A team of ace storyboard artists could not have imagined a more fitting backdrop for such heroic exploits. Since bursting onto the e-commerce landscape back in 2012, LA-based Loot Crate has scaled to dizzying heights of success, borne out by the company’s impressive 66,661% growth over a three-year period. Founded by Chris Davis and Matthew Arevalo, the firm has forged an array of partnerships and exclusive licensing deals with blue-chip companies such as LucasFilm, Disney, Nintendo, and WWE.
CSQ visited with co-founder and CEO Davis at Loot Crate’s headquarters near Downtown Los Angeles, shortly after the startup landed atop the Inc. 5000 list of Fastest Growing Companies in America in fall 2016. It was a privileged glimpse into the creative energy that is exploding off the walls – and into the box – every day at Loot Crate.
Just what is Loot Crate? Imagine a generous hunk of Comic-Con delivered to your doorstep every month. A subscription-box service, Loot Crate curates a themed selection of pop culture items that cater to fans of Marvel and DC comics, gamers, sci-fi and horror buffs, anime collectors, and devotees of top shows such as Breaking Bad, The Walking Dead, Stranger Things, and Westworld, and other entertainment franchises that are subject to avid binge-watching. The company counts more than 650,000 subscribers in 35 countries, at $13.95 and up (not including shipping). A vast number of these subscribers, which the company affectionately terms “Looters,” post reactions to each month’s offerings via social media. (A search of “Loot Crate unboxing” yields 319,000 results on YouTube.) The company’s 2015 revenue was $116M.
“Our customers say, ‘I trust you to do something awesome with my subscription money. So come back and wow me.’”
The firm has skillfully stamped its brand on social media with timely, clever takes on current pop culture. “It’s the best of fandom, with the brand talking to you as an equal and a peer,” says 31-year-old Davis, offering his explanation of why Loot Crate has connected so deeply and rapidly with its audience. (One recent example of the wickedly clever (and slick) content being created in-house is the parody trailer for DC Comics’ super anti-hero saga Suicide Squad, reimagined as if Quentin Tarantino had written, cast, and directed it.)
Davis is on his game and focused, as any CEO of a nine-figure company would be while describing the rapid scaling of his not-yet-five-year-old business. Obligatory workplace-casual attire aside, the animated tone in Davis’ voice leaves little question that his days are spent doing a lot of different things, none of which feel like work. “We have a laid-back culture in terms of who you are and how you dress,” he says. While Loot Crate employees may include professionals from a mix of industries, including entertainment, consumer products, gaming, and data science, there is one common thread that brings them together. “You have to be passionate about some kind of fandom, world-class at what you do,” says Davis.
Born in Arcadia, Calif., Davis grew up in the Bay Area, returning south to attend Claremont McKenna College, also the alma mater of both his parents. After graduating, Davis landed back in Silicon Valley, getting his first exposure into content licensing with VuClips, an introduction to the ins and outs of negotiating and building relationships with entertainment companies. In 2010 Davis came back to LA to pursue his entrepreneurial dream. He joined a business incubator, The Founder Institute, where his idea for a digital home services platform morphed into Gamer Food, the world’s first performance snacks specially formulated (with generous amounts of caffeine and taurine) to optimize video game performance and enjoyment. A side project shared with Davis’ brother Michael (a content producer for Maker Studios at the time) and three others, the snack company unveiled products with snappy names such as Seeds of Victory, Nuts of Destruction, and Cashews of Chaos. The endeavor, while never profitable, provided an opportunity to glean additional insight into the intricacies of licensing deals, says Davis.
Even if Gamer Food was not the right vehicle, Davis knew he was onto something in terms of attracting, engaging, and captivating an audience. He stepped back and reimagined the concept into what would become Loot Crate. “I went to a hackathon,” he recalls. “I brought the concept [and] had some early ideas around it, but I had done no development or logo.” Hackathons are composed of a mix of entrepreneurs bringing their own concepts to pitch and other creatives who want to contribute their ideas to someone else’s vision. Eight people joined Davis’ team that weekend. One of them was Matthew Arevalo. The two formed a quick bond. “Everyone else had day jobs they went back to,” recalls Davis. “I immediately recognized Matt would be an awesome partner on this.”
Arevalo has orchestrated community engagement on a scale that could rival much bigger companies in the entertainment space, a key ingredient to Loot Crate’s success. “There are no shortcuts on the road to success,” says Arevalo, co-founder & chief experience officer. “The early days were filled with late nights and favors, as we scaled to meet the needs of fans.”
“We were posting behind-the-scenes footage of us packing the boxes the first month,” says Davis. “As soon as a new [Snapchat] channel came up, we were there, talking to people.” Obtaining customer feedback has always been a priority, with between three and four million subscriber surveys having been completed and returned over the years. “We have everyone rate every box they get,” he says. “There’s a lot of dialogue with our members and our team. A lot of that data drives our product-line expansions.”
An Entrepreneurial Climate
The LA region – blessed with deep creative resources within the tech and entertainment industries – has been a spawning ground for innovative startups (e.g., The Honest Company, Dollar Shave Club, Thrive Market, Black Tux, DogVacay) that are connecting with their respective audiences and building brand loyalty in novel ways. “The LA ecosystem is really great; people just want to see LA companies do well,” enthuses Davis. “We got a lot of good time with really sharp people.”
“Bootstrapping is great for discipline, but you spend a lot of time thinking about cash flow.”
The Port of Los Angeles, the busiest in the U.S. in terms of container volume, is another reason the region is such an attractive base of operations. Eight of the world’s biggest toy companies, including Mattel, are headquartered or have offices between Irvine and Van Nuys. Apparel is big in the region as well. “Then you have the studios and the game companies – it was like a perfect storm” for Loot Crate, says Davis.
In December 2014, that perfect storm presented an urgent dilemma when an International Longshore and Warehouse Union strike temporarily interrupted the flow of goods into the port. Product that was supposed to be rolled into the following month’s subscriber crate was stuck on one of the freighters, and the company’s integrity was in jeopardy. Because the contents of a Loot Crate change every month, the key becomes how to make each crate better than the last. The one consistency is that every box shipped includes six distinct items that complete a Loot Crate. To Davis, the prospect of either shipping late or shipping an incomplete crate with an explanation was a “lose-lose” proposition. “We always talk about trust being so important,” Davis says. “Our customers say, ‘I trust you to do something awesome with my subscription money. So come back and wow me.’ ” Luckily, the strike was resolved before alternative solutions had to be pursued.
The Power of “Word of Web”
Since the first order was placed in July 2012, consistency has been a core value at Loot Crate. When the company made the commitment to start taking subscriptions, the clock started ticking. “We have 30 days to get the product out,” Davis explains. “We launched on July 21 and we’re shipping August 20.” The first month, 250 people signed
up – 50 of those on the first day. “It was immediately, we have these subscribers, let’s figure out how to put a box together.” Mobilizing to fulfill those 250 orders was a frenetic exercise down to the wire. “It took 12 of us eight hours to pack and ship,” he says. “We had hand-folded tissue paper and crinkle-cut and taped all four sides. Efficiency was low.” The company invested in equipment to improve efficiency on the warehouse side. Davis has a friend with an eco-friendly product in the subscription space, who provided additional guidance.
The company garnered scant press early on, but “word of Web” was immediate. Exposure on various social media sites was contributing significantly to the impact Loot Crate was having on its target demographic, 18-to-34 males. “Everyone who signed up got a personal thank-you on our Facebook page,” recalls Davis. “We were also working with creators who were sharing it [and] journalists in the tech space. It was a weird product, but everyone [said], ‘This is cool.’ ”
Eventually, Disney, Columbia, Paramount, and others began to take note. “We were working a lot with the licensees and the product companies that had worked but had the licenses. Studios were like, ‘Who’s this interesting company? This is growing really quickly, we’re seeing it all over social.’ Junior people within the companies were subscribing.”
Loot Crate ramped up operations, bringing in a team with experience in entertainment licensing, getting advice on partnering with studios, and making sure that licensing and IP use agreements were fair and equitable. “Now it’s an ongoing dialogue,” Davis says of Loot Crate’s relationships with various studios. “We’re seeing what their content calendar looks like. And then our designers, we have licensing deals with them, so we’re able to plan really far out. If you’re Disney, you’re three to five years ahead.” It’s a far cry from the early days, when the content for each Loot Crate was finalized just three to six months ahead of shipment.
Greg Bettinelli, a partner at Upfront Ventures, was an early believer in Davis and Loot Crate. “Chris has a keen understanding and awareness of the opportunity to surprise and delight fandom categories in a very authentic yet sophisticated way,” says Bettinelli. “He sees Loot Crate as much more than a ‘stuff-in-a-box’ category player. He wants to be the defining fan-centric commerce platform.”
In June 2016, Loot Crate raised $18.5M in a round of Series A funding led by Upfront Ventures.
Says Bettinelli: “I saw a powerful platform for building and driving fan engagement that can be applied to countless high-affinity verticals.” The deal also involved Breakwater Investment Management, Time Inc., M13, Sterling VC, and Downey Ventures, the latter of which is the startup investment arm of Team Downey, the production company founded by actor Robert Downey, Jr. and Susan Downey. Prior to that, Loot Crate was self-funded. “Bootstrapping is great for discipline, but you spend a lot of time thinking about cash flow,” acknowledges Davis. Aware of its potential, Davis decided early on that having liquidity was less important than having a strong balance sheet.
Unite and Inspire
The Loot Crate mission, as stated on a plaque that hangs over a threshold in the offices, is “to unite and inspire the world through the universal language of fandom.” The menu of offerings has expanded considerably since the original single monthly box was launched. Today, “looters” can order Loot Crate DX (a high-octane “serious” enthusiast package), Loot Anime, Loot Gaming, Loot Pets, and Loot Wear, each with subcategories that cater to specific areas of interest. There’s even Loot For Her, featuring themed clothing and accessories for women. There are also partner and limited-edition crates as well as the Loot Vault, where popular items from previous crates can be purchased individually. Specialty boxes fetch up to $74.99, and subscriptions offer plans of 1, 3, 6, or 12 months. Each box has a themed playlist on Spotify, and the company produces a monthly interactive game, a print magazine, and sci-fi shorts that it posts to YouTube.
“Right now, we’re added to the ecosystem, so we work with retailers, existing consumer products brands, and the entertainment and gaming companies. We’re not seen as competitors but a new consumption model.”
“All the products are essentially exclusive now,” says Davis. Retail value of the cumulative contents of the original box has almost doubled from $35 to $65. “People see us investing in the product, which feels like we’re investing in them.” According to Davis, the only direct competition Loot Crate currently faces is the level of subscribers’ discretionary income; there are no other companies occupying the unique space that Loot Crate has carved for itself. “I think that’s why we’ve been able to scale so quickly,” he says. “Right now, we’re added to the ecosystem, so we work with retailers, existing consumer products brands, and the entertainment and gaming companies. We’re not seen as competitors but a new consumption model.”
One thing that dismays Davis is companies that go dark rather than being responsive to customers when something goes wrong. “I see a lot of companies that under-invest in customer support on the community side. People want to talk to you,” he says, referring to the transparency that is increasingly becoming an expectation for the modern consumer. “Companies will shut down if they make a mistake. Gaming companies either handle this really well or really poorly. Just tell people what’s up.”
Fans for Life
Meeting Marvel Comics’ former president and chairman Stan Lee was an experience Davis counts as his personal fandom highlight. Lee, 93, created Spider-Man, Iron Man, Captain America, and other popular characters that continue to entertain audiences to this day.
“People see us investing in the product, which feels like we’re investing in them.”
On that note, Davis is cognizant of the special bond that occurs between parent and child when a bit of pop culture is passed down from one generation to the next. Certain items that go into each Loot Crate are, in a distinctly oddball way, cute for kids. “We’ve gotten a lot of interesting anecdotes,” offers Davis. For a recent horror-themed crate, one of the included items was a cuddly, plush doll depicting Leatherface, the nightmare-inducing antagonist from The Texas Chainsaw Massacre. The character was reimagined to be cute and whimsical rather than dark and terrifying. “We got photos of parents tucking their kids into bed, snuggling with Leatherface. It’s kinda fun,” he says with exuberance. “That’s what you come to Loot Crate for.”
Companies such as Amazon and Google that are scaling operations to enormous levels while promoting an authentic sense of community earn Davis’ utmost respect. “We feel big at 300 people,” observes Davis. “How do you run a company of 10,000 people and keep the vibe and energy up?” It’s a question Davis may very well have to answer himself if Loot Crate’s current trajectory continues.