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Moda Operandi. Warby Parker. Rent the Runway. Birchbox. Bib + Tuck. Farfetch. There are countless fashion startups whose success is due, in a part, to serious financial investments.
But why are giant venture capital firms pumping millions of dollars into fashion startups; wouldn't gadgets, real estate or gold be less risky?
David J Freschman, the CEO and Founder of Fashion Tech finance community FashInvest, told the crowd at Wednesday's Fashion Tech Forum in New York City that many big players in the financial world believe fashion tech companies are the future.
"Fashion is a $1 trillion industry; fashion is even bigger than technology," Freschman said. "And the technology that is available today has allowed design and brand people to quickly launch their businesses. All of these fashion tech framers: Warby Parker, Birchbox, Gilt, Shopify, Rent the Runway, Nasty Gal. These companies, we believe, are the foundation of what is currently happening."
In 2009, a reported $50 million was invested in fashion tech startups; as of last year, $2.8 billion were invested in fashion startups. There are several capital venture firms investing in fashion tech companies, the most heavily invested are companies like Index Ventures, First Round Capital, Greycroft, Andreessen Horowitz, Sequoia Capital, Great Oaks and E.ventures.
Fashion tech companies venture capital firms believe are leading the sector. Image via FashInvest.
Freschman said investment options looked nothing short of sour back in 2009. But on the heels of a major recession, inventions like the smart phone, social media, and cloud computing gave birth to the fashion technology sector. Financial investors quickly took interest, especially when they noticed fashion tech startups were also getting involved in interesting and atypical implementations like wearable tech, 3D printing, and crowd funding.
"People are investing in fashion tech more than ever, [they see it] as an entirely new investment sector," Freschman said. "Just from 2013, you can see an upward trend. More and more dollars are being poured in. When there's disruption, there's opportunity. When there's opportunity, there's investors and when there's investors, there's a growth of success."
Investors are noticing that today's fashion tech creative class is not only inventing new prospects but also sexing up innovations that already exist. Wearable technology has been around for over 15 years, but "it didn't take off because it was technology, it wasn't fashionable," Freschman added. The fashion tech industry is able to makeover a product, repackage it as a hot item or service and it will sell.
A list of venture capital firms with the number of fashion tech companies they are invested in. Image from FashInvest.
As the fashion sector continues to grow—think of the number of flash sale sites and resell-clothing markets—investors have several predictions for the future. Competition, they explain, is only going to get fiercer.
"Even though [this sector] is new, it's starting to mature quickly. That doesn't mean companies will stop investing, it means more money will be required and that will make the market a lot more competitive," he said. Fallout has already occurred: fashion tech ventures like eBay's Svpply, One Kings Lane's Hunters Alley, 99dresses and Fashism have all shuttered recently.
The increasing amount of funding venture capitalists are pumping into fashion tech startups. Image by Chavie Lieber, data and charts by FashionInvest.
As competition intensifies, Freschman said investors are also expecting to see significant exits. That means major buyouts from bigger corporations. Examples of this are the acquisition of flash-sale site Hautelook by Nordstrom and the purchase of location-based shopping app Stylr by Walmart this year.
"There are going to be exits in this sector. We are five years in to the fashion tech phenomenon, and we are already seeing significant exits," Freschman said. "Big retailers need innovation so rather than watching a company go public with an IPO, they will just acquire whole companies."
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