DTC brands are no longer the new kids on the block that they were over a decade ago. As DTC brands grow up, SHOPLAZZA has put together 8 questions to consider for DTC brands looking for greener pastures.
When should DTC brands start thinking about their exit strategy?
DTC brands typically began as disruptors in their respective spaces. But at a certain stage in its life, DTC brands begin to seriously strategize their next move. That point is typically between 5 and 10 years since its inception; at this stage, they usually have at least $40 million in annual revenue.
What do investors look for when selecting DTC brands to acquire?
Investors and strategic buyers are usually looking for legitimacy in product and scalability for long-term growth when deciding whether or not a DTC brand has what it takes to get to the next level.
How can DTC brands grow into something more?
DTC brands typically enter into the next stage of their growth by sourcing professional management or product/service expertise. This can usually be achieved through a capital infusion or the exit of founding members.
What options do DTC brands have when creating exit strategies?
DTC brands typically have two options when creating an exit strategy: (1) selling to another company or (2)selling shares of the company to the public through an initial public offering (IPO).
Is it better for DTC brands to sell to another company or to go public?
Becoming part of a larger, established company in a relevant space had been the way to monetize DTC brands for years, but the advent of special purpose acquisition companies (SPAC) and the current state of the IPO market have encouraged many brands to rethink their choices.
Are SPAC deals hard to get?
According to public data, over 412 companies from various industries have gone public through different SPAC deals. This represents a significant increase from the number of companies that went public using this method in 2019 - 59.
Why do DTC brands need exit strategies?
DTC brands need exit strategies because they eventually grow to the point that they need more capital or resources to continue serving customers effectively. Others are built with an exit in mind because most startups raise funds through venture capital (VC), and it doesn’t make sense for the VC business model to have their money tied up for longer than 5 years, which means that they want to get their money back around that time. And this is why many DTC brands map out their exits year before they actually get there.
What’s the right exit strategy for DTC brands?
There’s no one-size-fits-all solution for DTC brands, the right strategy depends on what the brand needs, which could be infrastructural support from a larger company or simply more capital to support a relentless pursuit of its value proposition. No matter what the brand needs, however, it’s starting to make more sense for DTC brands to look for ways to grow sustainably, as large brands and investors lose their appetite for unprofitable companies with rapid growth rates.