The two years since the COVID-19 pandemic started have forever changed the way most people think about work, health, entertainment — and shopping. Nicola McClafferty, partner at the London-based VC firm Molten Ventures, estimates that it would've taken at least a decade to see as many people switch from brick-and-mortar to online shopping experience across the world if not for the lockdowns that saw a big part of the global population confined to their dwellings for months on end.
While presenting a huge opportunity for the companies who were ready to handle this shift, this shift has also emphasised the shortcomings and issues of today's e-commerce and adjacent industries.
"We're looking at a large volume of retail and a change in purchase behaviour happening online that's leveraging an infrastructure, be it software or physical infrastructure, that has been built to service previous generations of retail," McClafferty said.
This and similar issues in the field of consumer tech — or rather the startups that can solve them — is what McClafferty focuses on at Molton. We sat down to discuss what the future holds for this segment, and what trends are the most important to follow.
To hear this conversation in full, check out our recent podcast episode.
The VC view
An industry veteran, McClafferty first entered the VC world in 2006, joining Balderton Capital (called Benchmark Europe back then). That year, about £1 billion had been invested in startups in the UK; last year, this number was recorded at some £26 billion.
"Fifteen years ago, there were still kind of question marks on Europe's ability to build and scale global technology companies," she said. "Now they've been firmly answered."
Over the years, McClafferty had also made a detour into the land of entrepreneurship. The company she founded, an online retailer of pre-owned luxury fashion called Covetique, was acquired by ASOS in 2015. Armed with the experience from both sides of the table, she became a partner at Molten in 2017, paying particular attention to the developments and trends in consumer tech.
"A VC will never have the same perspective or the same position as a founder," McClafferty said. "Partly that's what drove me to want to set up my own business as well. It's relatively easy to sit at this side of the table and write the checks. It's very different when you're the one building and understanding all of the challenges of setting up and running a business. So for sure, VCs never have the same depth of experience in a given business as a founder, but I think the benefit we do have is the breadth of exposure."
The infrastructure play
When explaining how Molten defines its focus areas within the extremely broad landscape of consumer tech, McClafferty referred to the three waves of e-commerce that have emerged over the past two decades.
The first wave was the very bringing of retail online, largely represented by multi-brand stores and big, pure-play online retail players like Amazon. The second wave saw the emergence of direct-to-consumer (D2C) e-commerce. It was enabled by a new generation of platforms like Shopify, which allowed small merchants to build an online presence in an easy and frictionless way.
"It was also combined with an evolution in the manufacturing sector and supply chains," McClafferty said. "It allowed for a much more direct, data-driven relationship with manufacturers that provided smaller businesses with a way to design, develop, and launch new products, and then distribute them directly to consumers via their own web store."
According to this classification, we've now entered the third wave of e-commerce, which is all about scaling. The penetration of online shopping is still far from 100 percent, while the share of e-commerce in all retail sales is only forecast to reach 24.5 percent by 2025. So, new infrastructure — hardware and software — is now needed to take the next step, while also maintaining the level of service the customers are used to.
"I should say businesses like Amazon have a lot to answer for in terms of the level of expectation that they have set for consumers," McClafferty said. "No longer is it acceptable for somebody to have to wait a week for delivery, everybody wants the on-demand experience, instant gratification, everybody wants returns to be absolutely seamless. And that's raising the bar for retailers."
With that in mind, Molten pays a lot of attention to companies creating the foundational infrastructure, upon which the new wave of e-commerce can function.
The London-based VC extrapolates this thinking into other verticals as well. When asked for examples, McClafferty named the likes of AllPlants in the foodtech space and Aktiia in healthtech. AllPlants is a UK-based startup that offers frozen healthy vegan meals; Aktiia, founded in Switzerland, provides a hardware and software platform for blood pressure monitoring.
"I'm looking for huge markets and categories that are seeing structural changes and disruption, and we focus on those from a vertical standpoint," McClafferty said. "What you find in sectors is that consumer pull and consumer experience tends to lead, followed by larger technological disruption.
"The FinTech space is a good example; recently we've been investing a lot on the B2B side of it, but actually some of the early changes in the banking space that led to the rise of neobanks came on the consumer side, with consumers demanding a better banking experience."
The future of shopping
Another important topic for Molten and McClafferty is the future of online shopping from the customer's perspective. The foundation for this future is a new kind of community-oriented experience to bring people together through discovering and buying things.
"I think a lot about content, community, and commerce — how do these three things come together to create a new customer experience," McClafferty said. "But I also think that physical retail has often been an entertainment experience, with people meeting up with their friends, browsing together, young guys and girls hanging out in malls and going to shops…
"In the online world, it has become a much more functional experience and a much less social one. But I think that's turning back again. We're going to see a lot more of it as video infrastructure becomes more common and easier to deploy. It's been slower in Europe than, say, in China, but this new dynamic is coming to retail."
In addition to demanding a better shopping experience, future shoppers are likely to put an emphasis on the impact their purchases are creating.
"People are certainly going to be buying smarter, and that could mean buying less," McClafferty said. "People are switching their buying behaviour to a more value-driven motivation, and we're seeing that across the board. Customers increasingly prefer brands that feel authentic, more personalised, or that really have a genuine sustainability angle."