Last month, JustFab received a host of complaints over the firm’s Subscription eCommerce (subcom) model which was accused of using dark pattern design tactics to lure new “VIP” members into a subscription they were not intentionally opting in for. A spirited back & forth ensued on Hacker News where Josh Hannah of Matrix Partners who sits on JustFab’s board tried to defend the company to an HN audience that was clearly not having it. Note: The Hacker News conversation can be seen here and Josh Hannah’s comments in the thread are under username jdh.
In January, we explained that Subscription eCommerce, once heralded as the new big thing in eCommerce because of its subscription economics, personalization (or the more buzzwordy “curation”), etc looked to be losing a bit of its luster (we’d noted very early that subcom investment trends seemed to share many traits of the once overhyped daily deals industry).
And the latest data shows that venture capital activity is, in fact, on an even steeper decline after a series of bad exits and no real breakouts in subcom. The one firm which appears to be carrying the mantle of successful subcom company is NY-based BirchBox (investors include First Round Capital, Accel Partners and Harrison Metal among others) which last disclosed a financing round in August 2011.
Subscription eCommerce Funding Activity
In the past two years, the Subscription eCommerce industry has raked in $388M in venture capital financing across 87 deals. But two deals, Glossybox’s $72M round in Q4’12 (investors include Rocket Internet, Holtzbrinck Ventures and Kinnevik) and JustFab’s $76M Series B financing in Q3’12 (investors include Matrix Partners and Rho Ventures among others), represent 38% of overall funding in the period. Since Q4 2012, funding activity in the Subscription eCommerce space has been dull.
Q1’13 saw only one mid-stage financing of $10.30M to Julep Beauty, while the largest round in Q2’13 was only $5M. Most other rounds in the first half of 2013 were <$2M early-stage rounds. Meanwhile, the number of deals in Q3’13 hit a new low since 2012, hitting only six deals in Q3 2013 and continuing the downward trend in SubCom deal volume seen this year. While it does appear that funding has picked up this quarter, out of the total $55M raised, $40M was raised by JustFab in the aforementioned round which generated the chatter.
Subscription eCommerce by Company Stage
Over the past two years, 83% of Subscription eCommerce deals have come at either the seed or Series A stage. The companies in the space have largely not graduated to mid- and later-stage rounds. Also, interestingly, while one would normally expect follow-on rounds to be larger than the initial rounds, this is not the case in the Subscription eCommerce space. The heatmap below shows the distribution of Subscription eCommerce deal sizes by round. Just a handful of Subscription eCommerce startups raised Series C+ rounds in the past two years and many are of the size typically seen at the Series A or B stage.
Subscription eCommerce by Exit Activity
Exit activity in the Subscription eCommerce space shows little life, totaling just 7 exits in the past year with an average of 2 per quarter. And most of the acquisitions have been by larger players in the space acquiring struggling smaller players so while exits by the strictest definition, many are akin to what we observed in the daily deal industry earlier – asset sales or purchases of IP and customer lists and talent dressed up as acquisitions. For example, JusFab’s acquisition of ShoeDazzle was clearly a negative for investors in ShoeDazzle who included Andreessen Horowitz, Lightspeed Venture Partners and Polaris Partners who’d valued the company at ~$240 million in 2011 and who saw it sell for a rumored $10 to $40 million in illiquid JustFab stock (per PandoDaily).
