VC-backed DTC companies can exit in two ways: go public, or get acquired. The public brands have performed poorly. Unfortunately, the acquired businesses have if anything done worse.

I’ve written about how most public DTC brands like Allbirds or Smile Direct Club are down 85%+ from their peak value. The performance of brands which have been acquired is much trickier to gauge as their financials are rolled up into the buyers’. Still, it’s possible to piece it together.

It’s not good. I remember the excitement in the DTC community when, in 2016, Unilever acquired Dollar Shave Club for $1B. Reportedly, Unilever was captivated by Dollar Shave Club’s meteoric growth trajectory as well as the potential to leverage its data to optimize its overall portfolio. Many VCs underwrote their DTC investments based on the sale. However, last week, Unilever announced it is selling Dollar Shave for “an undisclosed amount” which is corporate speak for “not much.”

Dollar Shave is probably the most prominent, but, from what I can tell, the vast majority of $100mm+ VC-backed DTC acquisitions have gone poorly.

Nestle acquired Freshly, the meal delivery service, in 2020 for $950mm. Earlier this year, they completely shut down Freshly’s DTC service.

In 2020, Lululemon bought Mirror for $500mm. It recently announced it’s fully discontinuing new hardware sales.

Walmart bought Eloquii in 2018 for $100mm. It was sold this year for–there it is again–an “undisclosed amount.”

I can keep going, but hopefully you see the point. So why have DTC acquisitions in general gone so poorly?

A commonly cited explanation is a cultural mismatch between the fast-moving DTC startups and the “staid, old” CPG companies who don’t understand DTC. But I think that’s wrong.

One of the most successful DTC acquisitions was P&G’s purchase of Native, the deodorant company, in 2017. Native has continued to grow, is profitable, and was brought to retail by P&G. Why did this one go well?

Native was profitable and cash generating at the time of acquisition. It had to be because it raised almost no venture capital. Profitable, growing companies almost by definition have product-market fit; you can’t have profit + growth otherwise. Brands with product-market fit are primed to scale.

Conversely, Dollar Shave Club and many other acquired VC-backed DTC businesses had poor fundamentals. It has been reported, for example, that in 2017 Dollar Shave Club was paying significantly more to acquire customers than their lifetime profit. At the time of acquisition, DSC was almost certainly losing tens of millions per year. And the promised benefits of Dollar Shave’s vast corpus of data did not materialize.

The ultimate reason most DTC acquisitions didn’t work out is not because the acquirers managed them poorly or there was a cultural mismatch. It’s because the brands’ growth was a mirage fueled by venture capital subsidies; they mostly had fundamentally poor economics from the beginning.