Jet.com is an e-commerce startup that hasn’t launched yet.
But that hasn’t stopped investors from giving it $US220 million, boosting its valuation up to $US600 million. It raised $US80 million a few months ago and another $US140 million was announced Wednesday evening. Jet plans to launch this spring.
Marc Lore, the founder and CEO of Jet, wants to compete with Amazon where he formerly worked. Amazon acquired his last company, Quidsi (the parent company of Diapers.com) for $US545 million. With Jet, Lore plans to offer shoppers the cheapest prices for tens of millions of products online. His team is building technology that adjust prices in real-time based on the items users put in their carts. Once shoppers are convinced that Jet is saving them money, they will be encouraged to pay an annual subscription fee, like Costco does.
While raising capital gives Jet plenty of cushion to fine tune its model, it also comes with risks. In the recent past, we’ve seen a lot of startups raise big piles of money pre-launch, attract a lot of hype, then struggle to perform under the weight of their expectations. Clinkle, Airtime, and Colour, are just a few examples.
We askedLore why he raised so much capital.
Lore explained there was really no downside to raising the capital, except dilution. Investors trust Lore; he’s spent the past decade founding and running e-commerce startups, so he knows what he’s doing.
“It’s a little extra dilution but that’s ok, no need to be greedy,” Lore says. “If everything works the way we think it will work, it will be great for everyone … the upside is massive.”
Lore also calls the $US140 million round “opportunistic;” fundraising is typically a painfully long, distracting process for entrepreneurs. Having money in the bank before launch allows him to focus on anticipated growth once Jet is live. And he’ll have the capital to move faster if the company scales quickly.
“Any entrepreneur in my position should do the same thing, I would argue,” Lore says. “We have a very clear strategy and vision for where we want to go and take the business and we know how much capital it’s going to take.”
Lore vows not to blow the money carelessly. “We’re not going to invest a dollar that doesn’t make sense to invest,” he says.
When asked what he’ll will do if Jet doesn’t go according to plan, Lore replied: “[A traditional] pivot is not going to happen here. I’ve got a decade of experience in commerce doing this and have a good idea of what it takes to create a successful e-commerce company … There’s an opportunity here to innovate around price. We can help people to buy anything online for the lowest prices. Jet reprices in real-time as consumers shop. Obviously how we do it might change and switch. But in terms of being a mass e-commerce player that gives makes all costs transparent and empowers people to buy stuff, we’re locked in on that vision. That’s it.”
$US220 million might sound like a lot of money, but venture capitalists are used to taking big risks on startups. All they need is one Uber or Facebook investment to please LPs.
One VC with knowledge of the deal shared why Jet’s early funding makes sense.
There are two types of startups, this person reasoned: consumer products and industry-changing products. Consumer products like Instagram, Snapchat, and Twitter don’t need much money when they launch; they just need to create a minimum viable product. Later, while they scale, they need tons of money to maintain servers, hire top talent, and sustain growth. After they scale, they figure out how to monetise.
Industry-changing startups, like ones tackling healthcare, education, or financial services, require gobs of money up front. Jet.com’s desire to innovate on price and the way people shop will require a lot of capital.
“With Jet, they are raising a tremendous amount of money so they can build the infrastructure to support their model,” this person said. “There is a tremendous amount of risk involved, but it takes capital to try and compete with Amazon.”
Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.
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