Direct-to-consumer startup studio Innovation Department raises $3.7M

Innovation Department, a startup building a portfolio of direct-to-consumer brands, is announcing that it has raised its first outside capital in a $3.7 million funding round

It has only launched one of those brands so far — WellPath, which offers customized nutritional supplements. But the next, a pet wellness brand called Finn, is scheduled to launch next month.

Innovation Department was actually founded back in 2015. Initially, co-founder and CEO Alex Song said it took a more general “studio” approach to incubating startups. The problem, he said, was that the studio had “no real core competency,” while it also “didn’t have enough scale to really spread things around.”

At the same time, Song felt they’d had enough success and built enough tools on the direct-to-consumer side that they could achieve “repeatable success” using “the same methodologies, over and over again.”

To do that, WellPath, Finn and future brands will take advantage of products and teams developed within Innovation Department, including DojoMojo, a software platform that allows brands to “barter” audience from one another — a much more affordable alternative than continually spending on digital advertising to acquire new customers.

The startup has also created a number of lifestyle newsletters with a collective 600,000 subscribers under its Valyrian Media umbrella. Song said that means Innovation Department should have a pre-built customer base whenever it launches a new brand, and that the company can test customer interest “before we’ve even decided on a new product or idea.”

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Behind the scenes, Song said Innovation Department will have team members focused exclusively on the growth and operations of a single brand, while sharing resources when it comes to things like engineering, design, finance, legal and human resources.

He acknowledged there have been some challenges during the pandemic, but there were enough “redundancies” in the supply chain that WellPath could continue to fulfill orders. At the same time, he said that as “a health and wellness-focused business that only distributes online in a time when everyone became very focused on health and wellness, we definitely saw that lift,” with revenue increasing 400% year-over-year.

Looking ahead beyond WellPath and Finn, Song said he plans to launch another brand next year, before gradually increasing the pace of launches.

The company’s relatively methodical, cost-conscious approach feels like a real contrast with many other direct-to-consumer brands. Song said he quickly decided that the route of high-profile D2C companies, which involved raising enormous sums of capital to fund aggressive user growth, did not offer “a viable path towards success.”

“In no way am I saying, ‘Ha! Shame on you,’ ” he added. “If the economy was still cranking and things were still going well, maybe a lot of those businesses would get more funding and break through.”

Still, Song suggested that Innovation Department has benefited from the fact that “my co-founder [WellPath CEO Colin Darretta] and myself, being finance individuals first, have always been focused on cash flow and managing towards profitability.”

The funding comes from Long Light Capital, Synergis Capital, Ambridge Capital, Ryan Freedman of Corigin Ventures and Carter Reum of M13 Ventures.

“What the Innovation Department team has developed is hugely impressive, especially their approach to building and creating wholly-owned brands and their understanding of what today’s customers are really looking for,” Reum said in a statement.

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