What’s happening around the future of pet tech: Drivers, trends, and opportunities

In this series, we dive into technologies and industries we’re excited about, going deep into their change drivers and stakeholders while exploring investment trends and opportunities through an early-stage lens.

By: Meagan Loyst, Analyst

Sector: The future of pet tech

In a sentence: The future of pet tech refers to a series of trends and advancements that are driving pet adoption, spending habits, and interest in the care and wellbeing of our furry friends.

Size and scope: The pet care industry is a $99Bn market opportunity in the U.S. today, with 85 million families (67% of households) owning a pet. It is also a recession-resilient category, as 99% of U.S. pet owners view their pets as family members and are therefore less price sensitive. This resilience was demonstrated in both 2001 and 2008, when the economy tumbled and pet spending grew by 7% and 5%, respectively. It is a large market opportunity that Lerer Hippeau has been investing in for the past decade, and continues to be a very thematic space.

Data Source: American Pet Products Association

Stakeholders: The most important stakeholders are the pet owners and pets themselves. Suppliers & manufacturers of pet products, pet retailers, pet services (groomers, veterinarians, trainers, etc.), government, and NGOs related to pets are also involved in the supply chain and overall care/health of pets. I’d even throw in animal lovers / pet enthusiasts who contribute to pet content consumption.

Change drivers: 2020 (and now 2021) has ushered in an unprecedented era in the pet industry with more people owning pets, spending time at home with their pets, and putting their dollars to work across a number of categories ranging from food & treats to health & wellness.

The rise of Gen Z & Millennial pet ownership: As Gen Z, the “loneliest generation,” enters their key spending years, many are searching for companionship in their pets. Millennials and Gen Z own ~45% of dogs today and will own 60% of dogs by 2025 (see graph below) — these younger generations are demonstrating a higher willingness to spend on pets, and will contribute to continued growth in the pet care industry as a whole.

Data Source: IDEXX 2019 Investor Day

New technologies and consumer-friendly business models: Hardware is becoming cheaper to manufacture, and we’re seeing more affordable, pet-tech products come into the home with hardware + recurring subscription models. Two prime examples are Fi’s smart dog collar with GPS tracking, and Furbo’s in-home pet camera. Technologies like dog microchips are also gaining traction, even seeing government legislation making them mandatory in countries like China (Shenzhen), the U.K., Japan, and Australia.

Offline pet spending is coming online: eCommerce was the fastest growth channel for pet product sales in 2019, surging 24 percent to $12.2 billion, with pet food taking 66 percent of this amount and online sales representing 73 percent of pet food industry growth. According to a U.S. pet owner survey in August 2020:

  • 79% of U.S. pet owners said they’re using the internet more
  • 71% of U.S. pet owners are ordering and buying online more
  • 56% are ordering/buying more with smartphone apps
  • 49% are buying groceries online more

Where our portfolio fits: Our first pet investment in The Dodo pioneered the idea of animal-first content — animals are the protagonist in all of their stories, stemming from the belief that animals are a lot like people. Through the 4.5 billion views The Dodo generates each month, they have helped cement this narrative which in turn has driven a pet-first approach to spend / pet care. We’ve since doubled down on our investments in the pet space in the past decade to support the trends we’re seeing.

Lerer Hippeau has invested in pet food & products (Ollie, BarkBox), vertical eCommerce marketplaces (Corro), IoT technology (Fi), veterinary care (Small Door), medication (FidoCure), and content (The Dodo). We’re also involved with a pet insurance provider, Petplan, through The Dodo.

COVID-19 impact: As a result of COVID-19 stay-at-home orders pushing people away from major cities and into their homes, the pet industry has seen a massive uptick in both the public and private markets in 2020.

Pet adoption rates spiked all over the U.S.: animal adoption rates skyrocketed more than 110% and fostering grew 197% comparatively year-over-year, according to Pethealth Inc.. Many New York City shelters and rescue organizations saw application rates increase by 1,000 percent. And as of October 2020, it’s estimated that 37% of Americans adopted pets since the start of the pandemic, and that these trends will continue as people migrate to the suburbs and choose to work-from-home in a more permanent fashion. This also means that less dogs and cats are entering shelters nationwide (down 37% and 31%, respectively YoY), and the surge in adoption rates will lead to increased spend on high ticket items like veterinary care, pet food, etc.

Data Source: Google Trends, Search for “Buy a Puppy” in the U.S. went up 3x in March 2020

Private companies benefited from increased sales & customers: Many companies were well-positioned from a technology and supply chain perspective to handle such a large increase in customers, seeing a massive uptick in sales and customers.

Data Source: Public Google Search

Public companies in the pet space far outpaced the S&P 500: 2020 was a strong year to be holding pet stocks, far outpacing the S&P 500 in yearly gains.

Data Source: Public Google Search as of March 1, 2021

Investment trends: We’ve seen $400m+ in pet startup funding across 77 rounds in 2020 and the first few months of 2021. Pet Food & Treats is seeing the most $$$ with 25% of the total, and Lerer Hippeau continues to be active in later-stage follow-on rounds of our portfolio companies.

Data Source: Crunchbase as of March 1, 2021

Where to look: The pet tech industry can be categorized into four distinct areas: pet food & products, services, health/medication, and technology. The Lerer Hippeau portfolio already has exposure to large categories like pet food/treats and retail veterinary services (among others!), but here are the whitespace opportunities we’re seeing in the market today.

How to evaluate opportunities: We’ve taken a deep look into both market size & general category spend across the pet landscape as our two beacons for identifying new opportunities in the space.

We’re particularly excited about the following areas:

  • Pet Health & Wellness: This can be translated to a number of different areas ranging from telemedicine, pet medication and insurance to services like pet grooming. Pets are a part of the family, and health and wellness will become even more front-and-center in the coming years.
  • Pet Training: This is a category that’s being lumped into in-person services like community platforms and boarding. There’s a large opportunity to build a national brand, and plays that are more tech-driven.
  • Pet Adoption: There are many pet adoption co’s out there, but not many that solve for the supply/demand & logistics issues you see in adoption in urban cities. There’s also opportunity in helping pet parents in hand-holding through the adoption process and what comes next, vs. just finding the right pet.
  • Pet Life in a post-COVID world: This can be translated to more community-oriented plays that combine a number of services and offer pets & pet parents a sense of community, pet travel, and more.
  • Non-Food Pet Supplies: While there are many marketplaces today that help new and existing pet owners find non-food pet supplies for their furry friends, there are not many companies that are creating next-gen loved and trusted brands that resonate with Millennial and Gen Z consumers. There’s a large opportunity to build in this space.

Seed considerations: Founder-market fit is incredibly important, and that often translates to founders who have an unfair advantage in building in their respective space while simultaneously serving not only pet parents, but also their pets for consumer-oriented companies. Barkbox is a company that did this exceptionally well, with a business model that resonated with pet parents and products that pets thoroughly enjoyed. A focus on partnerships in GTM at the early stages is also advantageous as customer acquisition costs rise, and often pet companies tackle different stages of the pet journey but are going after the same end customer.

Are you building in the future of pet tech? Email Meagan at meagan@lererhippeau.com — she’d love to meet you (and see cute pictures of your pets).

Don’t miss our Future of Pet Tech event on Clubhouse with founders from Ollie, Fi, FidoCure, and The Dodo on Tuesday 4/27 from 4pm-5pm EST. RSVP here.

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Lerer Hippeau is the most active early-stage venture capital fund in New York.