Brands Cutting Out Middlemen: The Direct-to-Consumer Startup Landscape in Three Graphs

As traffic to physical retail stores falls, more brands are offering shoppers ways to cut out physical store visits while also bypassing middle-man distributors altogether.

Since 2012, investors have poured nearly $2.5B into direct-to-consumer brands, which design and sell apparel, accessories, and more directly to consumers through their own online channels.

Legacy corporations are starting to pay attention — in July, Unilever paid $1B to acquire direct-to-consumer razor brand Dollar Shave Club, adding the online-only seller to Unilever’s stable of grooming brands, most of which sell through drugstores and other retail outlets.

The buzz for D2C grows

Spurred in part by Unilever’s acquisition of Dollar Shave Club, discussion of direct-to-consumer or D2C business models has skyrocketed. We used our CB Insights Trends tool to track mentions of direct-to-consumer startups across millions of media sources, and found that the July acquisition kicked off an explosion of press attention.

While many of the July articles focused on Dollar Shave Club itself, or on finding the next Dollar Shave Club, a wider range of startups also drove the continued growth. Hong Kong-based apparel startup Grana, for example, was the focus of many articles in October after its $10M Series A.

50+ deals to D2C companies in 2015, 2016

Deals to direct-to-consumer brands peaked in 2015, with 64 financing rounds worth $708M in total. (This chart does not include direct-to-consumer food or beverage brands.)

2015 saw the two largest-ever direct-to-consumer funding deals, which helped push up funding totals that year. In April, T. Rowe Price led a $100M Series D to industry leader Warby Parker, which valued the company at $1.2B, and increased total company funding to $216M. Warby Parker aimed to use the round in part to expand its physical store footprint. Later that year, home care CPG company The Honest Company raised a $100M Series D at a $1.64B valuation.

Rival direct-to-consumer razor startups Harry’s and Dollar Shave Club also each raised $75M investment rounds in 2015; a Series D to Dollar Shave Club in June at a $555M-$630M valuation, followed by a Series C to Harry’s in July at a $750M valuation. Unilever’s $1B price tag for Dollar Shave Club just 13 months later (in July 2016) represented a major jump over the 2015 valuation.

So far this year, direct-to-consumer funding rounds have been far smaller. Custom menswear startup Indochino raised 2016’s largest deal to date, with a $32M Series C investment from Dayang Group. While the funding drop appears dramatic, deal count is on track to fall much less dramatically this year, so the dollar differential is mainly due to those major funding rounds that boosted the total last year. The median deal size has held steady from 2015 to 2016 at $3M.

D2C models proliferate

The infographic below highlights dozens of direct-to-consumer startups targeting the apparel and accessories markets. We see new entrants in verticals that are dominated by large, traditional players. While Dollar Shave Club was acquired by Unilever, Harry’s and Walker and Company represent new, private competitors in the razor space. Startups such as ThirdLove and Lively are also aiming to chip away at Victoria’s Secret’s lingerie leadership, while Warby Parker, of course, has been taking aim at Luxottica.

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