We at a16z believe we are seeing the “creative destruction” of traditional physical retailers by their online competitors. At a high level, this is happening for two reasons. First, e-commerce companies are substantially advantaged in terms of cost structures, particularly in areas like real estate, labor and inventory. Second, we believe that we’re seeing an explosion in innovation among online retailers that we refer to as “e-commerce 2.0“—where companies are innovating across numerous dimensions including sourcing, curation, distribution models and social marketing.
On Thursday, Julep, a fast growing online beauty brand out of Seattle, announced that Andreessen Horowitz led their $10.3 million Series B round (here). There’s a whole lot we like about Julep:
1. They are participating in a very attractive market: the beauty category. The market is huge, with global sales estimated at $160 billion, and we believe it’s ripe for disruption by online competition. Offline beauty moves slowly and is expensive. Brands are distributed largely through department stores, where the brands must rent real estate, hire staff and fill the space with inventory. Product refreshes typically happen twice a year, and retailers demand the brands support their products with large marketing campaigns. Online beauty competitors are freed from these costs and constraints of their offline rivals. Julep sources their own products and their ability to deliver new product constantly help them stay current with fashion trends. And their direct-to-consumer relationships help them largely avoid the very expensive offline channel costs.
2. Julep is run by a very determined team. Founder and CEO Jane Park and Chief Experience Officer and COO Kate MacDonald started the business by operating four nail polish parlors in the Seattle area to get hands-on customer knowledge and feedback. They managed to secure physical distribution through Sephora and QVC for their early stage company to help establish their brand. They are well along the way in building out a vibrant Web presence. Jane and Kate are completely driven to develop a world-class beauty brand.
3. They have developed a very innovative business model, selling both subscriptions and a la carte product side-by-side. This is hard to do. Typically, many people won’t sign up for the commitment of a subscription if the same product is available without that commitment. But Julep provides meaningful discounts on their products through the subscription channel relative to a la carte pricing, providing an incentive for women to delight themselves with their monthly Julep care package.
The company is off to a very strong start. The products are great—as my 18-year-old daughter Ali tells me constantly. Part of my diligence was bringing her home a care package of Julep products—I was a very popular father that evening! Their brand is out-sized to the stage of the business. For example, they were selected as one of Oprah’s “Favorite Things” of 2012, a highly coveted endorsement for any brand. As a result, their growth trajectory has been extremely impressive.
Julep is a perfect example of an e-commerce 2.0 retailer:
They source their own product, which allows them to offer consumers strong value while retaining attractive margins.
They carefully curate the product assortment in their monthly subscriptions, tailoring them to the different style preferences of their customers.
They adroitly leverage the subscription business model.
They empower their passionate community of users to spread their enthusiasm through social channels, helping to build their brand and customer base.
We believe the next generation of great retail brands will be built online, and we believe Julep is well on their way to becoming one of these brands.
I’m also delighted to announce that Spencer Rascoff will join the Julep board. Spencer is CEO of Seattle-based Zillow, one of the largest Internet real estate businesses. I first met him when I served on the board of Hotwire, an Internet travel business that Spencer co-founded. He is an experienced, extremely talented Internet executive and a very good guy. We’re delighted to have the benefit of his talents at Julep.
The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/.
Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.