Is direct-to-consumer (D2C) still a viable business model today?

Mike Salguero · Apr 5, 2023 · hedged

A generation of VCs has largely burnt their money on D2C, since even the category darlings like Allbirds have raised far more than they are now worth and have never made money

Allbirds raised around $200M and trades near $183M, and its financials show no history of profit

Scope: 'it's looking that way'; uncertain on exact figures

42:23 20VC: The Memo: Scaling to $600M Revenues with No Venture Funding, The Most In Detail Breakdown of Consumer Subscription Unit Economics & Why D2C and Consumer Subscription is Not a VC Backable Model with Mike Salguero, Founder @ ButcherBox

Chris Paik · May 8, 2023

The vast majority of direct-to-consumer brands are not suitable venture investments, and venture capital ends up subsidizing the building of companies that should never have been venture targets

Venture capital isn't responsible for putting a sandwich shop in business — there has to be a line on what kinds of businesses get venture funding

Scope: 'vast majority', not all DTC brands

0:00 20VC: Why VC Subsidizes the Wrong Type of Business, Why Capital Gains Tax is Crazy, The Biggest Misalignments Between VCs, Founders and LPs, Why Business Model - Product Fit is as Important as Product-Market-Fit with Chris Paik @ Pace Capital

Dominik Richter · Dec 1, 2023

Many D2C companies were wrongly venture-backed; for most of those categories the better path would have been an angel round, getting to profitability and scaling to $100-200M of revenue without VC.

Looking at the personal outcome for the founder, the not-raising-venture path is much less risky for many of these categories and companies.

Scope: cannot be stated as a blanket rule covering all companies; based on his own angel investing conversations with founders

31:06 20VC: HelloFresh CEO on Why When You Raise VC You Only Have Two Options, Why Your IPO Price is Irrelevant, Why Timing is So Important in Going Public & Why D2C is Not Dead with Dominik Richter

Jeff Jordan · Jan 16, 2023

Whether to match a well-funded competitor's spending is dictated by the capital environment; in today's environment a16z counsels companies to avoid needing to raise for as long as they sustainably can, whereas three years ago the advice was to spend

The pendulum has swung away from businesses that raised a big round and spend hard to drive growth

Scope: environment-dependent; 'without hurting the business'

16:30 20VC: a16z's Jeff Jordan on The Ultimate Guide to Investing in Marketplaces, Two Core Features to Look for in All Marketplace Investments, Why Fragmented Supply is so Important & Lessons from Airbnb, Pinterest and Instacart on What Makes the Best Cohorts

Jeff Jordan · Jan 16, 2023

His DTC e-commerce portfolio produced uninspiring outcomes even when it included the best companies in the category, which is what drove his thesis of leaning out of businesses that must buy users at scale

He backed Fanatics and Zulily — two of the best e-commerce companies — and the basket still underperformed, because when you need paid acquisition at scale the LTV-to-CAC economics typically erode

Scope: derived from his own eleven years of investing

24:14 20VC: a16z's Jeff Jordan on The Ultimate Guide to Investing in Marketplaces, Two Core Features to Look for in All Marketplace Investments, Why Fragmented Supply is so Important & Lessons from Airbnb, Pinterest and Instacart on What Makes the Best Cohorts

Mike Salguero · Apr 5, 2023

The reliable, no-brainer customer acquisition channels for D2C have dried up, making this a very tough time to run a D2C business

Acquisition has gotten so expensive that ButcherBox had to spend $8.5M on brand marketing last year

Scope: about the current market

0:00 20VC: The Memo: Scaling to $600M Revenues with No Venture Funding, The Most In Detail Breakdown of Consumer Subscription Unit Economics & Why D2C and Consumer Subscription is Not a VC Backable Model with Mike Salguero, Founder @ ButcherBox

Mike Salguero · Apr 5, 2023

It is a really tough time to run D2C, and there is currently no new exciting acquisition channel — TikTok has volume but nobody is genuinely crushing it

Apple's iOS changes badly degraded Facebook performance, and he knows nobody doing well on TikTok, only people hopeful because of the volume

Scope: based on his own network of operators; allows that TikTok is 'interesting'

53:09 20VC: The Memo: Scaling to $600M Revenues with No Venture Funding, The Most In Detail Breakdown of Consumer Subscription Unit Economics & Why D2C and Consumer Subscription is Not a VC Backable Model with Mike Salguero, Founder @ ButcherBox

Dominik Richter · Dec 1, 2023

D2C is not dead — but succeeding today requires a genuinely differentiated proposition: deep supply chain integration, a unique distribution angle, or being exceptionally good at the marketing equation.

D2C fundamentally means more convenience, information and crowd feedback for the consumer, so from the consumer's side it is anything but over; and great D2C companies are still started and exited at scale every single year.

28:43 D2c remains viable but requires genuine differentiation in supply chain distribution or marketing

Mike Salguero · Apr 5, 2023

The D2C economy is falling apart, with a wave of distressed companies that raised right after COVID now running out of runway

Companies that raised post-COVID had twenty-four months of runway, are tightening belts, are smaller than at the tail end of COVID, and banks are picking up assets

58:41 Post covid d2c companies are running out of runway and failing en masse

Harry Stebbings · May 8, 2023

Debt is not actually available to these companies, so venture capital retrofits itself to fill the gap

From his brother's traditional business: debt providers won't underwrite risk without five years of cash flows, or when there's uncertainty around US expansion or new product categories

41:41 Debt financing is often unavailable forcing vc to fill the gap