How to Invest in eCommerce

eCommerce Brands: A Better Investment than Stocks or Real-Estate

Investors—is it time to add an eCommerce store to your portfolio, rather than another real estate or stock acquisition?

Stocks. Bonds. Real estate. For decades, even centuries, if you were fortunate enough to have money to invest, these have been your only real options to grow that money (give or take a commodity future or a precious metal).

If you were Warren Buffett, there was a higher-level option—buy entire companies. Buffett famously claimed that he performed the same analysis whether he intended to buy a single share of stock or an entire company—after all, it was the financial health of the company, not the size of the investment, that would make the investment successful.

Most investors can’t afford to buy whole companies, especially not established and profitable brands … or rather, they couldn’t until digital businesses came along.

Buying a profitable eCommerce store is within the reach of many investors, partnerships, or family offices.

It allows them to:

• Gain exposure to an exploding industry.
• Realize exceptional returns with limited downside risk.
• Assume a lean business model with significant residual terms.
• Acquire real assets, including digital real estate and IP.
• Significant liquidity compared to real estate or brick-and-mortar.
• … all for a fraction of the price to acquire a brick-and-mortar business.

An Exploding Industry

Just look in the package room of any apartment or condo complex—eCom is exploding.

Some attribute the online buying craze to the COVID-19 pandemic, when consumers turned en masse to eCom shopping while sheltering in place. But this boom was coming even without a pandemic.

According to Statista, eCommerce sat at $1.3 trillion in 2014, a respectable number in its own right. Today it has more than tripled to over $4.2 trillion, with no end in sight.

In fact, with an expected 385% growth quotient between 2014 and 2023 (45% CAGR)...

eCom is expected to tip the scales at $6.5 trillion by 2023

Don’t look for that kind of explosive growth in real estate, with its cycle of bubbles and busts. Most other industries can’t compete either. The eCom boom is making millionaires, and will preserve the wealth of even more millionaires.  

Incredible Returns

Of course, “What’s the ROI?” should be the first question about any investment. We invest in hopes of getting something back. At the end of the day, the investment that produced the better ROI was a better investment.

Established eCommerce businesses can be bought at prices that produce an exceptional ROI. Digital businesses currently trade at between 2.5x-3x of their current profit—a 30%-40% yield.

Compare that to an established traditional business in a good market with some swings in earnings and competitive pressures. Expect to pay 5x-7x for a yield of 15%-20%.  

By selecting the right asset to acquire, investors can increase the returns—and the value of the asset—by cutting costs or increasing margins, without disrupting a working system. Investors could look for opportunities to:

• Reduce the cost of goods sold (COGS).
• Reduce the cost to acquire customers.
• Increase the customer lifetime value (CLV) through upsells, cross-sells, and remarketing.

A Lean Business Model

Veterans of real estate investments or brick-and-mortar businesses will be relieved by the streamlined nature of an eCom store. Processes from marketing to fulfillment to follow-up can be automated, while low-level repetitive tasks incur minimal labor costs by remote teams.

There’s no need to buy or lease an office. Many eCom entrepreneurs use dropshipping or third-party fulfillment to avoid buying or leasing a warehouse—although warehousing your own goods can be a significant value play under the right circumstances.  

Real Assets

When buying a digital business, it can be easy to feel like you are buying smoke. There’s no real estate, no equipment, no machinery. What are you buying?

But eCom stores come with real assets, including:

• Trademark to a trusted brand, including logos, marketing collateral, social media sites, and reputation assets (Google reviews, Yelp reviews, etc.)
• Web Real Estate. If effort has been put into SEO, this digital real estate can be valuable in its own right. SEO can also be a significant long-term value play, one that the founder may not have invested in.
• Product Inventory, as well as blueprints and manufacturer relationships to make more.
• Established Processes recorded in SOPs, often with the automation and the staff in place to execute the processes.
• Customer and Prospect Lists, past buyers to be remarketed to, as well as leads to be nurtured into buyers.

Buyers don’t miss the real estate or the machinery—and certainly not the headaches that come with them.

Liquidity

Compared to real estate and brick-and-mortar businesses, eCommerce stores enjoy significant liquidity, due to the booming third-party demand. Investors and family offices with deep pockets are adding eCom stores and shares of eCom stores to their portfolio. If you want to sell for cash, other investors are willing to buy, much more so than with real estate.

Affordable

With the low multiples and no real estate or machinery to acquire, eCommerce websites are some of the most affordable functioning businesses to acquire. Six-figure acquisition prices are not uncommon.

Where Do You Buy an eCommerce Store?

It isn’t hard to find an eCom store for sale. A robust secondary market exists for eCom businesses, some of them operated by prominent eCommerce platforms like Shopify.

While not hard to find an eCom store for sale, it can be hard to know if you are buying the right store, with good processes in place, good fundamentals, and growth or value-add potential.

That’s why the top tier of Ecom Capital’s service stack is Ecom Capital INVEST.

We help aspiring entrepreneurs prosper with a proven blueprint for eCom startup success in Ecom Capital START.

We help already-successful Ecom stores, some of them graduates of the START program, thrive in our Ecom Capital GROWTH program. In this tier, we groom those businesses into saleable assets.

We buy out our GROWTH clients ourselves, then make the assets available to investors through Ecom Capital INVEST.

In other words, when you buy an eCom store from ECom Capital INVEST, you buy an asset that we have shepherded through a rigorous process, often from the startup phase. We draw upon a track record of success that includes $80 million in revenue from our client businesses, and we put our money where our mouth is.

In short, when you buy an asset from Ecom Capital, you know you’re getting the best on the market.

If you are interesting in Investing in a single eCommerce store, and running it yourself, having us run it, or perhaps investing into a portfolio of a group of eCommerce store, then look no further than our INVEST fund, which you can find here.