The rise of giant consumer startups that said no to investor money

By: Jason Del Rey

When Moiz Ali launched his startup Native, the maker of a natural deodorant brand, he couldn’t help but be self-conscious when mingling with other Bay Area entrepreneurs.

“In Silicon Valley, it’s often embarrassing when you haven’t raised money,” Ali told Recode recently. “When I’d go to parties or dinners, entrepreneurs would talk about how many employees they had. But for me, it was just me.”

Native eventually secured $550,000 from professional and individual investors, a relative pittance in the startup world where $100 million funding rounds and billion dollar valuations are discussed in a way that could sound like the norm.

For Ali, the limited funds meant cautious spending on marketing, a staff size that never rose above 10 and, even rarer, the need to turn a profit on each sale. In the earliest days, Ali and his small team also followed up with every disappointed customer — an education that eventually led to what’s called “product-market fit,” or the creation of a good that a large number of people in a certain market want.

So when Native sold to Procter & Gamble last year for $100 million in cash — just two-and-a-half years after launching — Ali could laugh last; he still owned more than 90 percent of his business and was worth a fortune. As important to him, he kept a strong grip on the brand’s destiny by remaining its CEO.

“I wish Silicon Valley didn’t glorify those massive fundraising rounds as much as they do,” Ali said. “People don’t respect how much one person can do.”

(Fools) Gold rush?

Over the last five years, venture capital and private equity investors in the U.S. have rushed to fund a new breed of company, dubbed direct-to-consumer startups. These DTC startups, like Native, are typically defined as companies that sell their own branded products online, most often through their own websites and apps.

In recent years, many of the biggest in the sector — the shaving company Harry’s, the mattress maker Casper and the clothing brand Everlane — have also expanded their reach by selling goods in physical retail chains like Target or by opening up their own brick-and-mortar stores, as the cost to acquire new customers online has increased.

Companies in this category have capitalized on a cocktail of changing consumer habits, new marketing channels like Instagram, and software vendors like Shopify that have significantly lowered the cost and technical hurdles to setting up and growing a professional online shop.

Along the way, many of these retail brands have convinced venture capital investors — or been convinced — that their fast growth and digital DNA could result in value creation on par with tech companies. But does faster growth just mean a faster path to market saturation?

In the first eight months of 2018 alone, investors have committed $1.2 billion to these young companies, almost triple the $426 million spent on similar startups in 2013, according to CB Insights. In one deal alone, SoftBank paid $240 million to buy less than half of Brandless, a startup, just one year old, that sells its own line of packaged foods and household products.

Read More >> https://www.recode.net/2018/8/29/17774878/consumer-startups-business-model-native-mvmt-tuft-needle