Lerer Hippeau’s Andrea Hippeau: The DTC market is overcapitalized

Lerer Hippeau was one of the first investors in companies like Warby Parker and Casper. Before there were hundreds of other companies selling products DTC, these companies were able to acquire a large number of customers for relatively cheap by advertising on Facebook.

Now, Hippeau said, “Facebook and Instagram are no longer profitable ways to acquire customers.” Instead, brands need to focus on alternatives, including Pinterest, Reddit, and Quora.

Hippeau recently discussed how to sell on Amazon without totally surrendering control to the platform, and how to identify the right retail partner. Answers have been lightly edited for clarity and length.

When you look at these consumer brands, it’s pretty unprecedented how big VC investments are getting. How do you go about raising that much money and not getting in a position where you’re too big to go anywhere else?
There’s an issue in the market with companies being overcapitalized, especially when it comes to customer acquisition. You can really quickly convince yourself that you have sustainable customer acquisition channels when you were buying customers on social. But the reality is it’s a very quick race to the bottom.

If companies raise too much too early, then the issue is you’re not really figuring out what are your sustainable channels. Because you are able to just pour a ton of money into social, and you’re not realizing “Hey maybe Pinterest was my better platform, or opening a store was actually maybe a better way to go.”

What is a smart Amazon strategy? How do you maintain that brand control and not just get washed away?
You should be selling your premium products on your site. Our office is in SoHo, and the line around Supreme every single day just mystifies me, but people love exclusive product drops so you should really be keeping those for your own selling. Gifting can be a great thing to keep on your own site, and then on Amazon, maybe you come out with with a more middle-priced point item. That is for really a great product but not necessarily a special product.

When brands come to you, are there specific questions you ask to suss out if they have a sufficient Amazon strategy?
It’s surprising how few early-stage founders even think about that — so when someone has come to us and has thought about it and has a more thoughtful plan for going to those other channels, that’s really what we’re looking for, and that you have a product roadmap that kind of allows you to have the margins to sustain a business on those other channels.

As you see brands going into Target or Nordstrom and working with bigger retailers — how can they go about doing that without losing that magic when they first launched?
I have to give credit to retailers like Target or Nordstorm. They understand that a Casper pillow shouldn’t just sit on a shelf next to all those other pillows, and really let those brands have their own experience in their stores.

We worry more about how long it takes to work with a big retailer, and how quickly you can work with them. The amount of resources you have to put towards that just to get across the finish line — is that really good use of those resources, when instead of maybe working with Target you could instead open two of your own stores?

How can brands identify sooner rather than later that a retailer is going to move fast enough for them?
A lot of times, a smaller brand is afraid to ask Target, “How long is this going to take? What’s the process?” Because they’re just so excited by the opportunity.

The other thing is not being afraid to say “no” if it’s not the right timing.  A lot of times early stage companies feel like, “If I say no, that door will be closed forever.” But I think it’s actually better to say “no” and come back to that retailer when you know that you can really do a good execution, rather than saying “yes,” overwhelming yourself with limited resources and doing a bad rollout. If you build a really great brand and company, those retailers are going to come knocking today, tomorrow, a year from now.