From A to B: Backing ChannelEngine Again
We’re delighted to share that our portfolio company ChannelEngine has raised a $50m Series B to continue its journey to become the leading Ecommerce & Marketplace Management Suite globally! We’re thrilled to double down as part of this round, together with Airbridge Equity Partners, and are happy to welcome our friends of Atomico and General Catalyst onboard on this exciting ride!
Merely a year has passed since we first partnered with ChannelEngine in their series A round, and it is mind-boggling to see what Jorrit Steinz and his team have accomplished within this short time frame. In the midst of the celebrations of this milestone achievement, we sat down with Jorrit to reflect on the past year. We discussed what it’s like to hyperscale a company during a pandemic, the challenges the global ecommerce market was faced with, and which new trends he is most excited about within the Future of Commerce.
At the beginning of last year you were running all operations with a team of 60 from your headquarters in Leiden, in the Netherlands. In 2021, however, ChannelEngine opened offices in Dubai, Singapore, Australia and New York, launched in 20 (!!) new markets, grew the team to 170 people. What have been the biggest challenges when scaling a company across four continents during a pandemic?
[Jorrit] The number one challenge has definitely been recruitment; finding, hiring and onboarding new team members remotely is not easy. A consequence of scaling a team rapidly is that your best people are busy recruiting and onboarding new team members, which leads to a productivity decrease in the beginning. Another real burden that comes with launching in new markets is setting up legal entities. There is a huge lack of digitalisation of administrative processes required to set up payroll, tax accounts and legal entities in most countries. Luckily, the pandemic helped in the sense that one was not required to fly there to conduct the registrations in-person, but still, certain documents need official notarised translations, stamps at the courthouse and sent by courier via embassy to a government institution for instance.
You have just closed a $50m Series B round, only a year after the A round; From a founder’s perspective what are the key differences between raising an A round and a B round? Do you have any fundraising advice to other founders?
[Jorrit] First of all, when raising a Series B round, investors have to be convinced that you are going to be the market leader. Also, I found it harder to find the right match in terms of ticket size among so called “Series B investors” than the Series A focused VCs. Quite a few Series B funds have a minimum ticket size of $100m, others only do smaller tickets than what we were aiming for. In one example, we fell exactly between their early stage and late stage fund. At the same time, there are an increasing number of later stage growth investors with an appetite to “go earlier”. These funds, however, still want (or need) to invest at minimum ~$50m in a first ticket, thereby forcing founders to increase round size and most likely also valuation, which can actually be dangerous and harm the business in the longer run. As a result, one of the questions I’ve learnt to ask investors early on is around their ideal ticket size and deal.
Getting a good click with the people on the VC side is actually the most important thing. It makes all the difference if you find a VC that matches your company in terms of vision, way of working and has deep knowledge of the industry you operate in. Many VCs don’t invest the time in understanding your space.
I found that VCs that really know ecommerce ask the right questions, and the conversations become rewarding and more meaningful and they really get and are excited about the potential of what we are building.
If you could go back to when you founded ChannelEngine, is there anything you wish you would have known back then, and is there anything you would have done differently along the way?
[Jorrit] I like to think that all the things we did wrong along the way, we had to do in order be successful now. Hence, I’m glad that we started when the market was early, so we had time to experiment and mature our solution.
The two things I might have done differently or wish I already had known is: (1) raising funds slightly earlier, and (2) understand how fundraising works from a VC’s perspective.
Before our first raise, I read The Secrets of Sand Hill Road, which I recommend to other founders as well, it made the investor conversations more effective for both sides because it made me understand the perspective from and role of a VC.
Thanks to the Internet, brands and retailers can sell their products to consumers all over the world. With the rise of D2C channels, low code ecommerce platforms, and digital marketing, it is now easier than ever to reach customers on a global scale without local presence. But what are the key challenges that brands and retailers might face when launching in new markets purely digitally?
[Jorrit] Logistics, localization for local marketplaces and system integrations are all challenges, and a major opportunity at the same time if you manage to do it well. Leveraging the reach of marketplaces provides a strong start in a new region. To do that successfully in multiple markets, it is essential to automate well and use connectivity and management in a single platform. Having a local logistics network or partner is crucial as you need to be able to deliver your products to consumers in a foreign market in the end. Luckily, all of these challenges are all solved by ChannelEngine. ChannelEngine provides a full features platform with deep integrations into a fast growing network of marketplaces and other sales channels. On top of that we have built a global partner network. For instance, we have 3rd party logistics providers in all regions connected and local agencies that can optimize the localized product listings and ad campaigns on the marketplaces.
2020 was definitely a golden year for ecommerce, with the pandemic accelerating the ecommerce share of retail, reportedly by up to 5 year. Looking back at 2021 though, in your opinion, what major events and key trends were defining the ecommerce market during that second year of the pandemic?
[Jorrit] Already towards the end of 2020, the aftermath of Covid became evident. In the first lock down, we witnessed brands finally taking the step towards selling D2C (direct-to-consumer) en-masse. As the first year of the pandemic progressed, brands focused on building up capabilities to sell D2C, and in 2021 they doubled down on these initiatives. Overall, this has put a big pressure on non-brand online retailers last year. Large high-street retailers still play an important role, but the market position of smaller retailers, who merely buy from wholesalers and sell on marketplaces, is slowly starting to crumble.
Last year, the global supply chains faced painful issues, ranging from the ‘Suez Canal crisis’ to closed factories across Asia, causing brands and retailers across the world to suffer from severe shortages and delay of stock. The clogging within the supply chain was extra painful for companies with high cash flow sensitivity, such as SMEs, who had a hard time to survive last year as they lacked the financial means to keep the business afloat while waiting for weeks or even months for containers with their products.
Finally, looking ahead which key trends do you think will shape the ecommerce market in the next 2–3 years?
[Jorrit] The global commerce market will continue to shift to D2C through all channels, ranging from brand stores to direct sales on marketplaces. With more marketplaces arising and retailers turning into marketplaces, this is a shift that every company needs to make.
Another key trend which I believe will shape the ecommerce market in the next couple of years, is social commerce, which is still in its infancy. Although it is going to go slowly at first I expect it will be growing rapidly in the not too distant future.
TikTok is going to be massive, and Instagram will catch-up. We will also see of the rise of in-chat commerce, live-stream commerce and in-car commerce.
