Following The Money: Retail Tech Investment Edition

“Follow the money,” is one of those famous but usually misattributed phrases in American life. Most people attribute it to Bob Woodward and Carl Bernstein’s Watergate source, Deep Throat, and believe it was the advice the journalists received on how to unravel Watergate.

Woodward and Bernstein, however, never actually reported that their source used those words; that phrase is absent from both their reporting for The Washington Post on Watergate and their book on the subject, “All The President’s Men.” The likely actual source of the quote is William Goldman, who wrote the screenplay for the movie version of “All The President’s Men” – during which Deep Throat (played by Hal Holbrook) uttered the now famous line.

Whether or not it was added to the story to give it a bit of dramatic panache, it remains etched in our collective consciousness for a reason: it’s good advice. If you want to know what someone (or a group of someones) are really into, looking at where they are voting with their dollars is a good place to start the lesson. The buck stops with, well, the buck — and nowhere is that more true than in investment circles, where one can get a good idea of what’s coming next, but casting a close eye to what’s being funded right now.

And since SKU is in the business of helping connect you with what’s coming next in commerce and ahead of retail’s coming reinvention, we decided to send MPD CEO Karen Webster off on the trail after the investment dollars with Commerce Ventures Partner Dan Rosen.

And while Rosen says that retail, particularly retail technology, is a sector in which his firm offers some fair amount of speciality in, it is a large and diverse space, though one where a lot of interesting stuff is happening — and happening pretty fast.

“There are two big highlights,” Rosen told Webster. “The first is really the digitization of physical retail or enabling brands and retailers to digitally interact and engage with a consumer when that consumer is on the path to a physical purchase.”

The magic number, Rosen said, is 30, because that is the percentage of people who are leveraging either Web or mobile Web to make the decisions as consumers.

Whether you call it digitize physical, merged channel, omnichannel or online-to-offline, it’s all the same things going under different names that reflect a retail environment that is not supporting two ecosystems – one digital, one physical – and instead evolving into one highly complex hybrid ecosystem.

“It feels like we are coming to an inflection point now, which is why see a lot more activity here than there was a year or two years ago,” Rosen said.

And the stuff of the last two years is very different that the online-offline models that generated a lot of fanfare like Groupon did a few years ago and likely to have a lot more staying power than online-offline Version 1.0 had.

“What you are seeing today is a lot more interest in helping technology to enable the environment of existing physical retail. There are a lot of players in analytics that are growing really fast because their merchant customers are seeing this as a core capability,” Rosen noted. “We’re also seeing a lot more entrepreneurs pursuing the in-store tech space. That extends into beacon and beacon related platforms.”

Rosen concedes that while beacons have been slow to ignite, their proliferation in beta tests among top-shelf merchants indicates that beacons are likely on the verge of exploding in the very near future.

If those beta tests go well, of course. The funny thing about consumer facing technologies is that sometimes the technologists who design them miss on what consumers will find “cool” as opposed to “creepy.”

Which is in part why Rosen, for his part, is more excited by the second big emerging trend he is seeing among investors, which eschews what Webster described as the “shiny, exciting and headline grabbing consumer facing stuff” in favor of the backend tech that will power the future expansion of e-tailers and eCommerce players.

“The other retail specific theme we get excited about is supporting eCommerce and omnichannel commerce through what we call staff enablers,” Rosen explained. “The staff support for eCommerce is a steady growth space, I tend to think it is underrepresented from an investment perspective. ECommerce is growing pretty fast and every merchant is creating the presence and looking into ‘omnichannel.’ We are still looking at a market that is 10 percent or less of the whole market and that 10 percent [is] heavily dominated by a handful of players.”

But that world is changing, especially as digital and physical efforts are becoming blended into indistinguishability – which means more than enabling support is going to be necessary, and the space will likely expand.

When asked for a few examples, Commerce Ventures has made an investment in Narvar, a shipping and delivery platform that makes it easier and far more straightforward for merchants to directly interact with their goods while they are en route to a customer’s hands. Rosen said they are also excited by Narvar’s efforts to expand into offer insights for merchants on which shipping carrier is most efficient and along what routes, and developing their platform to make the return process simpler and more direct.

Rosen is also excited by ChatID – a feature that allows a brand representative to directly interface with customers on a merchant’s product page.

“My guess is that by the holiday season, you are going to see that platform move a lot of conversion for businesses,” Rosen said.

These firms, with their slightly more complex offerings and less flashy endgames are somewhat overlooked, Rosen said, but, he believes, the right strategic path for one looking to invest in the development and build out of the 21st century retail.

“If we did our job right investing in those businesses, we are going to see a lot of applications and disruptor activities that are going to build from these infrastructural insights,” he said.

As for predictions, Rosen noted that he lacks a crystal ball, but was willing to offer up two insights — one “out there,” and one not.

Rosen’s less out-on-the-limb prediction was about the continued downsizing of store spaces.

“I do think over time you are going to continue to see a reshaping of the store formation for retailers who really understand their businesses and really understand the importance of the continued evolution,” he said.

If we keep going to physical stores at all, of course. Rosen does note there is a non-zero chance that someday soon we all might be shopping via Oculus Rift.

“The crazy sort of out there thing is true virtual shopping. If you think virtual reality is going to propagate in a meaningful way, the ability to virtually visit a store and shop in it would be a very different feel from eCommerce today. That is the kind of out there stuff that, if it should come to pass, could fundamentally change the curve of adoption of eCommerce.”

We probably won’t hold our breath on that fundamental change kicking off soon.