Ecommerce Value Declines Early

Shaan Puri shares his perspective on ecommerce business valuations and exit strategies, particularly focusing on why founders should consider taking money off the table early rather than waiting for a full exit.

Key Points:

• Ecommerce Companies Don't Retain Value Well

  • Past sales get little credit because it's not recurring revenue
  • No network effect to build upon
  • You're only as good as your next year's sales

• Exit Strategy Recommendations:

  • Take secondary money early rather than full exit
  • Example: Sell 30% at $100M valuation
  • Put $15M in the bank personally while keeping majority ownership
  • Continue growing the business with reduced personal risk

• Rationale for Early Secondary:

  • Ecommerce is volatile
  • Competition can flip quickly
  • Ad costs/performance can change dramatically
  • Bank life-changing money while maintaining upside

• Value Drivers in Ecommerce:

  • Growth rate matters more than past performance
  • Profitability on ads/marketing spend is critical
  • Future potential matters more than historical success

• Minimum Valuation Guidelines:

  • At least 1x revenue for baseline
  • Higher multiples possible with:
    • Strong growth rate
    • Exceptional profitability metrics
    • Proven marketing efficiency

The key insight is that ecommerce businesses are valued primarily on future potential rather than past success, making it wise to secure some gains early while maintaining upside exposure.