Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups

If you have ever wondered why venture capitalists fund yet another SaaS dashboard but will not touch an e-commerce company doing real revenue, you are not alone. It looks irrational from the outside. One company has actual customers buying actual products. The other has a prototype and some promising metrics.

But the VC reluctance toward e-commerce is not a blind spot. It is a calculated decision driven by how the venture model actually works.

The Math Behind VC Returns

The venture capital model runs on outliers. Most investments fail. The ones that succeed need to return enough to cover all the losses and then some. At the early stage, VCs are looking for 100x returns or more.

Say an investor enters a company at a $5 million valuation. A 100x return requires a $500 million exit. But once you account for dilution from future funding rounds, the actual exit probably needs to be closer to $1 billion.

That is the bar. And it shapes everything about which business models VCs gravitate toward.

Why SaaS Gets All the Love

When you compare e-commerce and SaaS side by side, the structural advantages of software become clear.

Revenue multiples: SaaS companies trade at 5x to 10x revenue (sometimes higher) because of recurring subscription models. E-commerce companies typically trade closer to 1x revenue because their sales are mostly one-time transactions. Less predictable revenue means acquirers and public markets value it less.

Margins: SaaS businesses commonly run 70 to 80% gross margins. Once the product is built, serving additional customers costs almost nothing. E-commerce companies carry cost of goods sold, shipping, warehousing, returns, and logistics. Margins of 30 to 50% are considered solid.

Scalability: Distributing software globally is relatively straightforward. An e-commerce company expanding internationally has to deal with inventory, supply chains, customs, and local fulfillment. Every new market requires real capital investment.

Elizabeth Yin has noted that e-commerce companies have historically struggled to command strong valuations because of concerns about consistent repeat purchases and cost of goods. It is harder to scale an e-commerce business into the kind of outcome VCs need.

The Retention Problem

There is another factor that does not get discussed enough: customer stickiness.

SaaS products, once embedded in a workflow, create natural switching costs. It is painful to migrate off a project management tool your whole team uses. That friction keeps customers paying month after month.

E-commerce does not have the same dynamic. A customer who bought running shoes from you has zero friction buying their next pair from a competitor. You have to keep winning that customer over and over through marketing spend, brand building, and product quality.

At Hustle Fund, Elizabeth Yin talks about this as the "dance of unit economics." It comes down to three things: customer acquisition costs, how much a customer is worth to you, and the payback period based on reasonable human behavior. For e-commerce, that dance is much harder to get right at scale because repeat purchases are never guaranteed.

Where This Creates Opportunity for Angel Investors

Here is the thing most people miss: VCs avoiding e-commerce does not mean it is a bad business. It means it does not fit the venture model's return profile.

There are plenty of e-commerce companies generating millions in revenue with healthy profits. They just are not going to be billion-dollar exits. And that is fine.

For angel investors, especially those investing through communities like Angel Squad where check sizes start at $1,000, the calculus is different. You do not need a $1 billion exit to make a great return on a $5,000 check. A $50 million acquisition of a profitable e-commerce brand can be a fantastic outcome.

Some of the most interesting e-commerce opportunities sit in spaces where the company has built genuine brand loyalty, operates in a niche with limited competition, has figured out a subscription or replenishment model that drives recurring revenue, or sells through proprietary channels that competitors cannot easily replicate.

The Contrarian Play

Because VCs are largely sitting out, e-commerce founders face less competition for early-stage capital. That can mean more favorable terms for investors who do participate. Lower valuations, better economics.

The companies to watch are the ones solving the structural problems head-on: building subscription models into traditionally one-time purchase categories, creating brand loyalty that reduces re-acquisition costs, and finding ways to push margins higher through direct-to-consumer channels.

E-commerce is not broken. It just does not fit the venture capital playbook. For investors who understand the difference, that is exactly where opportunity lives. If you want access to a deal pipeline that includes overlooked opportunities like these, Angel Squad members get co-investment access to the startups Hustle Fund backs, with checks starting at $1,000. Learn more at Angel Squad.