1Mby1M Virtual Accelerator Investor Forum: With Jason Stoffer of Maveron (Part 2)

Sramana Mitra: My observation is the venture capital industry needs to really get a lot more savvy and sophisticated about the discipline of merchandising if it really wants to play in this B2C brand world. Especially in domains like fashion and design it’s all about merchandising and curation.

Jason Stoffer: Look at Mickey Drexler. It’s all about the merchant. It’s about this magical outcome that takes place in combining the art and the science of retailing. That’s what we’re looking for in investments. We have a new investment called Dolls Kill. It’s almost an online analog to what Hot Topic was a couple of decades ago when I was growing up.

A big reason we did the investment is they have a very strong data-driven serial entrepreneur sitting in the CEO chair. We actually brought on to the board the woman who’s responsible for Hot Topic’s growth named Betsy McLaughlin. When Betsy met the merchant at Dolls Kill, she said, “There are three or four merchandising geniuses every decade. Shoddy is one of those.” That’s what we’re looking for. This combination of left brain and right brain.

It’s not typical to see a male founder out of a big tech company saying, “I want to start a fashion company using algorithms.” There’s a couple of problems with that. One is they have no sense of how to merchandise the product. Two is the vast majority of the purchase is female. They need to build out a team that combines whatever knowledge they have around the data with the art of merchandising and curating products in a way that customers love and relate to.

Sramana Mitra: Absolutely. The next question I have is about another e-commerce investment in your portfolio – Julep. It looks like you’re doing a beauty product e-commerce play. Let me just give you the context of where my question comes from. I did a fashion company. It’s one of the first e-commerce fashion companies in the history of the Internet. That was right around the dot-com time.

My first major hire was the VP of Merchandising out of Bergdorf at that time. We were one of the very few fashion companies at that time. It was a bit too early although we did get an acquisition offer from Ralph Lauren right away. When I look back on that, I do believe that it was a bit too early. At that time, there were something like 25, if not 30, beauty product companies all trying to do beauty on the Internet. None of them actually worked really well.

Part of what they found was that Estee Lauder owns 80% of the industry. They could just not figure out how to navigate that business. Some things must have changed. I have not been following this industry that closely. I’m very curious on what’s happening in the beauty business and what is your investment thesis around that segment of e-commerce?

Jason Stoffer: The first generation of beauty was the department store beauty counter and brands like Estee and L’oreal. The next generation of beauty when value creation occurred was when a new channel emerged – television. You had Christie Carlino at Philosophy who used infomercials as a way to build billion-dollar plus beauty brands by the entrepreneur connecting directly with their core audience.

Once TV was established as a revenue stream, those brands went wholesale and in the case of Bare Essentials, opened retail locations. In 1999, there was a big question of how many people had even shopped online. Now that shopping is prolific. What we saw in beauty is this great social word-of-mouth business.

With the emergence of a new channel, we thought there was a great opportunity for someone to introduce a vertically-integrated brand which leverages social media in a way where the brand is built on the back of the community around it. That was what brought us to wanting to invest in beauty. It’s very hard to start a beauty business. The reason we invested in Julep is because the history of the beauty business was a history of very charismatic female entrepreneurs who connect to their core customers and innovated on products.

Julep is a great entrepreneur story. Jane moved here from Korea when she was four. She didn’t speak English. She applied to Princeton on a whim and got in. She started a chain of nail parlors. What she came to realize was, post-recession, scaling and building a billion-dollar business of a national chain of high-end nail polish is going to be very hard.

What was interesting at that time was that nail care was a fast growing category. It’s also a very social category. Nails became the new accessory where people would change their nails as they changed their outfit. Jane thought that was the perfect beachhead on which to launch an online e-commerce business. Thus she launched the business based on nails.

We invested under the thesis that once you capture women who are compelled by new nail care offerings coming out every month, you can use that as a beachhead to capture a greater share of wallet across multiple beauty categories. We invested three years ago. We put a little bit of money. We led the Series A. Since then, both Andreessen and Madrona invested. We’re excited about the business and its potential.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Jason Stoffer of Maveron
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