1. Direct-to-consumer
Ecommerce brands
Sal Cangeloso 1

2. What
The number of direct-to-consumer brands have
exploded. The exits have not.
Two major distinctions:
● Producers vs. resellers vs. platforms
● Does it have a barcode?
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3. Direct-to-consumer challenges
● Capital intensive
o Supply chain, product
development, etc.
● Distribution
● Discovery
o Lots of marketing
o Constant promotion
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4. 4

5. Macro Trends
● Brick-and-mortar is slowing (not dying, it’s still huge)
● Major ecom players don’t change (they do buy though)
● If it has a UPC, Amazon owns it
● Investors smell blood (retailers’)
● Not an advertising-dependent
business model
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6. Micro Trends
● VC-backed ecom-related companies saw the most exits in 2013
● 2012 and 2013 marked huge investments, but ecom investment slowing
● YoY deal activity by 20 top VCs fell 35% between
2012 and 2013
6CB Insights

7. They get big...
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● One Kings Lane - $225M raised
● Harry’s - $212M raised
● Quirky - $185M raised
● Bonobos - $128M raised
● Honest Company - $122M raised
● Warby Parker - $116M raised
● Rent the Runway - $115M
● Beachmint - $75M raised
● Birchbox - $72M raised
● Teespring - $60M
● Julep - $56M raised
Important distinction: You make your own product or you don’t.

8. Ecom Unicorns
Greg Bettinelli (UpFront VC & HauteLook) on identifying ecommerce unicorns:
1. An authentic founder/team
2. Early organic growth
3. Proven/potential operational excellence
4. Attractive market and margins
5. Companies that are in a position to excel in a changing world
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9. Notable exits
● Zulily IPO
● Wayfair (Joss and Main) IPO
● Toms Shoes Bain Capital (50% at
$625M valuation)
● Fanatics Kynetic
● Tonx Blue Bottle
● ShoeDazzle JustFab >$40M ($66M
raised)
● HauteLook (flash sales) Nordstrom for $180M ($41M
raised)
● Net-a-Porter (retailer) Richemont ($500+ million, >4x
GMV, 35x EBT)
● Jackthreads (retailer) Thrillist
● Tiny Prints (mass customization) Shutterfly for $333M (~$59M9
D2C ecom...
Related...

10. Who today?
● Harry’s Shaving
● Everlane Clothing
● Casper Bedding
● Warby Parker Eyeglasses
● Mott and Bow Jeans
● Cotopaxi Outdoor gear
● Keen Home Smart home
● Hello.is Smart home
● Luna (Morphy) Smart
bedding
● Naja
Underwear
● Julep
Make-up
● Brilliant Bikes Bikes
● Aloha
Health food
● Petflow Pet food
● J. Hilburn Men’s
clothing
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● Nasty Gal
Women’s clothing
● Moda Operandi Clothing retailer

11. Industries
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12. Brick-and-mortar
● Where most shopping happens (Over 90% of retail doesn’t happen online)
● Established distribution channels
● Fewer returns
● Personalized customer support
● Example: Toms Shoes
12Census.gov

13. Why not brick-and-mortar
● Startups need distribution
but at what price?
● Can you achieve startup
growth after losing markup?
● Offline sales means no
customer data
● No customer ownership
● Brick-and-mortar still has
costs involved
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14. Retail in reverse
Start online and then move to brick-and-mortar for
branding, prestige, access to customers, PR (and ego).
● Harry’s (SoHo)
● Warby Parker (SoHo)
● Everlane (SoHo)
● Bonobos (SoHo)
● Birchbox (SoHo)
● Plus Google, Samsung,
and Amazon
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Image via Warby Parker

15. Why ecoms are acquired
● For brand
● Startups innovate and experiment
o Julep: 52 different products in a year (300 says PR)
● Outsource innovation (and risk)
● Buy online disruptors
● Better shopping experience
o Fun, streamlined, something to believe in...
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16. Who will acquire?
● Retailers
o Losing market or flat, while online grows rapidly
o Fear the future
● Brands - Who can’t innovate
at the pace of startups
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17. The exits
● Lack of public data and IPOs means a lack of information
● Andrew Mitchell, Brand Foundry Ventures:
o D2C: “1-5x [revenue] mostly” depending largely on product margin
o Marketplaces (many users, low margins): 2-2.5x
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18. The multiples
Vertically integrated D2C companies with high
margin products have the highest valuations*
● Lululemon: 7x EV/Revenue
● Michael Kors: 6x
● Asos: 3x
● Under Armour: 3x
● Crocs: 1.2x
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● OpenTable: 5.75x
● Rakuten: 2.25x
● Blue Nile: 1x
● Blue Fly: 0.25x
● Overstock: <0.25x
vs.
* At time of IPO

19. The multiples in practice
Goal: 10x return (after dilution)
Casper (mattress startup):
● Raised: 2M
seed
● Valuation (guess): 15M
● 20x post-money (for 10x exit after dilution): 300M exit goal
● Necessary revenue at exit (2-3x): 100 - 150M
● 2014 revenue: 15M
● 2014 raised another 13M, valuation unknown
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IRR: 86% (5 years)

20. Summary
● Brick-and-mortar can help, but it isn’t the answer
● To get adequate return, revenue has to be quite high
● There are buyers, but they aren’t buying
● Alternative exposure to ecom: Shopping support not
shopping (Shopify IPO, payments, mobile shopping
platforms, Bigcommerce) and marketplaces
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21. VCs - First Round
First Round Capital
● Aloha - https://aloha.com/home - Health food, tea
● Birchbox - https://www.birchbox.com/ - cosmetics
● Bloomthat - https://www.bloomthat.com/ - flowers
● Blue Apron - http://www.blueapron.com/ - food boxes
● Boxed - https://www.boxed.com/ - food
● Fab - http://fab.com/ - home decor
● Homejoy - https://www.homejoy.com/ - home cleaning
● Kiwicrate - http://www.kiwicrate.com/ - sciency gifts for kids
● Modcloth - http://www.modcloth.com/ - women’s fashion
● Moveloot - https://www.moveloot.com - secondhand furniture
● Realfoodworks - http://www.realfoodworks.com/ - cooked food
● TheBlackTux - https://theblacktux.com/ - tux rentals
● ThreadFlip - http://www.threadflip.com/ - women’s clothes
● True and Co. - https://trueandco.com/ - bras
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22. VCs - Maveron
Maveron
● Drugstore.com - http://www.drugstore.com - online drugstore
● Everlane - https://www.everlane.com - high-end clothes
● Julep - https://www.julep.com/ - makeup
● Madison Reed - https://www.madison-reed.com/ - hair color
● Zulily - http://www.zulily.com/ - stuff for people with kids
● Goodbelly - http://www.goodbelly.com/ - probiotics
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23. VCs - Index Ventures
Index Ventures
● 1stdibs - https://www.1stdibs.com/ - Second-hand luxury goods
● Good Eggs - https://www.goodeggs.com/welcome - food deliver
● Tracksmith - https://www.tracksmith.com/ - athletic clothing
● Blue Bottle - https://bluebottlecoffee.com/ - coffee
● Wool and the Gang - https://www.woolandthegang.com/ - knitting
● Swoon Editions - http://swooneditions.com/ - Furniture (UK)
● Shapeways - http://www.shapeways.com/ - 3D-printed goods
● FarFetch - http://www.farfetch.com/ - clothing retailer
● Abe’s Market - http://www.abesmarket.com/ - natural products
● Nasty Gal - http://www.nastygal.com/ - women’s clothing
● Brit.co - http://www.brit.co/ - DIY jewelry
● StylistPick - https://www.stylistpick.com/ - women’s clothing ecommerce (UK)
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24. VCs - Forerunner
Forerunner
● Aloha - https://aloha.com/ - health food
● Alvin Valley - http://alvinvalley.com/ - woman’s pants
● Birchbox - https://www.birchbox.com/ - makeup subscriptions
● Cotopaxi - http://cotopaxi.com/ - hiking gear
● Darby Smart - http://www.darbysmart.com/ - diy stuff
● Dollar Shave Club - http://www.dollarshaveclub.com/ - razors
● Into the Gloss - https://www.glossier.com/#!/products - makeup
● KiwiCrate - http://www.kiwicrate.com/ - toy subscriptions
● Drink Soma - https://www.drinksoma.com/ - water filters
● Serena and Lily - http://serenaandlily.com/ - home goods
● Sproutling - http://www.sproutling.com/ - baby monitor
● Warby Parker - https://www.warbyparker.com/ - glasses
● Zozi - https://www.zozi.com - outdoor gear
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25. Source links
● Julep: http://www.julep.com/presspage/wp-content/uploads/2014/10/Press-Page_Julep_9_26_14.pdf, http://techcrunch.com/2013/02/28/julep-beauty-
raises-10-3m-from-andreessen-horowitz-and-maveron-to-disrupt-the-160b-cosmetics-industry/
● Harry’s: http://www.nytimes.com/2014/12/04/style/investors-bet-big-on-harrys-the-warby-parker-of-shaving.html?_r=4
● Online sales for US: http://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf
● Why is ecom hot: http://www.quora.com/Why-is-e-commerce-such-a-hot-area-in-venture-capital-now/answer/Elizabeth-Knopf
● CB Insights: https://www.cbinsights.com/blog/ecommerce-venture-capital-investors-2014/, https://www.cbinsights.com/blog/2013-ecommerce-
rankings/
● Ecommerce growth is driving retail: http://www.businessinsider.com/the-future-of-retail-2014-slide-deck-sai-2014-
3?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_content=emailshare#-12
● Relationship-based ecom: http://venturebeat.com/2015/01/08/if-e-commerce-is-dying-then-why-are-consumers-spending-more-online-than-ever/
● Warby Parker stores: http://www.wsj.com/articles/warby-parker-adds-storefronts-to-its-sales-strategy-1416251866
● Pg 4 Lumascape: http://www.lumapartners.com/resource-center/lumascapes-2/
● Pg 13 Business Insider: http://www.businessinsider.com/the-future-of-retail-2014-slide-deck-sai-2014-3
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