Big Deal: Jet lands on $350m

US-based e-commerce platform Jet.com officially reached unicorn status last week, raising $350m from investors including e-commerce group Alibaba and Alphabet, which acts as Google’s holding company, at a $1bn pre-money valuation, illustrating that investors are taking its claim to be a credible rival to market leader Amazon.com at least somewhat seriously.

Word about Jet first began to spread significantly in July 2014 when it raised its first external funding, $55m from a group of venture capital firms. Although the startup was still operating in stealth with no firm details available, CEO Marc Lore teased out details of a new e-commerce model that would prioritise transparency and customer empowerment.

Those details are now available, after Jet launched its platform in beta in July 2015. It sells a diversified range of goods, ranging from electronics and furniture to toys and cosmetics, and is pursuing a model whereby customers can secure discounts by buying products in bulk, or goods that are located in warehouses close to them.

The $350m in series C round was led by financial services firm Fidelity Investments and also featured Alibaba, Alphabet subsidiary Google Ventures and Bain Capital Ventures, private equity firm Bain Capital’s venture capital unit.

Lore told Re/code Jet has verbally agreed an additional $150m, though he declined to disclose the identity of the prospective investors, and the Wall Street Journal reported that the company has also secured $125m in debt financing, $50m of which will come through an increase in a Silicon Valley Bank credit line.

The round took Jet’s overall funding to $570m, and came after a $140m round in February 2015 backed by Google Ventures, Bain Capital Ventures, Goldman Sachs, Accel Partners, Coatue Management, General Catalyst, MentorTech Ventures, New Enterprise Associates (NEA), Norwest Venture Partners, Silicon Valley Bank, Thrive Capital and Temasek.

NEA, Accel and Bain had earlier joined Mentor Tech in providing the $55m first series A tranche, before it was topped up to $80m by Western Technology Investments and Silicon Valley Bank in September 2014.

Jet will use the funding to increase its headcount, particularly in marketing and customer support, as it looks to scale its business in order to compete with more established e-commerce players like WalMart and Amazon.

At this relatively late stage in the development of e-commerce, the route to taking oncompetitors of that size is likely to be a circuitous one, but the identity of the company’s corporate investors may give a clue to the path it will take.

Alibaba is well established as China’s market leader in e-commerce, but that in itself does not reveal the scale at which it operates. The company’s offferings include business-to-business trading platform Alibaba, Taobao, which operates as an eBay-like consumer-to-consumer marketplace, and business-to-consumer platform Tmall, as well as an extensive range of online finance and media holdings.

Jet will be able to harness Alibaba’s expertise in e-commerce as it seeks to expand, and securing the firm as a backer could also enable it to enter Asia more easily. Investing in Jet meanwhile gives Alibaba an entry into the US, where customers have so far proven relatively resistant to Chinese-owned businesses.

Alphabet has less experience in e-commerce – Jet.com is in fact the only e-commerce marketplace currently in Google Ventures’ portfolio – but it could assist Jet in developing its search engine as well as in effectively utilising customer data to target users.

A tie-up with the Alphabet-owned Android mobile operating system could also help the company to compete with rivals on mobile, an area US-based e-commerce businesses have yet to delve into in the same way as their China and India-based counterparts.

Either way, the series C funding will help to ease pressure on Jet, which is reportedly operating with an extremely high burn rate according to the WSJ, which reports that a recent financial plan revealed Jet had $63m of cash on hand and would require $76m to get through November and December 2015.

Lore told the WSJ that Jet’s burn rate for the last two months of this year would be lower than $76m, and that it expected to need $417m in capital in 2016, about $270m of which will be used for marketing.

Jet initially intended to charge customers a $50 annual fee, but it dropped those plans last month and will instead charge slightly more for products as it follows a business plan forecasted to being the company into profit by 2020. Whether it will be able to build the customer volume necessary to make money while also fighting hard on prices is another matter, but it would not be surprising to see another big funding round for Jet in 2016.