Fintech & e-commerce Retail and Direct To Consumer

Pets Became Purrfect Pals During Pandemic While Startup Funding Didn’t Lay Down

Venture capital interest in U.S. pet-focused companies, from nutrition to travel to health care, grew 29.5 percent from 2019 and 2020 as pets received more attention from owners being home for the past year.

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“Last year, we saw a macro trend of humanization of pets, where people were treating pets as members of the family, and therefore, spending more money on food, grooming, treats and walking,” Nick Stocks, general partner of White Star Capital, told Crunchbase News.

U.S. spending on pets reached nearly $100 billion in 2020, up from $95.7 billion in 2019, according to the American Pet Products Association, which also found that owners spend an average of $1,380 for dogs and $908 for cats annually.

As people shifted their spending online, the pet space also benefited. The pet e-commerce sector is poised to be 35 percent of total spending by 2024, up from 22 percent in 2019 and just 7 percent in 2014, Stocks said. That kind of huge volume is boosting everyone, including the big dogs BarkBox, Rover and Chewy. For example, Stocks cited that Rover’s customer retention rate has remained north of 50 percent for the past five years.

Funding trail

Venture capital flowing into the space is following the trend. Stocks estimates funding to startups grew 10x over the last five years.

“We only see this going up and up and up,” Stocks added. “Investors have many different categories of companies to go after. A lot of companies at Series A, B, C will have legs in the future.”

Indeed — investors have pumped $2.05 billion of venture backing into global pet-focused startups since 2017, according to Crunchbase data. In the U.S., that was $1.08 billion over the same period of time. (It should be mentioned that funding would be more — nearly 170 deals did not disclose a funding amount.)

Globally, funding was down 14.2 percent between 2019 and 2020 after hitting a peak in 2019.

This year started off hot again, with companies bringing in capital, including:

In the past few months, we also saw BarkBox, a monthly subscription-based e-commerce and content company for dog owners, as well as online pet-care marketplace Rover decide to enter the public markets.

Rover announced plans in February to go public through a merger with Nebula Caravel Acquisition Corp., a special purpose acquisition company, or SPAC, backed by True Wind Capital. Once closed later this year, the deal is expected to give the Seattle-based company an enterprise value of approximately $1.35 billion.

Prior to that, BarkBox announced in December its intent to merge with SPAC Northern Star Acquisition Corp. in a $1.6 billion deal that will also take the company public this summer.

And, a growing industry means more announcements like these, as well as increased M&A activity, Stocks said.

One of the unique characteristics of the pet space is the wide range of potential buyers, he said. For example, a number of big companies are playing in this space including Mars Petcare, one of the largest owners of veterinary clinics in the U.S., Nestlé, which has a large pet division, and General Mills, which acquired pet food company Blue Buffalo in 2018.

Emerging sectors

Many categories within the pet industry are still emerging and are taking advantage of these tailwinds. Among them is veterinary medicine and pet health, areas previously lacking in innovation.

Startups entering this area aim to bring technology, more affordable care and new delivery methods, including telemedicine consulting for non-emergency cases, such as rashes and nutrition questions, said Mo Punjani, co-founder of Bond Vet, a New York-based affordable vet services provider with four clinics and the intent to open 10 more this year.

Bond Vet announced a $17 million Series A, led by Talisman Capital Partners, last November, which was among some 50 other funding deals to global veterinary companies within the past year, according to Crunchbase data.

As owners became closer to their pets, tending to every need was important, but so was the demand for getting a large portion of issues resolved without leaving home.

“The general desire to have digitally enabled experiences has accelerated,” Punjani added. “As a result of this and the pandemic, we are going to see continued innovation across the entire pet innovation system.”

Meanwhile, the pet insurance market is also in its early stages and attractive to investors due to its potential in the U.S., where just 3 percent of pet owners purchased insurance, Stocks said. That is compared to Sweden’s 90 percent and the U.K.’s 25 percent. As more millennials become pet owners, he expects that number to rise.

A mature market for pet insurance is 25 percent penetration, and while there are more than 80 companies globally, there are roughly two dozen in the U.S., according to Pawlicy Advisor co-founder and CEO Christopher “Woody” Mawhinney. The New York-based pet insurance brokerage company was founded in 2018, and in February raised $6.5 million in Series A funding led by Defy.vc and Rho Capital Partners.

The number of insurers entering the space doubled in the last three years, Mawhinney added. The global pet insurance market is expected to reach $14.9 billion by 2028, so the potential is shifting VC investors’ thinking and an inflection point as a quarter of pet owners are expected to purchase insurance in the next few years, he said.

“This kind of movement of awareness and education of the market was ongoing even before the pandemic,” he said in an interview. “However, people are thinking of their own health during the pandemic. Then when they adopt animals, they look at pet insurance when they are buying pet beds and food.”

A ripe future

Working to keep the pipeline of new companies flowing into the space are accelerator programs, such as Los Angeles-based Leap Venture Studio.

It was the first pet care-specific accelerator started in 2018 by a partnership between Kinship, a division of Mars Petcare, and Michelson Found Animals, according to Michelson CEO Brett Yates.

Leap is in the midst of its fourth cohort after weeding through the most number of applications to date — more than 100, to settle on eight, Yates said in an interview. Overall, 27 companies graduated from Leap and are all still in business.

“This industry is ripe for investment and more investors will help make pets’ lives better along with the technology we are seeing,” he said. “The pet industry is well received, and we are seeing ideas formed two or three years ago being sussed out and now on the market. Very few have had to pivot.”

Illustration: Dom Guzman

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