Decline in DTC?

Funding Corner

VCs Avoid DTC Brands with a 10-foot Pole

Direct-to-consumer (DTC) brands used to be all the rage with startup investors. Just two years ago they were pouring billions into online-only companies selling everything from mattresses to makeup. Unfortunately for these companies, times have changed, and DTC funding has dried up fast.

In 2021, over $5 billion flowed into e-commerce consumer startups from American VCs. This year so far? A measly $130 million - a 97% drop!

What happened? E-commerce aggregators, a.k.a. businesses that buy small, third-party Amazon/Shopify sellers, were all the rage in 2021 but have lost popularity in the last couple years (see Thrasio, Branded, and Razor Group). The cash cow ran dry, and layoffs and closures have followed. It's also a rough patch for consumer goods in general; even big DTC IPOs like Allbirds and Rent the Runway tanked on public markets, and are now both penny stocks.

The trend now? DTC brands are moving offline. They see value in physical stores and partnerships with major retailers.

Take Glossier, the huge DTC makeup startup. This year they partnered with Sephora stores and launched 12 branded shops in cities across America.

Takeaway: We’ve seen a lot of unexpected changes since the pandemic, and this is yet another example. DTC simply doesn’t carry the same hype as it did during Covid. Business models need to evolve, and we'll see what brands can adapt and make it through.

Words You Should Know

Bootstrapping

Definition: When an entrepreneur starts a business largely through their own funds, without substantial outside investment. It means founding and growing your company primarily through personal savings, credit, or the operating revenue you generate along the way. Rather than seeking large amounts of external financing from investors or loans, you're relying on lean financing from your own pockets.

Significance: Bootstrapping gives entrepreneurs more control but typically involves tighter budgets and slower growth. The benefit is building a business without giving up equity or taking on debt right away. If you’re bootstrapping your startup, hustle —and more importantly financial discipline— are paramount to turn limited capital into a thriving, self-sustaining company.

Read more about Bootstrapping here.

Jake’s Take: If you’re like me and are starting a business in university, be wary of fundraising too early. It’s easy to get caught up in valuations and give away too much equity early on… I’ve instead focused on applying for zero-equity grants as a way to fund my startup, and have so far been successful (more on that to come). Scroll to the bottom of each week’s newsletter to find key deadlines for applying to accelerators and grant funding competitions.

Founder Spotlight

Gaby Flouret: “Generally Speaking”

This week, I interviewed Gabriel Flouret, a final-year student at the University of St Andrews who has combined his passions and career prospects more effectively than anyone I know. He recently launched a brand-new Defence-Tech society inspired by his work experience and desire to ‘pay it forward’. From our conversation on generalists in the professional world, here’s a short anecdote from him:

“As I near graduation, I am networking and tracking down opportunities. From what I’ve gathered, we are seeing the death of the generalist. The loss of the generalist in the workplace means missing someone who can engage with various parties, offer creative solutions, and do a bit of everything.

Concurrently with my studies, I’ve worked in the aerospace and defense industries which has exacerbated my fears of stovepiping, siloing, and pigeon-holing. While specialization is important, the lack of cross-sector connections I witnessed left me dumbfounded. 

This year I’ve taken a step back from work to pursue “Gaby’s Year of Fun,” but I couldn’t do nothing. So, I founded USTA Defence-Tech with help from a stellar team. Each member has their own specialty (biotech, policy, and more), shares my sense of curiosity, and wants to be a resource to peers.

Defence-Tech’s mission is twofold. The first is to provide students interested in national security with resources and a network. The second, is to foster relationships and facilitate conversations amongst people with policy, STEM, and business backgrounds. My hope is that our members learn how much they don’t know. I want them to realize how much they can do, to forget fear, and venture on to different corners of industry.

Two former bosses left me with reassurances. One, a former White House advisor, said that generalists succeed by learning to ask the right questions. The other, a former U.S. government employee, remarked that high-quality individuals can transpose their abilities from one problem to another. Both require breadth and depth of knowledge.

Throw me into the deep end and let me figure it out!

Consider this a toast to the generalist (or renaissance man) and may we continue to ‘know a guy’.”

Key Dates

• (London)

  • Techstars Accelerator (applications close November 29th)

  • Founders Factory (rolling admissions)

  • Tech Scaler (applications open for January ‘24 cohort)

• (New York) 

  • Founder Institute (accelerator applications close December 11th)

• (San Francisco)

  • Y Combinator (late applications accepted until January)

What I’m Reading

• How to Open an Online Business (link)

• Contrarian Thinking Newsletter (link)

• The Pyramid Principle (link)