Fashion’s funding lifeline is still securely connected to the start-up crowd.
The private sector is hot with innovation and disruptors that offer consumers new products and a fresh take on things.
In a research note, Wells Fargo analyst Ike Boruchow looked at data from Pitchbook and found 38 digitally native retail companies that collectively raised roughly $1.2 billion in the first quarter, making them a bigger threat to traditional retailers.
“Though revenue figures for many of these companies are unknown, the average [estimated value]/sales multiple for companies with known revenue figures was [five times] in Q1,” Boruchow said.
Goat, Casper, Glossier and Rent the Runway, all had more than $100 million in investments in the last two months. Luxury online fashion reseller Farfetch paid $250 million for sneaker reseller Stadium Goods in January.
Four companies — Glossier, FabFitFun, Rent the Runway and Casper — raised enough money during the first quarter to push them into an elite group of “unicorns,” or companies with an implied valuation of at least $1 billion.
“There’s been a power shift with direct-to-consumer marketing,” said Philip Krim, cofounder and ceo of mattress company Casper, during a panel event in New York earlier this year. “Now brands can market their image how they want.”
Despite the surge in digital retail investments, there were fewer investments in private retail companies in the first three months of 2019, compared with the year prior — 10 to be exact. But the average amount of money raised per deal was higher: around $31 million per deal, compared with only $26 million a year ago. The total money raised in the quarter slipped slightly, down 3 percent year-over-year.
Historically, companies sought to build their businesses and then, once they had real momentum and scale, go public. Now big-time investments are going to start-ups.
The investment into beauty company Glossier, which generates $100 million in revenues, was made at a sales multiple of 12 times.
“The brand has a cult-like following that encourages social media engagement and peer-to-peer sharing,” Boruchow said, “the most effective [being] product recommendations. And [Glossier is] highly distinct from the highly editorialized global marketing campaigns of traditional beauty brands.”
And unlike traditional retailers, which started with brick-and-mortar locations and later went online, Boruchow pointed out that Glossier is just one of many digital natives that began by selling products online, only later opening stores in real life.
Business models of all stripes are also being disrupted. Rebag, for instance, pays sellers for their luxury handbags up front, directly controlling their inventory rather than simply matching buyers and sellers. And Rent the Runway give shoppers the chance to rent designer looks.
“Since there’s a broad economic trend away from ‘ownership’ to ‘access,’ the clothing rental market could be a very large opportunity,” Boruchow said. “The brands can gain access to different types of data relative to what they get from other partners and Rent the Runway is a very valuable marketing partner.”
Here’s a look at the top ten largest investments in retail startups in 2019’s first quarter.