VCs No Longer Do DTC

Direct-to-consumer brands — a staple category for startup investors a couple years ago — have mostly disappeared from the ranks of funded companies today.

So far this year, U.S. investors put just over $130 million into companies at the intersection of e-commerce and consumer products, per Crunchbase data. That’s a whopping 97% decline from the peak in 2021, when over $5 billion went to this investment theme.

For a sense of how funding has trended over time, below we charted out investment and round counts for the past six calendar years:

Why the recent distaste for the space? A couple easy-to-discern factors present themselves.

First off, much of the 2021 largesse was due to investments in e-commerce aggregators, which sought to acquire smaller brands and elevate their presence with Amazon and other retailers. Thrasio, Perch, Branded, Society Brands, Razor Group and others raised billions in equity funding and in debt financings. More recently, funding to that space has largely dried up, followed by layoffs and some consolidation.

Secondly, consumer products in general is an out-of-favor area. It hasn’t helped that even venture-backed companies in the space that made it to public markets have flailed. This includes footwear brand Allbirds and fashion subscription platform Rent the Runway, now both sub-$1 stocks.

Online brands pursuing offline channels

Business models based on brands that operate exclusively online also appear to be losing allure.

Among the most heavily funded direct-to-consumer brands, a common theme over the past several quarters has been to promote their wares more heavily in offline channels.

Glossier, the pioneering DTC makeup brand, rolled out a partnership this year with cosmetics chain Sephora, which operates both online and physical stores. New York-based Glossier also opened a dozen physical stores in major cities to showcase its offerings.

Madison Reed, a hair color purveyor that raised over $200 million in venture funding to date, also marketed itself as a direct-to-consumer brand. However, its products are now also available at Walmart.

Others that started mainly as online brands but now sell at major retail chains include low-carb cereal maker Magic Spoon, mattress seller Casper, and men’s grooming products brand Dollar Shave Club. More DTC companies are also rolling out physical stores, including Allbirds and eyeglasses seller Warby Parker.

Directly or not, consumers keep spending

U.S. VCs’ recent dislike for consumer products startups does not coincide with a downturn in spending on stuff we don’t need. Gross domestic product grew at a better-than-expected 4.9% annual rate in the third quarter, boosted in large part by strong consumer spending.

Apparently, however, the consensus in the startup-backer crowd is that our discretionary expenditures aren’t going so much to upstart brands seeking to craft a relationship with an online customer base.