[Opinions held by the contributor do not necessarily reflect the opinions of OS Fashion and its members.]
VCs think my boobs need an algorithm. My boobs don’t need an algorithm. If that’s not enough, VCs also think that women need a bra subscription. They gave $2M in seed funding to True & Co., an e-commerce bra company with an algorithm and subscription model. Never mind that the clear majority of women don’t buy bras every month. This start-up’s algorithm involves answering questions online for about 3 minutes that’s not only boring and painful but also futile. The algorithm, like the brand’s name, is ridiculous. An algorithm cannot provide you with a better fit just as answering questions online cannot help you find the best pillow for your preferences. Some products need to be touched and tried on. An algorithm cannot account for technological advancements like soft stretch in bra straps, seamless fits, softer lace with stretch, and good quality padding that isn’t cheap and itchy. Finally, as a lingerie brand, this start-up lacks fun and sexy branding. There’s a place for an algorithm–it isn’t my bra. VCs simply don’t understand consumer psychology, consumer purchasing patterns and what it takes to build a great brand or product. It seems as if they think consumer tech is easy and that anyone can do it. This misunderstanding is a big problem, and VCs are screwing up the ecosystem.
“@sanjayraman: Always fascinated by eBay dichotomy: terrible product, yet remarkable liquidity.” << Like a bar full of drunk singles at 3am.
— Charlie O’Donnell (@ceonyc) December 25, 2012
There are companies that manage to produce some liquidity because some sh*t will stick to a wall. But it’s still sh*t. The only reason they are around is because their products aren’t grossly terrible, but that doesn’t mean the brand, its product or its user experience are great. Better start-ups exist which haven’t gotten funding yet as they are not VC cronies. VCs give the founders of those better start-ups a hard time for not having enough traction and being first-time entrepreneurs while they fund start-ups with founders who have illogical business models. For example: where are the panties in True & Co.’s business model? True & Co. launched in May yet they are still not selling any panties to go with the bras they sell. For every bra a woman buys, she probably buys at least 5 pairs of panties. Also, panties have much better margins than bras. This is basic business strategy that has evaded the founders of True & Co. as well as the VCs who backed them.
Struggling start-ups which VCs previously had gone nuts over and rewarded with gross amounts of funding include: Dollar Shave Club ($10.8M), Beachmint ($73.5M) particularly Home Mint with Justin Timberlake, and Trunk Club ($11M) to name a few. In the case of Dollar Shave Club, VCs confused the ability to create one funny viral video with the potential to create a “world-class brand” and real traction. Dollar Shave just experienced very ephemeral traction. Has anyone seen Dollar Shave’s second video? Exactly. Dollar Shave is a one video hit wonder – but it was supposed to be a world class lifestyle brand. Since their Series A funding, Dollar Shave has not launched a single new product even though they are not doing anything proprietary. Product lead time isn’t that long especially when you have $10.8M. What are they up to now? Sucking. I’m not surprised either. They don’t have consumer product knowledge, relevant experience or passion to build an e-commerce consumer product goods brand. Their product and team aren’t compelling for what they’ve set out to do. Last month, they were giving away a free month of razors as if their razors weren’t cheap enough. But I digress…
The problem at hand is huge:
- VCs continue to engage in cronyism and fund their friends’ startups with crappy, undeveloped business models
- Those crappy startups are cluttering the ecosystem
- Those crappy start-ups are causing VCs to shy away from consumer investments to the detriment of other better consumer start-ups that need funding
- and, of course, The Series A Crunch: the crappy start-ups that got funding at high valuations are struggling and are unable to get Series B funding, dropping like flies, creating a tech bubble.
The worst part of this problem is again that many non-crony, first-time entrepreneurs, regardless of how compelling their business model is, how great their margins are and how great their team is, still get a hard time and struggle to get funding. VCs would rather fund Home Mint with Justin Timberlake even though Justin Timberlake is a ridiculous brand ambassador choice for an e-commerce home goods company. Even though many existing fashion curation sites like AHALife are struggling after being executed very well, they continue to fund fashion curation start-ups with founders that have less relevant experience and less compelling business models.
The only solution to this problem is a paradigm shift. VCs should learn the consumer space better. After creating a Series A Crunch by investing in crappy startups with bad teams, bad business models and bad products and giving them insanely inflated valuations, the responsibility of properly assessing startups is on them. My guess is that they are passing on a lot of potentially great deals because they don’t have the attention span to dive in deep and really understand a pitch that’s more than “My company is the Pinterest for the wedding industry.”They want easy business models because it’s less time consuming for them.
VCs should ask themselves:
- Is the start-up really solving a problem? (Or are they creating a problem by sending me a bunch of randomly curated crap in the mail?)
- Who is on the team? Are they superstars from the industry? Do they have a track record of success? Do they have a real understanding of the market and consumer? (Do they realize that a bra subscription doesn’t make sense?)
- Is the product or brand special? Is it better than the competition? How so? Do you know who the competition is? (DollarShave forgot to make a special product and brand. Instead, they just focused on that one-hit wonder viral video.)
- What are the margins? Is the price too rich considering the quality and where the product is manufactured?
- Does the business model even make sense?
- Can the founders build a company even though they might not be the best fundraisers? Isn’t that more important anyway?
E-commerce is only going to continue to grow. It’s a huge opportunity for those who understand it. Many fashion tech companies lack real design and branding. Others have great design and branding but are not tech savvy. Some have unnecessary applications of tech, i.e. True & Co.’s algorithm for finding a better fitting bra. Very few start-ups are strong in design, branding and tech. It’s a great opportunity for start-ups, and VCs, that are both fashion/consumer and tech savvy to really stand out. Props to Marc Ecko’s new fund Artists And Instigators and Chris Birch’s new venture fund Acqua Ventures that focus on consumer start-ups. I hope more VC firms follow suit. VCs can choose to evolve or choose to entropy. I hope they choose evolution over entropy.
** Correction: Taking a cue from some of my favorite journalists, I’m not embarrassed to correct myself. True&Co does have an algorithm but no subscription. It does in fact sell panties. However, first-time customers will not find them online within the first 10 minutes of being on their site. I couldn’t find the panties on their site yesterday. The algorithm-based questioning lasted about 2-3 minutes. Then I was presented with a multitude of bras. After looking around I got bored. I couldn’t find the panties. Not sure what’s worse…my mistake or that I couldn’t find the panties?
Original image created by Nesster