California-based venture capital firm Canaan Partners said despite challenges such as logistics and scalability, e-commerce was a profitable investment and would get its due attention in the coming days.
The firm said it would continue to invest in areas such as electronic payments, micro payments, loyalty services, among others.
“We see that the product margins in e-commerce have now increased from 25 per cent to nearly 40 per cent. Also, the cost of customer acquisition has fallen across multiple categories,” Rahul Khanna, Managing Director, Canaan Partners, said.
These developments would only bolster venture capital interests in the e-commerce category.
Part of the resentment for e-commerce businesses in recent years was mainly due to margin structures. With that issue taken care of, there will be renewed interest in this category, according to the venture capital firm.
But Canaan Partners does not see any investment case for pure luxury-centric e-commerce platforms, said Alok Mittal, Managing Director, Canaan Partners in India.
The firm has so far invested $170 million in India through 12 active investments in the last seven years.
Asked about exits in the current difficult initial public offer market, Khanna said the firm would not like to pre-judge its exit strategy. He said other options such as mergers and acquisitions do exist. Also, private equity players have recently started to show interest to acquire stake in companies.
“We don’t pre-judge exits. It is more by the nature of the business rather than market conditions,” he said, adding that investments have not worked only in a few companies. “Those that have not done well include techtribe, a networking site, and Chakpak, a media content company.”
Canaan Partners is a 25-year-old venture capital firm with about $3.5 billion assets under management. It is currently operational in North America, India and Israel.
“We always go for early investments and stay invested. This gives us significant ownership,” he said. Among the key investments that the company has made here are Bhartmatrimony, naaptol, mCarbon, Loyalty Rewards, IT venture happiest Minds, iYogi, among others.
The company said it usually invests about $2-5 million as a first investment in a company. Khanna said that the global venture firm usually has an investment horizon of 7-10 years.
On the banking and finance space, the two partners saw lot of potential in this space, especially for technology enabled activities such as mobile payments.