The global transformation of the retail industry with ecommerce displacing physical retail has run like a golden thread through the portfolio we built over four fund generations. While VC appetite in traditional e-commerce has cooled down considerably, we can see a renaissance in innovation by new Direct-to-Consumer players (DTC) which redefine the way brands are built.
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Best regards
Jan-Gisbert Schultze
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Mapping V-Commerce
The Rise of Digital Vertical Brands
by Aline Vedder, Director of Communications at Acton
The massive shift to e-commerce 2.0.
New Direct-to-Consumer brands, also known as digitally native vertical brands (DNVBs) or V-Commerce brands, are trailblazing entirely new approaches to retail. Billion-dollar success stories like Bonobos, Warby Parker, DollarShaveClub and Casper paved the way in recent years.
The potential is tremendous: Online sales in the US alone are expected to reach $523 billion in the next five years, increasing by more than 9% per year. Direct-to-consumer sales will reach $16 billion by 2020 - a massive increase from the $6.6 billion this channel generated in 2015.
Andreessen Horowitz partner Jeff Jones famously named this new era ‘e-commerce 2.0.’ DTC brands are very different from their e-commerce predecessors. They are financed, designed, produced, marketed, distributed and sold by the same company. Hence, these brands bypass the middleman and don’t have to share their margins with retailers. They connect directly to the customer and own the entire client relationship.
Margins! Margins. Margins?
Traditional brands take a tumble everywhere in the value chain – promotion, distribution and shipping. By passing on costly brick and mortar stores, focusing on online channels and owning the customer, margins for DTC differ radically from traditional retail and e-commerce. The product gross margins can be double that of e-commerce (e.g. 65% versus 30%). The contribution margins can be 4x higher.
Andy Dunn, CEO and cofounder of apparel company Bonobos, describes the vertical brand as follows:
“The E-Commerce company is a channel; the V-Commerce company is a brand. The E-Commerce company has low margins; the DNVB has high margins. The E-Commerce company can grow unbelievably fast; the DNVB can’t grow as fast, but it’s more valuable in the long run because it’s about more than just price.”
VCs have taken note: 2015 and 2016 were marked by the two largest direct-to-consumer funding deals ever (Warby Parker & The Honest Company). 2016 also marks the year that Acton made its first investment in the space and funded in New York based fast-fashion company Eloquii, a digital vertical brand for plus-size women.
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We are happy to announce our follow-on investment in Zenjob. The on-demand staffing platform raised 5m EUR, closing its Series A at a total of 8m EUR. The company arose as a response to the growing demand for flexibility and digitization in HR. Founded in January 2016 in Berlin, Zenjob now employs more than 1,500 students and serves over 450 businesses in Berlin alone. Tech.eu
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HomeToGo, the world’s largest metasearch engine for vacation rentals, secured another sizeable investment in a Series C funding round. The new round provides HomeToGo with capital to compete in the marketing intensive travel landscape, support further expansion plans and accelerate product development. Tech.eu
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The retail landscape is changing. Forbes magazine featured e-commerce pioneer Tictail. In the article Co-founder Carl Waldekranz provides advice for small business owners and lessons he has learned from opening a brick-and-mortar boutique for Tictail goods. Forbes |
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Portfolio company Mambu signed major Dutch bank ABN AMRO as a client. With the launch of New10 as an independent business that operates like a fintech, ABN looks to succeed in the constantly evolving banking environment. Mambu CEO Eugene Danilkis highlights how incumbents can take on fintech challengers. Financial IT |
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The global consulting market is undergoing major changes: More and more consultants opt out from permanent positions to freelance instead. Especially women benefit from this trend. Die Zeit features consultant marketplace COMATCH and an industry on the cusp of disruption. Zeit |
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Recommerce is booming. Portfolio company momox traded more than 125 million articles since its launch. People spend more, but they also resell their goods quicker than ever before. Companies like momox capitalize on quick consumption cycles and the reselling of used goods. FAZ |
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Small business lending is in a dismal state: banks offer little transparency, cumbersome application processes, and often a rejection at the end of the journey. iwoca CEO and co-founder Christoph Rieche discusses his quest for removing these barriers for small businesses as well as iwoca’s recent partnership with Tide. Video |
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INVEST EUROPE.
“Europe’s VCs now have the firepower to provide larger rounds of capital to support entrepreneurs’ ambitions to expand on a global stage.” Jan-Gisbert Schultze comments in Invest Europe's recent report on European Venture Capital. Invest Europe
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TECH OPEN AIR.
Frank Seehaus attended Tech Open Air and gave the lowdown on startups that excite him and what it means to have him on board as an investor. TOA
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SLATOR.
Inside tolingo's journey from startup to VC-backed profitable language service provider. “Acton was the third institutional investor in an institutional round worth a few million Euro in 2011,” said Acton Investment Director Marcus Polke. The role VCs played, however, extended beyond funding. Slator
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VENTURE CAPITAL MAGAZIN.
Christoph Braun talks about growth equity and sheds light on the most important market segments to look at, valuation perspectives and exit landscape. Article
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VENTUREBEAT.
Capitalizing on his own entrepreneurial experience as well as his time in venture capital, Fritz Oidtmann put together some tips how to make the best use of a board for VentureBeat. His conclusion: “In times of sunshine a bad board is cumbersome, in a crisis it’s dangerous.” Venturebeat
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DIGITAL HEALTH DAY.
Aline Vedder attended the European Digital Health Day in Berlin to discuss key topics which might refocus how digitalization will impact the healthcare system in the years to come. digitalhealthday.com
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UPCOMING CONFERENCES.
Christoph is at the Point Nine Capital SaaS Founder Meetup in San Francisco, 20 October.
Sebastian will speak at the Invest Europe Venture Capital Forum in Stockholm, 24-25 October.
Frank will attend Swiss Startup Days, 24-25 October.
Aline, Christoph, Christina, Frank, Fritz, Jan & Sebastian will attend DLD in Berlin, 26-27 October.
Christoph, Frank & Fritz will attend Noah Conference in London, 2-3 November.
Frank & Fritz will attend Websummit in Lisbon, 6-9 November.
Benedikt will attend Hamburger Fondsgespräche 2 November and Steuer Summit 2017 in Berlin.
Sebastian and Dominik will attend the Nordic Venture Forum in Copenhagen, 13-14 November.
Fritz will be present at the Cologne Funding Days, 29 November.
Aline, Dominik, Jan & Sebastian will attend Slush conference in Helsinki, 29/Nov-01/Dec.
Aline, Dominik & Sebastian will attend TechCrunch Disrupt in Berlin, 4-5 December.
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Any questions, thoughts or comments? Specific topics that you’d like us to comment on? Feel free to drop us an email or to stop by our Munich office for coffee. |
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