Backing Butternut Box to create the next leader in the pet care market

By Eric Martineau-Fortin, Nick Stocks & Edouard Gaussen

The Disruption of Commerce is a subject dear to our hearts at White Star Capital. From omnichannel software products sold to retailers, to managed marketplaces that tackle major logistical pain points in antiquated industries, or advanced robotics and AI used to disrupt sleepy markets like locksmiths, we relentlessly seek to back founders trying to shake up the retail and commerce industry as we know it. One of the foundational pillars of this revolution is the birth of direct to consumer (DTC) brands. By owning and keeping control over the entire experience– from supply chain all the way to distribution — the likes of Dollar Shave Club, Freshly, and Adore Me are changing the way people shave, eat or buy lingerie.

Investing in these three aforementioned companies has allowed us to build a pattern for what drives success in DTC brands:

  • You must either provide the same level of quality at a lower price (such as Dollar Shave Club), or be able to provide a premium service with a strong brand and emotional hook at the same or slightly above market price (such as Honest Company)
  • For subscription services, it must be servicing a fixed recurring need rather than a want, where convenience becomes a key selling point (for example Freshly)

As a category, pet food matches these two very strongly. The care of dogs for owners is a highly emotional one, and leads to a macro trend of the humanization of pets. This therefore triggers a higher willingness to pay a premium to ensure that your pet has the best possible nutrition, yet is a bulky, recurring purchase that is highly inconvenient and where little digitization has been achieved. For example, the average UK dog owner spends roughly £1,200 per year on their dog.

Additionally, the leading pet food companies are under scrutiny after multiple scandals have emerged in the past few years on the health effects of traditional pet food. On the flipside, pets are some of the stickiest consumers that exist: as soon as they get used to a diet, they will often refuse to eat anything else. We have recently been looking very closely at this category across the Atlantic and have built strong conviction that it is set up for disruption.

Enter Kevin and David — two London-based former Goldman traders with the determination to change the Pet Care market as we know it. Late in 2015, they both decided to leave their trading desk positions after realizing the home-made pet food they were delivering to family, friends and colleagues every weekend was being immensely appreciated. They have not looked back ever since and have been tirelessly growing Butternut Box to delight thousands of pets and their owners.

Butternut Box offers 4 meal variations: beef, turkey, chicken and lamb

As we spent an increasing amount of time together, we were impressed by their passion and how this permeates into the Butternut Box experience and community, their data-driven mentality, and their ability to learn.

Our belief in the pet care market as a perfect vertical to build a DTC brand, coupled with our conviction for David and Kevin to be exceptional leaders, is why we decided to lead Butternut Box’s $7m Series A investment round alongside Literacy Capital and Passion Capital

The founders’ passion for this permeates throughout the entire culture of the company right through to the customer as user experience is not something that the company takes lightly. For instance, courses on K9 nutrition and K9 psychology are offered to employees for them to all have a fundamental understanding of the pet care industry.

Two key characteristics clearly symbolise the management’s team focus on user experience: rigorousness and attention to detail. The former is a natural consequence of both founders’ personal qualities, as they managed put together a supply chain system to avoid leaving anything to chance. The latter ranges from the importance of adding extra presents in the box every other week, to small details such as making sure the font in DPD’s parcel labels matches their branding and donating to a local rescue dog shelter when a new dog signs up. We were greatly impressed with Kevin, David, and their team’s focus on constantly maximizing brand equity and building a community. It takes a specific mindset and passion to execute as they currently are, and that in itself is a barrier to moat for any DTC brand. The relationship they have with users sharing the “box opening experience” on Twitter and Facebook, sending in photos of their dogs, speaks volumes to this.

While the above has helped us building a strong conviction to invest, other factors contribute to our thesis behind this deal:

  • The founders have built a rockstar team of employees and advisors, with impressive hires from leading FoodTech companies and other relevant backgrounds
  • The humanization of pets leads to consumers allocating a higher share of wallet to their pet expenditures, with premiumisation and digitization as the two leading market trends
  • User love for the product, with retention and customer reviews every startup would be very proud of
  • The value we can add based on our experience in investing in other DTC brands, especially Freshly which faced similar challenges
  • Significant M&A activity in the space , with recent transactions including Mars’s $9.1bn acquisition of VCA Inc, and PetSmart’s $3.4bn acquisition of Chewy.com

We cannot wait to get to work with the entire Butternut Box team and are delighted to join its board alongside partners that bring immense value to the table like Paul Pindar and Abid Ismael from Literacy Capital and Eileen Burbridge from Passion Capital.