Some Perspectives on RetailTech

Investor friends regularly ask for perspectives on RetailTech opportunities (after decent experience from the ShopKeep journey in particular).

Since one VC (you know who you are) replied to some recent thoughts with “Holy shit! This is a masterclass on retail tech in a single email. Insane! I love this! Can’t believe how good this analysis is” figured I would convert it into a blog post (yes, blowing smoke up my massive ego is always impactful).

Hopefully this is helpful to any RetailTech investors!


General thoughts on Retail Tech:

> If you build it, they will not come: I’ve learned that most any technology business, no matter how exceptional the product, becomes (or needs to become) a software enabled sales and marketing organization (at some point). The product is of course the most important (or single most important) piece for initial success, but it is quite simply table stakes for a B2B platform focused on SMB retailers which requires local acquisition to scale. The product is not what wins big here. (If you build it, they will not come)

Selling into retail is like trying to feeding a wild rabbit

> Retailers do not have time for you — they are overwhelmed: That said, selling into these end users particularly is equivalent to feeding a wild rabbit. Most are not technology savvy or sophisticated commercially (no offense intended to retailers, the point is that most don’t go into retail out of Columbia Business School — they have a passion for what they are selling). Getting their time and attention, let alone getting them to understand most any commercial value proposition (at scale), is therefore difficult. Tactics to do so are more difficult to develop — especially now given everyone and their sister seems to be selling a B2B SaaS or marketplace product into them these days. So fighting for mind share is difficult. Retailers are underserved and they are running low margin, high effort, no time in the day for themselves, businesses with a high rate of failure. This doesn’t mean, however, they are seeking productivity tools to increase margin (you’d think, but again, these are people that went into retail in the first place). What it really means is that they have no time in the day and are always miserable so selling them anything to them can be difficult (especially productivity and margin improving products). It’s hard to do local acquisition as a result (i.e., expensive if not properly).

> Scalable LTV/CAC unit economics of maturing funnels do not apply: For most industries and markets, software distribution systems are less expensive and wide reaching so achieving ubiquity and acquiring customers at scale is that much easier (so more people try). Many software companies are able to scale by developing outbound demand gen that feeds qualified inbound leads to an inside sales force along side a fantastic product (which developed a moat). With product market fit and clear unit economics (i.e., things start working and fixed cost absorption is achieved), you can “invest in the inside sales trough” (as David Skok says) and purchase revenue growth against a clear LTV/CAC. This is NOT the case when selling to SMBs or retailers, however. For a number of reasons:

(1) all the learnings you put in place to get the first 100 to 5k customers is meaningless unless you learned how to do it without having to visit the location. Which is rarely the case. However, founders (and certainly VCs) still get very excited by an early company with a few hundred or a few thousand customers that have great product market fit. Many do not spend the time really getting into the funnel to understand how they acquired them and if it is scalable — why? Because software distribution and the selling of it is easy once there’s product market fit and traction, right? WRONG. Not in retail. Not if you haven’t figured out how to get the customers to come to you. So what happens when these companies want to scale? They immediately start trying to go the old school route. Getting in front of the retailer in person. Best way to do that? (A) Channels and feet on the street (yup, it’s 1999 again). The ISO payments channel (i.e., first data, Vantiv, or Tsys “indirect sales force” of people who used to sling Verifone terminals). The VAR who “fixes and installs things” — wifi, ovens, server based systems, alarms (note, Mercury Payment systems owned a massive VAR channel and sold it to Vantiv for $1b ish in 2016) and (B) good old POS systems. Why? Because “they are already at the customer and the customer uses them.” The problem with both of these indirect channels is limitless, but here’s the main ones:

(2) If you build the bones of a software business that’s clearly working utilizing local acquisition, your CAC will ALWAYS be going up until the market matures and settles with only a few players. No matter what you do. No matter your moat. No matter the product stickiness you develop early on. Even if you crack the local acquisition nut. If the TAM is massive (there’s 6 to 10m cash points in the US alone and a $2.7 TRILLION transactions in payments). So there’s always going to be the “next guy” with some offer or some differentiation that can break down the door — and you’ll have arrows in your back from building the market and brand. If a new RetailTech company has a quick path to $10m in ARR in 18 months, the space is so large that investors will only see “validation” to capture that massive TAM since there’s “more than enough room for many players” (vs, oh shit, those guys raised $20m). So by month 22 you’ll have a couple of competitors with funding to spend $1m a day on local acquisition, led by some knowledgeable proven founder (a guy like me) backed by some large valley fund (that’s on fund XII with $1b to deploy “opportunistically”), to pump out a real quick billion + val based on growth and revenue. (Toast is a great case study there. They’ve spent $500k in the time it’s taken me to write this blog).

Here what I look for in Seed to Series A RetailTech companies:

Originally published at on May 4, 2019.



Junction Venture Partners invests in early-stage businesses in overlooked niches and the tools that enable them to grow.

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Junction Venture Partners

Junction Venture Partners invests in early-stage businesses in overlooked niches and the tools that enable them to grow.