Internet start-ups and tech firms have always been the darlings of venture capitalists.  The real time web and mobile apps, we’re used to; but custom clothing, that’s something new.  But now that ChubbyBrain has information on over 27,000 private companies, the data often reveals interesting insights into where institutional and angel money is flowing.  Recently, we’ve seen venture capitalists, angel investors, and private equity investors unleashing a flurry of custom clothing deals, flushing funds into firms that supply their patrons with tailored clothes and accessories often over the internet. By our count, six custom apparel and accessory firms have received over $100 million in venture or angel financing in the past twelve months from A-list venture and private equity firms such as Battery Ventures and Sequoia Capital as well as well-heeled angels like ex-Yahoo President Jeff Mallet.  To put the numbers into perspective, we’d previously highlighted that $23.3 million has flown to Twitter-predicated startups and just over $100 million has gone to iPhone-predicated startups.  So this $100 million into custom clothing companies by institutonal investors and angels is  not immaterial relative to other recent investment trends.

Clifton Berry of Clifton Charles, one of the clothiers to land angel financing this year, isn’t surprised, however.  “The truth is that apparel is the largest segment in internet sales- over $23 billion, electronics is only $16 billion. These [custom clothiers] are actually fairly low risk because you have such a large market and you’re not carrying much inventory at all, and there are pretty low capital requirements.”

Custom clothiers, such as Bonobos, started by two Stanford MBA graduates, operate by providing a customer with an online platform that allows for a great deal of customization to a limited range of products that are sourced individually from makers abroad. Online custom retailers typically risk only initial production costs, shipping on the finished product, and the cost of their necessarily generous return policies. Raw materials are typically purchased in small batches and product lines are produced on a highly limited basis. 

With such limited capital requirements, one might wonder what custom clothiers need venture or growth equity financing for.  According to Berry, it’s technology and marketing.  Per Berry, over seventy percent of men say they want custom clothing, yet less than five percent actually follow through and get what they want.  A further use for capital is the development of elaborate fitting and matching technologies that most custom clothiers use to try and mate each customer with the perfect shirt, suit, or pair of trousers.

The low start-up costs and capital requirements are creating a more crowded field with dozens of emerging firms competing for a slice of the market.  No clear winners have emerged yet and a mix of established firms seeking growth equity investment and startups seeking angel or venture money are entering the fray. 

The slightly more than $100 million invested in the space recently is driven largely by two expansion stage deals, Quanzhou Peak Shoes and Hudson Jeans.  What is interesting beyond the smaller VC and angel deals is that investors are jumping into the custom clothing at all ends of the spectrum, e.g, seed stage to growth equity.  (Note: Quanzhou is a shoe maker which does custom work and is doing increasingly specialized work in this arena per the company)

One interesting observation is that men’s clothing, formal wear (shirts and suits) in particular, has received a majority of the attention by VCs, Angels, and Private Equity Funds in terms of number of deals.  This is in contrast to many of the e-commerce/fashion ventures that have raised money this year including the likes of Gilt, HauteLook or Polyvore which are either targeting men and women or just going after the traditionally more lucrative women’s clothing & accessory space.  Perhaps men’s clothing is the white space and hence where the opportunity lies?

Do you think this activity is the beginning of a trend or a one-time blip in interest in the custom clothing space?  Will the male aversion to the mall continue to result in men’s custom clothing firms being funded?  Will established players enter the custom clothing space resulting in larger growth equity transactions or will new upstarts receive funding in a bid to own the custom clothing space?  We look forward to your ideas and insights.

If any questions or comments about this analysis, please feel free to leave a comment or write to us at team(at)chubbybrain(dot)com.