Why QED invested in Shop Circle

By Yusuf Özdalga and Alexandra Piedrahita

The growth of the e-commerce industry over the last decade has been prolific, with the growth only picking up in the last few years, driven by factors including the pandemic and shifting lifestyle patterns.

However, despite the fact that the global e-commerce market is expected to total $5.55 trillion in 2022, that number still only reflects 21% of all global sales. This number itself is in a sense driven by different country dynamics, with high penetration in China (46%), the U.K. (36%), and South Korea (32%), with still more growth to come in big markets like the U.S. which lags behind at 16%. This varying and low penetration, combined with the rise of logistics solutions facilitating seamless deliveries, demonstrate the potential e-commerce still has to grow.

This growth has also created an increasing need for software solutions and tools to power these merchants’ online activity. As a result, the market for B2B e-commerce software is large ($30B billion, and growing at a tremendous pace. These tools are sold both directly to merchants as well as via marketplaces on commerce platforms such as Shopify, WooCommerce and Magento that facilitate integration into their stack.

Today, the Shopify app store makes up around one third of this market, generating $12.5 billion in sales in 2020, and growing ~50%. These sales are driven by 7,000 software apps on the Shopify marketplace alone that support merchants on everything from marketing, conversion and customer support, to fulfillment and last-mile delivery.

Whilst a few e-commerce tools have grown into multi-billion dollar platform companies (such as Klaviyo last valued at ~$9.5 billion), the majority of these tools are small, bootstrapped and run by lean teams of 1-3 developers. These developers are often juggling several apps at once and lack access to capital. This cash-constrained and under-resourced environment means that most apps are not able to fulfill their true potential. At the $500k ARR mark - when GTM, distribution and customer service really start to matter – they often struggle to transition to standalone businesses despite being technically superb products.

The result is a market for e-commerce software tools that is large but highly fragmented, a structure that is not ideal for the developers running these tools or the merchants using them. Merchants today are inundated with options and must sift through thousands of tools through trial and error to find which works best for their business.

We think housing these apps under one parent company makes a lot of sense as it unlocks a lot of synergies and economies of scale. Holding companies, or conglomerates, have existed forever – P&G for household goods, Microsoft for office software – and we believe there is an opportunity to create a next-generation company for B2B e-commerce software.

Enter, Shop Circle! The first tech-enabled operator of B2B e-commerce tools.

Shop Circle was born to partner with the developers behind these software tools and supercharge their assets through a shared tech platform. Their approach enables founders to either sell their apps directly to the company or join the Shop Circle team and scale their product with the company’s dedicated marketing, branding, partnership, product, content and tech teams. This drives a positive cycle and creates an ecosystem of skilled developers that can further develop and add functionality to the suite of tools. If you’re a developer of a Shopify app, Shop Circle is a great home for you.

For merchants, Shop Circle is building a platform of best-in-class software tools to power the future of e-commerce.  By partnering with only cutting-edge tools, they are creating the “one-stop-shop” merchants need to operate their businesses, drastically reducing time spent in both searching, setting up, and operating these tools.

With a growing portfolio of apps, Shop Circle is creating a platform that deeply understands the evolving needs of a growing base of 50,000 merchants. As such, Shop Circle will be better positioned than anyone to spot gaps and opportunities those merchants need. With the in-house skill set to develop and launch products, Shop Circle will be able to create new products organically, in addition to acquiring them.

In our search for a next-gen operator of e-commerce tools, we identified two key aspects that a company would need to be successful:

1. A hyper-focused vertical sector approach  - Shop Circle has a focus on the e-commerce vertical within the software stack, and is therefore developing strong expertise on the sector. This focus will help in operations but also more importantly on how to capitalize on the merchant data.

2. A tech-first approach - Shopify apps are pure tech – they are just lines of code and a merchant base of customers. Creating efficiencies across differing tech stacks is challenging, and very different to operational efficiencies. Shop Circle's entire value chain is tech-enabled, from sourcing, to acquiring, scaling and operating. They are building in-house skills and are a first mover to gain the necessary data and expertise in the space

We are thrilled when we found those attributes in Shop Circle, and weren’t surprised when we learned that the founding team came with the perfect background; a COO Gian Maria and CTO Stefano with years of experience from Amazon and Shopify, complemented by CEO Luca and CFO Robin with superb investment/M&A backgrounds.  

Given QED’s background in fintech, we also saw a very relevant fintech angle here. First and foremost, the opportunity to serve the financial needs of a growing base of 50,000 merchants is tremendous. Secondly, with better data insights than many on these merchants, we know the Shop Circle team can leverage embedded finance to tailor financial products for these merchants. Also, almost 30% of Shopify apps are fintech, i.e. they’re a checkout, refund tool, other payments tools etc.

We have been super impressed by Shop Circle's rapid progress to date, and are excited to partner with the team to support their next phase of growth. If you’re a developer of a Shopify app, Shop Circle is a great home for you, and if you’re a merchant, it should become your trusted hub for tools!

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