Ben Lerer
Fabrice Grinda

Venture Investors Get Fashion Fever As Early Stage Deals Soar

Next Story

Morten Lund Looks Back At His Past Failures

Editor’s Note: Christine Magee is an analyst for CrunchBase.

There’s a brand new dance in venture capital, as investors have gone fashion-mad.

After watching JustFab and Gilt Groupe explode into billion dollar companies while Warby Parker raised over $100 million to sell stylish eyeglasses, investors are eager to discover the next big hit.

Venture investors have spent nearly $800 million in fashion-related deals so far this year, over half of which are seed stage fundings for young startups.

2014 investment totals are on pace to beat last year’s $900 million, with Q2 of this year seeing a record high of over $300 million in venture deals tracked.

High fashion e-commerce giants like JustFab and Gilt Groupe in the U.S., Zalora in Asia, Russia’s Lamoda and Brazilian Dafiti are all fashion marketplaces that have racked up some of the highest totals for venture investments in the fashion space.

But recently a new generation of vertically integrated, venture-backed brands have emerged, and investors seem to have no trouble keeping up with the latest trends.

Buck Mason, Frank & Oak, Jack Erwin and Mizzen+Main (which sound more like independent whiskey labels than tech startups) are just a handful of menswear brands that raked in venture dollars last quarter.

“You’re definitely seeing an explosion of vertically-integrated brands that are covering every vertical, every price point, and every distribution model,” says angel investor Fabrice Grinda, whose latest investments include handbag designer Dagne Dover, high end handbag resale platform Rebagg, and women’s lingerie brand AdoreMe.

Grinda is not the only one to blur the lines between tech and fashion, investing in companies where the tech aspect is not necessarily at the forefront.

Accel, an early investor in menswear brand Bonobos and arguably the year’s most successful venture firm, tops a list of veteran investors who have been most active in the fashion space.

“This is directly related to a handful of companies – Warby Parker, Everlane, maybe Birchbox – coming of age,” says Lerer Hippeau’s Ben Lerer. “You see these companies that were funded as tech companies but ultimately have become fashion companies, and I think the maturity of this first crop is one of the big drivers behind it.”

After backing Warby early on, Lerer Hippeau Ventures has gone on to become one of the most frequent investors in the space, funding fashion-tech startups from clothing resale marketplace Twice to luxury running apparel brand Tracksmith.

“There’s a little bit of a playbook now of how to build a brand, online and quickly – you hear the ‘Warby Parker of…’ all the time,” says Lerer, not surprised that investors are taking an interest in fashion. “Now that that formula exists, that sector will get a ton of investment dollars flowing in.”

Not everyone agrees. “Apparel and fashion is a really tough spot in the economy,” says Andy Boszhardt of Great Oaks Venture Capital, “it’s a pretty risky place to be investing right now.”

Boszhardt prefers to invest in e-commerce marketplaces with very little inventory if any, which is reflected in Great Oaks’ most recent deals for Twice and clothing personalization service Bow & Drape.

The economy is only one risk factor – creating a brand ultimately comes down to a matter of taste.

“The conversation always comes back to ‘do we think that the founding team has that really sophisticated sense of brand,'” says Lerer. “And that’s sort of bizarre in a world where the most valuable entrepreneur has always been the technical co-founder.”

Photo via Flickr user Glyn Lowe.