DTC Briefing: Fast’s flameout is a warning sign for startups looking to fundraise in 2022
This is the latest installment of the DTC Briefing, a weekly Modern Retail column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. To receive it in your inbox every week, sign up here.
This story has been updated following the news that Fast is shutting down.
One-click checkout startup Fast has been the subject of intrigue and online chatter nearly since the day it launched. The company burst onto the startup scene in 2021, and less than six months after publicly launching its one-click checkout product, the company announced it had secured a $102 million funding round led by Stripe. Flush with cash, Fast was in a good position to become a more prominent player in the e-commerce space.
But, only one year later and the party may be over for Fast. The Information reported in a series of stories last week that Fast is considering layoffs as well as a sale, as the company allegedly burned $10 million in cash per month for most of last year, and is also reportedly struggling to raise a new round of funding. (Editor’s note: Fast announced on Tuesday afternoon, after this story was published, that it was shutting down).
This has made an intense atmosphere for employees. According to two sources familiar with the matter that I spoke with, some Fast employees started canceling their pre-planned meetings at Shoptalk last week and started interviewing with competing companies as rumors of layoffs swirled throughout the company. Fast’s PR firm did not respond to a request for comment from Modern Retail.
The one-click checkout space is uniquely challenging, as I have previously written about. But Fast’s fundraising struggles may be emblematic of other challenges e-commerce startups may face fundraising in 2022. After last year’s fundraising bonanza, with a record amount of venture capital being invested, some startups — particularly those with eye-popping valuations — are encountering more skeptical investors.
Fast’s trajectory is a stark example of just how much things have changed from only a year ago. The company attracted more than $100 million in funding before its product had been in the market for a full year. Now, after its one-click checkout product reportedly only brought in around $600,000 in revenue last year, Fast tried to raise a $100 million Series C round last year — but found no takers, according to the Information.
It may be indicative of a major shift. “Venture and private investing have become very momentum-based,” Mike Duda managing partner at venture capital firm Bullish told Modern Retail, commenting generally on the venture landscape. “And for the past several years, momentum has been up and to the right.”
Indeed, over the past two years, e-commerce startups have been buoyed by increased levels of online shopping — the Department of Commerce reported that e-commerce sales were up 14.2% between 2020 and 2021 — as well as low-interest rates. That fueled more investor interest in e-commerce startups — and particularly in tech startups that helped power e-commerce startups. That’s partially why Fast was able to secure such a large amount of funding in such a short period of time, and why competitor Bolt was able to reach an $11 billion valuation earlier this year. Investors have previously warned that the opportune fundraising environment won’t last forever — and there were already signs that DTC startups in particular were falling out of favor with investors.
But even outside of Fast’s struggles, warning signs abound — and the fortunes of e-commerce startups looking to fundraise have started to change more rapidly.
Inflation, as well as the Ukraine-Russia war, continue to be ongoing areas of concern, as investors wonder how they will impact consumer appetite. The CEO of RH — the company formerly known as Restoration Hardware — had a pessimistic outlook on the economy on last week’s earnings call. In his remarks, which later circulated widely, he called this environment the most difficult time since the Great Recession.
There have also been reports of other e-commerce startups having trouble fundraising in recent weeks. The Wall Street Journal reported last month that children’s clothing startup Rockets of Awesome was allegedly looking for a buyer as it was having trouble fundraising. The Information also reported that shoe startup Atom was able to pull together a bridge round from existing investors this year as it was bracing for a downturn in the market — but not after cutting costs, including reducing its spend on Google search ads by 50%.
Duda pointed to the performance of publicly-traded companies as one of the factors that’s also soured the fundraising environment this year; the companies that went public last year have reported historically dismal returns.
“I think if you are raising your next round, the next round could be challenging at a valuation upgrade,” Duda said. However, he believes that the fundraising environment ebbs and flows due to various pieces of news. He said he knew of a few companies that went out to raise their Series B or C round at the end of January — coinciding with some negative headlines about IPO performance last year — but that the hesitancy “seemed to go away in three or four weeks to some degree.”
The reality is, Duda said, “people still want to do deals.”
Camp is the latest retail startup to partner with Disney
Disney has quietly become a prominent partner of e-commerce startups. The entertainment conglomerate’s Pixar arm has partnered with Asian-led brands like Fly by Jing and Sanzo to promote some of its latest films.
Now, Camp — a modern toy store that rotates through different themed in-store experiences seasonally — announced that its latest experience will be sponsored by Disney. Camp previously went through Disney’s startup accelerator last year.
The experience, centered around Disney’s Mickey & Friends line of characters, will kick off at Camp’s New York city flagship location, and will eventually make its way to the company’s seven other retail locations. The company also said that Camp will launch two more Disney-themed experiences in 2022, though the company declined to share more details on what those other experiences will look like.
“Collaborating on this project with the team at Disney has been a dream come true,” Camp co-founder Ben Kaufman said in a press release.
What I’m reading
- Business Insider has a breakdown of the most notable startups founded by former Shopify employees.
- Grove Collaborative is expected to go public via a SPAC soon, but has to contend with slowing growth. Retail Dive has the deep dive into Grove Collaborative’s financial outlook.
- Fast-fashion startup Shein is reportedly out fundraising right now, and is seeking a $1 billion valuation according to Bloomberg.
What we’ve covered
- As beverage industry insiders have noticed, Ugly Drinks seems to have quietly shuttered operations in the past few months. The company’s trajectory highlights the challenges startups face in the beverage space.
- The supply chain crisis has been tough on bootstrapped brands. Here’s how startups like Weezie and Branch Basics have financed increasingly expensive production orders.
- Livestream platforms are increasingly trying to woo DTC brands. Here’s how one platform, Talkshoplive, is working with food and beverage brands like Brightland and Nomadica.