D2C 2.0: The Rise of Infrastructure

Billions of dollars in venture capital have poured into direct-to-consumer (D2C) brands over the past ten years, funding hundreds of upstart brands challenging the incumbents in nearly every product category. These brands, once ignored by investors, are now raising multi-million dollar rounds pre-launch and recruiting top talent.

There’s no question that there’s hype around the D2C space, but we’ve seen far less interest in the infrastructure that allows these brands to scale. D2C brands uniquely own every step of their production and distribution process — from product design to packaging to marketing to fulfillment. New brands can struggle to put all these pieces together, while established brands face challenges like figuring out how to serve an international audience and maintaining growth in a capital-efficient way.

We see a huge opportunity for the rise of tools that better serve these brands, and we’re excited to share our research on companies in this space and areas where we hope to see further development. If you’re working on something in the D2C infrastructure space, please email us at [email protected] — we’d love to talk to you!

Playbook for New Brands

We’ve compiled a list of the tools we see D2C brands using today, based on our conversations with dozens of brands and data from Siftery.

Product Design & Development

Most brands handle design and development of products in-house, sometimes with heavy input from customers, which Glossier famously does (and more brands are exploring via Instagram Stories and surveys). The development process typically involves finding a factory or manufacturing partner with expertise in the space, and working closely with them.

However, we’ve found a few startups that are aiming to use tech in the product development process. Voodoo Manufacturing and Shapeways offer this for 3D-printed products, while Shape Prototype, Kickr Design, and Seeed Studios do the same for hardware. CALA, IndieSource, and Nineteenth Amendment all focus on fashion, doing smaller production runs with quick turnaround times. Parcel Supply (customers include Birchbox, S’well, and Blue Apron), and PCH International (Walker and Company, Fitbit, Blaze) both work across industries.

Manufacturing

Many brands find manufacturers through their personal networks or referrals, but there are also established marketplaces that connect companies with domestic and international factories — MFG.com, Kompass, Alibaba, IndiaMart, and ThomasNet are a few examples. Some of the newer players cater to younger brands who are concerned about eco-friendliness, quality control, and social responsibility — Anvyl (LOLA, Hims, S’well, Native), Sourcify, Maker’s Row, and Sewport (fashion-specific) are a few examples.

Financing

There’s a number of firms that focus on consumer brands, many of which combine an investment with incubation or branding, advertising, or other support. CircleUp is a major player in this space — the company offers credit as well as equity financing options, as is Indie.vc. Assembled Brands is a newer firm that focuses on brands doing $1M+ in annual revenue.

Other funds include Outroll Ventures, Unilever Ventures, Touchdown Ventures, Beechwood Capital, Simon Capital, Elizabeth Street, and VTF Capital*. AccelFoods, First Beverage Group, Distill Ventures invest exclusively in food and beverage. Bullish, The Brandery, SKU, XRC Labs, and Sephora Accelerate (beauty-focused) all serve as accelerators that combine funding with agency-like support.

Kickstarter and Indiegogo remain a popular way to fund an initial production run, as well as equity crowdfunding platforms like SeedInvest, Crowdfunder, Republic, and Wefunder. Along with traditional credit options like small business loans (also offered via startups like Fundbox, SnapCap, and Kickfurther), there are also a few new credit options catered directly to D2C brands. These include CircleUp Credit Advisors, Dwight Funding (working capital), and Clearbanc (marketing funding). Shopify Capital does the same via merchant cash advances and loans.

Inventory Management

Inventory management and forecasting are crucial for young brands that are short on cash and storage space. Forecasting is complicated by the fact that these brands can have “viral” moments that are difficult to predict and lead to long waitlists.

Like most other software categories, there are existing inventory management solutions (Netsuite, Workday, SAP, etc.). However, the pricing, features, and implementation often don’t work for early-stage, high growth companies. A few startup platforms that cater to D2C brands — Fuse Inventory (Glossier, LOLA, MeUndies, Snowe) and Stitch Labs (Brooklinen, Thinx). Other options that are popular amongst e-commerce more broadly are TradeGecko, Finale, Lightspeed, Retail Ops, Unleashed, Veeqo, and Brightpearl.

Branding

Many brands do this in-house, especially if they have a designer on the team or can easily consult with an expert. Canva, Brandfolder, Bynder, Outfit, OpenBrand, and Frontify are a few of the more popular tools for managing brand assets, and some also include tools or design space for generating these assets. It’s also common to hire a freelancer on a platform like 99Designs, DesignCrowd, Dribbble, Behance, Upwork, Toptal, and Fiverr.

A number of design agencies have risen to fame for their work with top D2C brands — Red Antler (Casper, Allbirds, Keeps, Brandless)and Gin Lane (Hims, Sweetgreen, Harry’s, Stadium Goods) are two of the most popular. Others include Pentagram (Buffy, Tender Greens, The Wing), Condensed (Pair Eyewear, Num Num, Keepers), Partners & Spade (Allbirds, Flamingo, Warby Parker, M. Gemi), Collins (Heyday, Nourish, Archer Farms), Motto (Even, Keetsa, Crown & Buckle), Circus Maximus (Roman, Bombfell), and High Tide (Warby Parker, Casper, LOLA).

Marketing

Like traditional e-commerce companies, many D2C brands devote most of their marketing dollars to Facebook, Instagram, and Google. There is a sea of marketing software tools for new brands to manage this spend. To get a sense of what both early and late-stage brands are using, we used Siftery to check out the marketing stack for the top 15 most well-funded D2C brands, as well as the 29 brands who raised a VC seed round last year. We’ve included below platforms that were used by five or more brands out of this group.

Most of the brands we surveyed used at least one option in each of the sub-categories above, making it by far the most complex area of the stack we examined. Seed-stage brands were more likely to experiment with similarly early-stage marketing platforms (perhaps because they are the most hungry to acquire customers!)—particularly in categories that go beyond the basics like referrals, re-targeting, and conversion.

We know many brands are also using tools to schedule and post content to social media, which wouldn’t show up in a Siftery stack. Examples include Later (Instagram scheduler), Tweetdeck (Twitter scheduler) as well as cross-platform schedulers Sprout Social and Buffer — which we’ve included in the “Customer Success” map below as they also support customer service.

Customer Success

Similar to marketing, many of the customer success platforms built for traditional e-commerce seem to be working for D2C brands. Unlike marketing, however, we found most D2C brands used a fairly tight set of customer success solutions — most commonly a live chat tool (Olark and Zendesk were the top two), an email/ticketing system (Zendesk, Kustomer, and Gorgias—which all also offer social support), and a social-focused service platform (Conversocial and Sprout).

We’ve also included customer review systems in the “Customer Success” category — though they could arguably be considered “Marketing” tools as well. Yotpo and Okendo were by far the most-used platforms in this category.

Commerce & Payments

Almost all of the seed-stage D2C brands we surveyed used either Shopify or Magento as their commerce platform, while later-stage brands commonly used Stripe to process payments. About half of the 43 brands we looked at also used one or more of the following: Google Wallet, Paypal, Apple Pay, and Amazon Payments. Bolt Payments is another newer option that handles checkout, analytics, and fraud protection.

Outside of the core payment processing functionality, almost all of the subscription-based D2C brands we looked at used ReCharge Payments for their billing, and several of the later-stage brands used a fraud protection solution like Riskified and Signifiyd. Brands with higher-priced items also often implements solutions to allow customers to pay over time — with platforms like Affirm, Klarna, and Quadpay.

Fulfillment, Shipping, & Returns

We’ve discussed Inventory Management above, so in this category we‘ve focused on packaging, shipping and fulfillment, and returns. In packaging, arguably the most well-known brand is Lumi (Parachute, MeUndies, Rockets of Awesome) but many earlier-stage brands that struggle with Lumi’s prices and minimums turn to Packlane. Arka and Pakible also have quite a bit of traction in this space.

On the shipping side, Shippo (MeUndies, Ipsy, Hims), ShipStation, and ShipBob are three of the most popular options, though some brands ship directly via USPS or FedEx. Darkstore helps companies offer same-day delivery. Flexe, ShipHero, RubyHas, Quiet Logistics, ID Logistics, Dotcom Distribution, and Fosdick are other popular 3PL and fulfillment options for D2C brands and e-commerce more broadly.

Passport Shipping, Flow, and FlavorCloud are focused on international shipping, which remains a huge problem for brands of all sizes. Brands use platforms like Arrive, Newgistics, AfterShip, and Narvar to help customers track orders. On the returns side, Returnly and Happy Returns (sometimes used together!) are the two most popular options we found, with ReturnMagic and Narvar as other common options.

Brick & Mortar Space

As we’ve written about before, D2C brands are increasingly experimenting with physical retail space — usually via pop-ups or by renting shelf space in their early days, and then setting up permanent stores further down the line. The last few years has seen the birth of many startups that aim to help brands tackle this without having to hire a broker or realtor.

In the shelf or display space category, some of the biggest contenders are Bulletin (with an online marketplace and three stores in NYC), b8ta (focused on consumer hardware) Fourpost (in Edmonton and Minneapolis), Neighborhood Goods (Plano, TX), Showfields (NoHo in NYC), and Re:Store (SF). On the short-term or pop-up side, Storefront, AppearHere, and Go-PopUp all offer solutions. Leap assists with longer-term retail placements alongside Uppercase (formerly thisopenspace), a CRV portfolio company that also helps smaller brands find short-term and shelf space.

Worksmith (customers include Outdoor Voices, Casper, Bonobos, and Stance), also helps D2C brands with retail — but with a focus on connecting companies to vendors and service providers who can manage store operations. This includes maintenance, events, dry cleaning, and other custom services that brands may not have the time or expertise to set up themselves.

What’s Left To Build?

There are several areas where we see considerable room for improvement on existing solutions, as well as other categories that have yet to be tackled. Here are just a few areas of opportunity we are particularly excited about:

• Discovery. CACs continue to rise on Instagram and Facebook — though consumers remain excited to try new brands, it’s hard to cut through the noise on social feeds. Many brands are turning to cross-promotions with other brands to lower acquisition costs, and sites like Newfound have popped up to aggregate brands. We’ve also seen new entrants focus on dominating specific product categories (e.g. Supergreat in beauty) or distribution via friend referrals (e.g. MASSE). We’re excited to see more scalable, software-based solutions for brands to reach the right customer.
• International Shipping. It’s surprising how hard it is for brands large and small to ship internationally — just take a look at the variety of products on Grabr! Because D2C brands advertise heavily on social media, where content can be shared globally (even if ads target a domestic audience), it’s especially important to be able to serve these potential customers. We’re very excited about Passport, FlavorCloud, Flow starting to tackle this problem, and are looking forward to seeing these solutions expand to more brands.
• Financing. We continue to see D2C brands struggle to finance their inventory, particularly given that they often can’t negotiate favorable payment terms with manufacturers early on. This results in many companies raising more venture funding (and taking more dilution) than they need to scale. Clearbanc, Assembled Brands, Dwight Funding, and CircleUp have been making progress in providing working capital to brands, and we’re interested in watching how this space evolves.
• Resource Aggregation. As shown by the many categories above, brands have to piece together and manage a huge amount of different resources just to get a first product out the door. This can be especially overwhelming for small teams running on limited capital, who don’t have partnerships or contracts with larger retailers. It will likely take more time and capital in the space, but we’d be excited to see something closer to an end-to-end solution (even just for one category!) that simplifies brand operations. OceanX is one example — as well as serving as a subscription platform for brands like Ladder, Cora, and Seed, they also offer fulfillment, customer service, and business intelligence.

Thanks for reading! If you’re working on something in this space, please email us at [email protected] — we’d love to hear from you!

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Thank you to Saar Gur for his help with this post.