Airbnb for anything but property,
Amazon for rentals,
Uber for your belongings
E-commerce feels like it’s everywhere. But the truth is that even during a pandemic, e-commerce accounted for less than 15% of total retail sales in the U.S.
According to the United Nations, e-commerce only makes up about 19% of total global retail sales.
E-commerce has a long way to go before it catches up with the rest of the retail space. And that’s why I’m so bullish on e-commerce startups. There’s so much room for disruption and growth. And there’s no shortage of market inefficiencies to fix.
The key for investors is to find e-commerce startups that are about more than “just e-commerce.”
E-Commerce Isn’t Easy
Building a successful e-commerce business is difficult. There are a host of problems to figure out, including:
Delivery is an insanely difficult problem to solve. So is fulfillment. Amazon just makes it look easy.
As a result, many retailers outsource packaging and shipping to companies like Amazon and Instacart. Others outsource just the delivery.
Amazon and Shopify make setting up an e-commerce store fairly straightforward. Instacart makes it easier for brick-and-mortar retailers to jump into the game. And many retailers rely on their products being discovered on Amazon, Etsy and social media to generate sales.
But as vast and comprehensive as the current tools are, they don’t come close to addressing the needs of the entire retail market. That’s why despite the obvious convenience of online shopping — especially in a pandemic! — e-commerce represents less than 20% of the global market.
Products like alcohol, prescription medicine and super fresh produce just don’t fit neatly into the current e-commerce universe. And that presents a massive opportunity for startups.
One of the biggest mistakes people make is assuming what Amazon does is easy. It isn’t. Amazon runs one of the world’s most sophisticated logistics operations. The scope of Amazon’s efforts is breathtaking. Consider this timeline:
In order to make all of this work, Amazon has built massive fulfillment warehouses throughout the country. When you order something that’s fulfilled by Amazon, workers at these warehouses pick up the goods, package them and ship them. Amazon’s shipping service then gets them to you.
Amazon’s internal systems are designed to optimize speed and efficiency to make sure customers get the shipments as quickly as possible.
But as big and efficient as Amazon is, there are many things that its system isn’t designed to handle — like two-hour (or even same-day) delivery of prescription medicine.
In order to deliver prescription medicine in just a few hours, you can’t have a warehouse located several hours away from the customer. The medicine won’t get there quickly enough.
You also need pharmacists on site to make sure nothing goes wrong with dispensing the medicine. And drivers trained to deliver prescriptions in a way that meets regulatory compliance.
This isn’t something Amazon is set up for. So it opens the door for startups like NowRx to fill the void.
NowRx is one of our favorite startups in the First Stage Investor startup portfolio. (If you’re not a First Stage Investor member, click here to sign up.) It’s figured out how to dispense and deliver prescription medicines quickly and legally. And just as important, NowRx has figured out how to get patients and doctors to use its service.
So while NowRx looks like an e-commerce play, it’s actually much more than that. NowRx is operating in the prescription medicine space — NOT in classic e-commerce. It’s competing more with Walgreens and CVS than it is with Amazon. So as you evaluate NowRx’s potential, you have to make sure that you identify the right competitors. Otherwise, you could make a flawed investment decision.
Another example of a startup being more than just an e-commerce company is Leap Club. Leap Club is operating in India. It delivers organic fruit and vegetables to consumers within 12 hours of them being harvested. And all of the groceries are ordered using WhatsApp.
Like NowRx, Leap Club’s business is much more than e-commerce. Leap Club has to create and maintain an incredibly efficient supply chain of certified organic food. Getting organic food delivered within 12 hours of harvesting would be a major achievement in the U.S. Doing so in India is exponentially more difficult.
First, Leap Club has to make sure its organic food sources are close enough — and reliable enough — to consistently deliver food within 12 hours of harvesting. It has to understand how much needs to be harvested on a daily basis for farmers to create a viable business. It needs to understand how to get the food from the farms to New Delhi, where it’s currently operating. And because it’s outsourcing final (last mile) delivery, it has to figure out how to get its food into the hands of third-party delivery people in time for them to brave notoriously bad traffic. (Sitting in traffic for hours is a common occurrence in New Delhi.)
This is not your ordinary e-commerce startup. And that’s before you get to the fact that everyone is ordering via WhatsApp! (India is WhatsApp’s largest market.)
The traditional e-commerce playbook wouldn’t work for Leap Club. That’s why it doesn’t have to worry about competing with Flipkart or Amazon. Instead, it has to worry about other organic grocers or even farmers that can figure out the supply chain and logistical challenges of just-in-time organic food delivery.
Rewriting the Playbook
Leap Club and NowRx are just two examples of e-commerce startups doing much more than selling stuff online. They’re sophisticated businesses that throw out the traditional e-commerce playbook because it doesn’t apply to the markets they’re operating in.
And because the traditional e-commerce business models don’t work, legacy e-commerce companies like Amazon will struggle to compete with these startups. Amazon (or Flipkart) just isn’t designed for this.
So as you evaluate startups moving forward, don’t automatically dismiss e-commerce companies because you think they can’t compete with Amazon. Sometimes, e-commerce startups are more than just e-commerce startups. And that’s where the best opportunities lie.
Last week I traveled to Miami to attend Bitcoin 2021, the world’s largest crypto conference. Around 12,000 people attended this year. It was an amazing experience. I met fascinating people, learned a ton and discovered many innovative companies doing good work.
Despite all the drama happening around Elon Musk and bitcoin’s price, I came out of the conference more excited about bitcoin than I’ve been in a long time.
Today I’m going to discuss two of the hottest topics from the conference. (Note: If you want to watch the main stage presentations, Bitcoin Magazine has made them all freely available on Youtube).
Too Much Leverage
There’s no getting around it: crypto’s recent volatility has been brutal. This correction was sharper and faster than any we saw during the 2017 bull run.
(It’s worth noting that there was a worse drop in April of 2013 during that bitcoin bull market. At the beginning of April 2013, bitcoin traded around $220, then fell to $70 by mid-month before resuming its upward climb to a peak of more than $1,000 that cycle. Nevertheless, the recent drop is acute and the scale of everything today is much larger.)
One of the reasons for the heightened volatility this time is the increasing use of leverage. Both retail and professional crypto traders across the world have been using leverage in an attempt to pump up their returns. For example, if you have one bitcoin, at many exchanges you can trade as if you had three, four or even more than 100. Leverage has become so easy to access, almost anyone can use it.
The problem with this is that if bitcoin moves down 20% and you’re leveraged 10 times long, your account can easily get wiped out. Exchanges will automatically liquidate a position if it goes down too much. As CNBC explained…
Bitcoin traders liquidated roughly $12 billion in levered positions last week as the price of the cryptocurrency spiraled, according to bybt.com, a cryptocurrency futures trading platform.
“Selling begets more selling until you come to an equilibrium on leverage in the system,” says JMP’s Devin Ryan.
Naturally, this was a big topic at the conference. I suspect that leverage explains why bitcoin’s price action was so exaggerated compared to 2017. Hopefully this pullback has taught (some) traders a valuable lesson about the dangers of leverage. Many people got scorched over the past few months. I hope traders won’t be so cavalier going forward. My advice is to avoid leverage unless you’re a pro with an amazing track record. Nothing goes straight up.
Because leverage played such a major role in recent volatility, I think this correction is likely a mid-bull-market pullback — a necessary correction in an overheated market. It could also be the top of the market for a while, but I don’t think that’s the case. At $60,000 we were up only three times from the previous cycle high. Previous bitcoin bull markets have risen significantly more.
It’s also important to remember that we have an amazing macro tailwind. As I say too often, we’re experiencing historic money printing, debt and low interest rates. Inflation and money printing are primarily driving bitcoin adoption. And I don’t think that will change anytime soon.
The next 10 years will be interesting. Here’s what I wrote back in March.
We were already well on our way to Modern Monetary Theory (MMT) before this all began, as I noted back in November 2019.
COVID moved up the monetary timetable significantly. And the response has been staggering so far. I suspect support/stimulus packages will continue and even increase over coming years. They cannot stop at this point. We need ultra-low interest rates, huge government spending and money printing just to maintain the status quo. There’s simply too much debt in the system.
If the Fed Funds rate rose from 0.25% to 3-4% (lower than the roughly 5% long-term average), the financial world would implode. We saw what happened in 2018 when the Fed tried to raise rates. Disaster. Companies and governments would start to drown in the interest costs alone.
Here’s my take. Crypto went up too far, too fast, fueled by leverage. A nasty correction was almost inevitable. I don’t claim to know what will happen next for crypto markets, but I remain extremely bullish over the mid- and long term. We could still have more room to the downside, but I’m betting the bull market trend is still underway. What I learned at the conference reinforced this.
According to multiple knowledgeable sources at the conference, there’s still a lot of institutional (and retail) interest on the sidelines. Let’s see if they step in to buy the dip.
Bitcoin’s Electric Bill
Unsurprisingly, bitcoin’s energy consumption was another hot topic. We heard some great arguments from smart people about why bitcoin’s energy use is not nearly as bad as it seems at first glance (ahem, Elon Musk). Here are some of the more salient points:
It was clear from the conference that bitcoin miners are well aware of their perception problem. And they’re working hard to address it. Those who aren’t currently using renewable or green energy are certainly considering moving in that direction (or buying carbon offsets). Last month, leading mining companies formed a new council to address these issues. They had a well-publicized virtual meeting with Elon Musk to discuss solutions and share data.
Another important point that multiple conference speakers made: There’s a good reason for bitcoin’s significant electricity usage. Building a decentralized monetary system is no small task. It requires serious security that can withstand constant large-scale attacks. What bitcoin is attempting has never been done before, and it requires robust security.
Encouragingly, there are a ton of smart people working on these issues. They’re building scaling solutions such as the Lightning and Liquid networks. The bitcoin community is also making improvements like Taproot, which among other things will implement Schnorr Signatures, allowing higher efficiency, privacy and flexibility.
I came away from the conference convinced that bitcoin’s energy usage is largely misunderstood. That said, there are some valid criticisms that the industry is actively addressing. I plan to write more about crypto and energy going forward.
How I Got to the Conference
A month ago, I wasn’t expecting to be at Bitcoin 2021. But a few weeks back I was invited by HIVE Blockchain (OTC: HVBTF), which was an event sponsor. HIVE executive chairman and interim CEO Frank Holmes was a speaker. (Vin Narayanan interviewed Frank in April for First Stage Investor members. Click here to sign up if you’re not a member.)
HIVE is a cryptocurrency mining company with operations in Canada, Sweden and Iceland. It primarily mines bitcoin and ethereum. It operates in locations with cool climates, low-cost green energy and stable governments.
It’s a fascinating company and I want to thank the team for inviting me. Attending the conference was a once-in-a-lifetime experience. Full disclosure: As of this month, I am doing consulting work for HIVE. (I will still be writing for Early Investing too.)
Have a great weekend, everyone!
Co-Founder, Early Investing
P.S. Major bonus: Your humble editor got to meet Dr. Ron Paul! He gave a speech at the conference on the topic of monetary freedom, which I highly recommend watching.
The hottest stock in the world is AMC. Yes, the movie theater chain. On Wednesday it was the world’s most traded stock and made up 11% of the total volume on the New York Stock Exchange.
In March of 2021 — when the pandemic was beginning — AMC had a market cap of $166 million. Today, AMC is worth more than $15 billion.
I’m not going to do a deep dive into AMC’s financial situation because it doesn’t really matter. All that matters is that hedge fund shorts are getting squeezed and people are making money. The valuation is really irrelevant. But still, I can’t resist a few lowlights.
AMC shares are completely disconnected from reality. There’s simply no way you can justify the current valuation. Here’s a chart that shows Google searches for the term “movie tickets” over the last 5 years.
Is the movie theater business going to return to normal eventually? Sure, it’s possible. But even if it did, it wouldn’t come close to justifying AMC’s share price.
AMC is being pumped on Reddit’s WallStreetBets forum and by major influencers like Tyler and Cameron Winklevoss. Cameron recently called for both $500,000 bitcoin and $500,000 AMC on Twitter.
It’s clear to many of us that this is a joke to him. He’s just gambling some fun money and seeing how far they can push it. Here’s another Winklevoss tweet about AMC from back in January.
The problem with this is many new investors think he’s serious about the stock possibly going to $500,000. They don’t understand valuations, earnings multiples and discounted cash flow. Or the fact that at $500,000, AMC would be the largest company in the world.
For people that don’t understand the markets or might be struggling financially, the temptation to get into these “meme stocks” must be overwhelming. And for now, it’s working out pretty well for buyers. But I’m concerned this thing is going to fall apart eventually. And when that happens, people are going to get burnt. I’m also concerned that the Winklevoss twins are conflating bitcoin and AMC, as if they’re even remotely the same type of investment.
This is another one of those decentralized stock pumps I wrote about earlier in the year.
I don’t see the GME phenomenon and other squeezes as revolutionary. They are remarkably well organized — and decentralized — stock promotion campaigns. And I do believe that WallStreetBets and other retail trader groups will continue to rise in power and influence. I will continue to follow their activities with great interest, rooting for them to make “tendies” (tendies = chicken tenders = profits in WallStreetBets lingo).
It’s a fascinating phenomenon, but it does make me worry about where we are in this cycle. Towards the end of bull markets, retail investors almost always get heavily involved. They make a bunch of money — and then they lose all or most of it.
Just to be clear, I am NOT saying you should short AMC. This craziness could continue for some time. I have no position in AMC — long or short. And I don’t recommend getting involved in this stuff unless you’re a professional with an amazing trading track record.
LimeLoop, an IOT reusable packaging and shipping platform bringing visibility to supply chain and logistics and reducing waste, emissions, and inefficiencies from the retail and ecommerce experiences, announced the launch of its IOT sensors and a private equity crowdfunding campaign. LimeLoop is a Tech Crunch Disrupt Top Pick, a participant in the Target and Third Derivative Accelerators and garnered investments from BeyGood, Straubel Foundation, Third Derivative, City Lights. wefunder.com/limeloop