Ravi Mhatre of Bessemer Venture Partners <www.bvp.com> stresses that he i=
s
"as greedy as the next guy," but unlike Ravi Chiruvolu of Alta Partners
<www.altapartners.com>, he thinks business-to-consumer (or "B2C")
investments have been overhyped.
"Business-to-consumer investments do not have a lot of barriers to entry =
-- on the business side for companies or on the intellectual side for VCs," = he says. Mr. Mhatre generally eschews B2C plays in favor of companies that a= re selling goods and services to enterprises. According to Mr. Mhatre's research, the size of the annual U.S. markets for steel ($600 billion), logistics ($400 billion), and print services ($200 billion annually) dwar= f B2C categories like books ($25 billion). successful business-to-business (or "B2B") business, he acknowledges. But because B2B companies are automating extremely complicated processes, he thinks they have a better chance to "own" their categories than B2C companies. (There are other advantages, too: he says business customers are much more loyal and gener= ous than consumers.)One of Mr. Mhatre's favorite B2B companies is New York-based e-Steel. E-Steel is an Internet exchange (or "e-exchange") that allows companies t= o buy and sell steel products over the Internet. Bessemer invested $3.5 million in first round financing in the New York-based company. On June 2= 5, e-Steel announced that Kleiner Perkins Caufield & Byers <www.kpcb.com> an= d Greylock <www.greylock.com> had joined Bessemer in chipping in $10 millio= n in second round funds. In Mr. Mhatre's view, corporations have been nervo= us about allowing different divisions to bid for goods and services because = of legal and financial risks. But because companies can design e-exchanges t= o incorporate their own particular business rules, they have more control o= ver the way in which their employees interact with buyers and sellers than regular auctions. With the gigantic reach of the Internet, he believes a = new generation of startups will be able to create "organized" and "price-efficient" e-exchanges that will offer companies huge savings over the way they have bid and sold goods and services in the past.
In the not-so-distant future, Mr. Mhatre thinks Internet exchanges like E-Steel will lead companies to redefine the boundaries of their enterpris= e to include outside suppliers. This increased interaction will greatly increase the amount of commerce among businesses. But there is another reason he likes e-exchanges. "The long-term payoffs are tremendous," he says, "due to the increasing network effects and the natural monopoly pow= er which accrue to exchanges that capture majority market share."
Does that mean Mr. Mhatre believes B2B is better than B2C? In a word, yes.
p.s. Ravi Mhatre has recently published "B2B: The Next Frontier" (Siliconindia magazine, July 1999, www.siliconindia.com)
Tushar J. Mehta email: [email protected] voicemail: (206) 405-2335