Amanda Schutzbank, Co-founder & General Partner at Willow Growth Partners joins us to break down early-stage fundraising, finding a path to profitability and post-Covid growth for DTC brands
DTC brands have had an interesting last two years. Some of them experienced their best moments, while others weren't so fortunate.
Amanda Schutzbank, co-founder and general partner of Willow Growth Partners, has uncovered the secrets and best practices that got many of these brands to succeed in difficult times.
Our CEO Adii Pienaar sits down with Amanda to discuss some of those best practices, and what early-stage brands should keep in mind when seeking investment. Tune in as they discuss:
- The current economic climate and how it affects early-stage fundraising
- The key growth metrics you should be looking at if you’re fundraising
- The playbook Willow implements with their portfolio companies
Amanda Schutzbank, co-founder and general partner at Willow Growth partners, has spent almost a decade investing in and supporting transformative consumer brands.
Prior to Willow, Amanda was an investor at Amplify, a Los Angeles-based pre-seed venture capital fund. She was also Vice President at Primary Venture Partners where she focused on the e-commerce sector.
At Primary, she built one of the most renowned portfolio support platforms in New York, which her portfolio companies leveraged for operational advice, mentorship, board seats and recruiting.
Having been an operator herself, she is able to leverage her operating experience and years of investing to add real value to her portfolio companies. She’s passionate about what comes after the check.
About Willow Growth Partners
With a founder-first approach, Willow presents itself as the right early stage capital for transformative consumer brands viewing every investment they make as a true partnership.
Willow invests in and supports a diverse group of founders building tomorrow’s iconic brands with home runs in the likes of Coterie, Lalo and TomboyX.
The Checkout episode 42 unpacks:
In today's episode, Adii Pienaar and Amanda Schutzbank talk about the current state and future of consumer brands in the next 12 months, including financing strategies and the key growth metrics that matter to both founders and investors. Here are the highlights:
[02:18] – State of DTC post-covid: It’s a “bloodbath” out there
- With economic uncertainty so high and market volatility elevated, earnings across the board in DTC have been very bad
- Select few fared better than the others like Walmart, Home Depot and Olaplex with their focus on unit economics and profitability
- Amanda believes brands remain cautiously optimistic: ”Hopefully what we've seen is kind of inflation peaked in July and the consumer is still spending and we're investing behind that.”
[5:11] – Lessons learned from the top line growth of Allbirds and Warby Parker (as their bottom line plunges)
- How do some brands end up getting scaled in the wrong way?
- There was a time when no one cared about gross margin which hurt the bottom line
- “There was a big kind of this DTC 1.0 where the big focus was on chasing top line growth and spending, spending marketing dollars.”
[7:03] – The monster outcome when taking on investor money
- Acquisitions anywhere from 200 million to 700 million are great but the chances of them being a billion dollar outcome is the one diamond in the rough
- “Brands could be a huge billion dollar outcome, but they shouldn't be forced to be.”
[8:00] – Building a rational path to profitability
- Brands should focus on unit economics, avoid spending for the sake of spending and care about margins in the early days
- “Don't just build a team to build a team. Cut some of that overhead cost. We're not spending all of our money on marketing on Facebook, especially just to chase top line growth. And so if you can do all of that, you can build a much more sustainable business.”
[10:57] – The rational valuation for DTC brands at the early stage
- Amanda encourages founders to think about dilution
- “It's much more important to think about dilution and what you're going to do, and also how many rounds you're gonna raise.”
[12:38] – Early stage brands: Where to spend funding
- A a lot of capital goes into getting some key hires in place, marketing spend and a little bit of inventory
- In the next stage, Amanda reveals that the risk of taking on that debt versus taking on more equity is sometimes worth it
- “I'd say more than half of our companies are currently working with some sort of debt provider to get inventory, financing working, and capital financing.”
[18:15] – How Willow helps founders win
- Consumer brands need a strategic decisions sounding board
- “I think capital is great and necessary, but it's not sufficient. And we really need more people that are around the table, helping these brands, helping them think through strategic decisions.”
[18:43] — Willows' playbook for growing brands
- Willow focuses on value-led brands and sustainability as a long term growth strategy
- “I think that standing for something, putting your stake in the ground as a brand and saying, this is who we are, this is what we believe in...It's not only great for the world and great for the brand, but it actually matters to the end consumer.”
[23:09] – The forward-looking financial metrics
- Willow deep dives on a company’s product margin, gross margin, contribution margin, and then ultimately EBITDA
- “We're trying to figure out like, okay, you're here today, but what can you do? What are the 10 things you need to do to get to this point right?”
[24:39] – How much should brands spend on Marketing
- Amanda suggests that marketing spending should be capped at 20% of net revenue or less to attract funding
- “If we see it in the 30, 40 or 50% range, I mean…that's just incredibly high and it's just not gonna be something that's interesting to us.”
[26:43] – The gross margin level that’s important to investors and brands
- Investors like Amanda are looking at fully loaded gross margin: inbound and outbound shipping, fulfillment, cost variable, CX variable and contributing margin includes marketing spend
- How can brands improve margins? In Amanda’s experience, it oftentimes involves a supplier change and lowering down shipping costs
- ”Is that the right person? Is that the right 3PL? Should you be switching? So that's usually between our (early) stage and kind of the series A that's still being figured out.”
[31:22] – DTC’s financing trends to watch out for in 2023
- Brands will continue to spend crazy amounts of money to chase top line growth on paid channels with customers that are not necessarily loyal
- We’re going to see exits on those brands that were backed in the early stage but didn’t do the same kind of playbook as the other DTC 1.0 brands did
- “I think hopefully by the time we speak next year, we'll have realized some of those outcomes and we can point to those as good examples.”