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    The Race To Become The Next Gilt Groupe

    The proliferation of fashion startups has allowed more women to elbow their way into the tech industry. But will the male investment community "get" them?

    Amy Jain and Daniella Yacobovsky met more than a decade ago when they were working in investment banking together in New York. After four years of the grueling and unfulfilling — if lucrative — work in finance, they both went to Harvard Business School, where they remained close friends. They share the same birthday, which gave them one of many excuses to party together. Their relationship changed significantly the summer between their first and second year at school, when they went shopping for shoes and had a lightbulb moment that would make them business partners.

    "We noticed we didn't buy fashion jewelry with the frequency that we wanted to," said Yacobovsky, her bouncy shoulder-length brown hair skimming her shiny statement necklace in her and Jain's glossy Manhattan office. The two women reasoned that if they weren't comfortable spending $100 on a trendy necklace from a department store like Bloomingdale's, other women probably weren't either.

    The markup on jewelry you find in stores like Anthropologie comes from its label. It's the same reason Christian Louboutin can charge $800 for his shoes — the brand and those iconic red soles are worth that much to his customers. But, Jain and Yacobovsky wondered, is jewelry the same? With jewelry, "Women are brand agnostic at purchase," said Yacobovsky, noting that jewelry doesn't typically come riddled with logos or other brand iconography.

    Realizing they might be onto something, Jain and Yacobovsky started researching. Using their own savings, they threw themselves into the idea of creating an internet-based private-label jewelry business, free from the markups of brand-name jewelry. They met with 550 suppliers and manufacturers over the course of their second year at business school. They signed up for a field study course to pursue the project, allowing them to get academic credit and professor feedback for their work.

    Eventually, the project progressed, jewelry was acquired, and Jain's apartment hallway filled with stuff — boxes, baubles, tissue paper, tags. They created a website and launched it in June 2010 under the name 816, in honor of their shared birthday, Aug. 16. Sales and repeat business were so good that Jain and Yacobovsky seriously reconsidered their decision to return to investment banking after school.

    One path offered security but no sizzle. "In banking you just keep showing up and they just keep giving you more money. You don't even really have to do anything of value," Jain said.

    The other path offered no security but the satisfaction of knowing that they would know how their seemingly great idea turned out — a lot of sizzle if they proved successful: "I don't think either of us went to school expecting to start a business," Jain continued. But, she said, "We felt like we had done so much homework at that point that we would always wonder."

    So they quit banking and changed the name of the site from 816 to BaubleBar. In November 2010, they raised $1.1 million in seed funding. In April 2012, they closed on another $4.5 million in venture capital. Their projected revenue for 2012 (BaubleBar declined to disclose earnings) was $11 million. They now have an office of more than 50 employees in Manhattan and are seeing an increase of sales volume by 24% month over month. Jain still seems surprised by their success: "We never envisioned we would get to where we are today this quickly."

    Jain, Yacobovsky, and their business do not fit the stereotypical image of "tech." BaubleBar's Manhattan headquarters off Madison Square Park is feminine and glossy, the way you might envision the office of a fun fashion company that employs the protagonist of a romantic comedy. Everything is white and cheerful, the walls bear yellow stripes, and everywhere you look glitters with jewelry. When I visited Jain and Yacobovsky in BaubleBar's in-office shop, which customers can visit by appointment and serves as a non-digital way for the company to observe purchasing behavior, the glass cases lining the walls and trays placed on tabletops sparkled with baubles. Though I felt like I was drowning in jewelry, Jain and Yacobovsky kept assuring me the store normally had a lot more stock in it — it just so happened that a lot had gone out to their pop-up shop a dozen blocks away, where more data would be collected on physical purchases that BaubleBar can put toward its forthcoming redesign.

    "People say it's so hard to launch a brand online," Jain said. "But you get so much data in real time. If you put something up and your customers don't like it, you know — it just allows you to build so much faster."

    These are not women in Mark Zuckerberg's hoodies, wiling away the hours in a dark room with a computer. Nor are they the editors changing four times a day for street-style photographers at fashion week. Rather, they are something in between: They spend half their time working on website optimization and the other half on building a covetable fashion brand. They're not a coding geniuses, but they understand how to use technology to build businesses that solve problems male tech founders haven't — and probably wouldn't have — thought of solving. With their rapid success, women like Jain and Yacobovsky have become a whole new face of tech.

    Three companies — Gilt Groupe, Rent the Runway, and Birchbox — helped lay the foundation for this new sort of tech-company founder. All three businesses were founded by women, are run by women, and are aimed at women. And they have been incredibly successful: Gilt Groupe has attained a $1 billion evaluation and plans for an IPO in 2014, Rent the Runway has raised a total of $55.4 million and plans to go public this year, and Birchbox has raised nearly $12 million and begun buying up competitors abroad in its mission to go global.

    Those companies in particular have proved incredibly influential in the online fashion space because they expertly and quite lucratively solved key problems millions of women face. Gilt, which hosts flash sales of discounted designer goods, figured out how to use the internet to bring the thrill of sample sales to women outside of New York and L.A., where the vast majority of them are held. Rent the Runway, which rents designer apparel, uses the internet to bring fashionable special-occasion dressing to the masses for a fraction of retail prices. And Birchbox, which sends samples of beauty products to subscribers in the mail each month, figured out a way to let consumers try beauty products before buying them online for the first time.

    These companies and the dozens of others we haven't even seen yet stand to make heaps of money with the rapid growth of online purchasing. A recent survey of more than 3,000 women showed that just about as many of them planned to shop on Black Friday as Cyber Monday, the biggest online shopping day of the year. Last year's Cyber Monday sales reached $1.46 billion, up 17% from the previous year's $1.25 billion. Maureen Lippe, CEO of marketing firm Lippe Taylor, said, "I'd be very concerned if I was a brick-and-mortar store" — because so many websites are offering so much more to shoppers at very competitive prices.

    Yet people aspiring to start internet companies that deal with fashion and beauty face the hurdle of explaining to investors how their business model is not only effective but also different from Gilt, Rent the Runway, and Birchbox. One entrepreneur seeking venture capital for a traditional online retail site told me, "The three questions I get asked are, 'Are you a flash sale site?' 'Do you rent?' and, 'Are you sending stuff in a box every month?'" The difficulty many women have pitching their ideas stems from the same challenge Birchbox had to overcome in its early stages — convincing the male-dominated investment community that their female-targeted idea could be huge.

    Birchbox founder Katia Beauchamp knows the struggle well. She and her friend Hayley Barna started the company with their own money in 2010, when they were in their second year at Harvard Business School. When they entered HBS's business-plan competition, Beauchamp learned a valuable lesson about the fundraising process. "We quickly realized that one of the most important things is we needed to identify the opportunity in a really simplified way, and in its most basic form," she said. "We were going to be pitching this to [investors] who were not the customers of it, which is hard inherently."

    Convincing the HBS business plan contest judges that they had a great idea — giving women a way to try new beauty products without visiting physical stores — was hard: "They definitely didn't get it." But, as anyone who looks forward to their Birchbox package each month knows, they had a great pitch, and Beauchamp sums it up thusly today: "You can research beauty products online and you can replenish beauty products online, but you can't buy beauty products for the first time in the same way." She and Barna had the best pitch of the 85 business plans competing; they won the contest and a cash prize to put toward the company. Yet the problem of explaining their girly idea resurfaced when they started fundraising outside of school. Again, "people really didn't understand," she said.

    It hardly takes an expert to understand that successful new kinds of shopping models can reap enormous returns and that women are great at coming up with them. But the fundraising environment inherently works against women. A recent Dow Jones study [PDF] showed that just 6.5% of privately held companies that got venture capital funding from 1997 to 2011 had a female CEO. And a recent study out of Stanford showed that venture capitalists were less likely to invest in tech companies started by women with non-technical backgrounds than those started by men with the same qualifications.

    Elenor Mak also found it difficult to convince male investors her startup idea was a good one. Her company Keaton Row, which is generating a lot of buzz in New York's venture-backed tech scene, virtually pairs women with stylists that help them figure out what to buy from online stores like Shopbop. It's like the Avon lady concept (Mak worked for Avon), where anyone can become a stylist and ultimately the most successful will reap the most rewards. When she meets with investors, "the men will do one of two things," she explained. "They'll say, 'I want to talk to my wife or talk to my assistant and put her through the process,' and vet it through the females in their lives. Or they'll defer to you and you can play the expert."

    Mak continued, "I remember some men were wondering, why would she talk to another woman about what she's going to buy?"

    When BaubleBar's Jain and Yacobovsky started pitching to investors, they realized they were spending the whole first hour "explaining how fashion jewelry works" and the perhaps even more complicated "female psyche," which didn't give them enough time to explain why their company itself was a great idea. But they a found a clever way around this problem: they started sending "pretty thank-you gifts" to the female assistants who set up their meetings. "Typically their bosses saw them have that experience — opening the box, trying on the jewelry. It would basically save us an hour every meeting because they understood," Yacobovsky said.

    Ed Zimmerman is a venture capital lawyer and founder of First Growth Venture Network, a four-year-old program that helps promising early-stage tech startups connect with mentors and investors. A number of successful women-led fashion and beauty companies have gone through First Growth, including Birchbox, Bauble Bar, and online trunk sale site Moda Operandi, among others.

    Zimmerman talks about his Birchbox investment like it was a no-brainer. "I saw right away you're going to get this stuff for free and people are going to subscribe and buy it, and that makes enormous sense." He's made a total of eight angel investments in women-run companies, explaining, "Personally, I happen to have an investment thesis that women are disproportionately involved in making online purchase decisions." Indeed, U.S. women have incredible purchasing power — anywhere from $5 to $15 trillion annually, according to Nielson. Marketing firm Fleishman-Hillard has predicted that over the next decade, women will come to control two-thirds of U.S. consumer wealth. The FDA values the U.S. beauty industry alone at $60 billion.

    First Growth's most recent "vintage," as they call each biannual class of startups accepted into the program, included 22 companies, 14 of which had female founders, and 12 of which were run exclusively by women. "In all modesty, I can tell you in sharp contrast to high school, I am popular with the ladies now," Zimmerman beamed.

    Zimmerman argues that women are inadvertently pushed aside by the old boys' club culture of the investment community. "I've had many women tell me, both on the investor side and on the entrepreneur side, that their fundraising path was more difficult and that there were more cultural impediments," he said. A lot of networking events are stereotypically male and involve golf or talking in detail about sports or a night out of heavy drinking, and many women, who simply have completely disparate interests, find it difficult to assimilate into that culture. Even over the past year, Zimmerman said he has seen many instances of this. As a man, this isn't something he's experienced personally, but he's sensitive to it, and thinks if he were one of these women, "I don't know how happy I'd be to partner with that company or that fund. And I think that because of that, women have a tougher role." (And securing investments is incredibly tough as it is — a venture capital firm might finance only a dozen of a thousand companies that seek their backing.)

    But investors have to consider their bottom lines. Gilt Groupe may have been a huge success that sparked dozens of copycats, but it also just doesn't make sense for investors to ignore half the population.

    One way to make venture capital firms more attuned to great ideas coming from female entrepreneurs is to make venture capital less male. Part of Zimmerman's interest in women-led companies is personal. "About four years ago, my daughter, who was then 9 or 10, said, 'I understand you're an angel investor, I understand you're a partner of a law firm, how many women have you invested in? How many women are partners at your law firm? Why?'" recalled Zimmerman, who said he goes out of his way to find women to serve as advisers and mentors for the First Growth program.

    Amy Errett, a partner at San Francisco–based venture capital firm Maveron, which invests in many e-commerce companies, also takes special interest in female entrepreneurs. "That's a personal passion of mine, and I don't think that's totally women-focused. I think I know a lot of men who feel that way as well, who feel there shouldn't be such a stark difference in the number of women entrepreneurs and men entrepreneurs," she said. She also sees venture capital firms actively recruiting more women: "I think many partnerships would very much like to have one or multiple women at senior levels. I don't think that's lost on partnerships that that's a good thing to have — a mix of diversity around the table." A diverse environment is also better for business. In a 2012 study, the Credit Suisse Research Institute found that companies with mixed-gender boards perform better than companies with all-male boards, partly because mixed-gender boards better understand women as consumers.

    Tech disruption is happening at a faster rate than ever across verticals, but Errett notes that women stand to be especially valuable right now. "I think there's a handful of sectors that have yet to be disrupted, and I think fashion is one of them," she says. "I think women in particular have a long history of holding jobs as buyers, jobs as merchants, or jobs as branded retailers. And I think that has also moved many of these women into a position where they can do their own startups and disrupt the status quo."

    Though fashion and beauty give many women a natural way into tech entrepreneurship, does the seemingly frivolous nature of their products make it harder for them to stand out? Errett doesn't think so: "I don't think there's anything wrong with women disproportionately doing fashion or apparel stuff, because people should be starting up things they're passionate about," she said. "I'm guessing more women are passionate about fashion than men are. It's not good to start a business about something you're not passionate about — what it takes to be an entrepreneur is extraordinary."

    And besides, many of the women entrepreneurs behind fashion and beauty companies don't see themselves as non-technical tech people and business people before they see themselves as fashion and beauty people.

    "I don't think we view ourselves as a fashion company," said BaubleBar's Yacobovsky. "It's about supply chain management and solving inefficiencies in the system." The app Uber, which allows you to order a black car in seconds, is successful for similar reasons: Yes, it's a transportation company, but it also uses technology to solve inefficiencies in public transportation.

    To Yacobovsky, a true fashion company is solving a true fashion problem, like making clothing fit better. "I think every female company that sells something is just categorized into fashion, and it's not true," says Jain. "Rent the Runway is something else and it's a fashion company. When you hear women are starting fashion businesses, they all get lumped together."

    All the entrepreneurs I spoke to said they felt like their work was very tech-oriented, even if that's not where their expertise lies. The beauty of the internet now is that you don't need a background in coding or technology to lead a successful tech company — though huge opportunities on the technical side of the industry remain for women.

    "Katina [Mountanos] and I joke all the time — why didn't we study computer science in undergrad?" laughs Liz Whitman. Nearly a year ago, she and Mountanos started Manicube, a company that brings manicures to offices. "I think if you are a rock-star female developer in New York right now, you are in extremely high demand." She expressed enthusiasm for groups like Girls Who Code, which encourages more teenage girls to pursue the field. But everyone seems to be in agreement that the more women who start venture-backed companies who become tech entrepreneurs, the better, no matter how they get there.

    BaubleBar celebrated its second birthday in February with a party in the form of pop-up shop on 14th Street close to Milk Studios, one of New York Fashion Week's two major venues. They'd recently hired a handful of new people and leased an additional 2,000 square feet of office space. Jain and Yacobovsky were hoping to capitalize on 14th Street's foot traffic while getting the attention of people in town for the fashion shows. Though a lot of fashion stylists are fans of their stuff, the company never takes itself too seriously, and the shop was meant to impart that same spirit. "We try to do stuff that's a little kooky. We try to figure out what's going to scare a stranger and then pull it back five layers," said Yacobovsky. They planned to lure shoppers in by handing out free baubles on trays on the streets around the shop and Milk Studios. Shoppers who entered would find "basically a big birthday party," Yacobovsky said. "When you walk in, it's full of pink and balloons." Visitors who work their way to the back of the store could "get a present just for stopping by. "

    BaubleBar's investors praised Yacobovsky and Jain's social media strategy, which definitely informed the concept of the store. "I don't think it's brain surgery. You make a hashtag and put it on every wall. We made a selfie mirror because everyone loves a selfie," Yacobovsky said.

    On one of its first nights open, the store was so crowded with shoppers pawing at jewelry that women could barely squeeze past each other make it to the back of the space where their free gift awaited.

    Rather than staying open for two weeks as planned, the shop remained open for four. Of the thousands of people who visited, 35% made their first purchase. At the end of the month, BaubleBar will launch a redesign incorporating the data collected over the two years of operating the site and offline initiatives like the pop-up. The new site will include shoppable fashion editorials and allow customers to submit photos of their clothes that stylists can match accessories to. The goal is to turn a typical customer who buys jewelry a few times a year into one who checks BaubleBar for new goods as often as she might check Zara for new clothes.

    "It's a hybrid of these very well-known tech brands, but also these retailers who have nailed how people want to shop by category, and have done so in a very methodical way," says Jain. "So people really have this reaction of, 'Oh my god, how did they know I needed that?'"