You don’t need me to tell you that startups haven’t been doing great since the funding slowdown and valuation reset started back in 2022. But while some companies will be able to survive on cash reserves or be propped up on inside funding, others will be forced to either liquidate or exit under less-than-ideal circumstances.
Such is the case with Parade, which earlier this week was acquired by Ariela & Associates International, a more prominent player in the intimates space. Ariela & Associates also owns Fruit of the Loom, if that gives you any indication of how prominent it is. Parade could not be reached for comment by press time.
Parade was founded in 2019 as a direct-to-consumer (DTC) startup that looked to go against the Victoria’s Secret–inspired norms of the intimates industry by offering sustainable, comfortable intimates in a wide range of sizing options. The startup was last valued at $203 million in September 2022, according to data from PitchBook, after raising $56 million in venture funding from firms such as Maveron, Vice Ventures and Lerer Hippeau, among others.
And while we don’t know the terms of the deal, it’s safe to assume that in today’s market, if a company were getting acquired for a solid exit, it would be shouting it from the rooftops. Investors would be putting out a press release to celebrate the return they made, and there would have been interviews booked in advance so the company could brag about how this was the perfect next step.
The lack of pomp and circumstance from the folks who had potential to make money off the deal is telling; we know better than to assume the best in a market like today’s.
But regardless, this might not be a bad outcome for Parade, says Nik Sharma, a brand strategist and the founder of Sharma Brands, who has years of experience in the DTC space. “A lot of tech investors put these ridiculous tech valuations, and tech growth expectations, on consumer brands, which doesn’t make sense for a lot of reasons,” Sharma told TechCrunch+. In fact, he said that he passed on Parade last year because its valuation was too high. “You can’t force someone to adopt a brand the same way you can get people to adopt Chat GPT. They aren’t going to become familiar with [DTC clothing brand] Outdoor Voices overnight.”
Getting acquired by a company that already has scale means increased production and ability to create new products. While we can assume that the investors didn’t likely get much, if anything, back from their investment, the customers and fans of Parade don’t lose access.
This exit also offers a clue to what may happen to other DTC startups in this market, considering it’s a category that has fallen in and out of favor with venture investors over the last decade.
The current batch of DTC startups might be the industry’s second wave. Sharma said that some of the companies and brands he works with are still seeing strong growth this year despite the current conditions, but many — especially the venture-backed ones — are going to find themselves as victims of their own fundraising success.
“I definitely think a lot of venture investors are to blame,” he said. “Most have no idea what they are investing in. They have no idea how the brand works or how they are even going to make money.” And it doesn’t seem that investors are likely to bail out their portfolio companies anyway.
But at a time when VCs are looking for efficiency, it doesn’t help that DTC companies don’t tend to be the leanest businesses. Not only do they have inventory, but they also have pretty lofty customer acquisition costs and must rely on customers returning to the site, which is harder than someone, say, stumbling across the product in a store.
Not to mention that there haven’t been too many success stories when it comes to venture-backed DTC brands. Just look at Warby Parker and Casper: Neither has become a home run even though they caused a lot of buzz when they launched. Warby Parker went public less than two years ago at a $6 billion valuation and now has a market cap of $1.4 billion. And Casper was acquired two years ago for less money than it raised from investors.
In the business of hype investing, also known as venture capital, it seems that VCs’ renewed interest in the DTC category is likely returning to a simmer, at least in the foreseeable future.
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