Furniture Rental 2.0

You lease your car. You rent your apartment. You subscribe monthly to Netflix and you rent your clothes from Rent the Runway. But would you rent your furniture? There’s a slew of startups that are betting you will. Companies like Fernish, Feather, Oliver Space and CasaOne are a few that allow customers to rent their furniture and return when they no longer need. The concept isn’t new; legacy players such as Rent-a-Center ($RCII) and Aaron’s ($AAN) have been doing this for years. The difference now is that there hasn’t been an updated brand narrative. Rental furniture has historically been aimed at middle America, subprime borrowers as an alternative to those who weren’t candidates for financing. The loans were borderline usurious or prices were marked up to cover the credit risk.

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Paying the Toll

As tech companies descended on Capitol Hill this week, the ongoing debate around antitrust continues. Startups have long lamented about the anticompetitive business practices adopted by the big 4:  Apple, Amazon, Facebook and Google. If you build a business that relies on the Apple or Google app stores then you automatically know you’re going to pay a ~30% toll to access consumers. The debate has further been heightened as some startups like Classpass have been hit with this toll as they roll out virtual classes due to COVID. The founders argue that they are forgoing their normal take rate from providers (gym’s, etc) they work with during COVID so why is Apple charging them 30%. Apple is in an interesting situation, because if they make exceptions for one business, they need to make for others. They also would face potential legal battles from previous customers that did have to pay. 

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Consider a Temporary B2B Pivot

It’s been interesting to watch Q2 play out in VC land – especially given the disconnect between Wall Street and Main Street throughout the Covid pandemic.  While initially a cataclysmic drop-off in funding was expected, the industry overall was not as affected as originally thought. Similar to the public markets, many investors continued to see a buying opportunity and had re-allocated their portfolios to support their likely winners. A key takeaway – early stage funding continues to face some challenges while late stage appears to have fared better. Many early stage B2C companies, however, are struggling.

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Should Tech Startups Have Taken PPP Loans

I’ve been reading a lot of commentary recently on tech companies that took PPP loans during Covid. Was this right? What’s definitely not right is our government bailing out bloated corporations during the pandemic. If you believe in capitalism then we should let the free markets take their path and prune the weak. One would argue that this infusion of cash saved jobs. Not sure how true that ultimately will become in October when the stipulations attached to the loans disappear. I bet we’ll see more layoffs, lots of them. US airlines have already made announcements for layoffs as soon as they are legally able.  So basically taxpayers have funded a short term experiment on borrowed time that was setup for failure from the beginning. Harvard economists agree, the program has had little impact on employment at small businesses to date. 

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Let the at-home Workout Race Begin

I’ve always had a strong viewpoint that digitally native vertical brands are a dime a dozen and those who will have successful exits are the ones who are vertically integrated, own manufacturing, strong defensible positions and/or are durable/consumable businesses built on recurring revenue and more enticing LTV metrics.  With the recent news on Lululemon acquiring Mirror for $500 million it proves there is still an appetite for strategic buyers to pay premiums for DTC startups. In this case, I estimate LULU paid 5x-6X revenue which is a phenomenal outcome for the founders and investors. LULU was already a minority investor in the company which gave them intel into the business that other competitors likely didn’t get. Why corporate VC gets a bad rap sometimes, a good strategic investor can bring a lot of value. 

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DTC Ancillary Revenue

If you look at the majority of venture backed DTC brands in the market today, they all could benefit from diversifying their revenue streams. As this cohort scales and eventually becomes omnichannel (since that’s the playbook most are following), gross margins will inevitably suffer. When startups expand into new product categories it’s still often challenging to get >50-60% landed margins if you’re selling physical products. This is where services come in.

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Partnerships Are Your Hidden Weapon

A VC once told me that 50% of some of their portfolio companies’ growth is coming through partnerships. I wasn’t surprised, but I found this quite interesting, because successful structure and execution seems to be the achilles heel of many organizations. 

Through the marketing lens, there’s no shortage of content and advice on how to grow your startup. The thing is, most startups look at marketing as a cost center (which it usually is) but there is white space here that is more efficient than marketing and that is through partnerships. Now, I know “partnerships” is a broad term, but let’s try and narrow it down by focusing purely on revenue generating initiatives. In my previous roles roles at Casper and Newell Brands, I oversaw numerous innovative partnerships and here are some lessons I learned as well as some thoughts on why this space continues to be undervalued. 

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Lemonade – The Next Insurtech IPO

Back in October of 2019, I wrote a piece on how all the value creation was essentially being captured in the private markets and retail investors were being left out. It wasn’t always this way (think Amazon or Neflix’s IPO). Over the last 3-5 years, startups have been staying private longer as late stage capital keeps funneling in. Blame traditional firms like TRowe and Fidelity, and Softbanks massive Vision fund among others, for providing the cash. Venture has always been an alternative asset class and fund managers are seeking growth in areas outside of traditional channels. 

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When Incumbents Come Around

Startups usually focus on pain points that consumers have found with large bureaucratic companies. The old guard typically misses the signs when an insurgent brand comes on their turf, or they simply believe it’s not going to be a threat. Meanwhile this gives the entrepreneur time to build up a small loyal group of customers. As a result of corporate venture capital teams, and an increased interest in following startup land closely, corporations are no longer sitting back idle while startups take share.

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