LONDON, United Kingdom — How does a retail giant keep pace in the fast-evolving fashion sector? Investing in start-ups is one way to stay ahead of the game, according to H&M Group, whose venture capital arm bets on young companies to gain insight into new innovations without having to build them from scratch.

The corporate venture arm of the Swedish fast fashion behemoth, dubbed H&M CO:LAB, has just funnelled $13 million into London-based e-tailer Thread as part of a $22 million Series B investment in the start-up, which uses artificial intelligence to power an online personal styling service selling premium-priced men's fashion from Diesel to Paul Smith.

For H&M CO:LAB, transactions typically range from $1 million to $20 million and have included investments in sustainable fashion upstarts like Renewcell and Worn Again; digital retailers like Thread and Sellpy, a used clothing marketplace; and technical solutions like Klarna, a digital payments start-up. Since its inception in 2014, H&M CO:LAB has made 3 to 4 investments per year. Thread is the fund's 12th investment and second-biggest after Klarna, in which it invested $20 million.

“Through this we can be part of driving innovation and explore more opportunities faster than what would be possible without a strong relationship to leading entrepreneurs,” explained Nanna Andersen, investment manager at CO:LAB.

In the case of Thread, “we support them by giving advice and producing their private label," continued Andersen. "In return we gain new insights on how to strengthen the personalized shopping experience and our development of technology to enable that. This is vital in a rapidly changing industry where customers’ expectations are constantly evolving.”

We're using AI to help customers find things that's perfect for them, that goes with what they already own, that suits them.

For Thread, the latest round will go towards “hiring data scientists and engineers to make the artificial intelligence much more powerful,” said chief executive officer and co-founder Kieran O’Neill. “Second is really turning Thread into a national brand” with advertising on the London Tube and new marketing and design roles, he added. Existing investors Balderton Capital, Beringea and Forward Partners contributed the remainder of the Series B investment round.

Thread is betting on wider menswear sales growth that’s outpacing womenswear and a fashion e-commerce boom. Online luxury sales hit $27 billion in 2017, up 24 percent over the previous year, according to Bain & Company. Thread competes with e-tailers like Asos and Mr Porter, but the site, which was built from scratch in 2012, stands out for its use of artificial intelligence to power the personalised styling suggestions, content and weekly email recommendations it sends to its one million-plus users.

“It’s in a great spot but there’s a whole lot of things that will really transform the experience like personalising every element from the guys in the photos looking like you to the content and advice based on who you are,” said O’Neill. “We’re really using AI to help customers find things that are perfect for them, that go with what they already own, that suit them.” The site asks users a series of questions like preferred styles, favourites brands and spending budget to spin up a personalised store.

O’Neill, a serial entrepreneur who previously launched and sold both video-sharing site HolyLemon and social video gaming website Playfire, started the business in 2012 with web designer Ben Kucsan and chief technology officer Ben Phillips. “We like to dress well but found shopping a chore, and wanted someone with great taste and who knew all the brands and who knew what we liked," O’Neill explained.

Getting brands on board proved difficult at first. Early adopters included Burberry and End Clothing. But hiring Terry Betts, former men's buying director of Selfridges, in 2015 gave the venture a boost. In the last 12 months, Thread has added 50 new brands, including Barbour, Hugo Boss and Levi's. The company declined to disclose annual sales figures. The business is not yet profitable.

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