With $50M in fresh funding, Allbirds will open new stores in the US, UK and Asia

Allbirds’ wool runners have been a VC favorite since the beginning. Now, the company is worth $1.4 billion.

The quintessential venture capitalist’s uniform consists of a pair of designer jeans, a Patagonia fleece vest and $95 wool sneakers.

The company behind the shoes, Allbirds, entered the unicorn club this morning with the announcement of a $50 million Series C from late-stage players T. Rowe Price, which led the round, Tiger Global and Fidelity Investments. The 3-year-old startup founded by Joey Zwillinger and Tim Brown has raised $75 million to date, including a $17.5 million Series B last year. Its backed by Leonardo DiCaprio, Scooter Braun, Maveron, Lerer Hippeau and Elephant, the venture capital firm led by Warby Parker founder Andrew Hunt.

The Wall Street Journal is reporting the round values Allbirds at $1.4 billion. The company would not confirm that figure to TechCrunch.

Like Warby Parker, San Francisco-based Allbirds began as a direct-to-consumer online retailer but has since expanded to brick-and-mortar, opening stores in San Francisco and New York. It currently ships to locations across the U.S., New Zealand, Australia and Canada. Next week, the company plans to open its first storefront in the U.K. in London’s Covent Garden neighborhood. It will begin shipping throughout the U.K. In 2019.

Using its latest investment, Allbirds will double down on its brick-and-mortar business. In addition to the U.K., the company says it will open even more locations in the U.S., as well as open doors in Asia in the coming months. Tiger Global, which has backed Allbirds since its Series B, may be of help. The firm has offices in Hong Kong and Singapore, as well as partners across Asia.

Allbirds makes eco-friendly wool shoes for men, women and kids via its kid’s line, aptly named Smallbirds. The shoes are made out of sustainable materials, including merino wool, a fabric made from eucalyptus fiber that the company has dubbed “Tree” and “SweetFoam,” a shoe sole made from sugarcane-based, carbon-negative foam rubber.

“Climate change is the problem of our generation and the private sector has a responsibility to combat it,” Zwillinger, Allbirds’ chief executive officer, said in a statement. “This injection of capital will help us bring our sustainable products to more people around the globe, demonstrating that comfort, design and sustainability don’t have to live exclusive of each other.”

It’s been quite the year for venture investment in … shoes. Rothy’s, which makes sustainable ballet flats for women, has raised $7 million and launched a sneaker. Atoms, a maker of minimalist shoes, brought in $560,000 in seed funding from LinkedIn’s ex-head of growth Aatif Awan and Shrug Capital. And GOAT, the operator of an online sneaker marketplace, nabbed a $60 million Series C in February.

Business school grads and quants are winning the battle to create the next P&G

Micah Rosenbloom Contributor Micah Rosenbloom is a venture partner at Founder Collective. More posts by this contributor Startups need to respect the laws of retail physics Is VC The Right Money For Fintech? These days my Instagram feed feels more like QVC than a social network. And many of these companies are enjoying tremendous success […]

These days my Instagram feed feels more like QVC than a social network.

And many of these companies are enjoying tremendous success pitching natural deodorants, unique underwear, creative candles, glam glasses, stunning shoes — all manner of well-crafted microbrands. We’re witnessing a cambrian explosion of new consumer startups.

For the last couple of years, building a successful startup has seemed as simple as picking an out of favor category like ketchup and turning the most mundane of condiments into a $100M+ exit! Why try to build a robot or AI company when you can just modify and repackage a topping?

But how should founders evaluate the markets for mattresses and men’s health? What heuristics should an investor use to weigh Hims and Hubble, or to compare AllBirds and Away? And what is the right kind of founder for this sort of startup? Do you look for the designer with an unimpeachable aesthetic sense? Or an MBA who’s run the numbers on every facet of the fashion industry?

It’s far from clear at this point, but I think there are a few emerging ground rules:

It’s more Science than Art

What strikes me as most unusual and unpredictable is that most of these companies were founded by entrepreneurs with analytical, business training. They’re strong on finance, marketing, and customer acquisition. It’s not what you would have expected in categories noted more for an ineffable “cool” factor than feature lists. Creative design helps a brand stand out, but accounting acumen is what keeps it alive and on its way to becoming a unicorn.

It turns out that much of the same playbook for building and scaling a software company applies to a modern CPG startup. In many ways, Casper isn’t so different from Slack, and they are certainly closer in spirit than a direct competitor like MattressFirm.

This is why you see a migration of founders and VCs like me playing in categories previously out of bounds for tech investors. Whether its finding the latest targeting tools or closely monitoring customer NPS, this is the DNA needed to be successful. For this reason, VCs are able to pattern match, somewhat, based on what they’ve seen working in other aspects of their investing.

Market structure is more important than marketing

Bootstrapped mattress maker Tuft & Needle merged with market leader Serta-Sealy for somewhere between $200 million and $800 million. Purple, who only raised $2 million via crowdfunding, was acquired for $1.1 billion by a private equity company. Casper is reported to have broken through the $600 million in revenue milestone earlier this year and is on the trajectory towards becoming a public company. These mattress companies, along with other emerging D2C players have captured 20% of the market in the space of five years.  

Perhaps it’s a coincidence that three amazing founding teams bet on beds, but I’d wager the state of the mattress market is partially responsible for their success. The mattress business is essentially a duopoly run by private equity firms who have made major investments in real-estate and an in-store sales model. As a result, we see less experimentation and artificially high prices.

Compare the mattress industry to the meal kit delivery business which had to contend with a wide variety of substitute food products, from Domino’s to DoorDash and supermarkets to Soylent — not to mention spoilage, high levels of customer churn, etc. As a result, companies in this space have had a harder time dominating their respective categories. Sadly, there is no amount of clever branding or subway advertising that will eliminate those realities.

Image: Soifer/iStock

What’s the million-dollar insight?

The first Casper mattress was the 50,001st mattress sold by Philip Krim. Prior to manufacturing his own beds, Krim built a drop ship business serving other manufacturers and learned which levers to pull in order to attract customers and generate demand. It was this seemingly mundane insight – that you could box and ship a mattress via a carrier instead of onboard a large truck that allowed him to scale much faster than Sleepys and generate $100M+ in sales just a couple of years after founding.

Similarly, ButcherBox and Daily Harvest each ignited a boom in direct-to-consumer food delivery. These companies recognized that fresh and immediately frozen products limit spoilage and allows for much easier transport. While competitors had to worry about organic kale rotting in a fulfillment center, these companies could focus more attention on customer acquisition. This insight coupled with smart marketing, virality, and high NPS has helped them both garner millions of dollars of weekly sales.

It’s not nearly enough to say, “The competitors don’t get it.” or this is for “Gen Z.” Instead, like with all start-ups, the founders need to identify that non-obvious, often contrarian, insight. This is usually less of a product “A-Ha!” and is more likely an arbitrage opportunity in a dysfunctional market.

Spend Carefully, Your Potential Buyer Will

Digital vertical native brands can be compelling investments, but they are unlikely to have deal dimensions, in terms of multiples or absolute exits, that we see with traditional tech investments.

Just look at a few recent sales of DNVBs. The absolute dollar amounts are reasonable, but the multiples are small relative to tech, ranging from 1.6X to a potential 8X (no doubt subject to earn outs), with the average being in the 2-3X range. On the bright side, these acquisitions do tend to consummate quickly, often within a few years of their founding.

If you finance a DNVB like a deep tech company with heavy reliance on tens of millions of venture capital, founders and investors are likely to see little in return. As Jason Del Ray recently wrote at ReCode, many of these brands are skipping VC all together.

It’s important to remember that these sales are predicated on impressive revenues. Cruise Automation can get acquired for $1B because its technology could be the basis for a new kind of car, but don’t expect Kellogg’s to acquire a pre-launch cereal company for a similar sum.

DNVB investing is here to stay as there is a fundamental shift going on in retail and how consumers shop. Unless you’re Kylie Jenner with a hit reality show, investors would be wise not to dismiss that nerdy MBA or former consultant pitching the next great brand.

Uppercase raises $3.5M to help e-tailers open brick-and-mortar stores

Uppercase is launching out of stealth with $3.5 million in VC funding to help direct-to-consumer brands expand into the physical world. Lerer Hippeau has led the round, with participation from CRV and SV Angels.

People like to say that brick-and-mortar retail is dead, but direct-to-consumer businesses continue to dabble with physical stores all the same.

Why? Because brick-and-mortar retail provides businesses with benefits an online shopping platform can’t, namely consumer experiences that create and sustain shopper’s relationships with brands. 

To help the next generation of digitally native stores expand into the physical world, Uppercase, formerly known as thisopenspace, is launching out of stealth with $3.5 million in venture capital funding. Lerer Hippeau has led the round, with participation from CRV and SV Angels.

Uppercase works with real estate agents, architects and designers to build stores for online brands in New York City, Los Angeles and Toronto.

Co-founder and CEO Yashar Nejati started the company after noticing that online brands were experimenting with pop-up shops then establishing permanent storefronts.

Men’s retailer Frank & Oak, which picked up a $16 million Series C this year, is a great example of that trend. The company began as an internet retailer and now has several stores throughout Canada. Luggage startup Away, trendy shoe company Allbirds and Emily Weiss’ makeup company Glossier have done the same.

“Anyone can launch an online brand,” Nejati told TechCrunch. “Brands truly stand out from the crowd once they grow beyond digital — we’re seeing this with Warby Parker, Casper and Indochino, who will have over 350 stores by the end of 2018. Uppercase is part of a modern growth strategy, providing tech-enabled flexible retail stores for brands to launch, analyze, and grow their retail presence.”

So far, Uppercase has built stores for furniture company Joybird and Venus et Fleur, which sells artfully arranged roses.

Early-stage investor Lerer Hippeau has backed a number of direct-to-consumer brands, including the aforementioned Allbirds and Casper.

“We’ve seen the importance of an omnichannel strategy as companies scale,” Lerer Hippeau Graham Brown told TechCrunch. “Uppercase is the perfect partner for brands born online looking to expand into the physical world.”