The impact of the Metaverse on e-commerce clothing startups is increasing. When there is money involved, opportunities for collaboration with established names, a wider scope, and brand new possibilities open up.
According to MaariaBajwa, an investor at Sound Ventures, digital fashion is one of the most crucial content verticals to develop.
In the hopes that the network effect will yield a similar return to that of Web2 companies like Airbnb and Uber, investors like Bajwa, Natalie Massenet of Imaginary Ventures, and Megan Kaspar of Red DAO are pouring millions into Metaverse fashion startups. Money is coming in, the market is maturing, and new businesses are opening. The Fabricant, founded by Kerry Murphy, announced this month that it had raised $14 million in a Series A round of funding led by Sound Ventures, an investor in Airbnb and Uber.
Is there anything specific that financiers of the Metaverse hope to gain? Investors “bet on the team and its ability to bring in the right brands and partnerships,” says Faye Maidment, investment associate at Bitkraft Ventures, which recently invested in fashion designer Charli Cohen’s new digital fashion venture.
People with creative skills are moving to Web3 companies. In the wake of the pandemic, cultural elites have elevated NFTs to the status of a “cool” brand. Says former Adidas employee Ryan David Mullins founded the sneaker video game company Aglet in 2020.
Because of the visual and social nature of Metaverses, digital fashion is a crucial area in which new content can be developed.
According to CB Insights, executives mentioned the word “Metaverse” 68 times in the third quarter of last year. In 2021, Metaverse-related companies received $10 billion in venture funding.
“Blockchain will disrupt the fashion industry first.” Says Kaspar, managing director and co-founder of Magnetic and founding member of Red DAO, which has invested in digital fashion startup DressX and “virtual human” company Aww. New business models, digital use cases for fashion, and meta-commerce are contributing factors. Unlike the industry’s response to Web2, many brands and companies are quickly embracing this disruption.
Fashion and retail brands that rely on startups will benefit. Cowen managing director Oliver Chen called the Metaverse “the new mall” in a report this month. He also noted the need for easy-to-use augmented reality software and hardware. The Metaverse is in its early stages, but it will be the future of human interaction. Retailers and brands should three-dimensionalize products, partner with Metaverse developers, and pick a place to bring customers, Chen wrote.
Nike’s December acquisition of “digital Supreme” brand Rtfkt has helped other startups. “Rtfkt was a blueprint, with crazy drops and high-quality brands. When digital fashion plays do well in Web3, we can see how there can be more than one,” says Maidment.
Some old investment rules still apply, especially as the space becomes saturated and hype levels off. “Nobody sticks around if the experience isn’t fun,” says Mullins. As we enter the trough of disillusionment, we’re seeing old-school requirements: build a product that captures a community’s value.
To understand Metaverse fashion, we looked at recent funding rounds and company ambitions.
Co-created “Metaverse wardrobe”
Amsterdam-based digital fashion house The Fabricant plans to pivot after raising $14 million from Greenfield One, Sound Ventures, Red DAO, and others. The 2019-founded company is becoming a digital fashion and NFT creation studio. The Fabricant has received a “mega-grant” from Epic Games, whose Unreal Engine software The Fabricant uses. Murphy says the original client services model “prevented them from becoming the digital fashion house we imagined.”
Investors value expanding access and the founding team’s potential. “Fabricant makes it easy and tangible for new people to experience blockchain technology in a familiar format”, says Bajwa. “With The Fabricant Studio, anyone can become a digital fashion designer, the same way YouTube allows anyone to become a video creator,” says Greenfield One partner Jascha Samadi. Digital fashion NFTs are unique not only as collectibles but due to their utility that mimics traditional fashion, albeit with the promise of ongoing royalties to designers and other new business models. We’ll have more avatar bodies per person and change clothes more often.
The Fabricant was an early pioneer of digital fashion, selling the first dress as an NFT in 2019. It has a head start in building infrastructure and tools that could provide more long-term revenue than individual sales. People can build on top, and once you have transactions, revenue begins. Every microtransaction is worth something, like fees in the credit card business; they make a fraction of a dollar, but millions of transactions make it profitable.
Gamified crypto-native brands
Charli Cohen’s new venture, Rstlss, raised $3.5 million from Bitkraft Ventures, Rogue VC, Starting Line, Red DAO, Venture Reality Fund, and angel investors including Paris Hilton, Twitch co-founder Kevin Lin, and EpyllionCo managing partner Matthew Ball. The company will help brands and influencers sell “multiverse fashion” and convert traditional IP into NFT wearables.
Appealing? Investors like Cohen’s coolness. “Charli’s great. A talent with rare expertise, passion, and record,” says Ball. “She’s a strong founder with experience in luxury fashion and streetwear.” Maidment’s Bitkraft Ventures specialize in gaming and Web3. You wear who you aspire to be in fashion. The Metaverse doesn’t change that. Investors liked Cohen’s plans for interoperability, which will allow Rstlss-created garments to work on multiple platforms. “Charli is one of the strongest Web3 women founders — she’s been through the process and knows the pitfalls and problems,” says Maidment.
Eon: Digital twins
Natalie Massenet, co-founder and managing partner of Imaginary Ventures, sees more potential for digital twins than end-of-life clothing care. Natasha Franck’s background is in sustainable urban development, but she founded Eon in 2017 to create a standard protocol for garment labels, similar to a food label, that could be used to recycle or reuse garments.
As digital twin use cases grow, so does Eon’s. Massenet says “connected products have endless commercial applications, including resale, recycling, and circular business models, as well as an open fashion ecosystem with product information.”
Massenet praises Franck’s forward-thinking and consistent progress and predicts that soon, every product will be connected (which can be through QR codes, NFC chips or RFID tags).
Gamified sneakers and blended reality
Aglet rewards players with virtual sneakers through location-based challenges like Pokémon Go. Aglet’s parent company, Onlife, Inc. announced a series A funding led by Galaxy Interactive and Amazon’s Alexa Fund. The money will be used to scale the company’s team as it expands into NFTs, avatars, wearables, and collectibles, including sneakers.
Aglet upgrades digital sneakers through activity and in-game currency. A recent partnership with lifestyle brand Axel Arigato gave some players shoes and those who wore digital Axels socks.
Space Runners, which started with NBA Champions Sneaker Collection NFTs, raised $10 million in March to build a fashion Metaverse.
Galaxy Interactive managing partner Sam Englebardt praised Mullins’s knack for identifying new consumer and brand integrations in the “rabid sneaker community,” while Sapphire Sport managing partner and co-founder Michael Spirito says Aglet’s combination of virtual, social, and physical gameplay sets the company up for a leadership position in the Metaverse. Mullins, co-founder and CEO, calls it “convergent commerce” and says the IRL factor of Metaverse technologies like AR wearables and experiences has been undervalued in the Web3 wave. He plans to expand beyond simply collecting and wearing items.
Six people have tattoos of the company’s logo, and the average 30-day retention rate is over 40%, says Mullins. 150,000 players are active. “Virtual worlds aren’t our future.” The Metaverse is a multiverse of interconnected virtual worlds and a virtual dimension that sits on top of reality. We learned from the funding round how important it is to have a unique position on all this and how it affects identity.
Genies: Dressing and monetizing avatar economies
Silver Lake led Genies’ $150 million series C round, valuing the company at $1 billion. It boasts a 98% “celebrity avatar market share,” meaning if a celebrity has an avatar they have Genies avatars. It also has partnerships with Universal Music Group and Warner Music Group.
Recently, it added tools for consumers and brands to create avatars and wearable fashion items as NFTs (invitation-only); this will expand into avatar homes and social experiences. Allison Sturges, head of strategic partnerships at Genies, says people who create avatars and outfits have commercialization rights. The Warehouse where items are bought and sold, is a new app on Dapper Labs’ blockchain network, Flow.
Silver Lake Co-CEO Egon Durban praised the five-year-old company’s “long-term vision and clarity of purpose” and said avatar ecosystems “will drive the next evolution of human expression, communication, and creativity.”
While it’s the company with the longest track record, its long-term vision is still a mystery, illustrating how much trust and hope is built into these companies. Genies’ does not have partnerships with Roblox, TikTok, or Instagram, which have their own avatar providers. Genies’ does not plan to partner with social media platforms or game publishers, but rather to allow users to create their own Web3 ecosystem.
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