Cotopaxi, a direct-to-consumer outdoor apparel and gear company that strives to outfit Millennials when they camp, hike, climb and more, has raised $6.5 million in a Series A round of funding.
Led by Greycroft Partners with participation from NEA, Forerunner Ventures and Lerer Hippeau Ventures, the new round brings Cotopaxi’s fund-raising total to $9.5 million. Based in Cottonwood Heights, Utah, Cotopaxi, which launched last April with the first of many 24-hour outdoor adventure races it holds called Questivals, supports poverty eradication programs by selling jackets, T-shirts, hats, backpacks and water bottles.
“There are established outdoor brands, but there haven’t been any that have broken out online,” said Ellie Wheeler, a principal at Greycroft Partners. “There are some innovative and long-lasting brands in this category — everyone looks at Patagonia and they should, and The North Face has been pervasive — and there’s an opportunity to resonate with the Millennial customer in a similar way. Through its social mission and the Questival, Cotopaxi really has the opportunity to build that.”
Wheeler praised Cotopaxi for having a deep understanding of its customers. Under the supervision of Cotopaxi founder and chief executive officer Davis Smith, vice president of product C.J. Whittaker, and director of apparel design Cheri Sanguinetti, the brand tailors its merchandise, for example, to Millennial preferences. The jackets and T-shirts feature athletic cuts fitting for Millennial bodies, pops of color and prices 10 to 20 percent lower than comparable items from other brands.
Smith, a serial entrepreneur who has invested in Warby Parker and Bonobos, and founded an American pool table retailer and Brazilian e-commerce companies dedicated to baby products and flash sales, noted lifestyle products with technical aspects rather than highly technical products for rigorous outdoor activities constitute two-thirds of Cotopaxi’s sales. He estimated purchases by women account for roughly half of Cotopaxi’s business.
Cotopaxi’s direct-to-consumer positioning has several benefits. Speed is one. Smith said, “We get product to market fast. Traditionally in the outerwear space, it will take 18 to 24 months to get a product to store shelves. We develop the product and get it on our Web site anywhere from three to four months on packs to six to eight months on outerwear. We will be the first ones to market with newer technology.”
Profit margin is another advantage. Smith said, “We have a bigger margin than if you sold to a retail store. We can take the extra margin and put it into the product.” He added Cotopaxi puts its extra margin toward philanthropy as well. The company’s goal is to donate 10 percent of profits to social causes. For each product available on its Web site, Cotopaxi, a B-corporation committed to making a positive impact on society, highlights organizations, including Kilimanjaro Kids Community and Wholives.org, receiving a contribution when the product is bought.
“If we just had a social mission, I don’t know if people would buy our product. You have to have an amazing product and brand, but this generation definitely believes in the social mission,” Smith said. “Internally at the company, having the common mission that’s not about the bottom line makes it so much more fun to work here, and we attract better talent. People are willing to make less money and work longer hours to do something that’s good for the world.”
Coupled with the social mission, the Questivals are effective customer recruitment tools. As a result of the adventure races, Smith said 90 percent of the traffic to Cotopaxi’s Web site is unpaid and 10 percent is paid, a ratio he figured is reversed at most e-commerce companies. “When we went to San Francisco and did the Questival, prior to going there, 5 percent of our sales were from San Francisco and, in the next several months after the Questival, 20 percent of our sales were from California, and we weren’t increasing our marketing in California,” Smith said.
A portion of the money Cotopaxi recently raised will be devoted to Questivals. The company is planning to hold 20 to 30 of them over the next year. Cotopaxi will boost its budget for customary customer acquisition techniques, too. The Series A funding will go toward expanding the staff as well. Smith said Cotopaxi employs 14 full-time staff members and that number should jump to 22 in the near future.
Over the past year, Smith said Cotopaxi registered average month-over-month sales growth of 60 to 70 percent. He wouldn’t disclose the company’s exact revenues. “A lot of the e-commerce brands that we know of from over the last five or 10 years, they are struggling to reach profitability. Something that we have done differently is that we have been much more conservative in our growth. We wanted to acquire people offline without the expense of having a store. We are also very scrappy. We are in Salt Lake City, where there is a lower cost of living,” said Smith. “We are aiming to reach profitability with this round of capital.”
Brick-and-mortar stores are part of the long-term plan. “My first business was an e-commerce business that has physical retail stores. It is something I’m very familiar with, and I believe in brick-and-mortar retail, but I believe it has to be at the right time,” said Smith. “We are going to hold off on building a physical retail presence until probably our next round and maybe when we reach profitability.”