There is still VC money out there for subscription ecommerce – when the growth and engagement metrics are healthy enough that is. Los Angeles startup ClubW proved as much by closing a $3.1 million Series A round led by Crosscut Ventures with participation from Guild Capital, Siemer Ventures, Adam Goldenberg, Csaba Konkoly, Brener International Group, 500 Startups, and its accelerator Amplify. Crosscut venture partner and Intelligent Beauty co-founder and CEO Adam Goldenberg will join ClubW’s board of directors.
“Ecommerce is getting a bad wrap in the VC and investor community right now, but were quite bullish on the category,” Amplify Executive Director Jeff Solomon says. “On the one hand ecommerce needs money to feed the customer acquisition engine. On the other hand its one of those categories that can weather funding storms because companies have cashflow. We’re gonna double down on the space this year.”
ClubW is what the wine of the month club would be if it were invented in 2012 rather than 1972. Rather than simply deliver a new selection of wines each month, the company relies on an initial taste quiz, and ongoing customer reviews and feedback on each shipment to create a personalized wine profile for each member.
As the membership progresses, machine learning algorithms ensure that the selections become more and more tailored to each drinker’s palate. ClubW even offers a full satisfaction guarantee. If a member is ever unsatisfied with a bottle, they just notify the company and get an additional bottle free the next month – they don’t even have to return the unsatisfactory bottle. (Jackpot!) The company hasn’t seen any patterns of abuse, yet, but would likely ask a member to shop elsewhere if the did, ClubW CEO Xander Oxman says.
The ClubW membership, or subscription, entitles each customer to three bottles of wine per month for $39, and members can cancel at any time. That $13 per bottle, including delivery, is supposed to get you approximately an $18 retail value wine. But price savings are just a bonus after the personalization.
The startup carefully curates a selection of approximately 40 different wines each month – typically 50 percent domestic and 50 percent international, and two thirds of which are typically not available in retail locations – and can accommodate reorders of most past bottles at a member’s request. Since beginning shipments in March 2012, the company has delivered over 100,000 bottles of wine, but would not disclose its membership figures.
The $39 per month price point is one where members can easily “set it and forget it.” As our Sarah Lacy is fond of saying, she was gladly paying Brian Lee’s Shoedazzle the same amount each month for a pair of shoes, whether she remembered to log in and place her order or not – making replacement CEO Bill Strauss’ decision to kill subscriptions (and eventually bring them back) all the more maddening. For less frequent wine consumers, ClubW offers a quarterly delivery option as well.
For members in locations with adequate wine selection, like California and other major metros, ClubW is mostly about convenience and a little bit of discovery. It’s also about never having to get home and open a $20 bottle of wine only to find out that it’s terrible. For those living outside these areas, the service gives members access to product that they would never otherwise encounter. Current membership is roughly equally representative of both groups, according to ClubW’s CEO. The company can currently ship to 40 US states based on Alcoholic Beverage Control laws.
The biggest challenge facing the company is actually deliverability. Laws require that the packages be accepted and signed for by an adult, meaning someone must be available to receive them. Many customers end up sending them to their office, Oxman tells me. The service is also extremely successful in New York and Chicago due to the prevalence of doormen.
Despite the added personalization magic, ClubW still faces enormous competition in the space. The first and still longest running “Wine of the Month Club” (which operates by that name) started in California in 1972. Today Wine.com is the 800-pound gorilla in the category, offering both clubs and a la carte ecommerce options. Individual retailers and vineyards offer their own subscription delivery services as well. The biggest challenge for the young startup is going to be building awareness amid all this noise. Secondarily, it will need to educate consumers on its differentiation. Making things that much more challenging, until it gets to a massive scale, ClubW will always be at a purchasing and fulfillment disadvantage to these more established competitors.
The startup currently has 10 employees, and outsources all fulfillment to a group in Napa, California. The new funding will go primarily to ramping up customer acquisition efforts through both online marketing, and offline grassroots campaigns.
Given the uncertainty around ecommerce in general, and many of the local category leaders in specific, ClubW is fortunate to have raised this round. Its atypical fundraising strategy may have contributed.
“This deal was one that raised money in tranches which helped ratchet up valuation and build confidence metrics,” Amplify’s Solomon told me by email. “This is the way we approach raising money in this market $50k, $150k, $300k, $750k, etc. It’s hard to just go out there and raise a $3 million Series A.”
There are a lot of options for where this thing could go. Oxman has considered vertically integrating, by either producing or white labeling his own wines at some point in the future. The option also exists to add various price tiers offering higher quality (and higher margin) product. Currently, however, the CEO is focused on finding the best product available at the current price point and developing long term sustainable relationships with its suppliers.
The wine of the month club idea is not revolutionary. Using real technology to match wine drinkers with their ideal bottle of wine is more interesting. Yet there’s no way of knowing whether this twist will be enough to propel ClubW out of the shadows of its bigger, more established competitors. With today’s round behind them, at least the startup has plenty of runway to test out its hypothesis.