From The Runway To Silicon Valley: Why Fashion is The Next Big Thing in VC

SaaS, enterprise, and mobile all have one thing in common: they are the bread and butter of most VC firms and angel investors. You would be hard pressed to find a VC who doesn’t have a portfolio dominated by tech startups.

But as the global economy evolves, we are beginning to see disruptions in areas that were once ignored. However, there is still one industry that has yet to go mainstream with investors: fashion.

It’s no surprise that fashion isn’t on the radar of traditional Silicon Valley investors – VC’s aren’t exactly known for their expertise of haute couture. To most VC’s, they see the industry as gaudy, over the top and a domain reserved only for women.

But as a former fashion designer turned venture capitalist, I see dollar signs – and lots of them.

Let’s take a quick look at the numbers:

$1.2 trillion market size and expected to grow to 2 trillion by 2018.

To put that into perspective, the global SaaS market is around 20 billion, cloud services is 131 billion, and enterprise software, 120 billion.

Overall, the fashion and apparel industry is a juggernaut and it’s easy to see why: everyone needs clothing and it’s a product that we use every day.

And that’s the beauty of fashion and why it holds untapped potential for VC’s; its the perfect combination of market size, unending global demand and it’s a industry that has yet to be fully disrupted.

As you are about to see, there are still many problems that need to be solved in the fashion industry and the payout for solving them will be significant:

-Affordability. It’s no surprise that people want to look good for less. Companies like FAB are trying to solve this problem but I believe they and many others are only beginning to scratch the surface.

Subscription boxes like StyleMint and Popbasic will continue to be popular but there is still room for innovation when it comes to affordable fashion. I also see a future where crowdsourced apparel will become mainstream.

-Big data. One of the most vexing problems that retailers continue to face is knowing what to buy and stock on their shelves. Unsold inventory costs retailers billions of dollars a year and only now are we beginning to see startups like EDITD take a big data approach to solving this problem.

With millions of retail stores around the world, a big data solution to fashion inventory can become a very lucrative market.

-Manufacturing. How can we make the best quality clothing while maintaining good profit margins? Companies like Nike and Lululemon have long struggled to balance both while trying to maintain a positive image of their overseas workers.

Makers Row is one startup trying to bridge that gap and although their solution is not perfect, its a start. As demand for high quality and domestically made apparel rises, it will give way to more startups like Makers Row who are trying to solve this problem using SaaS and other technologies.

-Mens fashion. Nowadays, being “metrosexual” is no longer frowned upon. Men have a strong desire to dress good and we are beginning to see startups like Frank & Oak take on this burgeoning part of the fashion market.

-Sharing economy. Startups like ThreadFlip will play a significant role in the industry. We’ve already seen how successful the sharing economy model can be applied to the fashion industry, just look at Rent the Runway.

And believe it or not, there are billions of dollars of unused clothing just sitting in a woman’s closet and finding a way to monetize all that will be incredibly profitable. In fact, I predict that the next big fashion startups will be tackling this problem head on and those who succeed will be richly rewarded.

-Retail/E-Commerce. Only 10% of clothing is purchased online and there is a good reason for that: fit.

eBay recently acquired PhiSix Fashion Labs which has come up with a technology that creates 3D models of clothing from photos. Now online shoppers can see exactly how something will fit no matter what the item is.

And they aren’t the only ones trying to solve the problem – an influx of other startups are coming up with unique and innovative technologies to help online shoppers find the perfect fit and reduce returns for online retailers.

The acquisition market for these types of startups will be significant and eBay’s purchase of PhiSix is a good sign of things to come.

The good news is, most major VC firms have at least one fashion startup in their portfolio and companies like BirchBox, Frank & Oak, FAB and Zulily have all proven to be lucrative investments.

We are also seeing more specialization in the area of fashion with VC firms like Forerunner Ventures, Burch Creative Capital, True Start and the NY Fashion Tech Lab all focused mainly on fashion and retail startups.

In the end, fashion and apparel is a multi-trillion dollar market that should not be ignored by Silicon Valley. It is ripe for disruption and those who fund startups that provide successful solutions to the problems above will see huge returns.

As for traditional VC firms – if you are wise enough to see the huge potential in fashion, you should start looking for your next hire not at Stanford, but the runway.