After an extended honeymoon period, there appears to be trouble in Direct-to-Consumer paradise. According to a piece from Digiday, VC money could soon stop propping up the once-scalding hot space due to concerns about profitability, and general market saturation.
As the story noted, DTC brands have raised over “$3 billion in venture funding” since 2012, and more than $1 billion of that came in 2018. But now that the concept has matured a little, investors “are asking different questions, meaning the sheer volume of brands that blast into the market… will shrink.”
And while investors aren’t “likely to shun the space entirely,” the story noted that one of the biggest issues facing current DTC companies are investor expectations.
“[It’s] not the fact that young, well-funded consumer brands are unprofitable” Digiday said. “Many consumer businesses, as they invest in growth, don’t automatically achieve profitability. It’s the misalignment of expectations between investors and founders that causes trouble.”
Because of that rift, “[the top-line growth] engine is running out of fuel,” the story said. “Companies now operating on borrowed cash are facing disappointing payouts. VCs aren’t shutting off the pipes, but they are looking for more proof that a business is viable before they invest money.”
So even though success can still happen — the story pointed toward Dollar Shave Club, Modern Citizen, Buffy and Rothy, among other well-run outfits — the DTC space is no longer the kingmaker it once seemed to be.
“There was a moment where everyone could get funded and it got a little crazy,” said one CEO. “Now, every category and every channel is more competitive. There’s no guaranteed recipe for success [and] it’s requiring people to be much more thoughtful about proving success. It’s a good thing — it feels more like reality.”
You can read more about it at Digiday.