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Underwear Startups Have Investors Hot And Bothered

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Defining The Digital Currency Professional

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

After taking the runway at New York Fashion Week, fashion tech is making a play for the bedroom. A new collection of underthings and intimates startups are getting down to basics — and venture investors are seeing 50 shades of green.

It’s not a lot of money yet, but the surge in seed funding over the past two years indicates growing investor interest in tech-enabled basics brands. From Andreessen Horowitz to First Round, over 100 venture firms and angel investors closed deals for underwear startups since 2012, according to CrunchBase data.

“Underwear alone in the U.S. is a $15 billion-plus market per year in terms of revenue,” says Bryan Lalezarian, CEO of basics brand MeUndies.

MeUndies has raised over $1 million in venture cash to deliver trendy underwear to hundreds of thousands of customers worldwide — and Lalezarian says they’re currently raising more. A handful of bold marketing moves, including a sponsorship for crotch-grabbing football star Marshawn Lynch and a collection of photo ads deemed too sexual for Facebook, have generated a lot of recent attention for the three-year-old startup.

“If you think about the tools that we have today with social media — Instagram, Snapchat, obviously Facebook and Twitter — there are a lot of unique ways we can connect directly to customers to deliver our message, tell our story, and sell our brand, and those didn’t exist 20 years ago when companies like Gap and Victoria’s Secret got started,” says Lalezarian.

According to CrunchBase data, underthings startups have closed 22 venture rounds since 2013 — the majority of which are very early-stage as investors test the waters.

Underwear may seem like a strange choice for Silicon Valley’s finest VCs, but basics brands and investors both have a lot to gain by mimicking the business plan of a typical tech startup.

“It’s very difficult to scale a business with inventory and product without sufficient capital. If we don’t have a product to deliver against the demand we’re creating, then we’re dead,” says Brian Berger, founder and CEO of men’s basics brand Mack Weldon.

Yesterday, Mack Weldon announced a fresh $4 million in Series A funding to bring its total raised to nearly $6 million in two years. Andy Appelbaum, partner at Mack Weldon backer RiverPark Ventures, says their latest deal for the men’s basics brand was a no-brainer.

“The holy grail for a brand is to have a direct conversation with the customer without an intermediary retailer between you — you’re terribly vulnerable when you have to worry about shelf space and who the favorite brand of the season is,” says Appelbaum. “If you’re working with a company optimized to replenish inventory and get the customer to buy directly from you, it becomes really powerful.”

Eliminating the middle man is potentially more beneficial in the basics market than in any other apparel vertical.

“This category specifically is one that has historically been very commoditized — it’s really all been about cheap, multi-pack, mass-produced stuff to buy on sale — but that is very different from the role that these products play in a consumer’s life,” says Berger. “This is the only thing in your closet that you wear every single day — it dictates how comfortable you are, how your other clothes fit and feel, and it matters,” he says.

And once a customer is sold, an online basics brand has a straight shot at keeping that customer for the long-run. People always need more underwear, sizing is relatively static, and there’s not much advantage to shopping in-store for a product you can’t try on.

“Investors like it because of the repeatability and the consumable nature of what we sell — customers come back on a replenishment cycle, whether it’s explicit because we have some kind of auto-replenishment system, or whether it’s something that we stimulate through CRM,” Berger says.

And that’s where tech comes in handy. By reminding customers to replenish their socks and underwear through an app, these tech-driven basics brands are able to boost their sales revenues at startup speed. MeUndies saw a 400% growth in revenue last year, and Mack Weldon reports 200% year-over-year growth with a 40% reorder rate in less than six months.

“That’s what’s really getting a lot of new VCs excited about new industries — there are these massive markets, like underwear alone, and if you take a more modern approach and think outside the box there are some really interesting ways to make a big dent in that market really quickly,” says Lalezarian. “Warby Parker is a very obvious example of a company that did that in eyewear, and we’re doing the same thing in underwear and basics.”