Money

Lumi announced a $9M Series A this month. Here’s how they’re cornering the market in DNVB packaging.

LOS ANGELES — It’s a well-worn playbook at this point: A new industry springs to life, the innovators that define it gradually mature and begin to jostle for position, and a supporting cast of service providers move in behind the scenes to push the market towards increased levels of efficiency.

Calling Lumi a supporting player would be doing it a disservice, for sure. But as a service for today’s generation of young online brands — the vast majority of which sell direct to consumers, and save for a few well-funded examples, don’t yet have their own physical stores — the role the LA-based packaging specialist Lumi plays is, without question, a critical one.

Without getting too technical here, Lumi’s responsible for much of the sleek packaging for many of today’s DNVBs. If, for instance, you’ve gotten a package from the likes of a Parachute, Proper Cloth, MM.LaFleur, or MeUndies, that sharply-branded cardboard box or poly mailer (and that positive first impression you got) was most likely Lumi’s doing.

Like the four brands above, today’s young upstarts have surged forward by being extremely agile, iterative, and online-first. Yet packaging manufacturers, old school as they are, haven’t been equipped to match that speed on their own.

Which is where Lumi comes in. It connects these manufacturers with the MM.LaFleurs of the world, and has in effect brought the whole process online for the very first time. Previously, it would’ve been left up to the brands themselves to handle each step of this process — the sourcing, the logistics, the designing, all of it. Now all they have to do is go to Lumi. That’s a big deal.

Investors, as it turns out, seem to agree. On Valentine’s Day, Lumi announced their new $9M Series A led by Spark Capital’s Kevin Thau, who joins the board, alongside continued participation from previous investors Homebrew. Forerunner Ventures, certainly no strangers to the new consumer brands space, completes the round, making for what’s an impressive trifecta of investors for Lumi. All told, it brings the company’s fundraising total to $12M since co-founders Jesse Genet and Stephan Ango opened up shop in 2015. In speaking to Lean Luxe, Lumi declined to disclose financial details with us, but it’s fair to assume that the valuation here hovers somewhere near the $45M region since Series A investors, on average, generally expect about 20% of the company.

We rarely cover B2B upstarts, but what fascinates us about Lumi, is that it sits at the center of a several new marketplace shifts: shifting consumer behaviors (favoring smaller, emerging brands over larger, established ones), the continued rise of e-commerce, and of course the rise of a new generation of modern luxury brands and DNVBs. Paired with the need for slow-moving packaging manufacturers to connect with these brands, and you’ve got what appears to be the perfect conditions for a company like Lumi to flourish.

The big bet here for investors, then, is pretty straightforward: If you believe that today’s new wave of consumer brands are here to stay, and that e-commerce is the future and will only continue to expand, then Lumi, in serving these brands directly, stands to benefit greatly by being at the center of this. Spark’s Kevin Thau spoke to this. “Packaging has really become important in e-commerce,” he told us. “The first physical interaction you have with a lot of these brands is the packaging. It’s the first impression. It’s the first thing you touch — even before you get to the product inside. That’s an incredible opportunity to be more thoughtful about how your brand comes across.”

Likewise, Homebrew added their thoughts to the mix in a post explaining their decision to reinvest: Lumi’s “building a company that can transform the commerce landscape, enabling companies of all sizes to achieve excellent packaging while not having to focus on it.” Indeed, if Lumi can continue in the direction they’re heading, there’s a huge opportunity there for them.

One thing about Lumi’s fundraise did surprise us, however. There are some investments that just seem like no brainers. Lumi, given the logic above, would seem to be one of them. Why, after all, would you not want to have a stake in a young company that appears to already be cornering the market as the go to packaging solution for today’s new class of online brands?

Not every investor, we’re told, grasped the opportunity. In speaking to Stephan, we were rather surprised to hear that it took some convincing. Asked when how many investors he sat down with, he said “dozens”. How these investors weren’t lining up to write a check here has us scratching our heads a bit.

While Lumi’s value is obvious to us, the fact of the matter is that, frankly, the response shouldn’t all that surprising. Save for a handful of firms, consumer upstarts are still being overlooked by VCs today much of a shock given the way investors are still looking at consumer upstarts today. Stephan explained the rationale this way: “I don’t think investors in Silicon Valley were taking consumer as seriously. Even in the last two months, the perspective on it has changed.”

Broadly speaking, they’re hesitant about investing in the space mainly due to two reasons. First, brands, unlike tech startups, generally take longer to mature; and second, their exits also tend to also be smaller relative to the massive tech exits investors have come to expect. Lumi, as a B2B operation, by definition, isn’t a consumer startup. But they do work directly with many new online brands — and remember: new brands aren’t necessarily on most investors’ radars — which explains in part why investors may not have seen the opportunity here in Lumi.

This is changing a bit, and there are a handful of individual investors and small teams within larger firms — and specialized firms themselves — that are paying attention — Forerunner, Spark, Lerer Hippeau, 14W, Lightspeed, Otium Consumer, and Felix Capital are several that immediately spring to mind. But this requires a realignment of expectations that most VC firms are reluctant to adopt.

Even so, this may still have worked out for Lumi: Stephan claimed that in drawing up a list of new targets, Spark and Forerunner were at the top of the list.

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