VCs no longer set DTCs

Direct-to-consumer brands, a core category of start-up investors a few years ago, have now largely disappeared from the ranks of funded companies.

This year, American investors have put just over $130 million into companies at the intersection of e-commerce and consumer products, according to Crunchbase data. This means a 97% decrease compared to the peak in 2021, when over USD 5 billion was allocated for this investment purpose.

To get an idea of ​​how funding has trended over time, here’s a breakdown of investments and rounds over the last six calendar years:

Where does this aversion to space come from? Several easily recognizable factors come into play.

First, much of the gain in 2021 was driven by investments in e-commerce aggregators as they sought to acquire smaller brands and expand their presence on Amazon and other retailers. Thrasio, Perch, Branded, Society Brands, Razor Group and others have raised billions in equity and debt financing. Recently, funding for this space has largely dried up, resulting in layoffs and some consolidation.

Secondly, consumer products in general is a hostile area. It didn’t help that even venture-backed companies that entered public markets failed. This includes shoe brand Allbirds and fashion subscription platform Rent the Runway, both of which are currently trading for less than $1 a share.

Online brands pursue offline channels

Business models based on online-only brands also seem to be losing their appeal.

Among the best-funded direct-to-consumer brands, a common theme over the past few quarters has been to promote their products more intensively on offline channels.

Glossier, a pioneering DTC makeup brand, partnered this year with the Sephora cosmetics chain, which operates online and stationary stores. New York-based Glossier also opened a dozen stationary stores in major cities to showcase its offerings.

Madison Reed, a hair dye supplier that has raised more than $200 million in venture funding to date, also marketed itself as a direct-to-consumer brand. However, its products are now also available at Walmart.

Others that started primarily as online brands but now sell through large retail chains include low-carb cereal maker Magic Spoon, mattress retailer Casper and men’s grooming brand Dollar Shave Club. More DTC companies are also opening physical stores, including Allbirds and eyewear retailer Warby Parker.

Directly or not, consumers are still spending

US VCs’ recent aversion to consumer products startups doesn’t coincide with a decline in spending on things we don’t need. Gross domestic product grew at a better-than-expected annual rate of 4.9% in the third quarter, largely driven by strong consumer spending.

Apparently, however, the consensus among startup advocates is that our discretionary spending is not allocating as much to emerging brands looking to establish relationships with an online customer base.

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Illustration: Guzman House

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