Venture hopes to couch furniture startups in very profitable terms

Furniture has long been one of the biggest pain points in the home. It’s expensive, it’s a hassle to move around, and it’s hard to shop for because you never know how it’s going to look in your home.

Now, a new line of tech-enabled furniture startups is attempting to solve all these problems and more.

Those who succeed will be sitting pretty. The U.S. consumer furniture market stands at $108 billion, according to Furniture Today. And the U.S. online residential furniture market, driven largely by highly mobile urban-dwelling millennials, is expected to reach $28.74 billion by 2024, up 74 percent from $16.5 billion in 2016, according to Hexa Research.

One promising startup is Burrow, which online sells stylish couches that are modular and transportable. The company earlier this year raised a $14 million Series A round from New Enterprise Associates, Correlation Ventures and Red & Blue Ventures.

Burrow ships each section of its couches separately rather than as a unit, making the couches more cost-effective to deliver. And this ease of transport makes them more attractive to millennials, who tend to move from place to place more frequently than other generations.

“Think about the preponderance of young people in cities,” says Brett Topche, a partner at Red & Blue. “If I’m buying a couch, and you can deliver it to me in manageable boxes that I can easily get up to my apartment and assemble effortlessly, that makes more sense than rolling up in a big truck and hoping I can squeeze my new couch in the elevator.”

Topche argues that the market is ripe for new entrants because the traditional way of buying furniture no longer resonates with consumers.

“Take the delivery process,” he says. “It’s not nearly as on-demand as people are now accustomed to. Consumers can buy anything they want under the sun on Amazon and have it delivered the next day. But the last time I bought a couch from a store, it took more than 10 weeks to arrive. You can build a really interesting company by addressing issues like that.”

Burrow also has some cool tech features that grandma’s Chesterfield just doesn’t have. For example, a USB charger and power outlet are built into each unit, so doing work on your laptop is easy even while you’re lounging on the sofa.

“That sort of clever feature tells me this company is really thinking about what customers want in their day-to-day lives,” Topche says.

Of course, an investment like Burrow still entails some big risks. First and foremost: Will customers want to buy a couch online without ever having sat on it?

Topche points to venture-backed online mattress company Casper as proof that customers will indeed make these types of purchases even before they’ve had an opportunity to physically experience the product.

“The broad trend driving this market is that more people are getting comfortable with making large-item purchases online,” he says.

Another tech-savvy furniture startup is Ori, which has raised $6 million from Khosla Ventures. Ori makes modular furniture sets that combine robotics, architecture and design to unlock what it calls programmable spaces.

For instance, at the push of a button an Ori unit can morph from a bedroom to a living room to a home office. Ori is designed for small residential spaces, such as studio apartments, and is currently sold only directly to real estate developers.

Furniture on demand

Today’s online furniture startups are capitalizing on several emerging consumer trends.

Leah Busque, a general partner at Fuel Capital, says one of the biggest changes in consumer behavior is that people today would rather rent than buy. What they really care about is access to the things they like, not necessarily ownership of them.

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Leah Busque, general partner at Fuel Capital, speaking on stage at the Women In The World Summit in New York City, April 13, 2018. REUTERS/Eduardo Munoz.

For instance, consumers are renting designer clothing from companies like Rent the Runway. They are even renting access to high-end vehicles like Tesla and BMW via peer-to-peer car-sharing services like GetAround and Turo.

Busque says furniture is the logical next step. That’s why her firm invested in furniture-rental startup Feather, which recently raised $3.5 million from Kleiner Perkins, Bain Capital Ventures and others.

“Technology companies have focused on revolutionizing access to cars, homes and clothing,” Busque says. “Feather is now tackling the next most expensive asset class — furniture. It was a neglected market for some time and is certainly ripe for disruption.”

Feather offers hundreds of collections on its website. Consumers browse the furniture by room or select one of the curated and fully designed room packages.

Once the items and subscription period are selected, the furnishings are delivered and assembled free of charge. When the subscription is up, consumers can extend the contract, return the items, swap items out, or purchase them.

Feather offers its own branded furniture, but it also has partnerships with larger players like West Elm and Pottery Barn, so consumers can now rent these brands rather than having to purchase them outright.

“We invested in Feather because it is solving a real need in a unique way,” Busque says. “Feather lets people furnish their homes with beautiful furniture — without the burden of ownership. They are capitalizing on millennials’ desire for more flexible living.”

An eye for style

As mentioned earlier, shopping for furniture has traditionally been a difficult exercise because it’s hard to envision how a particular piece will look in the home or even if it will fit properly.

That’s why Modsy is harnessing technologies like computer vision and 3D imaging to change the way consumers design and shop for their homes.

“Modsy delivers highly realistic designs of a customer’s room filled with furniture from top retailers, so that they can virtually try on before they buy,” says Jeff Crowe, a partner at Norwest Venture Partners, which led a $33 million investment in Modsy.

Jeff Crowe, managing partner, Norwest Venture Partners.

Modsy CEO Shanna Tellerman had previously founded a cloud-based 3D platform company that Autodesk acquired in 2010.

While trying to decorate a new home in 2014, she recognized there was no easy way to visualize how the furniture would look in her space, so she decided to use her knowledge of 3D technologies to start Modsy.

“Modsy has the potential to transform the home-furnishing-buying process by giving customers the information they need — how a product looks in their home — before they make a purchase,” Crowe says.

“It’s the only home-design solution in the space to take a techcentric approach and turn it into an experience that is easy for everyday consumers to use.”

He notes that across all sectors, retailers are looking for new and innovative sales avenues and ways to deliver personalized experiences to consumers. He says furniture retailers in particular are eager to adopt technology solutions to help customers easily shop for items that match their style and space.

For example, Crate & Barrel has partnered with Modsy to offer in-store and online design guidance and virtualization.

In terms of exit opportunities, most VCs in the space point to Wayfair as proof that a successful furniture related startup can achieve big outcomes. The company went public at $29 a share four years ago, and earlier this year hit an all-time high of $150.

“I’d be interested to see if a Wayfair starts making some purchases in this market,” says Red & Blue’s Topche.

“Then again, I wouldn’t be shocked if at some point you see Amazon or Walmart start to get acquisitive here. I think many of the larger players are interested in having a hip, millennial-focused furniture brand as part of their portfolio.”