When the Wait is Worth it: Why We Invested in Purple Dot to Make Pre-Orders Easy
Meeting Purple Dot
We first came across Purple Dot in January of 2022 and were intrigued by their concept of offering a simpler way to enable pre-orders for e-commerce. Unfortunately for us, they had just closed their seed round, so we thought we would try putting in our own “pre-order” and see if we could offer help in the meanwhile by making some potential customer introductions in the hope of investing in the future. Fortunately, one of those intros worked out (Mattel) and after a couple years of building a relationship with the fantastic co-founders, Madeline and John, we eventually got the opportunity to invest!
At Commerce Ventures, we have been very interested in new ways of managing inventory — everything from selling your inventory earlier in the cycle (before it even gets to your warehouse), to better managing supply chain timing, to enabling the “Shein-model” to sell inventory at low quantities drop shipped directly from the manufacturer, to more general inventory visibility and demand forecasting models. Inventory can make or break a retailer’s business. Managing stock to align with customer demand helps improve cash flows, reduces waste, and improves gross margins by mitigating the need to discount and lowering the holding cost of inventory that has not yet been sold.
Market POV
Pre-orders are one of the tools that brands can use to effectively manage inventory risk. They allow end customers to order a product from a brand before the inventory is physically in stock in the retailer’s warehouse. Typical pre-order use cases include:
- “Drops” for Loyal Customers: Many modern brands want to give their most important and loyal users first access to exciting new products. Pre-sale is a great way to achieve this goal and drive enthusiasm for a brand or new product offering.
- Selling Out-of-Stock Items: Sometimes a shipment is delayed or a common item sells out before a replenishment shipment arrives. Pre-orders allow retailers to take the orders and ship the product when it arrives. This allows them to capture conversions in the moment rather than relying on reminders to drive the consumer back to purchase at a later time.
- Product Testing: Brands can even use pre-orders to gauge interest in products before investing in their production at scale.
While pre-orders have been around e-commerce for a while, any merchant who has tried to build it themselves will likely express frustration about the complex operational and financial changes that must be made to enable pre-orders. Warehouse operators are left with messy hold areas and broken technical systems. Consumers are frustrated as well. Most pre-orders lack proper customer communication, leaving the consumer in limbo until the product suddenly arrives on their doorstep — if it ever even arrives at all.
The source of these issues is that traditional e-commerce has been built to only ship products that are ready to be shipped from a warehouse. The pre-order model breaks that paradigm. Order management systems (OMS) and fulfillment teams have a hard time processing them because the inventory is not readily available in the warehouse. Customer experience teams must modify/turn off communications that are triggered by an order being placed, such as order confirmations and shipping/tracking notices. They must also build new flows and customer portals to keep consumers updated on the status of their pre-order (though most just skip this and leave customers in the dark). Finally, the finance and payments teams must change their payment flows and accounting to deal with payment authorizations that happen prior to shipping an item and the accounting treatment that flows from that approach.
Purple Dot solves all of these problems by holding pre-orders in its system until they’re ready to be sent to the OMS, managing all customer communications so the customer is always in the loop, and securing financial deposits separately so that the merchants abide by the appropriate FTC pre-order regulations.
On top of an incredible product that solves a variety of use cases and makes a super complex process much more simple, Madeline and John are serial entrepreneurs who previously founded a company in the travel tech space (Twizzo) that sold to Skyscanner, and have an awesome co-founder dynamic with relevant product experience in e-commerce. We love their passion for solving this problem and look forward to continuing to work with the team on what’s to come for Purple Dot!
