How DTC brands are using crowdfunding campaigns as marketing

Venture capital investment has long driven the direct-to-consumer brand market, helping startups get off the ground as they try to prove business models that often rely on e-commerce. But with funding slowing down, more DTC brands are making an appeal directly to consumers for startup money, often promising special perks for people who get in early. DTC brands such as houseplant seller The Sill, on-the-go underwear brand Panic Panties, sustainable toilet paper company Reel Paper, functional mushroom brand SuperMush and trash bag maker HoldOn are among those rolling out crowdfunding campaigns in the past few months in order to fund various aspects of their businesses, using platforms such as Kickstarter and WeFunder to do so. Not only do crowdfunding campaigns offer DTC brands the funding they need, but they also provide an opportunity to get creative and engage the brand’s most loyal customers. For those willing to chip in, DTC brands have offered perks such as ownership stakes, vacations and even dating app consultations. Sign up for Ad Age newsletters From influencer marketing to agencies, get the latest news and analysis delivered to your inbox Click here However, experts caution that crowdfunding isn’t necessarily the best idea for every kind of DTC brand. Specifically, crowdfunding could be a red flag for brands that have taken venture capital in the past. “If they’ve raised VC, and then they go back to do crowdfunding, that’s not a good look,” said Mike Duda, managing partner at creative agency and investment firm Bullish. “If you’ve gotten institutional capital, and then you go to a Kickstarter route, and that’s almost a signal that institutional capital maybe doesn’t want to support this the second time around … and maybe the company hasn’t executed on what they said they're going to do.” The use of crowdfunding comes as VC funds for DTC brands dry up. So far this year, U.S. investors have invested only $130 million into direct-to-consumer companies, according to a Crunchbase report alarmingly titled “VCs No Longer Do DTC.” That’s down 97% from the sector’s peak in 2021, when it saw more than $5 billion in funding, per the November report. (The Crunchbase report defines DTCs as companies operating “at the intersection of e-commerce and consumer products.”) Market volatility due to the pandemic made it more difficult for venture capitalists to accurately value DTC brands—and it hasn’t helped that many venture-backed DTC companies haven’t had much success in the public markets. The Crunchbase report noted that footwear brand Allbirds and fashion subscription platform Rent the Runway, for instance, are now both sub-$1 stocks. (Allbirds on Nov. 8 reported $57.2 million in third quarter revenue, down 21% from the year-earlier quarter.) GoFundDTC Panic Panties, which sells premium underwear at drugstores and on its website, in January used Kickstarter to fund its expansion into retailers such as Walgreens and Duane Reade. More: Panic Panties aims to be the L’eggs of the underwear industry Panic Panties Co-Founder Katherine Anne Koury said that the brand decided to go the crowdfunding route because “in addition to wanting to maintain full equity of our company, we knew that we had a massive network of supporters who were excited and eager to help us succeed.” According to Koury, the effort furthered the brand’s connection with its followers by helping them play a direct role in the brand’s growth: Panic Panties hit its $10,000 goal within 24 hours after launching the campaign, then doubled it to $20,000. Those who donated to the Panic Panties Kickstarter did not receive any equity in the company. Instead, they were rewarded with what were perhaps more on-brand offerings: tiered rewards based on the amount of money contributed. Those who donated $225, for instance, could receive a dating profile consultation from the co-founders, or a custom Spotify playlist. And $875 yielded a getaway in Panic Panties Co-Founder Maria Marino’s San Diego treehouse. Such rewards that play into a brand’s ethos are an example of how crowdfunding can double as a marketing strategy by showing to consumers what the brand values most. Take Reel Paper, for example. The brand, which sells sustainable toilet paper on its website, began its crowdfunding campaign in early October using the platform WeFunder, David VanHimbergen, Reel Paper’s CEO, said in a recent interview. It not only promised anyone who invested future equity in Reel—but also, investors got trees planted in their names; and the brand gifted funders varying amounts of toilet paper based on their level of contribution (those who invested $10,000, for example, get a two-year supply). DTC functional mushroom brand SuperMush, which is also in the process of raising funds on WeFunder, is offering to invite anyone who invests $5,000 to an upcoming launch party. These strategies have become more important as DTC brands deal with digital data privacy protections that have complicated the type of social media advertising they have long relied on. Exchanging fun perks for funds is a great way to further establish a brand’s identity, even among those who don’t end up donating to the Kickstarter, said Duda, whose agency has invested in DTC brands such as Harry’s and Casper. Perks like planting a tree in exchange for funding is not just “free money.” With the Panic Panties Kickstarter, for example, Duda said the brand created “a marketing campaign that was bigger and more broad than what their product was” without sacrificing equity. And brands are able to gain notice without a lot of ad spending, in some cases. The Panic Panties co-founders say their brand didn’t promote its Kickstarter with any paid ads. Instead, the brand posted an informational video on Instagram, Facebook, TikTok and LinkedIn, and created a newsletter highlighting the initiative. Read more: The latest DTC marketing news and trends In August, DTC houseplant company The Sill rolled out a crowdfunding campaign on WeFunder inviting its customers to invest in the private company in exchange for ownership. The Sill surpassed its initial $50,000 goal the day it rolled out the campaign (and has since raised thousands of dollars more on WeFunder, according to a spokesperson for the brand). The houseplant company opted not to market its crowdfunding efforts to the general public as much as some other brands did. Instead, the brand mostly promoted the effort to its existing customers via multiple emails letting them know that The Sill wanted to give them the opportunity to own part of the brand. Duda noted that if DTC brands looking to crowdfund “have any sort of email base whatsoever,” they should utilize it as a way to give the effort an exclusive, “members-only” feel. Eliza Blank, CEO and co-founder of The Sill, said that the brand didn’t want to “overly market” the crowdfunding effort. “We want it to come across as not just authentic, but not salesy. We want people who want to do this,” she said. See all of Ad Age’s Breakout Brand Leaders here In addition to owning a part of the brand, those who invest in The Sill’s campaign can receive various types of branded merchandise as a reward, such as a water bottle or a sweatshirt. There are also opportunities to get a fireside chat with Blank if one invests $5,000, or receive a virtual plant care appointment for $500. Blank noted that while the brand’s WeFunder campaign was designed to raise capital, it was also a “community marketing” effort. “After 10 years of being around, I felt like a crowdfunding campaign was a really great way to re-energize our community … and fold them into what we’re doing in a more meaningful way than we've ever done before,” Blank said. “We’ve always been community-oriented, but we’ve never been able to call our customers owners; and even though we’ve given them opportunities to give us feedback or to participate in innovation or join community groups or workshops … we’ve never rewarded them with upside in the business,” Blank said. While The Sill previously raised venture capital, Blank echoed that doing so has become increasingly difficult for DTC brands. “A lot of consumer brands … experienced an increase in demand during 2020, and it confused a lot of investors because they didn't know where things might normalize,” she said. The key to a venture capitalist’s success, in Blank’s opinion, is “being able to value a company and come in at a value that makes sense based on their fund size and business model.” When VCs can’t accurately value a company due to market volatility, “then they don’t invest because they don't want to get it wrong,” she said.

How DTC brands are using crowdfunding campaigns as marketing

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