While the initial euphoria around subscription ecommerce had us wondering whether this was the next daily deal industry, financing activity to subcom as it is known to those in the know has never gotten to the absurd levels seen during Groupon mania. In fact, financing activity to subscription ecommerce has stayed relatively steady over time. Recent news from subscription ecommerce companies like ShoeDazzle who have moved away from the model and some exits in the subcom space which likely saw investors lose money (Foodzie for example) have served to keep enthusiasm in check (for the most part). Despite some headwinds, the subscription ecommerce industry which features companies delivering everything from flowers to condoms to cosmetics continues to attract investor interest and funding.
Subscription eCommerce Funding Activity
In the last two years, there has been $302.6m of funding from VCs, angel investors and accelerators with 65.5% coming in 2012. In fact, 2012 saw $195.0m in funding, an 81.31% growth in year over year (YoY) funding. Deal activity also ticked up by 65% going from 20 deals in 2011 to 33 subscription ecommerce financings in 2012.
Q4 2012 proved to be the biggest quarter for subscription ecommerce funding, spearheaded by Birchbox competitor GlossyBox’s gargantuan $72m Series B deal in December. Investors for this deal include Rocket Internet, Kinnevik, & Holtzbrinck Ventures. Dollar Shave Club also landed a $9.8m Series A deal in Q4, backed by Andreessen Horowitz and Kleiner Perkins Caufield & Byers, among other investors.
Deals in subcom peaked at 11 in Q2 2012 and almost exclusively consisted of early stage funding (Seed, Seed VC, and Series A deals) which has been a general trend given the industry remains nascent. Q2 2012 saw early-stage deals such as Bulu Box who deliver nutritional products and FirstCrush which offers personalized wine selections.
Subscription eCommerce Deal Size Trends
Despite deals being primarily into early stage companies, deal size grew to an average of $16.18m in Q4 2012 thanks to the GlossyBox deal. The median deal size paints a more accurate picture, at $6.35m, but is still higher than previous quarters in 2012 as some of the companies initially seed funded received follow-on funding.
Q4 2012 was a strong quarter for deal sizes, topped only by Q2 2011. In Q2 2011, subcom had an average deal size of $17.88m and a median deal size of $15.75m. Deal size was driven by two large Series C deals for ShoeDazzle and BeachMint.
Subscription eCommerce by Company Stage
The majority of funding for companies in this space as mentioned earlier is early stage and primarily comprises of Seed / Angel and Series A deals. Early stage funding makes up 76.92% of all funding rounds, with the average deal size for Seed / Angel at $1.12m, jumping to an average of $5.19m for Series A deals. Seed / Angel and Series A deals have seen positive year over year growth at 160% and 40% respectively, suggesting that we’ll see several subscription ecommerce firms looking for follow-on financing in the next 12-18 months.
Our numbers show that a much smaller percent of funding deals are Series B, C, and D, with no Series E+ rounds to date which is logical given the relative immaturity of the subscription ecommerce industry. Average deal sizes for the past two years were $26.53m for Series B, $18.33m for Series C, and $35m for Series D.
The heatmap below shows the distribution of subscription ecommerce deal sizes within a single round type. While Series A average $5.19m and Series C averages $14.75m, the heatmap shows Series A deals range from as small as $0 to $1m up to $10 to $25m. The same applies for Series C financings which saw a diffusion of deals ranging from $1 to $5m all the way to $25 to $50m. Long story short – Series A, B, C, etc means different things to different companies and investors.
Subscription eCommerce by Geography
Unsurprisingly, California received 45.5% of all funding deals to subscription ecommerce followed by the NY Metro area, MA, and TX. “Other” locations made up a large section of deals at 27.27%, driven by international companies.
Looking within California, Silicon Valley received a higher percentage of deals (25%) when compared to Southern California (20.45%). Even with this lead, Silicon Valley’s average deal size was $2.25m compared to the $13.42m average deal size in Southern California which is driven by a handful of large $25m+ deals in Southern California as the deal geography heatmap below illustrates. As can be seen, the majority of Silicon Valley deals are in the $1-5m range, while deals in Southern California are further spread out among higher investment bands.
Subscription eCommerce M&A
Exit activity to-date has proven to be a bit slow as might be expected given companies in the space are still relatively young. There have been a total of 7 exits, averaging 2 exits per quarter.
All exits have come via M&A (there is no subscription ecommerce company with scale enough to be considered an IPO candidate) with most exits companies being acquired by larger players in the space. For example, Q1 saw the acquisition of Glamourum by JolieBox; JolieBox was then acquired in Q3 by BirchBox.
Foodzie, the deliverer of artisanal foods, was also acquired. Given the exits have been startups acquiring other startups, these exits have not been wins for investors and are more suggestive of some early industry consolidation as weaker players get picked off by their stronger, more well capitalized competitors.
For those companies that had raised prior funding, the average amount raised prior to exit was $1.3m and the average amount of time since first receiving funding was 2 years. Overall, these were quick exits but again, not great outcomes for investors.
And finally one miscellaneous data note about subscription ecommerce — company naming conventions in the subscription ecommerce business are pretty unoriginal with 25% of the firms using the word box in their name.
Pre-order the full Subscription eCommerce Industry Report for $495 here until January 17, 2013 (otherwise $895).
Here is some of what is included in the report:
- List of investors into subscription eCommerce companies
- List of acquirers of subcom companies
- Financing activity – deal and funding trend
- Deal size trends
- M&A activity – deal activity trend
- Financing transaction detail
- Subscription eCommerce M&A transaction details
Pre-order the Subscription eCommerce report here.