NEW YORK, United States — Rent the Runway. Birchbox. Warby Parker. By now, you know their names, as well as their backstories: the venerable start-ups that have played a major hand in irrevocably transforming the retail, fashion and beauty industries. Over the past decade, dozens of category disruptors have emerged, promising new (and better) ways to shop.

Thus far, however, few have resulted in a major payday for investors — only middling returns or full-on flameouts. Recently, Matchesfashion.com, the luxury e-tailer that transformed itself from a local chain of high-end boutiques into a global e-commerce powerhouse over the course of just five years, bucked the trend, with private equity firm Apax Partners swooping in to purchase the company for a cool $1 billion. While the sale of OG-fashion start-up Net-a-Porter to Yoox in a $1.4 billion all-stock deal looked "perfect on paper," as group chief executive Federico Marchetti told the Financial Times in May 2015, some NAP executives and shareholders were critical of the deal, which they believed undervalued the luxury e-commerce leader.

So far, the majority of fashion start-ups that have sold — Bonobos to Walmart, True & Co. to PVH Corp. and Gilt Groupe to Hudson's Bay Company, for example — did not deliver returns worth bragging about. Gilt competitor HauteLook is one exception. After raising just $40 million, the flash sale site's 2011 acquisition by Nordstrom for $270 million, once seen as a premature exit, is now viewed as not only as prudent, but downright savvy.

According to reports, PVH’s acquisition of lingerie start-up True & Co., which raised $13 million, was only in the tens of millions of dollars — meaning investors may have just made their money back — while Gilt Groupe actually sold for less money ($250 million) than it raised ($280 million). Bonobos, which raised a little over $127 million in total, sold to Walmart for $310 million earlier this year. A success in retail terms? Sure. In venture terms? Perhaps not.

“You’re seeing what would be considered ‘failures’ in tech, but in the retail industry, they’re called sales. Venture investors don’t make investments hoping to sell for $50 million, $100 million or $200 million,” says Ari Bloom, founder of A2B Ventures and chief executive of Avametric, a San Francisco-based fashion and retail technology firm. “They’re looking for companies to sell for a billion or go public. Otherwise, it’s not a good use of a venture capitalist’s time or money.”

Even if there is an acquisition, venture investments are often structured in such a way that VC firms are paid out first through a “liquidation preference,” meaning that at the very least they get their money back, with some term sheets demanding a three-times return. This means that employees and early angel investors are often squeezed out of the return.

Investors remain confident that the fashion and beauty categories will birth at least one or two unicorns.

Of course, this pattern is by no means specific to fashion and beauty. "It's par for the course," Bloom says. One pain point particular to fashion, however, is a lack of potential acquirers within the traditional apparel industry. While discount-oriented mega-retailers like Walmart, Amazon and Target have been on the hunt for acquisition targets, as have beauty and luxury conglomerates, major apparel retailers and groups — think Gap, Inc. and URBN Inc. — they have been slow to court a new wave of brands and services, which in many instances could help modernise the businesses that they already own. PVH Corp. took a step forward when it acquired True & Co., which uses big data to help determine bra fit and size. True & Co.'s methods can be applied across several different brands, not only the lingerie labels PVH already owns, but also its major revenue drivers Calvin Klein and Tommy Hilfiger.

Investors remain confident that the fashion and beauty categories will birth at least one or two unicorns, although the pool for potential grand exits is draining. Some crowded industry sub-categories — for instance, peer-to-peer selling — will need to consolidate further in order for one or two businesses to succeed. There will also be acquisitions made by unlikely buyers. For instance, entertainment companies including NBC Universal, Fox and Disney are now looking at adding product businesses to their portfolios.

So, which of fashion and beauty’s most talked-about start-ups are best poised to rise above the rest? BoF surveyed the market, pinpointing the most memorable flameouts, the most likely break-outs and those with potential to go either way.

BREAK-OUT

Farfetch
Founded in 2008
Estimated Revenue: $150 million in 2016
Estimated Funding: $701.5 million
The luxury platform — which connects consumers with a network of boutiques and brands — has spent the last year readying itself for a potential stock market flotation, with some reports valuing the company at a whopping $5 billion. Most recently, it teamed with JD.com, which invested nearly $400 million in the business, to further build its customer base in China. While some question whether Farfetch's model can scale to the extent that it needs to in order to offer a significant return to its investors, it is widely seen as one of the industry's greatest hopes for a major exit.

Stitch Fix
Founded in 2011
Estimated Revenue: $730 million in 2016
Estimated Funding: $42 million
The profitable personal styling service — which sends customers boxes filled with recommended products, which they can buy and keep or return at no costs — filed for an IPO at the end of July 2017, according to a report from tech industry trade site Recode. Its unique business model, which uses quantitative and qualitative data to help compose individual-specific boxes, is considered by many to be the modern solution to multi-brand retail. In the past year, Stitch Fix has expanded its offering into men's, plus-size and higher-end contemporary brands to complement its private label and low-to-mid priced product offerings.

Warby Parker
Founded in 2010
Estimated Revenue: Undisclosed
Estimated Funding: $215 million
According to a recent report in the Wall Street Journal, asset manager John Hancock recently marked down its investment in Warby Parker, reducing its valuation, once north of $1 billion, to around $889 million. While the eyewear maker released a statement declaring that John Hancock's actions did not reflect the financial performance of the company, the news made waves within the industry, simply because Warby Parker is seen as relatively untouchable. A true industry disruptor with zero serious competitors in terms of price, the start-up has managed to roll out a successful brick-and-mortar retail strategy — with 50 stores spread across the US and Canada.

Rent the Runway
Founded in 2009
Estimated Revenue: $100 million-plus in 2016
Estimated Funding: $190 million
The "Netflix of Fashion", which allows customers to rent clothing and accessories either piece- by-piece or for a set monthly fee, has managed to continue to raise money — most recently, $60 million in 2016 — which indicates to the market that investors are still bullish on its unicorn potential. What is perhaps most compelling about Rent the Runway is that it is a unique liquidation platform for brands, allowing them to smartly dispose of dead inventory, and it is also the largest dry cleaner in the country. The company's platform also has implications far beyond fashion. While an IPO is not out of the question, some industry insiders believe it would be smart for a major retailer, such as a department store, to acquire Rent the Runway, or for the start-up itself to begin acquiring complementary companies, such as beauty-subscription service Birchbox.

Beautycounter
Founded in 2013
Estimated Revenue: $225 million in 2017
Estimated Funding: $42 million
The cosmetics company, founded by serial entrepreneur Gregg Renfrew, possesses several qualities that make it an attractive acquisition target. First, there is its unique business model, which combines social selling, direct-to-consumer sales and wholesale in a "rising tide lifts all boats" fashion. Renfrew is also a leader in the safe cosmetics movement, and could provide a blueprint for a conglomerate looking to better regulate their ingredients.

Matchesfashion.com
Founded in 1987, rebranded in 2013
Estimated Revenue: $263 million in 2016
Estimated Funding: $51 million
In 2013, Matches, an independent luxury retailer with a string of stores across the United Kingdom, rebranded as Matchesfashion.com, raised over $50 million, and went full steam ahead on its effort to capture a slice of the growing market for luxury goods online. In 2016, online sales were up 73 percent year-over-year, with an 80 percent jump outside of the UK. On September 1, the retailer inked a deal with private equity firm Apax Partners that reportedly values the business at $1 billion.

Other Notables: Allbirds, Glossier, Drybar, Beautycon, M.Gemi, Rockets of Awesome, Ipsy, Poshmark, Lyst
There is also enthusiasm around several fast-growing businesses — including trainer-maker Allbirds, cosmetics-label Glossier and kids' clothing subscription box Rockets of Awesome — although these still-nascent brands may face challenges with scale once the customer- acquisition well has run dry, or becomes too pricey. Beautycon, which combines a robust event program with a subscription box business to generate different streams of revenue, could be an interesting acquisition prospect for an entertainment or media company, while Drybar — the Starbucks of blow-dry salons — has room to continue to scale both in the US and internationally.

JURY'S OUT

The RealReal
Founded in 2011
Estimated Revenue: Undisclosed; $500 million in gross sales
Estimated Funding: $173 million
Luxury consignor the RealReal has remained a category leader, with chief executive Julie Wainwright outlining the company's path to IPO after announcing another $50 million in funding in June 2017. The once-crowded "re-commerce" market has begun to thin out, with Vestiaire and Tradesy emerging as The RealReal's most significant competitors. Investors suspect that the number of re-commerce businesses operating will continue to decline, and that major players will consolidate even futher before a true winner — or two — is declared.

Outdoor Voices
Founded in 2013
Estimated Revenue: Undisclosed
Estimated Funding: Nearly $23 million
While dozens of athleticwear brands have emerged in the past half-decade, eager to capitalise on both the wellness movement and the casualisation of everyday dress, none has captured the interest of the fashion industry more than Outdoor Voices, whose distinct, Memphis Group-inspired aesthetic taps into the Millennial zeitgeist. Like any product company, however, there are questions regarding how far OV can scale, and whether the market for athleticwear — whose major players, including Lululemon and Under Armour, have been challenged as of late — is big enough for another billion-dollar brand.

In a recent interview with BoF, founder and chief executive Tyler Haney said that sales are on track to quadruple in 2017, and there plans to open two new physical stores by the end of the year. J.Crew chief executive Millard "Mickey" Drexler also recently joined the Outdoor Voices board as its executive chairman, leading the funding of a $9 million convertible note, which is a debt round that is converted into equity at the next round of equity funding. This suggests that Outdoor Voices will again look to raise funds in order to scale further before entertaining a public flotation or an acquisition.

Violet Grey
Founded in 2012
Estimated Revenue: Undisclosed
Estimated Funding: Undisclosed
The Los Angeles-based beauty-commerce start-up, which has gained praise for its high-wattage editorials, expert inventory edit and well-trafficked West Hollywood physical boutique is a promising brand in a crop of specialty retailers looking to challenge dominant players Ulta and Sephora. A reported deal with Amazon, which would use Violet Grey's relationships with upscale brands to expand the e-commerce behemoth's offering indicates that those leading the venture, including founder Cassandra Grey, have ambitions to scale. However, getting premium brands to sell on Amazon will not be easy, and Violet Grey reportedly struggled to close a Series B round of funding. (The total amount of funding has not been disclosed, but sources say that the company raised $2 million in a seed round and $5 million in a Series A round.)

Refinery29
Founded in 2005
Estimated Revenue: $80 million in 2015
Estimated Funding: $125 million
The nimble media platform, which has transformed its business model several times over in order to reflect the needs of the advertising market, is currently focused on video, spurred by a $45 million funding round in August 2016, led by broadcasting company Turner, that valued it at $500 million. But advertising revenue-fuelled businesses remain challenged at all levels, and Refinery29 will need to continue to develop its 360-degree offering — which is often positioned in the market as the Vice for Millennial and Gen Z women — in order to earn a significant payout for investors.

Spring
Founded in 2014
Estimated Revenue: Undisclosed; gross sales "north of $100 million" in 2016
Estimated Funding: $98 million
Online marketplace Spring has distinguished itself from competitor Farfetch by focusing on volumen-driving mass-market brands, taking a commission on sales made through its app and website. Whether or not such brands need a central platform in the way independent luxury retailers and high-end brands with low marketing budgets do is still unclear, but Spring chief executive Alan Tisch and president Marshall Porter have done a notable job thus far at driving business through affiliating marketing and paid user acquisition.

Birchbox
Founded in 2010
Estimated Revenue: $200 million in 2016, according to Recode
Estimated Funding: $87 million
At one point, pioneering beauty subscription box service Birchbox posited that its $10-a-month sample pack would not be the main driver of revenue, but instead a catalyst for subscribers buying full-price products. What the start-up realised over the years was that the core of the business was in those cheap-and-cheerful boxes, not full-price product and physical retail. In 2016, the start-up laid off 30 percent of its New York-based staff and shrunk its budgets. While chief executive Katia Beauchamp told Forbes in April 2017 that the company was now profitable on an EBITDA basis, it has debt due in early 2018. So it's no suprrise that, in August 2017, Recode reported that the venture was looking to sell, with Walmart emerging as a potential buyer. Another option could be to partner with a fellow disruptive start-up, such as Rent the Runway, or Ipsy, another beauty box business.

Other Notables: Everlane, Reformation, BaubleBar, Moda Operandi, TechStyle, Shoptiques, Vestiaire, Glamsquad
While some of these start-ups are on more solid ground than others — Reformation, for instance, is growing substantially, according to sources with the company — they each struggle with the pricey cost of customer acquisition, and the challenge of scaling their businesses to a point where they are worth the valuation bestowed upon them. Some will look to be acquired by competitors who have ironed out business-model kinks more briskly, while others will break through to the next level of growth with a new, attention-grabbing product. Some, of course, will sputter out because of mismanaged operations, low funds or bad timing.

FLAMEOUT

Avenue 32
Founded in 2011
Closed in 2017
Estimated Funding: Undisclosed
Like My-Wardrobe and Style.com before it, the UK-based Avenue 32 simply could not compete with the likes Net-a-Porter, Farfetch and Matchesfashion.com despite its specific point of view and smart editorial spin.

Nasty Gal
Founded in 2006
Closed in 2016, Revived in 2017
Estimated Funding: $65
The rise and fall — and subsequent rebirth — of Nasty Gal has been well-documented, but what it comes down to is this: While founder Sophia Amoruso was a genius when it came to marketing and branding her product, not to mention building a loyal community around it, the start-up raised too much money and tried to scale too fast, making poor business decisions along the way to keep it afloat. (Including bringing logistics in house and being careless with product quality.) However, there is a lesson here about the power of brand. When UK-based fast-fashion firm Boohoo acquired Nasty Gal's IP for $20 million in 2017, it managed to relaunch with great enthusiam from fans. Whether or not it will resonate in the long-term without Amoruso's magic touch is to be determined.

Beachmint
Founded in 2010
Closed in 2015
Estimated Funding: $75 million
A subscription-based business that paired celebrity-investors with different categories — for instance, Justin Timberlake fronted HomeMint, while Kate Bosworth fueled JewelMint — the concept soon lost steam. A Hail Mary attempt to save the venture came when investor Condé Nast spun out its struggling shopping brand Lucky into a new entity that merged with Beachmint. In November 2015, Luckmag.com, the joint venture's e-commerce platform, closed down.

Fab
Founded in 2009
Acquired in 2015 for and estimated $15 million-$50 million
Estimated Funding: $336 million
The mother of all start-up flops, design site Fab.com — which sold everything from furniture to jewelry — raised a disproportionate amount of money for a product company. It also shifted business models several times, starting as a flash-sales site in the vein of Gilt Groupe, then adopting a drop-ship model and finally trying its hand at producing its own products. In 2015, the company was acquired by product-design firm PCH, retaining its 35 remaining employees. The site remains in operation, although it did not garner any sort of significant return for its laundry list of investors.

Tinker Tailor
Founded in 2014
Closed in 2015
Estimated Funding: Undisclosed
Moda Operandi co-founder Aslaug Magnusdottir launched Tinker Tailor as the luxury industry's answer the to the mass-customisation movement transforming the apparel and accessories industries. Unfortunately, the concept — which allowed shoppers to customise designer pieces or design their own dresses virtually from scratch — failed to gain enough traction. Magnusdottir was unable to raise additional capital in order to continue to fuel the business. (Competitor Piol, which launched around the same time, has also ceased operations.)

Gilt Groupe
Founded in 2007
Acquired in 2016 for $250 million
Estimated Funding: $280 million
When flash-sales site Gilt Groupe launched in the US in 2007, the carbon copy of France's highly successful online liquidator Vente Privee was seen as a cure for retailers and brands stuck with excess inventory as the markets crashed, unemployment skyrocketed and a full-blown recession set in. However, poor planning around consumer demand meant that the business hit the growth ceiling long before its investors expected it to. While Hudson's Bay Company has struggled to move the Gilt brand forward, the acquisition allowed the retail conglomerate to boost its technology capabilities across its properties.

Other Notables: Threadflip, My-Wardrobe, Style.com, Covetique, Huckster, Quirky, Go Try It On, Piol
While the list of not-so-notable start-ups that have failed within the fashion and beauty categories is quite long, the ones launched with great enthusiasm and fanfare remain burned into the brains of industry observers. Their demises came for a variety of reasons. For some, it was poor timing, but more often, it was as combination of poor execution and a lack of funding needed to continue developing product and acquiring customers.

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