Pets are A VC’s Best Friend (part 2)

Since my initial post last year, there has been quite a bit of action in the pet industry:

  • Chewy sold to Petsmart for $3.3B — the largest eCommerce acquisition ever. Rover acquired DogVacay, JustFoodForDogs raised from LCatterton and Wag! from General Catalyst.
  • The Secret Life of Pets did $875 million in box office sales — the fifth highest grossing “not-based-on-anything” movie of all-time (which is a real category). A Dog’s Purpose brought in almost $200 million.
  • drum roll… The Farmer’s Dog raises an $8M Series A led by Shasta Ventures — specifically my good buddy and former colleague at Insight Venture Partners, Nikhil Basu Trivedi #InsightMafia. The rest of the round was made up of all existing investors — Forerunner Ventures, Collaborative Fund, SV Angel, myself and Scott Birnbaum from Red Sea Ventures.

In addition to my involvement over the past year with The Farmer’s Dog, I’ve continued to stay on top of the pet industry from a VC perspective. I’ve connected with a handful of startups and investors in response to my initial post, and figured I’d share a few of my updated thoughts and findings from those discussions.

What about cats?!?

There are just as many cats as dogs in the United States, that is true. And the average number of cats per owner is in fact higher than dogs. But the market for cats is only 1/5th the size. The main reason for this is that cats require far fewer calories in their diet. Moreover, from a services perspective, cats don’t need to walk daily, they can use a litter box (check out PrettyLitter for that), and they don’t need grooming. Dogs eat more with far higher maintenance costs. It’s interesting and ironic to note that basically all of the leading cat food brands today are primarily dog food brands, and one of the leading brands is literally called Royal Canin.

This is not to say cat food is not a large and attractive market in an absolute sense. In fact, since cats need less food, shipping is more economical and the product more competitive on price with retail offerings. The Farmer’s Dog and others will definitely launch cat food at some point in the future, but on a relative basis it makes sense to own the dog category first.

Marketplace for Buying / Adopting Pets

In my first post I suggested an opportunity to create an online marketplace for buying pets. My understanding is that much of the current buying occurs on Craigslist, janky breeder websites and phone.

The main issue with this idea is that the market size is surprisingly small. While the pet market is $60B in the US, only $1–2B of that total spend annually goes towards the actual purchase of the pet. As Andy Applebaum at RiverPark Ventures related to me, “It’d be cheaper for me to buy my kids a new guinea pig each time we get back from vacation than pay the person to have it at their house, but I have no choice!” Andy is clearly not of the millennial mindset towards pet humanization :) but he is the one paying for the pet, and I’d definitely rather be the guinea pig sitter than the pet breeder over the lifetime of that pet.

With that said, I think there is enough additional opportunity to monetize the lead generation of dog owners to other players in the value chain — similar to how Updater monetizes knowing when people are moving. Ownership data is valuable for pet food, pet services, pet insurance, etc. I’d still be interested to see someone legitimize pet purchasing with a marketplace.

Pet Services Marketplaces

After food, services like walking and boarding is the biggest subcategory of the pet industry. The proverbial elephant in the room was created in this market when Rover & DogVacay recently combined — reminiscent of when Odesk and Elance merged to create Upwork.

However, I wouldn’t call victory for them yet in the online pet services market. Wag! raising a growth round creates a formidable competitor. Whereas people need vacation stays for their dogs a few times a year at most (while travel is definitely on the rise), they need dog-walking daily. It’s much easier to go from a dog-walking service to a dog-boarding service, given from a supply standpoint more Dogwalker’s will be dogsitters than the converse. Rover/DogVacay have recently doubled-down on dogwalking and in the US and Holidog is doing the same in Europe. I met a company called Barkly which is a Wag! Competitor based in NYC that is growing nicely and proving this out. Whereas Rover & DogVacay take a 20% cut, Wag! takes 40%!

PetTech… I’m out.

I’ve spoken to several startups that are launching hardware products aimed at the pet market — PetTech as I believe CBInsights is calling. Nuzzle is a connected dog collar, Playdate is a remote control toy to remotely play with and see your pet in real-time, PetCube is another remote control toy that uses a laser pointer to direct your pets attention. While I flat out struggle to see the value for many of these products as a consumer, they are definitely not for me from as a VC. I don’t see an opportunity for repeat purchase or subscription — which for any connected hardware business is a must. So for that reason… I’m out.

Do you have a dog?

I sadly don’t. Not yet. Perhaps I’m hyper aware of the costs with all the research I’ve done, or maybe I recognize I have a few major life milestones in life to lock down before entering dog phase. But at least for now I get to enjoy my parents dogs, Harry and Millie!

my Parents dog Harry posing for TFD
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