Some Perspectives on RetailTech

Junction Venture Partners
7 min readMay 4, 2019

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:

  • you wind up giving away a ton of the economics to develop the distribution.
  • these partners have RetailTech firms them hitting them up CONSTANTLY with “some great product for their customers that will make their product so valuable”. These products never deliver so most of these channels (especially POS) react with “what do I get out of giving you access to our customers”. And they eventually don’t get much,
  • no one is better at selling your product than you are. If you rely on people already talking to your end user to start the conversation, not matter how much you coach them, it’s not going to drive real revenue growth (only expensive revenue). This is not affiliate marketing and clicks. It’s “hey, let me sell you something else I’m a part of now that I got your time and attention”. Payments people are really good at selling…payments. POS people are really good at selling…POS. Wifi people are really good at selling…wifi.
  • no matter how innovative what you are doing is, I can assure you the cloud POS (or channel you are selling into) thinks they can also do it and do it better and don’t need you and your big idea (they are probably wrong, but trust a brotha, this is what they think).

(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:

  1. is there a founder who’s unemotional, proven, pragmatic, highly intelligent, and thoughtful that has actual hands on RETAIL knowledge and directly with the problem being solved. Says “I don’t know” occasionally.
  2. A differentiated go to market strategy that isn’t just an inside sales force converting outbound demand gen while also using the channel “which has massive distribution”
  3. Local acquisition DNA for B2B funnel creation at the company — success will primarily be predicated on know how to develop direct funnels. Developing this institutional knowledge needs to happen immediately. These companies always needs to be direct businesses (per above). Every RetailTech company needs to hire a guy like this. If you ever have a product person and a tech person trying to build a B2B platform for local acquisition without any sales or marketing engine, that’s scary AF.
  4. There’s no silver bullet. It takes the channel and direct acquisition, but more so a real slog on the direct piece by learning and building the appropriate local acquisition funnels that are scalable and automated. A RetailTech company should never be too focused on the POS players and the channel. This is always very “technology person” like mentality — because the TAM is big and scalable and seemingly easy on the surface. In reality, the channel is a distraction and time and resource suck. RetailTech founders cannot fall into the trap of chasing the “we touch 100,000 retailers” or the large payments “we have millions of retailers and ISOs” partner. I can’t tell you how excited the venture community was (and my own board was) with the massive distribution deal we did with one of the largest global payments businesses in 2014 — it took years of time and money to reach and develop. On the surface, it made sense! In the end…we generated very few customers from it and the partner was not super helpful (note, I have countless other examples of “shitty channel partnerships that are all thunder and no lightning” in the RetailTech space). The channel is not the solution here. Go direct. Don’t be another engineer thinking local is easy once you build something and get some partners. RetailTech businesses are not be built that way — it’s what normally destroys them.
  5. retailers want TWO things more than anything (1) a way to increase profitability and (2) a way to drive people into their stores. If a RetailTech company does not provide these two things (table stakes) they will be DOA>

Originally published at on May 4, 2019.



Junction Venture Partners

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