While working through the opportunity and talking to many companies over the last year, we have developed a fairly constrained framework that attempts to maximize the opportunity of a large, i.e. “category-defining” outcome.
In general, we prefer a highly differentiated product in a market with historically low product innovation. We believe pricing power is a desirable goal and prefer high margins. In this context, we believe high barriers to entry can be a significant moat (limited suppliers, complex manufacturing, regulations).
We like products that are easy to ship. We prefer zero-sum markets, where we effectively remove the consumer from the market post-purchase. Usage data should improve the product or service over time. We like consumables, especially ones that embed themselves into daily routines. We like timeless products that are not subject to rapidly changing trends.
In general, a high frequency/repeat purchase rate is good. It not only lends itself to subscription, but can support medium AOVs. Higher AOVs, while good for profitability on first transaction, frequently imply a low repeat rate. We like verticals that exhibit high brand loyalty, which also serves to drive repeat.
We prefer verticals where there are a small number of highly consolidated incumbents that dominate the market. We like when prices are too high. We prefer when the incumbents have limited direct relationships with their end customer and are overly dependent on mass broadcast advertising and offline retail relationships.
Similar considerations apply to team as in typical venture investments, but ideally a DNVB founding team covers several key skills. We believe the core ones to be ecommerce, performance marketing, branding, community/social, design/production, and logistics/supply chain. We strive to back teams that exhibit deep consumer insight and have a true “authentic connection” to their chosen vertical. We look for a higher purpose than mere financial motivation.
From a perspective of brand positioning, successful DNVBs are often “mass aspirational”, meaning they market a fundamentally mass market product as an attainable luxury good. The goal is to make the end customer feel empowered, smart (value for money), cared for, and encourage an almost tribal sense of belonging. An Instagrammable look and feel and seven-star customer service completes the package by encouraging the consumer to share experiences.