Tech Startups for Bricks-and-Mortar Retail Drawing Investments

While e-commerce is booming, millions of dollars in venture capital is flowing to tech startups focused on physical stores or on the intersection of online and bricks-and-mortar retail.

In fact, companies aiming to help merchants harness the power of online and mobile activity to make offline sales are doing particularly well with VC firms. But they're not the only retail tech players scoring both customers and funding.

Connecting Offline and Online Operations

Zenreach is a retail tech startup that supplies cafes and physical retailers with guest WiFi, customer data and the ability to send personalized marketing messages. Since its launch in July, it had raised $50 million. Investors include Founders Fund's Peter Thiel, who led a $30 million Series B round and joined the company's board, and Bain Capital Ventures.

"At a macro level, Zenreach was created to solve one of the most important problems in the modern economy. The majority of our time is being spent online, yet over 90 percent of purchasing still happens offline — there is no link between the two systems," Zenreach founder Jack Abraham said.

"Brick and mortar merchants are working decades behind their online counterparts without essential data and tools, and we created Zenreach to give them the same level of technology and transparency that anyone operating online has come to expect," he added.

Enabling Next-gen Loyalty and Rewards Programs

CB Insights wrote in early December that funding for startups offering in-store technology was on track to reach an all-time high of more than 170 deals and nearly $800 million in 2016.

As of last month, the top deal of the year was a $50 million Series C round for FiveStars, a a customer-loyalty rewards platform. focused on small businesses The startup says it has raised a total of $105 million from Menlo Ventures, Y-Combinator, HarbourVest, Lightspeed and DCM.

FiveStars's customer loyalty and rewards program provides integrated text, mobile app, and email marketing and messaging tools. It also uses insights about customer visit and purchasing behavior to generate automated rewards.

Investing in Omnichannel Experiences

CB Insights notes that smart money VCs are leading the way with in-store technology deals. A great example of this is the $19 million in Series B funding garnered by Index, a San Francisco-based retail software company that allows merchants to use point-of-sale information to build customer profiles and provide personalized marketing. Index says its product combines secure payments and personalized marketing "to transform offline retail."

Brickwork is another retail tech startup that's successfully wooing VCs. The New York-based company offers a software-as-a-service omnichannel platform to help retailers convert web traffic into local-store sales. In October, Brickwork raised $5 million in a Series A round led by publicly-traded Safeguard Scientifics.

"Nike, Kate Spade, Urban Outfitters, J.Crew, Bonobos and dozens of other global brands and retailers use Brickwork's SaaS platform to deliver a better pre-visit experience, providing their customers more accurate store information, more access to events and promotions, more personal assistance when they arrive in-store, and more confidence that products are available near them," the company says.

"There has been a fundamental shift in consumer behavior over the past five years, which retailers are just beginning to wake up to—that nearly every customer starts their buying experience in digital," Brickwork founder and CEO David Munczinski said in a press release. "Most retailers focus their websites and digital marketing strategies around getting a customer to their online checkout. However, they're ignoring the fact that the vast majority of customers are online or on mobile devices with the intent to purchase in-store."

Brickwork says retailers are investing in technology that delivers a true omnichannel presence, as both traditional and digital-native retailers see the value in physical stores as a brand experience and outlet to drive final sales.

"There is growing need by retailers to deliver a seamless, omnichannel shopping experience that takes consumers from online to physical stores, yet most of the innovation to date has been centered around a retailer's online presence," says Safeguard Managing Director Erik B. Rasmussen, who joined Brickwork's board of directors.

Injecting Investment in Transforming In-Store Retail

According to CB Insights, more than 130 startups that are "transforming in-store retail" have raised more than $3 billion "to help traditional retailers optimize physical stores."

These firms offer innovative new products and services, such as beacon-based analytics and marketing, connected shopping carts, customer loyalty programs, store-management software, omnichannel analytics, smart dressing rooms, inventory management, digital in-store assistants and guest WiFi.

Last year was one of a seismic shift in the funding landscape. Smart money VCs pulled back significantly on e-commerce deals and instead ramped up funding for retail tech startups. Meanwhile, corporates have picked up the slack on e-commerce funding. CB Insights notes such deals as Walmart's acquisition of Jet.com, Alibaba's purchase of Lazada, and Unilever's deal to pick up Dollar Shave Club.