What We Look for in eCommerce, Part 1


As an early stage venture fund, we focus on a few sectors to be effective: eCommerce, SaaS, marketplaces, and ad tech. For each, we evaluate the people and process, but there are a few things we focus on. Starting with eCommerce, I’ll break down our approach intro two blog posts: for now, the quality; then, the quantity.

The Quality:

As a company grows, operations become more important as eCommerce businesses need to run incredibly efficiently in order to retain any of their contribution margins since they’re high variable cost businesses. So, we use these rules of thumb to evaluate those variables.

In operations:

 1. Businesses that transcend fads

We look to invest in companies that are here to stay. I think of them as utility companies because they are things people would be purchasing anyways. This way, you don’t have to convince consumers to buy something, you just have to convince them to buy it from you.

 Ex. We wouldn’t invest in a company that sells bell-bottoms online, but coffee? Yes.

 2. Life cycle of company

eCommerce brands typically have seven or eight-year life cycles before they go out of fashion. We look for companies that have found (or will find) product market fit within two years, can scale growth for two or three years after that, and then continue in maturity for the rest of their lifecycle.

Product life cycle

3. Capital efficient business models

We look for companies that are innovative in figuring out low cost ways to mitigate overhead and maintain efficiency. That includes inventory. What are warehousing costs and what’s your payment cycle like? Maybe you don’t have to warehouse tangible items but you need to pay your supplier 10 days in advanced of sales. This is important to know for net working capital needs.

Ex. In its first year, Zappos bought inventory from its suppliers only after they transacted a sale, therefore not having to hold inventory or rent excess storage space.

4. End-to-end fulfillment and manufacturing process

Supply chain and shipping can make or break an eCommerce company. While getting favorable shipping rates is hard at first for low volume startups, we want to see you have a plan for reducing costs and increasing margin in the future.

5. Marketing strategy

eCommerce companies are typically business to consumer (B2C), and therefore need an audience. What strategies do you plan on using to get eyeballs to your website? Some successful examples we’ve seen are partnerships with complementary brands, paid social/search marketing, referral discounts, and tracked email marketing campaigns.

In people:

1. Passion and reason

We look for founders who are passionate about what they’re building and have a good reason to do so.

2. Seasoned founders

eCommerce is a hard sector to be successful in. Questions we ask ourselves are: have they done it before? Was it in the same vertical? If not, do they have industry expertise in this vertical? If they were previously unsuccessful, how is this different than last time around? What’d they learn?

3. Key performance indicators

We want to make sure entrepreneurs understand what will tank their business vs. what will propel its growth. Do they know the levers that control these indicators?

KPI cartoon

4.  Presentation and understanding of metrics

Be honest about the successes and the struggles you’re facing. Pay attention to the notion of vanity metrics vs. actionable metrics. For instance, short-term revenue or user spikes don’t matter if they’re just paid for and unsustainable. Usually, sophisticated investors will be able to see through this. We look for virality and engagement of users more than just existence of users. Your best asset is a loyal and a highly engaged customer base.

That’s it for now, subscribe in the footer and look out for Part 2 on the quantifiable metrics we look to track.


Four Qualities I’ve Learned to Become a Better VC

1. Act in your portfolio company’s best interests

As investors, we often come across companies whose products or services we would personally use. We get excited at the thought of obtaining them for free or at discounted prices if we choose to invest in the company. From requesting free lifetime subscriptions to skipping waitlists to get the latest products, I’ve seen investors request for anything and everything under the sun — and even to go as far as to include it in contracts.

My take on this is simple: company and customers come first before investors.

I have also noticed that some investors lobby for advisory shares before they are willing to become board members or investors in the company. Entrepreneurs, beware. The investment community frowns upon creating separate classes of investors where some benefit more than the rest do.

Your best supporters are the ones who share your vision, and not just because they are getting special treatment on the side. It needs to be in fair balance.

Continue reading

In Response to Yesterday’s Mattermark Daily

Yesterday, Danielle Morrill highlighted an interesting statistic from Paul Graham in the Mattermark Daily. She referred to this tweet in which he shared a few stats about YC; the most interesting of which being “days since last contact” with their portfolio companies.

Then, she asked this question: “Are you willing to reveal these numbers for your fund?” and it got us thinking that this statistic should be readily available. Continue reading

Why This Venture Capitalist Is Blogging

Santa Monica Pier

This blog will be a reflection of Karlin Ventures’ dynamic growth over time, but also of my personal development as a fairly new venture capitalist.

Although I spent some time as an investment professional at Innovation Endeavors, I never quite got the entire experience until I started Karlin Ventures 1.5 years ago. This last year and a half has been an insightful process, during which I’ve started to understand what it takes to do my job well. I’m not there yet by any measure, but at least I have a sense of what I have to do.

I wanted to start these posts to share with you my journey of becoming a better VC. Whether it’s tips or tricks that we learn along the way, our goal is to share insight and opinions Karlin Ventures has on the venture industry and investment trends.

Arteen, my co-worker and I, will be the main writers of this blog. Our hope is that these posts will help fellow VCs and entrepreneurs become more successful in building their businesses, and of course, in their own journeys in becoming better VCs.

Please stay tuned next week and subscribe in the footer below to read my first full-length post, an introspective piece that identifies four qualities it takes to be a better VC