The Surprising Power Broker Backing E-Commerce Startups

red Antler isn't a traditional startup investor right. It's a branding agency that brags on its website quote, we've launched more businesses than anyone else. Red Antler owns shares in about eighties startups, and about half of red Antler's business comes from people like Abigail, founders who haven't officially launched their companies yet. Investing in startups is a famously risky business to get involved, but if you back the right companies, you can make a lot of money. And over the years,

red Antler has done just that. Only it didn't give money to the startups it picked. It gave them man hours designing websites, developing marketing strategies, helping get their client's brand name on the radar of new customers. Some of them might be companies you've heard of Casper Mattresses, All Birds Running Shoes, and the wholesale retailer Boxed. But the chances aren't you haven't heard of red Antler, even though their work could be silently influencing some of the shopping

decisions that you've recently made. Hi, I'm brad Stone and I'm jin Cow. And this week on Decryptive, we're taking an inside look at the way some new e commerce startups are preparing for launch. Silicon Valley lore is full of stories of startups that through out of some Palo Alto garage, But today a handful of branding agencies like red Antler command a lot of influence behind the scenes, shaping brand new companies before they make them for sale.

And here in New York, new e commerce companies are appearing all the time, and it's getting harder to grab customer attention. It's part of the reason branding agencies are in such high demand, as well as the fact that many of these companies will collapse that they can't find enough customers quickly. So just how much power does a firm like red Antler, really Wheel and what's so special about being able to work with them? Stay with us? So jing tell us more about Abigail Stone. No relation

to me. The start of founder we just heard about. Abigail is twenty nine. She got her start at Ralph Lauren by Ne Eclectic Objects to decorate their stores. She exudes a lot of grace, matching sleek outfits with big bold earrings. In early as she was finished ing up business school, she came up with the idea for startup selling luxury candles online. My friends from school set off their shiny, fancy new jobs, coushy salaries, bonuses. Um, you know, I set out to my kitchen standing table to start

my company. I think it's fair to say Abigail is obsessed with candles. She was all in on her idea, but she had trouble convincing investors to back her. So I was like blugging around the suitcase of candles nine degrees and like I was a subway and listening and like nothing was happening, and you're like trying to start and you can't get any traction, and so that was really hard. Around that time, she approached right Antler. Abigail had once taken an online last top by one of

the founders, Emily Hayward. Ever since then, Abigail had wanted to work with them. So I went to read Antler with this big tope bag of different candles from the market, and I spread them all out on the table and I couldn't really read j V um. I wasn't sure he was feeling it or not. JB Osborne is Emily's business partner. He and Emily started read Antler ten years ago. Now they have eighty employees in an office in a

large industrial building in Brooklyn. And then the next day j V sent an email and he said, um, we're still thinking about candles, not totally sure. We would really like you, you want to get to know you better, and like Simsis is pretty early on, Like let's keep the conversation throwing. What was the initial sort of skepticism, right, she yeah, so I remember this part. This is Emily here. I remember j B said to me, I want you to meet this founder. I absolutely love her, but are

candles enough to launch a business around? I mean, that's my initial reaction to our luxury candles really a thing? You know? I felt the same way at first two. But yeah, they're actually a thing. How much do they cost? At the high end, a candle can cost about a hundred Wow. The only candles I buy are those blue tinted Hanukah candles and they cost twelve dollars at Walgreen's.

It's because they don't have the luxury sent Candles are actually about a three billion dollar business just in the US, and it's growing, and the high end candle category is growing the fastest. Abigail thought she could make candles that looked and smelled just as good as those, but sell them at a better price. JB and Emily might sound strangely critical for a brand the agency vetting a potential client. In most cases, it's the client who picks the agency,

not the other way around. But red Antler is actually in such high demand j B and Emily can basically choose who they take on, and they're taking a big risk. While they do charge a fee to cover costs, and those fees can be pretty expensive. By the way, red Antler often gives a profit to take shares in the startup, just like a venture capitalist would, and a stake in your company is just about the most valuable thing a

founder can give up. In Abigail's case, Emily and JB also needed to be convinced that there were enough candle fanatics out there to make the business idea viable. Hey, guys, welcome to another video. Let's talk candles. I'm borderline having a candle addiction. I am obsessed with candles. Hey guys, it's me Drew and I am here to do a Yankee candle hall and I picked up the World Journeys Sonoma Helly red Little. Today We're going to do a

blindfolded candle challenge. I'm a candle over candles. Eventually they decided there was an opportunity, so Abigail and Red Antler started working together in October of That opened up resources for Abigail that most founders can only dream up. How many people on the red and art team or working on this U s okay, let's see, uh so Daniel and Grace on the creative side, Um, Jonah and Molly on strategy, there's Caroline, there's Debbie was there at one

point on production? Um Scott chaps. It took Abigail another minute to finish listing everyone, but in total it was more than twenty people. Most startups can barely afford a branding agency, let alone getting access to so many people. Red Antler served as fragrance testers, package designers, cheerleaders. They helped create the brand, developed the strategy, build the website. They even came up with the name. Our team was really excited about other Land, but it definitely felt like

the wild card in the bunch. Yeah. I always wondered about in strategy and we were like, wouldn't it be cool if Abigail shows other Land, but she's probably not going. And when she did, I remember our team being so excited and I'm trying to remember what the other names? Do you remember? Yes, please consider dedication. And then my other favorite was Mammal that Abigail also got to take advantage of red Antler's address book even before she had

the money to officially hire them. So I introduced her to a bunch of um you know, angel entrepreneurs funds and said, like, hear all the people I think you should talk to. That's important because JB said earlier that when Abigail first approach red Antler, she had no funding. JB and Emily connected her with more than fifteen people, and once Abigail started name dropping red Antler, investors started paying a lot more attention to her candle company. It

gives you a little bit more legitimacy. UM. The meetings available tomorrow instead of in a couple of weeks and doesn't get rescheduled. Still, Abigail got about fifty knows from investors who didn't want to commit, but several investors told

me that red Antler's endorsement matters. Like Brian Nicholson, an l A based investor who has worked on deals with brands including Refinery twenty nine and Reformation, if if I know that JB and the team has invested in this business through through their work, UM, I think that says a lot about the chances of the company's success. Brian was one of the contacts on red Antler's list. He did a end up investing because of timing issues, but said red Antler was a big reason he looked seriously

at Abigail. Had I met her without um knowing that red Antler was behind her, and secondly, not being able to see the kind of visuals that they helped her create, I would be skeptical on the ability to disrupt the candle category. After about six months, Abigail had backing from a Vemo co founder, founders of plus size brand Deah and Co. And all five founders of the mattress company, Casper,

one of red Antler's existing clients regulars. Role here sounds a lot like an incubator, like a white combinator, more than a branding agency. Right. A program or startups apply for the chance to work with mentors and meet investors. Except you don't usually hear about branding agencies offering these kinds of services or getting this involved. Helping startups fundraise, preparing the slides for investor presentation, and brokeering intros in

first place. That's becoming a key service red Antler offers. And not just read Antler. I mean there are other agencies I've heard of. There's one called gin Lane that launched the Razor brand Harry's for example. We've helped out with a lot of investor decks. In many ways, the investor deck is the perfect microcosm of the story of the brand. But redd Antler has gotten pushedback from startup investors who think the agency is overstepping its role. As

we got to now more vcs. They were like, yeah, that's nice. Why don't you just stick to what you're good at. One investor told me he didn't think red Antler should be taking equity on top of charging for their services. I think their opinion was just there's no way that we could understand how to do it, or that our deal full would be good enough for whatever.

They're like, their selection bias, if you name it. Others said the firm has a reputation for being expensive, so startups that ultimately fail end up with buyer's remorse after spending upwards of hundreds of thousands of dollars for the service. But several people conceded that red Antler gets to take shares because they just have that much leverage. They have their pick of new clients and limited slots to fill. Jing we're able to find out how much equity red

Antler is able to negotiate it. Yeah, I asked JB about it. Can you share the range of equity that you would typically take? Jan I love it. Um, Yeah, I mean it really ranges depending on the station of business. How you know, how we're involved while we're delivering, But you know, generally we're taking positions anywhere from like one to five. Ticking equity is definitely unusual, but startups do sometimes give up shares in exchange for services like pr

or legal help. And it's not like venture investors always get their bets right. E Commerce is a notoriously difficult sector to succeed it. Several er e commerce startup that got a lot of hype and raised a lot of money from experienced tech investors have collapsed. All that easy money fueled fast growth, creating a grow at whatever cost.

Mentality in the startups couldn't keep up, like fab dot com once valued at a billion dollars but sold in for only fifteen million, or Guilt Group sold to Hudson's Bay in early two and fifty million dollars. That's just a quarter of what is once worth. I don't think vcs are trying to screw up those businesses intentionally, but the reality is if someone gives you a million dollars and says like, oh, like do you want it, and you spend it, you're like cool, but not not any

two million. It's like a drug. And they learned to operate as a company that has the means to do things that they maybe shouldn't be doing red Antler's former client, One King's Lane and online furniture store. They went through just that kind of experience. One King's Lane is probably one of the biggest flops in right Antler's portfolio. I think it was the first thing we ever worked on

that was a household name. One kings Lane raised on twelve million dollars from investors at evaluation of nine million dollars, but less than three years later, the company sold a bed, bath and beyond for only twelve million dollars. A whole bunch of money started pouring into these fast growing commerce businesses, but it was all based on off price merchandise and discounted pricing, which was great for the customer, but there

wasn't much margin. Uh, there was no way to become the billion dollar business that you know, it was sort of promised. So venture capitalists have started to reevaluate their approach to e commerce investments. At the same time, other investor types, private equity firms, family offices have also started backing some of these emerging brands and flops like One kings Lane haven't deterred startups from wanting to work with

Right Antler. J B says they advised companies to become profitable sooner and make sure the business has decent margins. The biggest challenges it's just getting harder to stand out. I mean, here in New York, we're seeing an explosion of tiny e commerce brands, and they're all competing with each other on price and for a piece of the customer's attention. So jing what about girl fashioned product differentiation or innovation. Randler told me that increasingly these companies are

actually copying each other's business models. So it's your brand and your marketing strategy that helps you differentiate. I mean, think about how many mattresses in a box have popped up since Casper started up. This is you know, it's it's a candle We didn't reinvent the candle um were we made some choices along the way that became with a lot of thought and make it a little bit different,

But it's it's a candle um. So really like differentiating it with this brand experience is kind of all we can do and in the category, but there's no guarantee a slit website and some cool images will be enough to make other land a success. Coming up next to the luxury candle seller other Land officially launches and we'll see whether the brand that red Antler built is enough to help Abigail's company cut through all the noise welcome back. So at this point, Abigail and red Antler have spent

the year developing other Lands candles and brand. Last fall they set a launch date of December twelve, two weeks before Christmas. All right, we're ready to get a few more. Yes, it was crunch time. One of the last pieces was an elaborate four day photo shoot the stylish Brooklyn town

house in November. Because it's the e commerce, you can't rely on the set, Like the scents are incredible and that's what's gonna get someone to come back, but we had to draw them in through something else, Like we needed the candle itself to be an object of desire without ever having smellment. Just before lunch, boxes and boxes of candles were stacked up against the wall of Abigail's new office in preparation since other Land was doing its

own fulfillment to control for quality, make sure. So this was like, well, imperfection in the wax, I'm gonna pull up aside. There were last minute crises to deal with, like the adhesive for the box wasn't sticky enough, And it might seem like a small thing, but if you're going to ship out product and there's any chance that that box is going to open while it's getting shipped,

that's like a that's like catastrophic failure. And then they found out that some of the candles of one cent were wrongly labeled and had to reopen dozens of packages to figure out how many were affected. So you sort of give yourself ten seconds to totally freak out, especially being like sleep deprived, and then you figure out how to fix it with just days to go before launch. Abigail fixed the box issue with extra tape and a drywall scraper to increase the fold in the cardboard. Abigail's

new company faces competition on two fronts. There the actual candle sellers like Nest, Diptique, and La Labo, and she's hoping to beat those players in part on price. There's also the influx of e commerce brands in general that she's up against. There's some irony here because in a way, Red Antler seems like a victim of its own success.

JB and Emily had some blockbuster launches early on, like Casper, the mattress company, which red Antler took on before they launched j B. And Emily told me they've had more than thirty requests from aspiring mattress. I was hoping to replicate what they did with Casper. I checked in with Abigail the day before launch. Right now, I'm tired. I'm so excited. Um definitely like running on fumes. We were

here till four am last night. Abigail set herself a few milestones, how do we acquire our first hundred customers? And so I'd say, sort of first one hundred customers, and then like first one thousand orders are are what we are really really focused on. Finally, on December twelve, Other Land went live. I was excited, after all these weeks of following Abigail attending the photo shoot, a planning meeting, to finally see what the website was like, I'm looking

at it now. There's a big photo from the Brooklyn Townhouse with a very handsome, sharp pay feed drinking prominently in front of an old marble fireplace. Once other Land went live, marketing became all important. Abigail needed to start reaching potential customers, but ideally without having to pay for promoted post or search ats. That's why I read Antler and Abigail worked for months just on the box. It

is your customer's introduction to the brand. Um ideally it's something that's so fabulous and exciting and engaging that it might be filmed on a camera and ideally not just filmed on camera, but posted to social media, posted to the Internet. I have to say, Jing, I was sort of ready to be a little cynical about red Antler's kind of impact on an e commerce company like other land, but it's it's clear to me, like how much work had to go into launching a brand and how little

Abigail came with when she had this idea. I think it's an evolution of what is required for e commerce. Right, Like you know, five years ago, you can have a simple looking website with not very much content and you can still make good business out of it. But consumer expectations have totally changed. And the other thing that's changes,

like all the basics are are already done, right. You can get cloud storage with Amazon, you can have Amazon's fulfillment centers run your business, and so like the differentiator piece is really this branding, like how do you stand out amid the crowd. It's it's no longer going to be like the technical technical stuff or the supply chain stuff. So so maybe it is sort of red Andler's time exactly.

I mean, anyone can do it. How do you think they do when it comes to like product number two or taking a company like other Land from this launch experience into the next phase of its business. Well, so what they told me is that they're really really good at the launch, you know, figuring out the initial brand, strategy, the operations. As the company grows, they get less and

less involved. The other thing is, you know they they obviously were very involved in the launch of a company like Casper the the online mattress maker, but like so much success in the space after you get past the launch is like this, this sort of grisly battle over search ads, you know, paying for people to view your content,

um outbidding your rivals. Like if other Land is successful, there might be more luxury candle sellers online, and so you know, these businesses tend to mature, and red Antler, you know, might have to get its hands dirty switching. We're not recording this in late January. Other Land launched about six weeks ago. How's Abigail doing. We've seen some great press coverage. People are excited about the brand, the products for all the reasons that we're excited about it.

A lot of engagement on social stuff that I think is really critical at the stage of the business is orders that are exceeding your expectations, which is happening. When I spoke to Abigail before she launched, she told me she was watching for how quickly she could acquire a hundred customers. Now she says she's almost at a thousand cost timers, and she sold more than a thousand candles. But we saw that was really exciting that people who bought the first couple of days, then a lot of

them then came back and purchased gifts or um. If they had gotten one cent, they would get another cent or a three pack to try more. Abigail said return customers is actually the metric she's most focused on. So how many of our customers have come back and placed a second order, a third order, a fourth order, a fifth order. We've had a couple of those, So it sounds like these first critical weeks have gone relatively well, it seems so, but the Other Land is still at

the very beginning of its life as a company. You know, success ultimately is getting to a place where you start seeing Other Land and your friend's apartments, your friend's home, or in a restaurant, in a hotel. And to get there, Abigail will need to keep winning over new customers and keep the old ones coming back. It usually takes years for company needs to start making a profit. And that's it for this week's Decrypted. Thanks for listening. We always

want to know what you think of the show. You can write to us at Decrypted at Bloomberg dot net or I'm on Twitter at brad Stone, and please consider leaving us a rating and review on Apple Podcasts or wherever you like to listen. It really helps us find new listeners. This episode was produced by Pia gut Kari, Liz Smith, Magnus Hendrickson, and Christie Westguard. A big thank you to jen Ca, who recently moved on to the startup world herself. We miss you Chanting. Francesca Levi has

had a Bloomberg podcast. We'll see you next week.