While plenty of startup brands are being built on the backs of venture capital funding, an increasing number are looking to buck the stereotype of bloated DTC brand in favor of a scrappier path.
One of the most interesting side effects of this is new ways of funding. Clearbanc is one of them. The company, which late last week launched a new product, called “20-minute term sheet,” is now looking to back 2,000 businesses with $1 billion in capital by the end of the year. How Clearbanc pick those companies: It looks at ad spending, marketing and revenue data, and based on that, invests between $10,000 and $10 million in e-commerce companies. Then, it sends the money, and keeps investing. The only catch: Keep the return on ad spend and other unit economics in the green. Clearbanc takes some percentage of a company’s revenue every month.
Michele Romanow, co-founder of Clearbanc, told Axios this week that 40 percent of the VC dollars are being spent on Google and Facebook, which is why it looks at facets like return on Facebook ad spend to determine investments.
This kind of funding structure is interesting for a few reasons. One agency founder I spoke to said that it’s a way for smaller companies that can’t get in the door at VCs to get some much-needed seed funding. For others, it’s a way to keep more of the company instead of giving up lots of equity.
The second is a common issue among, especially consumer startups, who can find at the end of the day that they barely own any of the company. “You’re better off as a founder selling your company, owning 80% of it and selling it for $50 million than selling it for $300 million dollars but owning 2% of the company. Those are facetious numbers but that’s [important],” said Mizzen+Main founder Kevin Lavelle.
A DTC brand employee who used Clearbanc but isn’t authorized to speak on the record said it was a clean way to spend the money he knew they would have to spend in the early days on, largely, Instagram marketing, without having to give up a lot of control.
To be clear, there’s still plenty of VC money to go around, and the DTC wave doesn’t show any signs of abating. But there are plenty of companies who either don’t want to adhere to stringent or sometimes, “out of whack expectations” (as one founder called it) that VCs have. Others want to have more sustainable growth. In that area, there is more opportunity for “capital as a service” companies to grow — and plenty of customers to have. — Shareen Pathak
Three questions with Carmine Gallo, author of The Apple Experience
The Apple Store has been lauded as a success in retail. What makes it so special?
They started with a vision that was very unique to retail at the time. And the vision was enriching lives. That was Steve Jobs. It’s internalized. If you watch some of Tim Cook’s recent presentations on whether it’s the Apple store or on products, you’ll see that they still use that phrase, enrich lives. When I was doing my research on the Apple Store, employees have these cards that they’re given and on the top it says “enrich a life today”. Now the reason why that theme was so important, is because it forces you to completely think differently about the experience. When you build a store from scratch, and instead of saying “we are going to build a store to push products,” that store is going to look a lot different than if your original vision is aspirational, to enrich lives.
What are some defining elements? And how does the lack of clutter figure into the equation?
Instead of a cashier, the Apple Store had a concierge, because the concierge will enrich your experience. They had a Genius Bar to enrich your experience. And to help you through some of the technical troubleshooting, they started classes — they were one of the first retailers to start classes on how to use their products. [On clutter] That does start from Steve Jobs, where everything had to have its place. The extent to whether to which the Apple Store employees go to reduce the clutter is pretty extreme. And that’s why they’re always wiping down the devices so that you don’t see fingerprints on all devices.
Can you describe one of the earliest Apple Store-inspired models?
The AT&T stores did even more research. They found that when people walk into a store, they want to be greeted within 10 feet or 10 seconds, they at least want to be acknowledged that they’re there. Which is really interesting. If you walk into AT&T store, it’s very much like an Apple store. So again, it’s this whole idea that you really have to start with, with a vision of where you want to take the experience, [and] that pervades everything else. — Suman Bhattacharyya
The Burrow expansion strategy
When direct-to-consumer couch startup Burrow incorporated in 2017, it experienced bumps in the road like any new startup — like when one of the machines at its then-manufacturing partner’s facility caught on fire. It also quickly drew comparisons to Casper for being yet another startup trying to sell a big-ticket furniture item DTC. In 2018, Burrow opened its first brick-and-mortar showroom, and the business grew five times, according to co-founder and CEO Stephen Kuhl. Here’s what Burrow’s been up to for the past year, and a glimpse into some of its plans for 2019.
Product: Burrow has quickly moved beyond just selling couches. It started selling ottomans and chaises towards the end of 2017, as well as pillows and throws in 2018. Now, more than half of Burrow’s orders include a chaise or an ottoman, and a quarter include a pillow or throw.
Marketing: “2018 for us was kind of our coming out party in New York City,” Kuhl said. Burrow experimented with a number of out-of-home marketing tactics, such as subway ads, bike station ads, and some billboards. “We’ll definitely do subway ads again,” Kuhl said. “[They’re] getting very expensive, but they definitely have a long tail effect.” Burrow’s also made events a key component of their Soho showroom, hosting concerts and comedy shows, and Kuhl said they’ll do even more events this year.
Brick-and-mortar: Kuhl said that Burrow plans to open two more retail locations this year, in cities yet-to-be-determined. With the company’s first Soho showroom, Kuhl said the Burrow team has been focused on identifying what type of experiential features its customers want in stores. They learned that customers didn’t find an area where they could mix-and-match different colored furniture legs with different colored sofas to be all that helpful, for example. — Anna Hensel
Sign Amazon takes over the world
The WSJ reports that WPP spent between $ 100 million and $150 million on Amazon ads last year, and spent between 20% and 30% of its search funds on Amazon, with the majority of that being money moved over from Google.
What we covered
Sign up for the Modern Retail Briefing to get retail news, analysis and insight delivered to your inbox every morning.