Our Investment in Frate: Optimizing Returns for Ecommerce

If you’re like most Americans, you’re taking advantage of the days and weeks after Thanksgiving to snag some deals and load up on gifts for family and friends. This year, U.S. consumers spent a record $10.8 billion online on Black Friday alone, an estimated 10–14% increase from 2023. The height of the holiday shopping season, between Black Friday and Christmas, represents approximately 19% of annual retail sales, according to the National Retail Federation (NRF). US online spending totaled $1.24 trillion in 2023 and is projected to exceed $2.5 trillion in 2030.

Online shopping has revolutionized the way we purchase and consume goods, offering unmatched convenience, variety, and accessibility. Over the past five years, the number of digital shoppers has increased by 40%, and 79% of Americans now shop online. However, as ecommerce continues to grow at an exponential rate, so too does one of its most pressing issues: returns.

The Rising Tide of Returns

Most of us have had to return items purchased online; perhaps it was the wrong size or not what you expected. However, many consumers now view returns as a risk-free option, often purchasing multiple sizes or colors (a practice known as “bracketing”) with the intent to send most items back. This is especially prevalent among younger shoppers; 51% of Gen Z consumers report engaging in bracketing (with 14% saying they always bracket). The ease of return policies driven by Amazon and other large retailers in recent years — free shipping, prepaid labels, and flexible time frames — has fueled this phenomenon. While these policies enhance the customer experience, they are a crippling cost for many retailers. The average ecommerce return rate is now 20–30% and can reach 40% during peak holiday seasons. In 2023, consumers returned a total of $248 billion in merchandise from online sales.

The environmental impact of these returns is also substantial, contributing to increased carbon emissions and waste. In the United States, reverse logistics for returns account for over 16 million metric tons of CO2 emissions annually. Additionally, an estimated 3.5 billion pounds of returned goods end up in landfills each year and discarded ecommerce packaging adds an estimated 25 million tons of waste annually.

Retailers are starting to crack down, and seeking solutions. In their December report, the National Retail Federation stated that more than two-thirds of retailers surveyed plan to prioritize upgrading their returns capabilities within the next six months. Improving the returns experience and reducing the return rate were stated as two of the most important elements for businesses in achieving their 2025 goals.

This is where Frate comes in, and why we decided to invest in their recent $2.5M Seed round. Frate’s solution not only manages returns, but also reduces return volume and their impact on the environment.

AI-Driven Returns Optimization

Frate is rethinking returns management with a focus on returns reduction and optimization, rather than simply facilitating the logistics of returns. While many solutions exist in returns management, what sets Frate apart is its innovative use of AI to verify product condition, dynamically route returns, and introduce peer-to-peer resale options.

Frate’s key features include:

• AI Condition Assessment: Customers upload images of the return item, and Frate’s AI analyzes its condition to determine whether the item should be returned or redirected for resale. This reduces unnecessary returns and enables brands to make smarter decisions about how to handle each item.
• Dynamic Returns Routing: Based on the AI assessment, returns are routed to the appropriate destination — whether back to the warehouse, a third-party location, or for resale — maximizing efficiency and minimizing unnecessary shipping.
• Peer-to-Peer Resale: Frate introduces an “eco drop” return option that incentivizes customers to hold onto their return for a few extra days while it’s listed for resale back on the merchant’s storefront. Buyers then have the option to purchase an EcoDrop item at a discount, receiving the item directly from another customer and skipping the warehouse completely. This peer-to-peer model not only reduces waste, but also offers brands a compelling option to tap into growing consumer interest in resale. With Frate, 53% of items in perfect condition are shipped directly between customers, bypassing the warehouse.

Frate was founded by Bailey Newton, a scrappy and determined entrepreneur who has built Frate from the ground up. His passion for solving the ecommerce returns problem emerged from running his own small Shopify business, where he saw firsthand the inefficiencies and environmental impact of returns. CTO Yenn Lei previously led engineering at Emotive, a marketing platform for Shopify merchants. Yenn’s experience in scaling technical teams and working closely with ecommerce brands makes him a perfect complement to Bailey. This team has already demonstrated their ability to recruit top talent, execute on their vision, and build a product that ecommerce brands are eager to adopt. The combination of Bailey’s leadership and Yenn’s technical experience in ecommerce SaaS is a great foundation for Frate’s success.

The Impact: A Sustainable Future for Ecommerce

By reducing the number of returns that are shipped back to warehouses, Frate directly contributes to lowering the carbon footprint of ecommerce logistics. In a world where overproduction is rampant, with retailers producing roughly 40% more inventory than needed, reducing returns is not just good for business — it’s essential for the planet. At scale, Frate has the potential to significantly reduce waste and emissions across the entire ecommerce sector, aligning with the growing consumer and regulatory demands for sustainability.

We invested in Frate because we see a timely opportunity for this team and company to solve a pressing problem in a massive market with a unique solution and a focus on sustainability. We’re excited to partner with Bailey, Yenn, and the entire Frate team as they scale their platform, reduce the burden of returns for retailers, and build a more sustainable future for ecommerce.

Our Investing in Circular Economy Solutions

The investment in Frate ties in with our broader Circular Economy investment theme at Better Ventures, where we are focused on the ways in which we produce and consume the physical goods that run our economy and daily lives. We look for companies developing less resource-intensive or extractive materials and inputs, innovative solutions to reduce overproduction and consumption, and leveraging AI to help manage or reduce waste. We have invested in companies such as:

• Matereal — leveraging breakthrough chemistry and AI to detoxify and decarbonize the plastics in everything from fashion to housing. Their first product, Polaris™, is a biobased and renewable alternative to polyurethane.
• Beni — the world’s largest aggregated database and search engine for online resale. ‍ They make it easy for shoppers to find the best resale deals while they shop their favorite brands online, using their browser extension.
• Refiberd — AI-enabled sorting for textile-to-textile recycling. Refiberd’s sorting technology can accurately detect fiber composition and contaminant presence in textile waste and help divert up to 70% of the textile waste stream to high value recyclers.

If you are a pre-seed stage founder working on an innovative solution in these areas, we’d love to hear from you.