Revolutionizing the holding company model. Portfolio of high-growth 'digital first' apparel brands.

Analytics

Raised to Date: Raised: $741,974

Aggregate Commitments $

Platform

Wefunder

Start Date

11/11/2020

Close Date

12/21/2020

Min. Goal

$50,000

Max. Goal

$760,250

Min. Investment

$100

Security Type

Convertible Note

Funding Type

RegCF

Series

Series A

Valuation Cap

$52,841,157

Discount Rate

30%

Rolling Commitments $

Status
Funded
Reporting Date

12/31/2020

Days Remaining
Funded
% of Min. Goal

1,484%

% of Max. Goal

98%

Likelihood of Max
Funded
Avg. Daily Raise

$18,549

Momentum
Funded
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Location

Los Angeles, California

Industry

Apparel & Fashion

Tech Sector

Non-Tech

Distribution Model

B2C

Margin

Medium

Capital Intensity

Low

Business Type

High Growth

Digital Brands Group, doing business as DSTLD, is raising funds on WeFunder. It is the holding company of four direct-to-consumer brands. The brands under Digital Brands Group include DSTLD, ACE Studios, Bailey 44, and Harper & Jones. The brands relate to luxury lifestyle and digital-first. Digital Brands Group was founded by Mark Lynn and others in 2013 and has raised over $15 million since its inception. The proceeds of the current round of crowdfunding, with a minimum raise of $50,000 and a maximum raise of $760,250, will be used for product and inventory, working capital, marketing, and acquisition and IPO fees. Digital Brands Group currently has 1.2 million customers for the four brands it owns and generated revenues of $33.5 million in 2019. The holding company plans to acquire four more brands, including Jack Georges and three that cannot be disclosed.

Summary Profit and Loss Statement

Most Recent Year Prior Year

Revenue

$3,034,216

$3,777,493

COGS

$1,626,505

$1,656,332

Tax

$0

$0

 

 

Net Income

$-5,653,973

$-4,725,533

Summary Balance Sheet

Most Recent Year Prior Year

Cash

$40,469

$584,481

Accounts Receivable

$0

$0

Total Assets

$1,282,057

$2,244,929

Short-Term Debt

$8,424,556

$5,971,106

Long-Term Debt

$0

$0

Total Liabilities

$8,424,556

$5,971,106

Financials as of: 11/11/2020
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Raise History

Offering Name Close Date Platform Valuation/Cap Total Raised Security Type Status Reg Type
Digital Brands Group 12/21/2020 Wefunder $52,841,157 $741,974 Convertible Note Funded RegCF
Digital Brands Group 04/29/2020 Wefunder $52,800,000 $303,708 Equity - Preferred Funded RegCF
Digital Brands Group 11/30/2019 StartEngine $35,000,000 $5,128,496 Equity - Preferred Funded RegA+
Digital Brands Group 08/10/2018 StartEngine $34,339,074 $64,586 Equity - Preferred Funded RegCF
Digital Brands Group 06/30/2018 SeedInvest $30,000,000 $0 Equity - Preferred Funded RegA+
Digital Brands Group 06/14/2016 SeedInvest $22,000,000 $0 Equity - Preferred Funded RegA+
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Ratings KingsCrowd Startup Rating Methodology Article

Analyst Report Analyst Report Methodology Article

Synopsis

Digital Brands Group (DBG) is a holding company that aims to create a portfolio of high-growth digital apparel brands. DBG already has multiple brands under its umbrella, including high-end denim company DSTLD, ACE Studios, Bailey 44, and Harper & Jones. The company stresses a “digital-first” strategy. This means that DBG brands focus almost exclusively on e-commerce, although their clothes can also be found in other stores. By focusing on online sales, the company tries to create a customer experience that can be customized and tailored to an individual shopper. DBG saw just north of $3 million in revenue in the most recent fiscal year. The company’s debt and greater financial situation are two large areas of concern – DBG saw their short term debt grow to $8.4 million (up 41%) and had an overall net loss of $5.6 million in the most recent fiscal year.

The total revenue from the apparel market amounts to $255 billion dollars in 2020. This is set to grow annually by 10.2%. Perhaps more notable to DBG, revenue from specifically e-commerce in the apparel market has skyrocketed — and it is projected to continue to do so. Total revenue was just over $77 billion in 2017, but has grown to $110 billion in 2020 and will only continue to exponentially grow as the COVID-19 pandemic alters the way consumers buy products.

Price

DBG’s current raise has no valuation cap, which thereby provides very little protection for potential investors. For reference, DBG’s valuation during its most recent previous round of funding was $52.8 million. The company is currently planning for its IPO, which does include a 30% discount for investors. However, the lack of a valuation results in DBG’s price score being very weak.

Market

Given DBG’s desire to grow their specifically digitally focused apparel lines, it would be fair to assess them within the market of e-commerce apparel sales. The U.S apparel, footwear, and accessories e-commerce revenue was $110 billion in 2020 and is set to grow to $153 billion by 2024. 

With the pandemic continuing to alter the way people buy goods, the e-commerce apparel industry could quickly begin to rival the normal retail apparel market. Black Friday traffic saw a 52.1% decrease in in-store shopping, compared to a 21.6% increase in online spending. Because DBG is focused on acquiring pre-built fashion brands and tailoring their model to an e-commerce form, the company can be slightly less concerned with competition than other startups. Also, DBG has successfully executed this model with multiple brands already. Thus, DBG’s market score is very high. 

Team

DBG’s executive leadership team is led by CEO Hil Davis. Davis has a long history in the apparel business, founding luxury men’s brand J. Hilburn in 2007. Davis successfully built J. Hilburn into a multimillion-dollar company. He recently founded e-commerce beauty and charitable organization, Beautykind – giving him first-hand experience with leading a company focusing on e-commerce.

Davis is joined by Chief Marketing Officer Laura Dowling. Dowling has a proven track record in the field of marketing, previously holding strategic positions at Harry Winston and Ralph Lauren. Her experience in apparel marketing at large companies makes her a great asset for DBG.

Rounding out the team is CFO Reid Yeoman, who comes to DBG with prior experience in leading financial teams at both Hurley and Nike.

While DBG’s team certainly brings strong industry experience, there is a distinct lack of technical expertise. Additionally, although Davis brings entrepreneurial know-how, he has yet to have a successful exit. Bringing all of this together, DBG’s team score is middle-of-the-road.

Differentiators

At DBG’s own admission, their overall strategy is no different than that of the biggest holding companies. This may be true at a macro scale, but the difference is that DBG started out with a wholly digital-first mindset.

Older companies have been forced to adapt to the changes in consumer patterns. However, DBG has and will continue to build a portfolio of companies that focus entirely on e-commerce. This allows the company and the brand to market their products directly to  consumers online, as opposed to paying extra for a physical store – saving money and avoiding wholesale markup. Thus, the differentiators score for DBG is strong.

Performance

DBG’s performance, on the surface, looks promising. They have four brands already as a part of their portfolio and allege that four more are on the way. It isn’t until you delve deeper into the financials of DBG where the story looks vastly different.

The company’s debt rose 41% in the most recent fiscal year – ballooning up to $8.4 million. Its yearly revenue sat just north of $3 million ($3.03M), down 20% from the previous year ($3.77M). Overall, DBG operated at a $5.6 million net loss. This debt may be part of the reason the company is pursuing an IPO — beyond further crowdfunding campaigns, an IPO could be a good way to raise a significant amount of money in a short period of time. 

However, even with these debts, DBG has still brought in substantial revenue. If the company succeeds in bringing in four more brands to the portfolio and maintains strong sales across all brands, there’s no reason to think that DBG won’t reach profitability. Therefore, DBG’s performance score is near perfect — as well as its strongest across all five metrics.

Bearish Outlook

From a financial perspective, DBG looks like a company on the wrong track. Debt rising and revenue falling is a recipe for disaster. On top of that, their CEO’s first company (J. Hilburn) filed for bankruptcy earlier in the year due to COVID-19 – a worrying sign for a company in the same industry. If the pandemic drags on, consumers will have less and less money to spend on the luxury apparel that DBG brands sell – pushing them further and further into the red on their financial sheet. Another concern is whether the company will be able to successfully market new brands and new items in the coming months. An effective marketing campaign will be necessary for DBG to increase its market share. But marketing is notoriously expensive and predicting the effectiveness of a campaign is nigh impossible. DBG will need to handle its operations and marketing carefully in the near future in order to stay on solid footing.

Bullish Outlook

DBG already has four brands under its umbrella – with four more on the way and plans to grow to double digits.If its early successes are any indication, DBG is on a strong path. Its executive team has long standing experience in apparel, marketing, and finance, which is certainly an encouraging sign for investors. The CEO knows how to grow an apparel business, the Chief of Marketing knows how to appeal to customers, and the Chief Financial Officer has a history with running balance sheets at large corporations. This gives DBG all the behind-the-scenes tools needed to grow into a successful business. Additionally, this round is ostensibly investors’ last change to buy in before the company goes public. That’s a big opportunity for early investors to have.

Executive Summary

If DBG can stay afloat for long enough to continue acquiring companies and growing their portfolio — and the COVID-19 pandemic slowly begins to fade into memory — it very well may be on the way to be a successful business.

However, the company’s balance sheet is not something to inspire hope in investors. The pandemic has caused a slowdown in production, and revenue is down as a product. Debt continues to rise, and while revenue is flat or negative, this number will only continue to grow. DBG also has marketing costs on the horizon that have no guarantee of attracting new customers, and a pricey IPO process ongoing that is in no way guaranteed to get them listed on the NYSE or NASDAQ. 

The Kingscrowd investment team has given Digital Brands Group a Neutral rating.

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com. 

Analysis written by Ethan Thomas.

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Digital Brands Group on Wefunder
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Platform: Wefunder
Security Type: Convertible Note
Valuation: $52,841,157
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