VCs Betting On Fashion Startups In Midst Of Ecommerce Downturn

Ecommerce company Dote has raised $7.2 million for its mobile shopping app, where it sells items from more than 100 retailers including Urban Outfitters and lululemon. The San Francisco-based startup and its backers, including Lightspeed Venture Partners, are betting the app will be able to succeed even with the continuing spread of ecommerce giants such as Amazon and Walmart.

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With Amazon entering nearly every imaginable industry, including its recent foray into meal-kit delivery, many ecommerce companies are struggling to compete as venture funding dries up. VC activity in ecommerce has dropped since 2015—the industry experienced a 24% dip in deal count in 2016, and it’s on pace to drop again this year, per the PitchBook Platform.

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But Dote could be onto something. Companies in the fashion space may have an advantage over other ecommerce startups: Many major clothing, accessory and makeup companies have resisted selling their wares on Amazon to preserve the integrity of their brands. Several of the labels in Dote's "mobile mall," like Forever 21, aren't available on Amazon. And it’s possible that consumers, particularly young women, prefer a more personalized and entertaining experience than Amazon currently offers.

Fashion-focused ecommerce startups

In addition to Dote, there are several VC-backed companies in the fashion sector that have carved out niche areas for themselves. Here’s a short roundup of prominent fashion-focused ecommerce startups that are blossoming even in the midst of Amazon mania.

Warby Parker

We’ll start with Warby Parker, as the New York-based eyewear retailer is a bona fide unicorn. The company’s online business model allows users to order and receive several sets of frames (eyeglasses or sunglasses), select the pairs they’d like to purchase and send back the rest. Since it was launched, Warby Parker has expanded its business into brick-and-mortar stores and picked up more than $200 million in VC funding from General Catalyst Partners, Spark Capital and other investors. The startup was valued at $1.2 billion with a $100 million funding in 2015.

Rent the Runway

Also based in New York, clothing rental company Rent the Runway is nearing unicorn status. It generated a $750 million valuation in late 2016 with a $60 million round led by Fidelity Investments. Altogether, the company has raised $175 million and is one of the highest-valued female-founded private companies. Additionally, Rent the Runway was one of the first to embrace the fashion rental trend with its designer dress service, and since then its built itself into an ecommerce powerhouse with the launch of a monthly subscription box and other offerings.

Stitch Fix

Next up is Stitch Fix, the provider of a platform through which customers are shipped personalized clothing items and pay only for what they keep. The San Francisco-headquartered company has raised about $47 million in equity funding, some of which came from Lightspeed Venture Partners, a Dote investor. Stitch Fix was valued at $310 million in 2014—and we may soon find out what the company is currently worth, as it’s reportedly very close to going public. The startup did experience a bit of bad news last month, as Amazon announced that it’s launching Prime Wardrobe, a similar service.

Le Tote

Le Tote’s business model is similar to that of Stitch Fix in that it delivers clothing items to users, but the startup also allows customers to wear items and send them back on a rental basis. That differentiation may be a good thing for the San Francisco-based company, as Amazon’s Prime Wardrobe doesn't have a rental aspect. Le Tote has raised more than $50 million from backers including Sway Ventures and Azure Capital Partners. It was valued at $180 million in January.

Related coverage: Ecommerce startups continue foray into brick-and-mortar; Amazon & Whole Foods strike game-changing retail deal; Walmart agrees to acquire Bonobos.

Article by Dana Olsen, PitchBook

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