Loot Crate: Tapping fandom to build a next-gen commerce company

Fandom is a powerful force, be it affinity to a sports team, an entertainment franchise, a band or musician, a school or university, or even an admired consumer brand. The passion and intense tribal mentality and emotional dedication that exists within and around these communities is something that nearly everyone can relate to on some level (just follow me on Twitter these days and it may seem that all I really care about is the Golden State Warriors NBA Playoff run).

Since my business operating days at eBay, StubHub, and even Live Nation, I have been a huge believer in the power of super-fans and the impact of their passion, even for things that appear to others to be “niche” categories. As a result, businesses that can effectively tap into these unique and sometimes immeasurable fan dynamics can be incredibly attractive. The challenge from an investor perspective is that

more businesses aspire to foster and engage these sometimes global communities than actually succeed in doing so with the organic and authentic nature needed to truly build a special, sustaining company.

Los Angeles-based Loot Crate is a rare exception to this fact, having built what I think could be one of the largest and most deeply engaged fan-centric commerce platforms we have ever seen. Today, the company delivers “Looters” time-based mystery crates (usually monthly, quarterly and one-off) including branded collectibles, apparel, and media — the majority of which are Loot Crate-exclusive items. Recent crates have included products tied to iconic entertainment franchises such as Star Wars, Marvel Comics, Game of Thrones, The Walking Dead, League of Legends, Fallout, Deadpool and Firefly (yes, Firefly). Even today, they announced a partnership with the incredibly popular Halo franchise — expect many more exciting partnership announcements in the near future. In addition to becoming the de facto source of exclusive, collectible merchandise for global pop culture fans, Loot Crate is also now the preferred partner and channel for entertainment brands to connect with their most passionate and loyal audiences.

In less than four years, Loot Crate has grown its so-called “geek” pop culture community — one that some have described as “Comic-Con in a box,” although I may prefer “Fanatics for pop-culture” — to more than a half million active subscribers in 35 countries and north of $100 million in annual revenue. The fact that it’s a bootstrapped business, having reached this point on just thousands of dollars in invested capital, makes it all the more staggering.

Today, we are thrilled to announce that Upfront Ventures is leading Loot Crate’s $18.5 million Series A round. Alongside our co-investors Time Inc., Breakwater Investment Management, Downey Ventures (aka “Stark Industries” — yes the real f’in Ironman is investing), M13, and Sterling.VC (owner of the NY Mets and SportsNet New York), we could not be more thrilled to back this incredible team of technology, entertainment, and toy industry veterans with experience spanning Mattel, Hasbro, Disney, eBay, Cisco, eHarmony, Fox, Sony, Lionsgate and more.

It would be easy to lump Loot Crate into the “stuff-in-a-box” category that was all the rage a few years ago, and which now seems decidedly out of favor (unless you were an investor in one of the few winners). But to do so would be to unfairly trivialize what founders Chris Davis and Matt Arevalo and their team have built. First, I can count on my fingers the number of modern subscription commerce businesses that have reached nine-figure revenues (as someone told me recently, that is “elite”) — they are: AdoreMe, BirchBox, Dollar Shave Club, Honest Company, Ipsy, JustFab, Stitch Fix, and TrunkClub. Yet few if any of these grew to such scale through operating cash flows. In a world of high-burn, crazy marketing spending, and upside-down unit economics, I have tremendous respect for the discipline and efficiency required for Loot Crate to thread such a needle.

Second, and more importantly, the infrastructure and operational expertise that underpin Loot Crate’s business — product licensing, manufacturing, inventory management, and order fulfillment — have reached a scale and level of sophistication that opens up dozens of adjacent opportunities. Even with tremendous growth potential in our core geek pop culture verticals (including owned and operated crates and branded partner crates), it’s easy to see a world in which Loot Crate delivers a similar experience to fans of particular sports teams (or leagues), hit musicians (and even theater), or kids’ properties to name just a few areas of intrigue (did I mention retail distribution partnerships). Furthermore, while the company has been pulled by customer demand into international markets from the UK to the Czech Republic, there remains an enormous opportunity for further — and more purposeful — international expansion and localization of the product.

For all the talk over the last decade about next-generation fan clubs, there has been little innovation around the concept since the early-days of mail-order commerce. But since my first encounters with Loot Crate, I have seen a powerful platform for building and driving fan engagement that can be applied to countless high-affinity verticals. In this case, the subscription model serves as a driver of not only reach, but recency and immediacy. And the crates aren’t just delivering products — they’re creating exclusive, active and coordinated fan experiences. With so many crates being delivered globally within a matter of days, it is not uncommon to see thousands of unboxing videos (many with hundreds of thousands of views) appear all over social media and YouTube. Even across eBay and other similar marketplaces, past crates and their individual items now sell for many multiples of the Loot Crate subscription price. Put simply, Loot Crate’s fans can’t get enough.

The Loot Crate experience even allows category and genre enthusiasts first looks at new franchises and new content. As the creators of the (now) hit TV show “Mr. Robot,” can attest, inclusion in a Loot Crate box can serve as the pre-launch catalyst for an early fan community. It’s a virtuous circle of content, commerce and experience with incredible potential for fans and creators alike.

As one of the breakout stars in the Los Angeles startup ecosystem, I could not be more thrilled to back a company that embodies so much of the unique storytelling, manufacturing, and internet monetization DNA of this market. In a short time, Loot Crate has built an unparalleled scale and access to some of the most powerful and followed global titles and brands. Great as it is today, there is so much more that Loot Crate can accomplish. It will be my pleasure to work alongside Chris and Matt over the coming decade to build the next-generation commerce and fan engagement leader.

Originally published at insights.upfront.com on June 2, 2016.

Loot Crate: Tapping fandom to build a next-gen commerce company was originally published in Upfront Insights on Medium, where people are continuing the conversation by highlighting and responding to this story.