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.)
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.”
Panic Panties crowdfunding rewards. Credit: Panic Panties (Click image enlarge)
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.