E-commerce start-ups facing troubling investment climate

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E-Commerce Mobile Commerce Investment StrugglesE-commerce business losing traction with investors

Black Friday has passed and that has left many retailers preparing for the remainder of the holiday season. While Christmas still looms, Black Friday was the most important day for the retail industry. Now that that day has passed, retailers can enjoy some mild relief before gearing up to engage consumers again in December. Mobile commerce helped make this year’s Black Friday a major success, and the growing popularity surrounding the concept has lead to many start-up e-commerce businesses being formed. Investors have seen the potential of these start-ups and some are suggesting that they are overvalued.

Mobile commerce continues to spark new businesses

Over the past 18 months, mobile commerce has sparked the founding of several e-commerce platforms that had promised to provide innovative service to consumers and niche markets. Many of these platforms received a proverbial tidal wave of investments that helped them reach their target audience. Unfortunately, most of these platforms failed to meet the expectations of investors, thus yielding modest returns at best. The lackluster performance of some platforms has not stopped the formation of new e-commerce businesses, however. Finding investments may soon become difficult for these start-ups.

Failed e-commerce ventures create unease among investors

Though the e-commerce sector shows promising growth, investors have seen a string of failed online retail ventures from groups like Facebook, Zynga, and Groupon. Smaller companies that promised major returns were unable to deliver, thus making many investors leery of e-commerce ventures and those that revolve around mobile commerce. Former eBay executive Dana Stalder, who is now a partner at Matrix Partners, an investment firm focused on software and communications companies, suggests that there is “inflated valuations” concerning e-commerce ventures.

Capital-intensive business may find lack of support

Stalder notes that most e-commerce businesses are complex and require significant capital to operate. Inventory and shipping costs make it difficult for new businesses to reach a large audience. Even with financial backing, these businesses can easily spend more than they make, thus making them less lucrative for investors. Many of these companies have created an uneasy investment climate for the online retail industry, which could make it exceedingly difficult for new e-commerce start-ups to find the backing that they need.

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