  • The needs and wants of the merchants on the platform were pivoting, and the Shopify Plus team scaled in a way to meet these needs.
  • In 2018, Jamie left the recruitment team and decided to join Jordan's product development team.
  • The Investor Collective is integrating with venture capital and private equity firms.

Venture Capital vs. Private Equity: What's the Difference?

  • In terms of investment firms as a whole, the motto is value creation on repeat; their main functions are to source and acquire companies, improve the operations of those companies, and then either sell those companies or go public.
  • Venture capital tends to look at earlier seed-stage business and often takes a minority stake in the company in addition to offering their expertise and talent pool.
  • On the private equity side, they are looking to take a bigger stake in the business and will typically provide a lot of capital to take that business to the next level.
  • Understanding the options available to you is extremely important.

The Reason Behind the Series: Why Partner With Future Commerce?:

  • After digging into the Shopify Plus merchant base, the Shopify Plus team came to realize that a substantial portion of their merchants had garnered some form of investment throughout their lifetime.
  • If they can assist merchants looking to obtain capital and provide them with more information, then everyone benefits.
  • There are a lot of negative rumors and misinformation floating about regarding investing, but arming yourself with knowledge can prevent these.
  • When it comes down to the contract, it is always negotiable, so knowing what you are trying to do is imperative in the process.

The Investors Collective: Going Beyond the Deal:

  • The Investors Collective is a partner program that interfaces with venture capital and private equity firms that are actively investing in consumer products in the retail space.
  • Shopify Plus also hopes to educate investment firms and their portfolio companies about Shopify Plus and the capabilities of the platform.
  • The collective provides expertise, a lifeline for information, and when investment firms have opportunities, they receive complete white-glove service.
  • At the end of the day, the objective is not just to build a cool network but to evangelize why Shopify Plus is the right platform for the DTC entrepreneur.

Making the First Step: What is Right for Me?:

  • Phillip asks Jordan and Jamie to put themselves in the shoes of a merchant who might be looking for capital and to walk them through the beginning steps of choosing what type of funding to pursue.
  • In any situation, any time you accept cash, you are giving up some control, so if you can fund yourself, try to do that.
  • Consider an accelerator because you are getting actual resources to assist your growth as opposed to just cash.
  • The average VC investment in 2019 for an angel seed was about $1.8 million.
  • Series A refers to the first time you get money, Series B is the second, and so on.

What Comes With Money: Some Advantages of Funding:

  • Some advantages of accepting money are that success is incentivized for your investor, so they want you to succeed, and an injection of funding can help you achieve your goals.
  • Operational expertise also comes along with your investor, along with a conglomerate effect that comes with discounts across the parent company's network.
  • There is a spectrum that ranges from the gross side to the cost reduction side when it applies to your company.
  • Without early and midstage investments, there wouldn't be any businesses without taking on some risk.

The Struggle of the Firms: Challenges in Today's Investment Environment:

  • The biggest challenge present today is that there are a lot of new funds, and everyone is trying to raise a new round.
  • If you are an entrepreneur looking for investment, this is probably the best time to pursue investment due to the influx of funds available to you.
  • This makes it difficult for VC firms because there is more capital available than there is opportunity.
  • With this new paradigm of available capital, how do brands know which type of funding is the best fit for them?

Finding the Right Fit: Investor Matchmaking:

  • Figure out what you want in your firm: do you want a firm that is going to let me be autonomous or do you want a firm to be very hands-on with your business?
  • There needs to be a firm that links the right amount of capital as well as lines up with your short and long term needs.
  • Look at the brands that the firm has worked with in the past and see what those brands have done after receiving capital.
  • A true digital agency is always needed for a DTC eCommerce brand, so some firms are building a suite of services to fit all of these needs.

The New Breed of Merchant: Where is Retail Headed?:

  • How can investment drive this new age of DNVBs?
  • Anyone can be anything that they want with all of the resources available today, so it all comes down to a brand's influence and customer service.
  • This environment puts the power back into the hands of the artist, and none of this would happen if it wasn't for investors empowering creativity.
  • How would you embrace your entrepreneurial side if you obtained the perfect investment?

Attracting an Investor: What Makes Me Stand Out?:

  • With the immense opportunity in the retail space, private equity firms are starting to play a significant role in accelerating the growth of brands.
  • Get out there and make your brand known and make connections that can build connections with private equity firms.
  • Come to the table prepared with the type of data and information that is required of the firm to do their due diligence, and if not prepared ahead of time, make sure to make time to get this information.
  • Raising capital is a full-time job, and a lot of brands don't realize just how time goes into the process of raising capital, so set priorities.
  • Get your hands on a due diligence document and start preparing your data and your company for investment.

Brands Mentioned In This Episode:

As always: We want to hear what our listeners think! What are some steps that you can take right now to prepare the road to investment?

Let us know in the content section on Futurecommerce.fm, or reach out to us on Twitter, Facebook, Instagram or Linkedin.

Have any questions or comments about the show? You can reach out to us at info@futurecommerce.fm or any of our social channels, we love hearing from our listeners!

Retail Tech is moving fast, but Future Commerce is moving faster.

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Phillip: [00:00:00] Hello and welcome to Step by Step, a five part series from Future Commerce.

Brian: [00:00:04] In this series we walk you through everything you need to know to launch and grow a successful retail business.

Phillip: [00:00:09] In Step by Step Season 1, we are talking about funding.

Brian: [00:00:12] If you're jumping in midway through, we suggest you go back and listen from the beginning.

Phillip: [00:00:16] That's right. It's chock-full. This is chock-full. But you're here right at the beginning and this is Episode 2 of a five part series. Today we are talking to the folks at Shopify Plus. And now we do thank Shopify Plus for funding this five part series about funding. Who do we have on the show today?

Brian: [00:00:35] Today we have Jordan Knapp and Jamie Oliver. No, not the chef. {laughter} Jamie Oliver is...

Phillip: [00:00:42] Equally impressive.

Brian: [00:00:43] Equally impressive.

Phillip: [00:00:45] Equally impressive. They run the Investors Collective at Shopify Plus. Correct?

Brian: [00:00:49] That's correct. Super excited to chat with them.

Phillip: [00:00:52] Yeah. They're going to unpack why does Shopify care about funding? But why also should you care about retail funding? And what are some ways they can go about trying to acquire funding for your retail business? I found it super insightful. It's really interesting to hear to people who spent years and years in this industry working with brands on both sides, on the private equity and venture capital side. And we're gonna talk a little bit to them about what those things even mean. So we're starting in 101, and this is Step by Step.

Phillip: [00:01:28] Our senseis on this journey are Jamie Oliver and Jordan Knapp from Shopify. Go ahead and introduce yourself, Jordan.

Jordan: [00:01:36] Fantastic. Yeah. This is Jordan Knapp, I lead the market development team for Shopify Plus. But I've been in e-commerce just about my whole career. I was a Java developer for many years building e-commerce sites, worked at ATG and then Magento and then was building out the partnerships and solutions engineering teams for Shopify. And about a year and a half ago, we decided we wanted to go out and really explore new industries, new channels. We've been looking at where we can really push Shopify Plus in the market and to expand it to new directions. And one of the ideas actually that came from a conversation Jamie Oliver and I were having was really around that there seems to be just very few of our merchants who are selling a product without bigger dreams or aspirations. So, you know, if someone that has a hat shop or a t shirt shop, their goal is inevitably really to blow it up and to create something much bigger. And that often requires raising capital. So I think this is one of the most common topics or threads of conversations that I have really with the Shopify community. So our goal has really been, let's go out there and figure out who the investors are working in DTC brands. And because of that, we created a program called the Investors Collective. And I'll pass off to Jamie Oliver for his intro and some background on maybe how we got here.

Jamie: [00:03:03] Yeah. Thanks. Jordan, my name is Jamie Oliver. I actually joined Shopify in 2014 on the HR side. So I was responsible for hiring for Shopify Plus just as it was starting. So I would characterize it more of as a startup within a startup at the time. Where we initially launched the program to interface with a lot of those emerging merchants on the Shopify core plan that we're looking...whose needs and wants we're pivoting, and they required a bit more functionality and features that really catered towards the size of their business. We quickly scaled that team with sales folks, merchant success, solution engineering. And fast forward to today, there are over 500 people across engineering, user experience, operations based around the world. But it is headquartered in Waterloo, Canada at this point. And it was in January of 2018 that I decided to hang up that recruitment hat, and I actually decided to join Jordan's market development team. And as he mentioned, we are exploring the edges of the market where Shopify Plus didn't necessarily have a lot of market penetration or brand recognition at the time. And so right now, we're also responsible for establishing unique partnerships. And as Jordan alluded to, as well, the Investors Collective is that partner program that's interfacing with venture capital and private equity firms.

Phillip: [00:04:26] Ok, so you said two phrases there that I think a lot of people probably have heard before, but they're not really sure what they mean. So could we start with this is the first in a five part series about venture capital, private equity, or funding in general. Jamie, could you kind of draw a distinction between what venture capital is and private equity for those who may not know?

Jamie: [00:04:49] Yeah, absolutely. So in terms of, you know, private sector, in terms of investment firms as a whole, their real motto is value creation on repeat, whether it's venture capital or private equity. I think their main functions are to raise money to source and acquire companies, improve operations within those portfolio companies, and then either sell those portfolio companies at a profit or go public. Right? And the main differences between the two, are venture capital tends to look at those more early, seed stage businesses and they'll take a minority stake in most cases of those businesses and obviously offer a lot of their expertise, a lot of they're talent pool. We'll be able to help them out, as well. But more on the private equity side, they're looking at taking a bigger stake in those businesses, not necessarily always majority, but in a lot of cases it is a majority stake. And then in terms of providing them with a ton of capital to really take them to the next level.

Phillip: [00:05:48] One little side journey there is, I guess somebody might ask themselves, why are they listening to this? Jordan, who is this podcast series meant for and who stands to gain the most from the information in the series?

Jordan: [00:06:01] Yeah. So we spend a lot of time obviously talking with various firms, accelerators, private equity firms, VCs... This podcast isn't for them. You know, this is really for the direct to consumer retailer that has an online store that's generating maybe somewhere between a million to $5 million and/or potentially someone who's an entrepreneur just getting started who really wants to think through what are the avenues of raising capital? What are the various ways? And of course, there're many options beyond private equity in VC. And I think we want to talk about some of those today, as well. But yeah, it's confusing. And I think it's a very disorienting world, you know, given that you've got family offices, you've got angel investors, you've got accelerators, incubators, crowdfunding... So there're so many potential avenues that a retailer could go down at various stages. And if you're not careful, you could negotiate very bad terms. We talk to a lot of startups and nearly all the startups we work with have had just tremendous, wonderful experiences with the support they've received from their VC. But there are nightmare scenarios, as well, where founders potentially get pushed out. So I think understanding the options available to you is extreme. I think it's one of the most important decisions you're going to make, beyond what business you went into, is who you're going to go into business with when you decide to accept someone's money, because that's what you're doing.

Brian: [00:07:38] Why did Shopify decide to create this series in partnership with Future Commerce? What is your goal with this series?

Jamie: [00:07:46] I think after digging into Shopify Plus' merchant base, we quickly recognized that a significant portion of our merchants had garnered some form of investment throughout their lifetime. We also pulled a lot of our merchant success managers and recognized that they were also fielding a lot of questions pertaining to venture capital and private equity. And in short, we really wanted to help set those merchants up for success when securing additional capital. And the idea behind that is if we can support Shopify Plus merchants that are seeking that additional capital and help them secure that investment from a venture capital or private equity firm, we believe that it will only accelerate the flywheel and help more merchants to scale faster and eventually drive more revenue through Shopify's platform.

Phillip: [00:08:33] The question there would be you said before that some of the ways of obtaining capital is you have venture capital firms, you have private equity firms, some people might say something like, "I thought venture capital was evil," because venture capitalists is sort of like a boogie man, or "Private equity ruined Toys R US." Can you dispel some of these myths, Jamie, and talk about the positives and the upsides that they can bring to business outside of just getting you money to accomplish a vision?

Jamie: [00:09:01] Jordan, do you want to start?

Jordan: [00:09:02] Oh. Perfect. Yeah. No, I think every situation is unique. So because when you accept money, you write a contract, and the terms of that contract... There might be templates based upon, you know, certain types of VC investments or PE investments. But there's essentially the terms of that contract are going to be entirely negotiable. So the relationship really is one that like, if it's not healthy, it's not worth it. And the resources that you get from especially like take an accelerator, for example, let's say you're way too early for a VC. You're too early for seed funding even. And you decide to go the accelerator route. The resources that going to give you. They'll take 20% or whatever their standard is. But they will give you mentorship. They'll give you access to discounted or free technology. They'll invest other material resources beyond just capital into your business. So, you know, getting to your next level, it's really hard... You see a lot of merchants get to 3 million. And it's really hard getting past that three. And then you see a lot that get to the 20, 30. And it's really, really hard to get past that 20, 30. And doing so requires an injection of money, whether that's for product development, whether that's for just hiring, whether that's for advertising. But, you know, in most businesses, if you can get away with never accepting a dime, man, you should do it. You know, if you can build a 50 million dollar online retailer without accepting any capital, then damn, you probably shouldn't take any capital. But it's really hard not to.

Brian: [00:10:58] So where does Investors Collective play into this? Tell us a little bit more about that.

Jamie: [00:11:03] Absolutely. The Investors Collective, if were to really distill it down, is a partner program that's interfacing with venture capital and private equity firms that are actively investing in a consumer product and retail space. Shopify's marketing and development team exists to drive revenue by extending our platform's reach and influence in the commerce space, but specifically with the Investors Collective, we're really interested in partnering with investment firms to educate them and their portfolio companies about the capabilities of Shopify Plus' platform in order to drive larger, more qualified leads for our revenue team down the road.

Brian: [00:11:43] So what a success looks like for the Investors Collective then?

Jordan: [00:11:47] Yeah, I think it's the value that we're offering to the community is that, you know, it's obviously we're providing expertise, we're a lifeline when PEs or VCs are potentially looking for our perspective on a certain segment of the market. So we've got really a very packaged approach as to how we treat each of our relationships. And then, of course, when private equity and VC firms have opportunities, you know, we give them complete white glove service so that we can play telephone operator across the organization, bring in subject matter experts on different competencies like fulfillments or warehousing. So the value to I think the PEs or VCs has been really compelling. But our objective at the end of the day isn't just to, you know, build a really cool network. We're evangelizing why Shopify Plus is the absolute right brand for the direct to consumer entreprenuer. So if you've reached the point where you're doing a million online or if you just expecting to do a million online your first year, there's a lot of being, as we would argue, one of the most flexible consumable options on the market. We're really there to evangelize as much as we are to advise.

Phillip: [00:13:14] So I'm a merchant, right? And I'm listening to this or I'm putting myself in the merchant shoes... I'm listening to this, and I say "I have some sense that I might need to raise some money, mostly because of the lack of money that I have or I have some vision that I might need some funding to help accomplish... I need all of the assistance that you're describing." When should I be approaching venture capital vs. private equity? And could you draw a differentiation between seed and early stage and mid-stage? I've heard all of these terms before. But as a merchant, I might not know what all it actually means.

Jordan: [00:13:55] Excellent. That's perfect. So if you're a million dollar merchant, and you're certain you have a home run, and you have a lot of confidence in yourself, and you have a lot of confidence in the future of your business, you might be worth just potentially putting your own cash into it. So there's a lot more... You give up, in any situation, whether it's you're taking out a mortgage on your house, or whether it's borrowing money from a friend, but anytime you accept cash, you're giving up some degree of control. You might be given complete autonomy by an investor, but there's always a little piece of control that is lost. So, you know, if you have the ability to fund it yourself, that's great. But you might also need the resources required by some of these other firms. Of course, you can go to like friends or family. But obviously, that can be very problematic. You know, you don't want to lose your friends and family if your business goes under. If you're still in the concept stage, so you're like you've got a really great idea, you know this thing is going to just take off, but, man, I need some structured support. I'd look at accelerators, you know, so you've maybe just started, and you're doing like 30 grand. But you really, really believe that you've got something hot, or you've just got a concept and that's all there is. Then you can apply to one of... There're literally hundreds of startups in incubators these days. You know, we've been talking a lot with 500 startups. YCombinator is a wonderful, wonderful accelerator. So those are certainly options available to you. There's the whole crowdfunding thing. I don't know. There're a lot of brands have gone through crowdfunding, specifically on Shopify, but again, you know, you're looking at I think the benefit of an accelerator is you're getting real human resources. So someone's providing you with expertise around digital marketing on the Shopify platform itself. You've got some coach that you're checking in with on a regular basis. So there's really a structural component that's really unique as compared to almost any other model. And then, you know, typically the average VC investment, I believe was and apologies for this, but I think the average VC investment last year was about... So the average VCA investment in 2018 for an angel seed was 1.1 million. So if this is a pre series A, and we talk about series ABCDE... You know, it's literally just the first time I took money. The second time I took money. The third time I took money. The bigger you get, the more potential, you know, like you need another, you know, another shot injection of capital to get that business to the next level. So if you're not ready to take about a million dollars, you're probably not talking to a VC. You're probably talking to potentially an angel investor or accelerator or something like that.

Brian: [00:17:06] So what are some markers then for mid and late stage capital? And actually maybe a better question is, what are the advantages of accepting funding? I mean, obviously you're giving up part of your company. You're getting money for it. But, you know, tell me a little bit more about the advantages and disadvantages of accepting funding. And what happens with dilution? How do you protect yourself through this whole process?

Jamie: [00:17:35] Sure. I guess I could touch on the advantages associated with accepting funding. And by no means is this an exhaustive list, but these are just some of the markers that Jordan and I have witnessed. One being that success is incentivized. So investment firms have a lot of skin in the game, especially their portfolio managers, which have a fairly lucrative incentive plans that are tied to increasing a company's value. So they are tied to the success. And if that's the case, then it's in their best interests to help you succeed long term. The second being large amounts of funding. I mean, an injection of funding can really help a lot of these companies achieve their short and long term goals. So whether they're focused on hiring, or whether they're looking to expand internationally, or even re platform, that injection of funding can actually help them reach those goals a lot faster. The third being operational expertise. So a lot of these investment firms possess the in-house expertise or they have a third party talent pool that can help take your business to the next level. The fourth being the conglomerate effect. So a lot of these investment firms have buying power to negotiate bulk discounts across all the businesses within their portfolio. And that can be in the form of physical products. Or as Jordan and I have come to realize, they have a lot of preferred technology programs that they're building that can offer their portfolio discounts on the preferred technologies, whether that's a CRM or an e-commerce tool that they're working with. And the last being public to private. A lot of investment firms often restructure their portfolio companies by appointing new executives and then taking them from public to private, so that they could take more control over the decision making power.

Phillip: [00:19:18] Someone out there who's listening that has their own sort of flavor of what you should use, from a technology perspective, might sort of roll their eyes and say, "Well, of course, I'm sure the natural choice then is Shopify, because Shopify is kind of hosting this content," but I'm sure that it's a much more nuanced question than that. How much do you think that these folks who have money tied to their influence in the organization, how much influence do they have ultimately over technology choice and decision on behalf of a merchant?

Jordan: [00:19:50] So you definitely see... It's all a spectrum, you know, and I would say there're a few spectrums that apply to, I would say, all investors. Take out and separate private equity from venture capital from an accelerator. But the spectrum is definitely you're either on the growth side or you're on the cost reduction side. And you know, if you're a VC, you're nearly always focused on growth. For private equity firms there may be times that, you know, they are looking at pure... They just see a golden opportunity with just pure cost reduction. But the reality is that you're always somewhere on that left or right of value creation crossroads. And in probably the earlier stage you invest, the more you like when you were on the left, not to say that, you know, organizations that are investing hundreds of millions of dollars are not focused heavily on the growth side. Like when you speak to Bain, Bain Capital is all about, you know, investing in the growth of their businesses. So I think sometimes with private equity and VC, everyone has heard horror stories. But also like every brand that has changed the world in the last decade has received some investment early on. No one just self funds it and goes public. So we're describing how the world goes round. Without early, mid-stage, late stage investment, there're no big businesses without taking on lots of risk and taking on loans. You probably will never get approved for.

Phillip: [00:21:31] I mean, you could think about all the things that you might interact within a day. You know, you're at home, you put on your Allbirds, you call an Uber to go to your Airbnb, and the list goes on. You work out on your Peloton, and you are literally interacting on every level with brands that were disruptive in the marketplace due to their ability to obtain capital early on.

Jordan: [00:21:58] And I think criticizing private equity is kind of like... There are private equity firms, there are practices that should be maybe criticized, of course. But at the end of the day all we're describing is how people... A lot of this has to do with the rise of the family office. There are increasingly more concentrations of pools of wealth. Family offices are oftentimes, you know, very commonly the lead investors within private equity and VC firms. But they'll also invest themselves. So I think a lot of what's... If you look at the brands that have really taken off the past two years, many of them are just funded by direct investment, so that is something to consider, as well. You know, we're gonna be spending most of our time talking about private equity and VC, but the family office, which is basically just a family with means that has resources making investment decisions... You know, that's never going away. And that is also another avenue potentially for startups, as well. The sky's the limit on what you can negotiate then, because the contract is just, you know, it can be completely interrupted.

Brian: [00:23:19] Interesting. So what would you say are the challenges facing investment firms in the retail and consumer products space at this moment then?

Jordan: [00:23:27] I think the biggest challenge right now is that there's a lot of new funds and everyone seems to be raising a new round. There is a good bit of capital out there. If you were an entrepreneur looking for investment, this is probably the best time to have ever sought investment in the history of humans. Because even back in the olden days... Even if you were making shiny helmets for nights in the Middle Ages, somewhere along the way, someone gave you capital. You got someone to give you an injection of cash that allowed you to expand your business. I think now is definitely the best time. So the problem that creates for the PEs and VC firms is there's, in many situations, there's more cash than there is opportunity.

Brian: [00:24:15] Interesting. So you're saying there's actually competition among investment firms to invest in retail businesses, or in general, but in our context, in merchants, in brands. So with this new paradigm of competition among investors...

Jordan: [00:24:36] Yes.

Brian: [00:24:37] How are brands able to discern what investment they should take right now?

Jordan: [00:24:42] Yeah. I'll pass... Jamie, I'll pass off to you in just a moment. I know you have some interesting thoughts on that. But, you know, they say... One of the quotes that I liked when we were doing research along the way was, "You ask for advice to get capital. You ask for capital to get advice." And it's maybe a bit like dating. You know, if after your first date, you tell the person, "Oh, my God, I can't wait to see you. Are you free tomorrow night and the night after and the night after?" like you're going to kind of scare them off a little bit. I think when you're raising capital, as well, you're going to have more leverage over, from a negotiation's perspective, if they're pursuing you versus if you're pursuing them. Before you go into any conversation. And this is with an accelerator and this is with PEs and VCs. Some things you're just going to have to accept. There will be terms that will just be maybe it might not be desirable, but you're just going to have to accept. But I would figure out what it is that you want. You know? Do I want a firm that's going to give me its autonomy or do I want a firm that going to be very involved in my business like an active investor? Because maybe they have expertise or insights that I do not. What is this time horizon of their investments? If they tend to be hold out for really, really, really, really long time, and they're not operating on a pretty standard like five to seven year time horizon, then that won't fit your needs either. So it's definitely like matchmaking. It takes... You know, you've got all these various investors, you get all these various investments. And then there really needs to be someone out there who is really bringing the two together because it is very much a courting process.

Jamie: [00:26:26] Yeah, absolutely. I think you nailed it, Jordan, when you mentioned that there's a huge difference between those passive investors that will offer you capital, and they'll sort of let you run the business on your own versus those more active investors. And it really depends on what you're looking for in the short and long term. And you also need to look at the track record of those firms. I mean, which brands have they worked with in the past? What have they done for those brands? What industry did they play in or do they have specific industry expertise within? Maybe its beauty or street wear, whatever that looks like. I think a lot of them have really specific industry expertise that they can bring to the table. As well, as I mentioned earlier, in terms of those internal technology teams. And we've noticed that a lot of firms are trying to differentiate themselves by building these internal technology teams that can help you build an e-commerce platform or build a CRM or build a building ERP as opposed to leveraging third party resources to make that happen.

Jordan: [00:27:24] One great example is every single direct to consumer brand and every single direct to consumer e-commerce brand is going to require creative. And it's going to require a branding strategy and it's going to require studio photography. And so a true digital agency is basically always needed unless you as the founder, you know, that's your background, in which case I'm kind of questioning maybe you shouldn't be the entrepreneur, you should be more focused on the product. So I think it's like the products should come first and you should be... In my opinion anyway. Many of PEs and VCs have just wonderful creative agencies in-houses now. They've gone out and they've either made an investment, so they have a relationship. They might have a partner that's on retainer that they use. But, you know, increasingly we're seeing firms actually creating their own branding resources and consultants internally.

Phillip: [00:28:22] And you see in the case of, you know, Gin Lane becoming companies that accelerate brands themselves, which is an interesting evolution of the space. I'm reminded of a interview I heard with Webb Smith of 2pm recently, and he had said that he feels like we're right at the precipice of a yet many decades of innovation and investment in American entrepreneurship by the use and the means of launching new retail properties. And the way that those companies differentiate themselves really comes down to not only their ability to execute, but also the product or the time in which they exist. And right now, in this day and age, with the amount of capital that's available, there is no better time to exist. But it's just the beginning. I'm curious what your take is on sort of the new breed of merchant that we see today. You know, that we might call a DNVB. They're digitally native, but they're not just online. You see a bunch of them now. Where do you think retail is headed and how can investment drive this new age?

Jordan: [00:29:40] Yeah. Do you want to take that, Jamie? Do you want me to jump in?

Jamie: [00:29:43] You can jump in, and then I have a point that I'd like to end with.

Jordan: [00:29:48] Yeah. Well I think the... Let's go back to our buddy who lived in the Middle Ages. If you were again born to a blacksmith in the Middle Ages, you were kind of, your only option in life was basically to join the church or be a blacksmith. And I think, you know, as the economy is improving, there's been education over the years. It doesn't you know, you can become whatever you want. I think the most amazing thing about now is there's no barriers to anything. Anyone can be anything that they want. Everyone can procure the same products from China. Everyone has access to two days fast and free shipping via warehouse. They could use Amazon Prime. Or they could go out and contract. Shopify has now, as you know, a 3PL offering that we're starting to experiment with. But when everything is everywhere, it all comes down to brands and influence and customer service. And certainly you can create a product that's got a niche in a defined segment, and you can go out and create a patent. There're a lot of barriers to entry to almost everything. So I think it's cool. I think it's a fun time to be alive because it puts the power back in the artist. Right? And like the artist now, the artisan who fell out of favor from society for a very long time is now working. They might be helping to push pork rinds or something like that. They're selling a product versus changing the vision of the world necessarily. But there's never been a better time to be an artist. And I think that's one of the most incredible things. And none of this would happen or would exist if it wasn't for VCs, if it wasn't for accelerators. You as an entrepreneur, the incentive is significantly greater if you have the ability to get to be a one hundred million dollar brand. And it's almost impossible to get there without investment or support or strategic guidance along the way.

Brian: [00:31:48] How then in this new world can a merchant make themselves appealing to attract investment? And maybe how can merchants at different stages make themselves attractive to investment? The seed...early stage, late stage... Jamie, what do you think?

Jamie: [00:32:06] Yeah, absolutely. I think I'll start off with this response that's focused more on the private equity angle. And actually this response came from an article that I read this week in Modern Retail. They were talking about the immense changes that are happening in the retail space and the opportunity that that's actually creating for private equity firms. And as the direct to consumer space matures, these private equity brands are starting to play a really, really big role. While venture capital may have fueled their first sort of five years, six, seven years or so of a company's growth, now these same brands are turning to private equity funding to take their businesses to the next level. And I think, when it comes to attracting that type of investment, one, it's getting out there and making it known. It's working with a lot of investment banks that can actually broker those connections with private equity firms. But also coming to the table prepared with, you know, the type of data and the type of information that's required for them to actually do their due diligence and making sure that you have the time set aside to actually put all that together. And I think when I talk about preparation that spans across venture capital, that spans across accelerators and private equity. But it's coming to the table with the right analytics, with the right data, so they can start making those decisions and also helping your business get funding faster.

Jordan: [00:33:28] I think one thing that most retailers or any entrepreneur that's taking investment doesn't quite realize is how much it becomes your business. You know, raising capital is a full time job. And if you're out there in your warehouse every day, pick packing and shipping your own hats because you haven't hired help or that you're too busy troubleshooting bugs with the user experience on your e-commerce site then... Of course, not on Shopify... But then you're not focused. So you have to have priorities, and you have to make sure that you can step away. The business has to be somewhat self running that you can step away and not destroy yourself because otherwise you're going to be doing two jobs. And if you're going to raise capital, do it right. You know, don't go out and accept capital from the first person you talk to. I'm sure that's exactly what every PE or VC investor would like. But it's important that you've got someone who understands. And from a due diligence perspective, due diligence can be rough. You know, every PE or VC wants to have... They want to know like deep, deep, deep numbers and details and accounting and financial statements and HR practices and what are your internal policies and what are your mission statements. You know, it's worth getting your hands well before... Like if you know you're gonna accept capital next year, well before you even start even talking to anybody or asking for advice, I would get your hands on a due diligence document and just start thinking through. These are things that I would need to keep in mind. Like I have to have a head of HR at some point, and that head of HR, at some point, needs to have proper training on these things. So it becomes a lot more complex than just focusing on the day to day operations of your business, and for that reason, I mean, to be honest, there are situations where it's just not the right time. You know, maybe you're not ready to step away from your business just yet to make the proper decision about what type of investment you should take.

Phillip: [00:35:52] So I think that kind of leads us, as we are almost out of time... That leads us to, I think the next question, which is this is a five part series, this is the first episode of five episodes... What are we going to hear for the rest of the series? And, you know, spoiler alert, tell us what our main takeaways should be as we make our way through the series. I'll let you both answer. Let's start with Jamie.

Jamie: [00:36:16] Yeah, absolutely. For the rest of the series, you'll be hearing from two venture capital firms, GGV Capital, as well as Forerunner Ventures, as well as a private equity firm, which is Lion Capital. And you'll be speaking with some really great folks, who Jordan and I've been working very closely with over the last year and a half or so, and getting their perspectives on when should they be getting funding? What sort of data and analytics do they prioritize when evaluating a business? In terms of the product that a merchant might be selling, what sort of products and industries are they looking at as the future of retail? As well as we'll be talking to a number of merchants who have accepted funding in the past and their experience going through that whole process and evaluation, as well as the types and forms of expertise and add ons that they have taken advantage of from the firms that they've ended up taking investment from.

Phillip: [00:37:07] Jordan, I expect that we'll probably be hearing some thoughts toward the end of the series about what next steps might be. Could you fill us in a little bit about what steps are that people could take right now if they're ready to put a plan into action and reach out to you or...

Jordan: [00:37:22] Yeah.

Phillip: [00:37:22] What is the next step starting right now today?

Jordan: [00:37:25] I would say if you were an entrepreneur, I would lay out your options. And, you know, I would lay out your options of self-funding, borrowing cash. I would consider you know, the nice thing about the accelerators is that you can download a PDF, and it tells you exactly what you get, exactly how much they take, and you can choose to apply or not. You know, we've spent most of this time, I think... This five part series, we're really talking about private equity and venture capital and those are much later stage. You know, we're talking to folks that are making the average late stage VC investment is like over 11 million dollars. The average private equity investment is going to be significantly larger. But it's important for us to talk to people who've seen the growth from all the way from point A to point D for whatever it is, if there's multiple stages of funding. And I think thinking through what you want from a relationship, because you're really you're selecting a business partner when you're accepting capital. So what do you want from that relationship? And quite frankly, what do they want? So it's understanding here're the things that I would want in a partner and what are the things my partner expects from me? Once you've got that kind of worked out, and it's going to change, too... How you feel about what you need to grow your business when you're doing 80k online is completely different than what you're going to do and think through it when it does 5 million online. But I think the one takeaway from all this is really getting investors to think about really their stages of investment. And I think the fact that Shopify is involved in these types of conversations is very unique for an e-commerce platform. And I would be amiss if I didn't mention as well that, you know, we've actually got a program called Shopify Capital. So Shopify, we're not talking, you know, seven figure investments. But if you need capital, you know, Shopify can literally, just through GUI interface, you can accept a loan, or essentially you can accept capital from Shopify, not a loan. And then we will remit the payments from your actual payouts from your Shopify sales. So that's a really interesting option, as well, if you're looking to get... But I think most of the folks that we're talking to on the series are really going to be thinking through how do I get...I'm at one to three...how do I get to that five to 10? Or I'm up that 10 to 30 and I don't know how to get to that 50, 60.

Brian: [00:40:05] That's great. Thank you so much for that, Jordan. That's a great place to leave it. And we are looking forward to the next four parts of this series ahead, again with two venture capital companies, one PE company, and then we'll have a panel of merchants that have already gone through this process that you'll get to hear from. And one of them has actually even sold their company since. So very exciting to hear that content ahead, a little preview for what's next. Thank you for listening to Future Commerce. We always love to get your feedback on this type of content and would love to hear any feedback or questions or any other things that you have for us. Here at Future Commerce you can reach out to us at hello@FutureCommerce.fm or connect with us anywhere that we're found. LinkedIn, Twitter, Instagram and all of the above. And of course, we always love it if you want to go leave a review for us on i-Tunes or whatever podcast player you're on?

Phillip: [00:41:09] Hey, right now stop what you're doing. Go give us a five star on i-Tunes. Love it. That's it. Thanks, guys.

Jamie: [00:41:16] Fantastic. Thank you so much.

Brian: [00:41:18] Thanks, guys. It was amazing.

Phillip: [00:41:19] Thank you so much. Jordan and Jamie for joining us on this special edition, five part mini series called Step by Step. We want you to subscribe to our main channel, Future Commerce. And you can do that at FutureCommerce.fm. And if you have questions about funding and how to take that next step with your business, we want to hear from you. You can send us an email at funding@FutureCommerce.fm. Thanks for listening.

Brian: [00:41:41] Thanks.

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