The Rise, Fall, and Future of DTC
By Stephanie Liu , Founder Levitate Foundry
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Following the pandemic, money was finally “growing on trees.”. Large institutions had record-low interest rates; Venture Capitalists raised and deployed money like crazy; and consumers had stimulus funds that they were spending.
Money was flowing fast, and in 2021, VCs invested ~$5 Billion into DTC brands. But then: It all came to a slamming halt. In the two years following, they only invested roughly $130m, a 97% drop.
So what went wrong?
The core miscalculation? VCs treated DTC like software companies, adopting a “Grow at all costs” mindset. While software companies can justify it with high margins (often 70-80%), recurring revenue, and near-zero marginal costs, DTC brands face a different reality:
Physical inventory that ties up capital
Margins that rarely exceed 65% (and often hover around 30-40%)
Rising customer acquisition costs
Supply chain vulnerabilities
Easy-to-duplicate products in increasingly crowded markets
This fundamental mismatch created a perfect storm when macroeconomic conditions shifted: Stimulus checks dried up, inflation surged, and interest rates climbed. Suddenly, late-stage DTC brands found themselves in an impossible position: maintain growth with unprofitable unit economics, or face down-rounds and potential bankruptcy. We saw a mix of each of these happen with Casper, All Birds, and Outdoor Voices.
What should Ecom/DTC founders do in 2025?
At Levitate Foundry, we've worked with over 300 seven-figure eCommerce brands. The survivors and newcomers are writing a new playbook that looks nothing like the 2021 model:
Category Creation Through Deep R&D
Winning companies define their category. Think GoPro, Peloton, or Keurig. When successful, this gives you time to take market share before competition comes into the space. So take your time and find an unserved part of the market and offer them a solution that’s hard to replicate.
Media first
The ideal is becoming a media brand that sells products, not a DTC brand that has social media. The best example of this is Hot Ones. Find your podcast series or founder-led content strategy and double down on it. This will help you validate your product as you go to market and reduce your CACs.
Subscriptions
This one has been and always will be a key to success. Having a subscription increases your AOV. Plus anytime a customer pays upfront for a full annual subscription, it gives you more money to pour back into growth right now.
Affiliates first
The rise of TikTok Shop has made it easy for brands to drive both sales and brand awareness at effectively zero cost. Plus, it allows you to discover what type of creative messaging works before you start spending money on paid ads. Brands in 2025 will be going from 0-1 with social commerce strategies first.
Only raise when needed
Smart founders will hold off on raising VC money until it’s clear that they have product market fit and the economics to scale properly. Put yourself in a situation where VCs are begging to be in your round instead of the other way around.
In conclusion
DTC and Ecomm brands have had sharp rises and harsh falls over the last 5 years. The next 5 years will be defined by how founders decide to scale their brands strategically rather than being fueled by free cash. Winning brands will use AI to scale their brand, but at their core create products and communities that bring humans together.
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