The Series A Crunch Is No Match For Man’s Best Friend
If you’re a startup junkie and dog lover, you may like my column this week which looks at lessons from three pet-related startups that were able to secure Series A financing. The folks from Swifto in NYC also informed me I forgot about them, so will mention them here…
With all the barking in startup-land these days, it can be tempting to dismiss certain categories as “another sign of the bubble.” For example, how about an online marketplace for dog-owners to find other people to pet-sit their four-legged friends? Recently, I was a bit surprised to learn of a $50B+ annual consumer category that seems to double every decade for the past few decades: The U.S. pet industry. To give some perspective, Americans spend about $600B+ per year at supermarkets and grocery stores (some of which includes pet items, I’m sure). As it turns out, a few pet-related startups not only leaped off the ground and began to make money, and at least three of them were able to fetch attractive term sheets and take a bite out of “The Series A Crunch” to advance their businesses. While it may have been easy to target such startups as “small ideas,” the size of the market doesn’t lie, and consumers are voting with their paws.
I’ll apologize in advance for the pet-related puns in this article. The way I see the world, Dogs > Humans. I’d venture many would agree with me. In the world of B2C startups where the “C” stands for “canine,” young pups like BarkBox, DogVacay, and Rover have secured at least a Series A-level of institutional funding to help drive commerce via subscription product delivery and marketplaces to connect pet-owners with pet-sitters. While the peanut gallery and technorati may have laughed at these kinds of businesses a few years ago or used them as a symbol of “bubble” activity, the reality is that they were entirely valid — they focused on a real-life opportunity and simply used technology and the web to bring a huge market online.
There are many fascinating lessons founders and investors can draw from these companies’ success to date. First, the power of markets. It may be easy to initially howl that pet-related startups are not real businesses, but the power and durability of this market demonstrates this may be narrow thinking. Second, e-commerce subscription is strong even in niche plays. For a while, there were so many monthly subscription “box” startups I thought another startup could provide the actual boxes for these startups to ship, but when founders hit the right target — a good example is NatureBox — the category delivers. Third, market inefficiencies offline can be addressed through online marketplace dynamics, especially in niche categories. Yes, eBay and Amazon dominate the category, but there are new opportunities all around us, and founders who can correctly identify them and do the hard work of bridging the offline to online and getting to a liquid marketplace can gain real business advantages and economic defensibility.
Perhaps this is why more and more pet-related startups are coming out of the dog house. For instance, PetRelocation helps take care of businessmen and women who are transferred in their work and helps relocate their pets; Kloof helps create a social network around pets, complete with an iPhone app; Whistle has created a Fitbit for your four-legged friends; DogBFF is trying to build a Sosh-style community offline for dog-owners; and there’s GetPupped for those who want to rent a cute pooch for a few hours, which isn’t real (remember Tacocopter?), of course, but wouldn’t you like to sign up?
It’s true, Dogs > Humans! As many startups have their own dogs roaming around (and my friend Spencer’s dog, Max, even has his own Twitter account), it’s no surprise the startup pack are herding around the big pet industry. While Pets.com may have been a symbol for the first Internet bubble (and, perhaps ahead of its time, as Petflow now exists), the structure of the economy and these businsesses may be different. Time will tell. Plenty could go wrong. Are these businesses going to be able to deliver enough cash returns to justify venture capital? Are there enough acquirers (such as PetSmart) in the pet market or related industries (such as collaborative consumption or travel startups) that could provide an exit through an acquisition? Will the growth in consumer spending on pets flatten or even slide? I don’t know what the answer is, but so far, in a tough funding environment, a few great companies have made it through to Series A. The market is big enough, yes, but let’s see how big the fight in this dog really is.