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The Top 10 Venture-Backed Fashion Startups

As a spate of disruptive startups inch toward a decade in business, those being disrupted are increasingly turning to acquisitions to better secure their futures. BoF identifies the top targets.
Source: @poshmark, @everlane, @warbyparker, @reformation, @away, @rocketsofawesome, @poshmark, @allbirds, @kendrascott, @outdoorvoices
  • Lauren Sherman

NEW YORK, United States — In March 2017, PVH Corp., which owns globally recognised brands including Calvin Klein and boasts $8 billion in annual revenues, acquired San Francisco-based True & Co., a direct-to-consumer lingerie retailer driven by consumer data. Founded in 2012, True & Co. nudges first-time customers into taking a "fit quiz." Answers are cross-referenced with millions of other data points and at the end of the quiz, the customer is presented with a personalised shopping list.

On paper, the acquisition makes a lot of sense. PVH owns Warnaco and Olga, two “old school” bra companies that long ago took a backseat to Victoria’s Secret. And True & Co.’s analytical approach can be applied far beyond the lingerie category. In return, True & Co. — which raised just $13 million in venture capital, a relatively small amount compared to some of its competitors — will be able use PVH’s network of suppliers to make better products more cheaply.

At the time of the announcement, PVH chief executive Emanuel Chirico said that the acquisition "demonstrates our commitment to making strategic investments in our digital platforms to support our long-term growth initiatives. We believe that we can leverage the analytics tools of this data-driven company, while leveraging PVH's intimates category expertise, including global brand management, product know-how and supply chain."

The terms of the deal were not disclosed, but direct sources told industry trade site TechCrunch that "investors mostly got their money back, but nothing more," a figure that fell into the "tens of millions" of dollars. While it's perhaps not the kind of runaway success story True & Co. may have been chasing, the deal reflects a larger trend: to better secure their futures, those being disrupted — traditional old-guard incumbents — are increasingly buying tech-enabled disruptors. Just look at Walmart's recent acquisitions of startups like ModCloth — and potentially Bonobos.

There's going to be compelling opportunities for M&A activities between emerging businesses and old-guard retailers.

“We certainly think there’s going to be compelling opportunities for M&A activities between emerging businesses and old-guard retailers,” says Kirsten Green, founder of early-stage venture capital firm Forerunner Ventures, whose portfolio includes Warby Parker, Reformation and Dollar Shave Club, which was acquired by Unilever in 2016 for $1 billion. “The most compelling matchups will happen between companies when the incumbents are looking for brands that have growth and energy behind them. Models that promote engagement, that are good at using data to improve operations, inventory planning, marketing and promotion.”

But while many of these ventures are compelling acquisition targets — whether because of their brand, business model, technology or a combination of the three — others have raised so much money in order to scale that they will either have to be acquired for an amount that does not offer much of a return, if any, to investors. Gilt Groupe, which was acquired for $250 million in January 2016 by Hudson’s Bay Company after raising $270 million, and the bankrupt Nasty Gal, which was bought by UK retailer Boohoo for just $20 million after raising $65 million, are examples of this.

Other firms that have managed to successfully scale but will need even more capital in order to continue to fuel growth — in particular, multi-brand e-commerce players like FarFetch, the RealReal and Rent the Runway — are perhaps better candidates for an initial public offering on the stock exchange, which allows for more flexibility.

So which ventures are healthy, growing and ripe for acquisition? BoF conducted its own internal research and analysis, and spoke with a number of industry experts, to identify 10 fashion and accessories startups that fit the bill.

All Birds
Founded in 2015
Estimated Revenue: $50 million in 2017
Estimated Funding: $10 million from investors including Maveron and Lerer Hippeau Ventures

This fast-growing shoe brand — founded by Tim Brown, an ex-football player from New Zealand, and Joey Zwillinger, a San Francisco-based biotech engineer — flies under the radar in fashion circles. But the success of its ultra-comfortable, wool-upper trainers is evident in Silicon Valley, where venture capitalists and developers alike have adopted them as part of a tech-geek uniform.

According to industry sources, All Birds is on track to generate $50 million in top-line revenue in 2017 and double that to $100 million in 2018. But much of its future success is dependent on its ability to sell more than one style. Right now, Brown and Zwillinger are touting a slip-on that it calls the “Lounger,” which feels like a cross between a slipper and a Vans classic skate shoe.

Founded in 2015
Estimated Revenue: Undisclosed
Estimated Funding: $11 million from investors including Global Founders Capital, Accel Partners, Andy Dunn and Forerunner Ventures

Former Warby Parker executives Jen Rubio and Stephanie Korey took what they learned from that business’s disruption of the eyewear market and applied it to luggage, a category that has long suffered from bad design and over-inflated prices, adding a layer of technology to their under-$300 cases so that frequent fliers can easily charge their phones while in transit.

LVMH's $716 million purchase of an 80 percent majority stake in German luggage group Rimowa in 2016 helped to spur more interest in the market, but one investor notes that it was Rimowa's wheel technology — which can be applied across LVMH's brands — that sealed the deal. Away, on the other hand, has not developed its own wheel technology. Instead, the New York-based Away's best asset is its already-well-honed brand. On the awning of its storefront in New York's Soho neighborhood, a quote from Susan Sontag — "I haven't been everywhere, but it's on my list" — sums up the philosophy.

Stitch Fix
Founded in 2011
Estimated Revenue: $750 million - $1 billion in 2017
Estimated Funding: $42 million from investors including Benchmark, Baseline and Lightspeed Ventures

It’s more likely that Stitch Fix, the personal styling service that uses an algorithm to send its customers a personalised kit — or “fix,” as it’s called internally — of clothes on a semi-regular basis, will file for an initial public offering than be acquired. But there’s no doubting it’s an attractive prospect to larger companies looking to tap into its rich data set. In 2016, Stitch Fix told BoF that 70 percent of clients return for a second “fix” within 90 days and 39 percent spend over half of their apparel wallet share with the service. The company also uses data to help create proprietary designs, although it also sells products from third-party vendors.

While top-line revenue numbers do little to indicate how much product customers are actually keeping — Stitch Fix makes it easy to return items in your “fix” that you don’t want — the growth is real. According to private company financial intelligence firm PrivCo, Stitch Fix generated $242 million in top-line revenue in 2015, with a compounded annual growth rate of 76 percent from 2012-2015.

Rockets of Awesome
Founded in 2016
Estimated Revenue: Undisclosed
Estimated Funding: Nearly $20 million from investors including August Capital, General Catalyst and Gwyneth Paltrow

Founded by serial entrepreneur Rachel Blumenthal — and a part of M. Gemi chief executive Ben Fischman's Launch incubator — Rockets of Awesome has taken Stitch Fix's business model and applied it to the kidswear market. What differentiates Blumenthal's venture is the design, which rivals popular kid's lines including Stella McCartney in terms of quality, but with Gap Kids' sale prices: $22 on average, per piece. The goodwill generated by Stitch Fix will likely bring more attention to Rockets, although the former could also choose to become a competitor and delve into the kids' category, as it has with men's and plus.

Founded in 2011
Estimated Revenue: $51 million in 2015
Estimated Funding: $18 million from investors including 14W, Brian Sugar and Kleiner Perkins Caufield & Byers

With its drip-feed product-distribution model, clean design aesthetic and focus on transparency, basics purveyor Everlane is the name on the tip of every old-guard fashion company's tongue, cutting into the market share of established players such as Gap. In May 2016, retail giant Uniqlo tapped Everlane designer Rebekka Bay to lead its efforts in capturing more of the US market, indicating how closely the big guns are watching this San Francisco-based upstart. Last year, Everlane set out to raise a round of funding at a $250 million evaluation, according to Recode, although nothing further was announced. The company has been quiet about its funding efforts thus far, although Recode estimates that it had raised at least $18 million before 2016.

For Everlane, the biggest challenge will be continued growth. (Last year it was on track to generate $100 million in sales, according to PrivCo.)

Founded in 2011
Estimated Revenue: $50 million in 2016, $100 million in 2017
Estimated Funding: $70 million from investors including GGV Capital and Menlo Ventures

The fashion resale startup, which has co-opted social selling and an app-based model to help accelerate growth, keeps costs low by staying out of the inventory game — everything is peer-to-peer — and underscoring the entrepreneurial aspect of becoming a Poshmark seller.

Like eBay, some of Poshmark’s 2.5 million individual sellers have made real businesses out of their accounts, generating upwards of $500,000 per year. Many have also taken to selling new product bought at wholesale, which Poshmark helps to facilitate. But like any marketplace, it will have to keep finding new avenues of growth. (This year, Poshmark is projected to reach $500 million in gross merchandise volume, compared to eBay’s $84 billion GMV in 2016.) Its latest app update, the “Posh Dressing Room,” a virtual personal-styling session between the seller and the buyer, is meant to help drive engagements.

Founded in 2009
Estimated Revenue: $25 million in 2014
Estimated Funding: $12 million from investors including Andrew Rosen, Miroslava Duma and Stripes Group

Best known for turning out sharp-and-sexy dresses and separates at a cadence that mirrors fast fashion, but with a distinct aesthetic that sets it apart, the Los Angeles-based Reformation is not only vertically integrated, but it’s also a certified B Corp with an overall score of 100 (median is 55). Chief executive Yael Aflalo, who started Reformation after her experience designing a wholesale-reliant contemporary brand, has been prudent about raising money and expansion, with just five physical stores —four permanent, one temporary — and expansion into categories including bridal and swim.

Kendra Scott
Founded in 2002
Estimated Revenue: $225 million in 2016
Estimated Funding: Undisclosed (Minority investor is private equity firm Berkshire Partners)
Austin-based jewellery designer Kendra Scott famously started her business with $500 out of a second bedroom. But it's her focus on customisation, an accessible price point (average basket size is $100) and an oh-so-specific retail strategy — most of her stores are in college towns, or in cities or neighbourhoods where the brand's online sales are high — that have resulted in annual revenue of $150 million and a valuation north of $1 billion.

Warby Parker
Founded in 2010
Estimated Revenue: Undisclosed
Estimated Funding: $215 million with investors including First Round, General Catalyst and Menlo Ventures

A $1.2 billion valuation makes Warby Parker one of fashion’s only unicorns, and it also makes it a strong candidate for an IPO. But the eyewear brand’s retail strategy is admired by mature retailers and upstarts alike that are struggling to get the in-store experience right. This year, the company has plans to expand its retail footprint to more than 70 stores, using the data it culls online to better define its brick-and-mortar experience. "I don't think retail is dead. Mediocre retail experiences are dead,” chief executive Neil Blumenthal — whose wife, Rachel Blumenthal, runs Rockets of Awesome — told the Wall Street Journal in January 2017.

Outdoor Voices
Founded in 2013
Estimated Revenue: Undisclosed
Estimated Funding: Nearly $23 million with investors including 14W, Forerunner and Burch Creative Capital

While the bloated activewear market softens, this community-driven label continues to capture the fascination of brands that operate far outside the category, collaborating with the likes of APC (whose founder, Jean Touitou, is also an investor), and plans to open four more stores in 2017 in addition to the four stores it already operates. "Being nimble is the one thing that we have prioritised," Haney told BoF in 2016. "We are very quick to respond and I think the fashion industry has lost that."

The Top 10 Venture-Backed Fashion Startups is a BoF Professional report. Look out for our forthcoming BoF Professional report on The Top 10 M&A Targets in Beauty.

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