Disco Network - Connecting The DTC Economy

Helping Brands Sell More, Together

This week’s Startup feature is Disconetwork.com. Disco is reshaping the DTC economy with a new collaborative approach to customer acquisition by offering a brand discovery platform that enables e-commerce brands to cross-sell complimentary items at checkout.

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Company & Team Introduction

Disco Network is a platform for DTC brands to forge partnerships and uplift the industry through collaboration by upselling other companies’ complimentary products at checkout, similar to the experience of checking out on Amazon. Disco, formerly known as Co-op Commerce, was founded by CEO Conner Sherline @connersherline in early 2020 to push back from the decade-long mega trend of DTC brands continuously becoming more reliant on social channels as their distribution, a risky endeavour that leaves them hostage to the platform’s ever-changing algorithms. Sherline has a robust professional background with prior senior marketing tenures at some of the top technology companies in the world, Meta and Affirm. He came up with the concept while working with the top DTC brands at Affirm after being at Meta/Instagram from 2013-2018, where he witnessed the incredible rise of many of the original darlings of the DTC economy like Casper Mattress, Dollar Shave Club, and Warby Parker getting exceptional early results from advertising on Facebook’s platform but also watched the Cost Per 1000 Impressions (CPM) more than 25x during that timeframe. He knew there had to be a better way to reach customers effectively. When he came up with the idea to cross-promote other brands’ complimentary products, it almost seemed too obvious. Fast forward four years, and the disco team now has ~80 employees and is headquartered in San Francisco, California.

Product Overview

Disco’s product team is extremely impressive. Rarely do you see this combination of fantastic product ideas, high-speed release velocity, and product quality. Each product in their suite of tools, including DiscoFeed, DiscoAudiences, DiscoIQ, and DiscoCommunity, drives massive value and is thoughtfully designed. Here’s a breakdown of each tool:

DiscoFeed: Disco’s main product, the one that started it all. DiscoFeed is a network where brands can cross-promote each other by upselling complimentary products from other companies at checkout. Companies set a CPA rate and only pay when another brand converts a sale for them. This product has a strong network effect, as each new company joining the network provides more data and another potential partner for others in the network.

DiscoAudiences: DiscoAudiences allows brands to connect their social media accounts to Disco and leverage their collective network and shopper transactions to lower paid social CPMs by accessing a list of high-intent DTC purchasers with Disco’s unique insights.

DiscoIQ: DiscoIQ allows you to tap into the collective insights of the Disco network. Compare your metrics to see where your business is under/over-performing versus industry averages, and find out which brands attract similar shoppers to yours.

DiscoCommunity: DiscoCommunity allows companies to reach out to other high-quality brands in the network, build partnerships, create promotions, and share growth hacks + best practices.

Total Addressable Market

Disco’s total addressable market at this point is unclear due to the nascency of their network. It’s uncertain how the cross-selling and company quality will scale as the network grows from thousands of brands to millions. The disco team must be laser-focused on growing the network while maintaining high product quality throughout the platform. Brands cross-promoting do not want to upsell customers on low-quality items from other brands as it can reflect poorly on their brand. One thing is clear: the opportunity for Disco is immense. Meta and Alphabet alone combined for over 400B in revenue over the trailing twelve months; if Disco’s new customer acquisition method can capture even a small portion of economic value from these behemoths, Disco will be an extremely valuable business.

Business Model & The Numbers

Disco utilizes a SaaS + usage-based business model with multiple revenue streams based on different usage metrics. Here are their different streams:

Monthly Platform Fee: There is a $50 fee for every brand in the network, giving them access to baseline features such as insights, customer surveys, and partner inboxes. The flat fee also helps control the quality of companies in the network, with only brands that understand that the value of Disco’s platform is much greater than the small fee they charge.

Pro Tools: Disco’s suite of pro tools, such as DiscoFeed Upsell Row, advanced insights, and one-click offers, is usage-based. Pricing is 0.05 per unique display with a monthly cap of $2000.

DiscoBudget (Guaranteed CPA Model): To be listed on the Disco Network, each brand must define a CPA and CPO, and then each brand will be charged at the end of the month based on the exact amount of new and repeat purchases the network drives.

DiscoAudiences: Audiences are charged a flat monthly rate of $1500 per social channel. For example, using both TikTok and Instagram audiences would be $3000 per month.

Disco’s strong early adoption has skyrocketed the network's usage, leading them to have already powered over 18B in network transaction volume through the platform. Disco’s tools drive massive economic value to companies, with brands seeing results of up to a 25% increase in ROAS, a 15% reduction in CPA, and a 50% increase in AOV.

Traction

Disco’s massive collaborative value has attracted thousands of brands to join the network, increasing its value with each additional brand to collaborate with. Even the darling companies of the DTC industry include Dr. Squash, The Honest Company (NASDAQ: HNST), Boxed Water, Caraway, and True Classic. The company has already distributed recommendations to over 83M shoppers and reaches over 5M active shoppers per month. As more companies see the apparent value of Disco’s platform and join, the network becomes even stronger. Once they witness the platform's incredible results, they become a word-of-mouth advocate, creating a strong organic growth flywheel for Disco.

Competitors

Disco has no formidable competitors to their collaboration network thus far, creating a highly favourable competitive landscape for the company. Disco has forged the industry into what it is today and enjoys a massive first-mover advantage with thousands of brands already working together on their platform. Pair that with the inherent network effects from the product’s collaborative nature, and new entrants will face real difficulty competing with Disco.

Deal Terms

Disco has had strong early fundraising momentum due to the apparent value that its platform provides to brands. The company has raised 3 rounds of funding to date. The first round of funding was a 1.45M pre-seed angel round in September 2020. Disco’s strong early traction caught the attention of many top-tier investors, helping them add some seriously impressive names to their cap table for their seed raise. The 5.8M round was full of big names such as Sugar Capital (lead investor) and participation from Shopify, Bessemer Venture Partners, and Indicator Ventures, in addition to multiple top-tier angels from the e-commerce industry like Roth Martin (Co-founder of Rothy’s), Andy Dunn (Co-founder of Bonobos), and Nate Checketts (Co-founder of Rhome). Disco most recently raised a 20M series A round led by Filicis Ventures with strong follow-on participation from Shopify, Bessemer Venture Partners, Sugar Capital, and Indicator ventures and new participants such as Ankur Nagpal’s Vibe capital and Packy Maccormick’s Not Boring fund, on top of a laundry list of top execs/founders of large DTC brands.

Disco is hiring a head of finance! Check out the incredible opportunity here: https://www.disconetwork.com/careers?gh_jid=4303653005.

 

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