Valued at an estimated £78 billion last year and still growing rapidly, the UK ecommerce market is an extremely profitable sector that shows no sign of slowing down.

Valued at an estimated £78 billion last year and still growing rapidly, the UK e-commerce market is an extremely profitable sector that shows no sign of slowing down.

Not surprising, then, that there continues to be significant interest from investors looking to take advantage of the continuing cultural shift for consumers to buy ever more products online.

Investors are keen to capitalise on the benefits of ecommerce without the cumbersome aspects of traditional retail. Run well, ecommerce is efficient and lean, often only demanding a relatively small head office, central warehouse, distribution network and a website.

However, whilst the ecommerce market remains an active landscape for both private equity investment and M&A activity, there is evidence that investors are becoming more selective about the attributes they look for.

At a basic level, profitability is becoming an increasingly important investment criterion. A number of ecommerce businesses continue to make losses despite several rounds of investment and as a result, investors are becoming less willing to stomach years of forecast losses in a business plan.

Given the buoyant market conditions, the ecommerce sector is becoming increasingly competitive too. As a result, online retailers need to work hard to differentiate themselves from their competition. A key feature of recent transactions we have advised on has been the amount of time spent by investors on competitor mapping.

Niche or defensive market positioning will always be a selling point for any business but it is becoming increasingly important in ecommerce. Barriers to entry are, rightly or wrongly, perceived to be low and there are often a lot of established competitors, both online and offline. In the vast majority of ecommerce subsectors, first-mover advantage is basically long gone and investors accept that creating the new Wiggle or Asos will not be easy.

Strength of the brand itself is also key, and works in two ways. First, in driving sales to the website with the key aim of securing direct traffic away from Google rankings. Secondly to develop an own-brand product, which is increasingly important. Invariably, own brands allow a business to deliver consistently better margins.

Exposure to third party channels has also become an important consideration for investors. Whilst successful online retailers such as Amazon and eBay represent very effective platforms to access large audiences, both in the UK and internationally, using them can come at a very real margin cost. As a result, investors are becoming increasingly wary about over-dependence on third party channels.

One of the main benefits of ecommerce is that with international postage from the UK being competitively priced, the incremental cost of setting up overseas markets can simply be down to a translated website and a well-honed fulfilment operation. With the UK online retail market relatively well advanced, there are some real opportunities for retailers to get in early and establish an international presence - proving your business can successfully develop internationally is key.

And, finally, it is crucial to know your customer. Compared to traditional retail, ecommerce is incredibly data-rich, so investors in the space will want to make the most of this. We find the ecommerce entrepreneurs we advise to be amongst the most numerate, KPI and data intense of any sector and the investors are the same. A growing number of private equity investors will look at KPI trends to assess a business’ potential before asking to see any financial information – their rationale being that if the underlying KPIs are good, the P&L will look after itself.

With the Office of National Statistics figures showing an average 12 per cent annual increase in online sales since 2011, we can expect to see appetite for investing in ecommerce businesses continue to grow. However an increasing number of opportunities will ensure that investors grow ever more discerning.

Sam Fuller, managing director and UK head of the consumer sector at international investment bank Altium