The StockX EC-1

Societies are defined by their markets. What people value, what they actually buy, how they transact and who they purchase from determine not just the goods in their possession, but the very society and culture they construct. It might seem that after thousands of years of evolution and refinement, concepts like quality, authenticity, value and price would be static. Nothing could be further from the truth.

StockX is a unique company at the nexus of two radical transitions that isn’t just redefining markets, but our culture as well. E-commerce upended markets, diminishing the physical experience by intermediating and aggregating buyers and sellers through digital platforms. At the same time, the internet created rapid new communication channels, allowing euphoria and desire to ricochet across society in a matter of seconds. In a world of plenty, some things are rare, and the hype around that rarity has never been greater. Together, these two trends demanded a stock market of hype, an opportunity that StockX has aggressively pursued.

It’s a foundational new category of market — and a lucrative one. Now valued at $2.8 billion, StockX has facilitated over 10 million transactions. Its online-only marketplace is used for buying and selling sneakers, streetwear, electronics, collectibles, handbags and watches that are primarily sneaker and streetwear culture-adjacent, are in high demand and only available in low quantities. Sellers post their asking price and buyers share the price they want to pay anonymously. The platform makes all transactional data completely available to anyone that visits the site, and it authenticates every product by hand, acting as a safeguarded, price-regulating middleman.

It’s Amazon, but not exactly. It’s an auction, but not really. It conveys values like a stock market, but unlike the New York Stock Exchange, the company is defined less by financial instruments than its method of connecting buyers and sellers. It’s a local store with vetted products, but online and global. In short, it’s a unique marketplace that requires careful analysis of not just the cultural context it operates in, but the economics and incentives of the players on both sides.

TechCrunch’s writer and analyst for this EC-1 is Rae Witte. She has written extensively on technology, business and culture for publications like TechCrunch as well as the Wall Street Journal, Vogue Business and our corporate sister publication Engadget. She’s followed the rise of StockX since nearly its founding, and is in a lead position to tell this nuanced story. The lead editor for this package was Danny Crichton, the assistant editor was William E. Ketchum III, the copy editor was Richard Dal Porto and illustrations were created by Nigel Sussman.

StockX had no say in the content of this analysis and did not get advance access to it. Witte has no financial ties to StockX or other conflicts of interest to disclose.

The StockX EC-1 comprises four main articles numbering 11,700 words and a reading time of 47 minutes. Let’s take a look:

  • Part 1: Origin storyHow StockX became the stock market of hype” (2,500 words / 10 minute reading time) — Investigates how StockX evolved from a basic aggregation of price data into the multibillion dollar juggernaut we see today.
  • Part 2: E-commerce authenticationAuthentication and StockX’s global arms race against fraudsters” (3,700 words / 15 minute reading time) — A deeply nuanced analysis of StockX’s key product of authentication and the challenges of building a trusted market against an onslaught of scammers heavily incentivized to get a fake good sold.
  • Part 3: Competitive and consumer landscape Where StockX fits in the business of sneakers” (2,800 words / 11 minute reading time) — Explores how the company connected buyers and sellers, as well as its long-term impact on both groups.
  • Part 4: Future and impact The consequences of scaling up sneaker culture” (2,700 words / 11 minute reading time) — Looks at how StockX and the changes it has wrought have led to a massive change in the culture of sneakers and what that portends long term.

We’re always iterating on the EC-1 format. If you have questions, comments or ideas, please send an email to TechCrunch Managing Editor Danny Crichton at danny@techcrunch.com.

#ec-ecommerce-and-d2c, #ec-1, #ecommerce, #stockx

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How StockX became the stock market of hype

While the old adage goes, “Find a job you love doing, you’ll never work a day in your life,” it’s safe to assume this was well before the age of the YouTuber, “plandids” and the stock market of things. StockX may be a multibillion dollar juggernaut with massive influence radiating throughout sneaker culture today, but it started with taking the leap to transforming a personal passion into a business plan.

For founder Josh Luber, keeping his love for sneakers separate from his career was very intentional at first. As he continued to invest into his hobby, he saw something from his corporate jobs that was altogether missing from sneakers — data. As he established and dove deeper into the numbers, an entirely different vision arose. A basketball game, a check and a business later, StockX was born.

What began as a basic price chart of online sales that screamed more Microsoft Excel than startup unicorn has now become one of the most intriguing marketplaces in the world.

The timing was remarkably fortuitous. Sneakers crescendoed from a rising niche to a frenzy over the past decade, and the demand for authenticated goods likewise soared. Few other companies put together the core mechanisms required for a market to function effectively for this category. What began as a basic price chart of online sales that screamed more Microsoft Excel than startup unicorn has now become one of the most intriguing marketplaces in the world.

What’s a sneaker worth?

Before co-founding StockX, Josh Luber was consulting at IBM, deliberately working outside of sneakers to maintain it strictly as a hobby. That setup continued until he realized the opportunity to organize data around his beloved collection.

Markets can’t exist without prices, and the price of a sneaker in the secondary market a decade ago was difficult to discern. There was, of course, the retail price, but popular sneakers often gained value over time based on demand, which could wildly fluctuate over time. By scraping data openly available on eBay for over 13 million transactions, Luber and a team of 17 volunteers established Campless, a constantly updated sneaker secondary market pricing guide that launched in 2012.

“While it had a lot of flaws in it and required a lot of manual work, it gave probably the best reference point at the time,” COO and co-founder of StockX Greg Schwartz says. The Campless team was simply pulling prices from closed eBay auctions and analyzing trends from there, much like any individual seller would probably do before posting their own shoes. By scaling up the size of the dataset though, they were getting much more accurate market-clearing prices than were previously available for both buyers and sellers.

Similar to the auto industry’s Kelley Blue Book that offers estimated values for cars by model and year, Campless offered in-depth numbers on the secondary sneaker market that would eventually become a tentpole and proprietary offering of StockX.

Helicopters over malls and the chaotic rise of the sneaker craze

When Luber and his team launched Campless, there weren’t easily accessible options for buying sneakers in limited releases. Enthusiasts could buy directly from the retailer by lining up and camping out for in-store drops, scour eBay for the most legit-looking seller with the best price, or have a plug or backdoor avenue to get their prized pairs. All three options were fraught.

Josh Luber at TechCrunch Disrupt NY 2017.

Campless’ name and “know more, camp less” tagline referred to consumers camping out — sometimes spending days in line — for the latest, most coveted sneaker releases. Flight Club, which opened in New York City in 2005, was initially for consignment and typically carried rare, older shoes rather than new pairs. For individual resellers though, eBay and Craigslist were the only options to set up a one-on-one transaction at their own discretion, and neither platform had the necessary safeguards for sneaker authentication or price regulation.

This fractured system might have been sufficient for a market that remained a relatively small niche. But it had been steadily growing in popularity since the 1980s, and the scale got even bigger in the 2010s.

In a 2014 interview with eBay, Luber shared the significance of this period, pointing to one shoe as causing a sea change in the popularity of the category: the February 2012 NBA All-Star Weekend release of Nike’s “Galaxy” Foamposite, part of a celestial-themed pack worn by basketball greats like LeBron James, Penny Hardaway, Amar’e Stoudemire and Kevin Durant.

Trusted sneaker blog Sole Collector called this specific release “one of the most chaotic sneaker releases of the last decade” because it caused “riots nationwide as sneakerheads tried desperately to get their hands on pairs.”

Michael Jordan attends Jordan All-Star With Fabolous 23 in 2012. Image Credits: Nike (Alexander Tamargo/WireImage)

“That was definitely the first time I remembered people other than my group of friends that loved shoes talking about a ‘drop,’” 24-year-old sneaker enthusiast Mark Sabino said.

Andy Oliver, director of e-commerce at the sneaker and streetwear lifestyle brand Kith, looks back on it as a tipping point as well. “I think it was a combination of the right model — Foams were super hot — with a graphics treatment that was really unique at the time. Then, from a marketing perspective, it’s tied to All-Star Weekend, which was a huge deal in 2012. When everyone started to get a sense that they were mostly unattainable, they blew up on another level.”

Brendan Dunne, co-host of Complex Media’s sneaker show Full Size Run, said the release set a new benchmark for chaos and hype. “I think the image of helicopters flying over the mall in Orlando where they released is the enduring image.”

A community that had been around since the 1980s was hurtled into the mainstream eye. Yet even more fuel was added to what Luber called “limited edition sneaker collecting” with the growing popularity of Instagram. For the first time, sneaker enthusiasts could share their favorites with the entire world, showing off their rare finds to potentially millions of people on their feeds and not just their friends in person. Securing that All-Star Weekend drop meant not just being cool, but globally cool, intensifying the pressure on a market that was completely unprepared for the scale of demand that was arriving.

#collectibles, #ec-ecommerce-and-d2c, #ec-1, #ecommerce, #stockx, #tc

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Authentication and StockX’s global arms race against fraudsters

As we saw in part one of this EC-1, sneakers have evolved from an enthusiast community of collectors into a global multibillion dollar business, in part due to StockX’s influence over this burgeoning market. Individual pairs can sell for well over $100,000, and as sneakers have gone from cultural symbol to cultural asset, they have increasingly become the target for criminal groups looking to make a quick buck from counterfeits.

StockX is fighting an arms race against international criminals who can make a killing if they can get a fake through its authentication processes. Every year, StockX improves its practices, and every year, its opponents sharpen their skills, getting just one more detail right. Sneaker fraud is big business: The feds seized tens of millions of dollars in fake shoes last year in just one haul. By some estimates, the sneaker fake goods market is growing and is now well into the nine figure range.

As the key to the community’s trust and the company’s international expansion, StockX reveres themselves most on the constantly evolving process of authentication. Yet even with all its resources and skill, it can’t always get it 100% right.

As the key to the community’s trust and the company’s international expansion, StockX reveres themselves most on the constantly evolving process of authentication.

In this part of the EC-1, we’ll explore how authentication got started at StockX and how it has grown, as well as what it takes to compete with the fakes — and the fallout when the company gets a decision wrong.

“It was a crazy feeling — the worst.”

Longtime sneaker collector and newish sneaker YouTuber Blake Yarbrough always wanted Nike’s Tom Sachs Mars Yard sneakers. The 2012 extra exclusive release features Vectran fabric from the airbags on the actual Mars Excursion rover. However, as a one-time manager at FinishLine, he couldn’t see himself spending more than retail on sneakers.

“The original pair from 2012 is the one I really wanted and still want, but they’re just so much more money. When the 2.0 came out in 2017 I was like, they changed the materials and whatever, the color is a little bit different, but I still love it.”

The NikeCraft Mars Yard 2.0 sneakers. Image Credits: Nike

He picked up a pair for $1,650 — the most he’d ever spent on shoes at the time — from StockX in 2018 and wore them often and carefully, even removing the insoles and replacing them with other inserts so as not to wear off the insole graphics. The Tom Sachs Nike box has a quote that says, “These shoes are only valid if worn, and worn to death, by you. Poser need not apply.” Unlike some sneaker collectors or resellers who keep their shoes “deadstocked” or unworn, Yarbrough took that message to heart.

By the end of 2020 the resale value of his sneakers had significantly increased, ranging from $2,400 to $4,500. Yarbrough decided it was time to part ways with the shoes. They had a good run and he wanted to make some money to put toward other things. He posted the used pair on StockX-competitor GOAT for $3,000 and quickly received an offer for $2,600. Pleased with this number, he packaged them up in the original box along with a booklet that came with the shoes and sent them to GOAT to be authenticated and sent to the purchaser.

Yarbrough received an email saying the shoes would not be accepted, the transaction would not go through and that they were fakes. “It was a crazy feeling — the worst.” Yarbrough recalls it derailing his entire day and taking about two weeks to decide what to do about it.

“To open that email, see that it said that they are replicas, and know, essentially, that I’m stuck with these shoes, and I’m out this amount of money is a really terrible feeling. It was something I haven’t ever really felt before, like getting scammed,” he says.

The dream and nightmare of Black Friday

Before we continue with Yarbrough, let’s rewind the clock a few years back to the genesis of StockX. Sadelle Moore recalls the early days when he’d be sitting around the StockX Detroit headquarters waiting for sneakers to arrive. The brand launched with four dedicated authenticators in 2016, and he joined pre-launch during beta testing.

“Early on we were getting 10 boxes a day and didn’t have a set process. We’d wait for UPS to come with our orders and each have to make our own boxes. It was just me and a couple other guys, and it took us all a day to go through 10 shoes. It was such a long process,” Moore recalls.

Sadelle Moore was one of the first authenticators to join StockX. Image Credits: StockX.

As an early-stage company, processes were vague. “We’d have to fulfill our own orders as authenticators then. Once I authenticated the shoe, I’d put it right back in the box and I just may have to ship it right out, and that would take all day,” he said.

COO Greg Schwartz points to StockX’s first Black Friday in November 2016 as a particularly pivotal day in the company’s transformative early years. “We all went from sitting behind a computer or traveling or whatever anyone was doing at the time to literally everyone working in that authentication center — which was really just the basement of the building we were in — as boxes were piling up. UPS was unable to even deliver them all because it exceeded the loading dock capacity.”

#collectibles, #ec-ecommerce-and-d2c, #ec-1, #ecommerce, #stockx

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Where StockX fits in the business of sneakers

Before StockX, sneaker buyers had eBay, campouts at sneaker stores and internet forums as avenues to connect with other enthusiasts and find the most desired shoes. Five years later, the data-based secondary marketplace’s impact is pervasive across tech, secondary marketplaces, the business of sneakers, entrepreneurship, hype culture or even just retail stores as a whole.

Instagram brought sneaker culture to the masses, and so timing was on StockX’s side for its 2015 launch, specifically with their focus on hype footwear just as it catapulted into the mainstream.

The company’s timing was keen, riding the wave of Instagram’s rise while bringing a marketplace mechanism to the surging popularity of this category. Yet, StockX is not alone in targeting this increasingly lucrative sector. E-commerce startups and tech companies have sprouted up to target this connected cultural consumer, and StockX has had to run quickly to maintain its product and marketplace lead. Meanwhile, external changes can have large effects on the prices of sneakers and Gen Z is increasingly determining the future of this market. It’s a fast-moving business, and how StockX leads and competes is critical to understanding its future.

Sneaker culture filtered by Instagram

While sneaker culture had long been vibrant, Instagram and social media allowed worldwide access to subcultures like sneakers and streetwear and ushered them into the mainstream. Sneaker conversations and communities that were once hosted in online forums like NikeTalk, Reddit and Kicks On Fire’s Twitter feed began to spill over onto Instagram around 2013 as the platform grew.

“A scroll through Instagram in the morning — depending on what the algorithm gives you and who you’re following — without reading a single word can give you a peek into what’s happening, and in this case, it’s what’s happening within the global sneaker community, which Instagram not only brought together, [but] in a sense, created,” sneaker journalist Russ Bengtson mused.

He goes on to say how it amplified the community around sneaker stores as well. “Before Instagram, maybe you only heard someone with a job there or of someone who actually had a pair of the shoes, but now, without ever going into the city where the shop is based, you can see what that shop has on its shelves, you can see the outside of the shop, you can actually talk to the people who run it or the people who design things for it. You can be a more integrated part of that community without leaving your house.”

Instagram brought sneaker culture to the masses, and so timing was on StockX’s side for its 2015 launch, specifically with their focus on hype footwear just as it catapulted into the mainstream. The company offered the easiest entry point for outsiders to purchase with its bid/ask format, its one-click buying and selling as well as its authentication procedures. With each purchase, outsiders who knew little about the sneaker market became that much closer to belonging to a culture that had previously set such high barriers to entry.

StockX is to hype trends as Instagram is to popularity. The “best” product doesn’t necessarily reflect the highest price point. Instead, it’s representative of the most demand by the masses, and the platform offers data on how the hype translates into dollars.

“Instagram, and other platforms, have been key to the demand side of the equation being able to highlight items that represent brand heat and influence in the industry. We are a perfect reflection as a platform of what’s happening in current culture,” StockX CEO Scott Cutler says.

Where StockX fits in the business of sneakers

That combination of popularity and hype trends has created a massive economy. In 2014, co-founder and former CEO of StockX Josh Luber said eBay’s sneaker business totaled $338 million, which was 31% higher than 2013. By spring of 2015, the secondary sneaker market was reportedly estimated to be worth $1 billion. In total, the U.S. athletic footwear industry was worth $17.2 billion and $17.5 billion in 2015 and 2016, respectively, and by 2017, it grew to $19.6 billion. There’s no doubt the sneaker community was spending the money in a market with a lot of risk, rapid growth and very few safeguards or price regulations.

With so much money at stake, it’s not surprising that a bevy of companies have targeted the category. Perhaps no marketplace has had the longevity of eBay, which has always been a marketplace for everyone and everything, with sneakers making up only a fraction of its transactions. Education is key and barriers to entry for the platform are high though: Sellers need to build a positive reputation, and in order to shop for sneakers, buyers need to be sufficiently up to speed on what to look for in terms of fakes, scams and pricing.

TV personality Kim Kardashian’s sneakers up for auction inside the eBay Holiday Store on November 19, 2009 in New York City. Image Credits: Michael Loccisano/Getty Images for eBay

#collectibles, #ec-ecommerce-and-d2c, #ec-1, #ecommerce, #stockx

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The consequences of scaling up sneaker culture

StockX’s mission is “to provide access to the world’s most coveted items in the smartest way possible.” It says it right on the website, and it’s incontestable that the infinite data StockX makes transparent to anyone for free allows for smart participation in the business of sneakers.

But, smartest participation by whom?

As the business of sneakers commoditized alongside the boom of social media, plenty of the culture’s stories went largely overlooked by hype-pedaling media outlets and social media algorithms in addition to the influx of people with little familiarity or exposure to sneaker culture.

We often see “access” leveraged as marketing jargon, or the concept of democratization applied to opening up once exclusive spaces, which have often excluded marginalized communities. It’s become trendy to advertise the concepts of representation and inclusivity without actually doing the work internally: Adidas’ campaign imagery featuring a diverse set of models was released at the same time the company was under fire for overt racism and discriminatory hiring practices.

“Smartest” could be exchanged for “simplest” or at least used in tandem for a more accurate description. There’s no need to be educated on the shoes’ functionality, what replicas may look like, or even the story behind them or their history of releases and rereleases. StockX’s data offers education on the market. Access is granted to any person to easily make a financially smart purchase as long as they have an internet connection and the funds.

While StockX’s idea of access does circumvent gatekeeping and the backdoor deals of the past to an extent, it has come at the cost of having access taken from vibrant regions, brick-and-mortar stores and small businesses to those with more capital. In short, the access afforded to the most coveted items is a premium pass rather than democratization.

Users’ love/hate relationship with StockX

Andrew Zachary decided to sell off his sneaker collection around 2011 while he was in college. At the time, eBay was the best option, and he had to do quite a bit of legwork to price his pairs without any centralized data on the secondary sneaker market.

“I would have to go research the shoe on eBay to see how much people wanted for it and see what the shoe sold for by going through all of the closed auctions, and that’s how I generated the price. StockX definitely makes it a lot easier.”

The now 27-year-old, Chicago-based reseller still primarily operates on eBay because of the years he put into building his seller reputation on the platform. “If I’m looking to sell something on eBay, I go over to StockX, check the market price and list mine within that range.”

Although he never buys on StockX — he doesn’t want to pay retail nor depend on the company’s authentication services — Zachary recognizes the value the platform offers him. “Before [StockX], sneaker reselling was really like the Wild West. People would charge whatever they want and there was no reference point.” Looking back, he says, “If I was negotiating with someone and looking to buy a pair of shoes that they wanted $450 for, back in the day I couldn’t go to StockX and say, ‘Well, they have it for $350.’”

On the other hand, he has used StockX to sell on occasion. When he wants to offload a pair of shoes quickly, StockX’s model of users listing their bids (buyers) and their asks (sellers) enables speed. The buyers are essentially there waiting to be chosen. “It’s one click and right out the door.”

StockX’s interface allows for extremely easy one-click buying and selling of sneakers, such as this Jordan 12 Retro Low Easter (2021).

Despite recognizing the obvious opportunities the growth of the business of sneakers has afforded him, Zachary, like many other enthusiasts who have been into sneakers well before StockX, expressed the negative implications of its dominance in the market. “Because StockX made it so easy to resell shoes, anyone can do it. You don’t have to have any interest in sneakers. You can look up that shoe on StockX, see its resale value [and] go after that shoe on release day. You could have no idea what it really is or anything about it,” he laments.

The option to buy or sell in one click plus the combination of authentication, real-time pricing, data transparency as well as transaction anonymity affords a low-risk, easy entry point into the secondary sneaker market that did not exist pre-StockX. Yet, popularizing the sneaker space and enabling little to no effort for access also dilutes the culture of sneakers.

Sneaker culture, gentrified

In 2019, Business Insider profiled a 15-year-old who financed his sneaker-selling business with the money he made doing yard work. He’s since quit playing sports to focus on school and building his business. He raked in six figures last year.

In the story, he said, “Everyone wants shoes, and there’s always someone who will spend an absurd amount, so it’s just about getting those pairs and building the right connections and understanding the market.” He plans on netting enough savings to eventually transfer his network and financial skills to real estate.

Such seemingly feel-good tales of young entrepreneurship — the new paper route, if you will — are rife and have also fueled scandal in the industry. Nineteen-year-old Joe Hebert built a $200,000-monthly-revenue sneaker-reselling business, even hitting sales of $600,000 in May of 2020, as described in a profile by Bloomberg Businessweek. All of the math in the Bloomberg story was impressive until it was revealed Hebert was leveraging access to discounted shoes via his mother Ann Hebert, who had a 25-year tenure with Nike and was most recently vice president and general manager of Nike North America. Industry critics also questioned whether her senior position offered her son easier access to limited-edition products, and her Nike affiliation went largely without consequence until the story was published. She stepped down from her position in the resulting furor.

#collectibles, #ec-ecommerce-and-d2c, #ec-1, #ecommerce, #stockx

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Embedded procurement will make every company its own marketplace

In 2019, my colleague Matt Harris coined the term “embedded fintech” to describe how virtually all software-driven companies will soon embed financial services into their applications, from sending and receiving payments to enabling lending, insurance and banking services, an idea that quickly spread within the fintech community.

Vertical apps such as Toast for restaurants, Squire for barbershops and Shopmonkey for car repair shops will deliver financial services to businesses in the future rather than traditional, stodgy financial institutions.

Embedded procurement is the natural evolution of embedded fintech.

The embedded fintech movement has just begun, but there is already a sister concept percolating: embedded procurement. In this next wave, businesses will buy things they need through vertical B2B apps, rather than through sales reps, distributors or an individual merchant’s website.

If you own a coffee shop, wouldn’t it be convenient to schedule recurring orders for beans and milk from the same software portal where you process payments, manage accounting and handle payroll? The companies that figured out how to monetize financial services via embedded fintech are well positioned to monetize through procurement, too.

Embedded procurement is the natural evolution of embedded fintech. The salon software company Fresha is a typical embedded fintech story. Fresha’s platform is an online and mobile platform specially designed for spas and salons, encompassing appointment scheduling, reporting and analytics, marketing promotions, and point-of-sale capabilities. The software is free for salons; Fresha monetizes through payment processing.

In the future, Fresha will undoubtedly turn to embedded procurement, becoming a logical place for business owners to order and manage inventory like shampoo, scissors, brushes and other supplies. In turn, Fresha can aggregate demand from thousands of spas to place orders with its suppliers, leveraging its scale to negotiate more favorable pricing on behalf of its customers. Borrowing a concept from the healthcare world, vertical software companies will become group purchasing organizations in every sector.

#business-management, #column, #ec-column, #ec-ecommerce-and-d2c, #ec-fintech, #ec-market-map, #ecommerce, #finance, #financial-services, #financial-technology, #payments, #procurement

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How a homegrown experiment became one of the fastest-growing companies in fitness tech

Fitness is about resistance — running against the wind, firing up muscles against the dead gravity of weights, fortifying the mind against that nagging feeling that a park bench and a scoop of ice cream would probably be just a bit more enjoyable.

For Tonal, resistance isn’t just a value proposition, it’s the very ingredient that conditioned this startup to become one of the darlings of the fitness tech world.

For Tonal, resistance isn’t just a value proposition, it’s the very ingredient that conditioned this startup to become one of the darlings of the fitness tech world.

The numbers speak for themselves. The company has raised about $200 million to date from venture capitalists and is becoming a household name with a $2,995 wall-mounted device that employs a digital weight system that can emulate various traditional gym stations. Since Tonal launched in August 2018, the company has carved out a reputation among fitness enthusiasts seeking a strength-training solution at home that saves on space without compromising serious weight-lifting capabilities.

As at-home fitness sales have boomed during the pandemic, Tonal equipment has been one of the beneficiaries, seeing its sales surge 800% from December 2019 to December 2020. The company also announced a partnership with Nordstrom this month which will place 50-square-foot sales stations in the women’s activewear department of at least 40 Nordstrom stores across America, bringing the total number of Tonal physical locations to 60 by the end of 2021.

Like all great athletes though, Tonal’s visible victories belie its massive exertion against the resistance of the world to innovation. Aly Orady, the company’s founder and CEO, had to overcome his own burnout and weight gain while kindling the energy to strike his own path. The company that would become Tonal had to fight through multiple VC rounds of skeptical investors ready to say that two-letter word that stops all progress.

It’s that resistance and its ability to overcome barriers that makes understanding Tonal’s story so compelling.

A founder lifting the weight of the past

The morning after Christmas in 2013, Orady woke up feeling downright abysmal. Over the past 17 years or so, he had toiled as an engineer at companies like Samsung, Sun Microsystems, HP and three enterprise startups, work that had taken a heavy toll on him. His corporate exertions had left behind a slew of health problems; he had become grossly overweight and had developed Type II diabetes and sleep apnea.

“It felt like I was heading toward this point of no return, and I just wasn’t going to be able to reclaim my health if I didn’t do something about it,” he recalls.

The only viable path Orady saw to fixing the situation was a major lifestyle change. A few days later after the holidays, he dialed back his hours as a full-time consultant for Samsung’s TV and display division — a role that meant frequent trips to Korea — and embarked on an ambitious workout plan involving four hours of exercise a day six days a week, usually split between mornings and evening, plus intermittent fasting two days a week.

Many mornings, Orady woke up at 6 a.m. and drove to a Gold’s Gym in San Francisco, where he initially hit the elliptical and also went for outdoor bike rides. He scoured the internet and read books about strength training, and the more he worked out, the more he integrated strength training into his six-days-a-week workout schedule until strength training became the core of his routine. Over the course of nine months in 2014, Orady lost a whopping 70 pounds, all while winding down his consulting work with Samsung.

Tonal CEO Aly Orady. Photo via Tonal.

Yet, although he’d already made significant progress getting in shape — and the results truly spoke for themselves — Orady loathed trekking to the gym each day and wished he could do the same workout at home. Perched on a gym bench one day in March 2015, Orady found himself staring at a cable crossover machine, a 5 foot by 3 foot by 7 foot gym mainstay that lets users perform various exercises with removable weight plates.

“I was looking at this thing, and I realized the reason this thing was so big was because it relied on big metal plates and gravity to work,” he explains. “I thought to myself, if I could replace those big metal plates and gravity with electricity, I could shrink it down and create something really small.”

That was his cue. That same month, Orady founded Ripped Labs, a name he would later change to the simpler and catchier moniker, Tonal.

The many reps of product iteration

The same day Orady observed that cable crossover machine, he began brainstorming ways he could bring weight stations into the home while cutting out most of the bulk. Traditional gym stations often use large, unwieldy weight plates to offer enough resistance for strength training. But what if, Orady thought, he could devise a product that swapped out those big metal plates for something smaller and more compact and bundled that technology with intelligent software that tracked a user’s workout?

“I bet if we could make electromagnetics work, it would be completely revolutionary,” says Orady. “It already is the technology that spins the motors in electric cars, propels high-speed trains … but no one had ever used it for this, and the questions started swirling in my head of whether we could use electromagnetics to make a device feel like a real weight machine.” Having received a bachelor’s degree in computer engineering from McMaster University, Orady had studied the theory of electromagnetics, but he had never actually developed electromagnetic devices in his prior work.

Orady ordered a number of parts online to build his first prototype, a rudimentary device strapped to a wooden workbench in his home that had a cable you pulled back and forth. But those first two versions of “digital weights” didn’t work very well — there was too much friction when pulling the cables and not enough magnets to replicate a wide range of weight like traditional gym equipment. The first version contained one magnet and a usable range of 25-40 pounds, while the second prototype used dozens of magnets, which allowed the resistance to be generated by the magnets themselves and not as much from the cables.

After two more iterations, he had managed to create his own kind of electromagnetic technology that created resistance comparable to weights. By then, the prototype had reached a point where he felt the device replicated the feeling of doing some weight station movements like single-arm cable rows and bicep curls.

A marathon of investor meetings

Parallel to working on the prototype that would one day become Tonal, the Ripped Labs founder started an arduous nine-month process of pitching investors. Orady was an enterprise guy with an enterprise rolodex, having worked at three enterprise infrastructure startups and also serving as an advisor at Mayfield Fund for six months in 2013. He pitched his vision of a compact at-home strength-training product, but investors simply scoffed at the idea.

#ec-consumer-health, #ec-ecommerce-and-d2c, #ec-1, #health-tech, #tc, #tonal

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Millions of dollars and 3.5 years, and it all came down to this

Launching a product is a nonevent for many startups. In software, it’s not uncommon to put together a flimsy working prototype over a couple of hours and publish it immediately to start generating feedback from early users and get that iterative flywheel spinning.

Launching has a very different meaning, though, for hardware. Once that physical product leaves the warehouse, the design team can’t patch the hardware itself. It’s got to work reliably, be easy to use and most importantly, be safe for users straight out of the box. Even more important than readying the product itself is the sales and marketing engine that accompanies a launch. For hardware startups, a mislaunch may well lead straight to bankruptcy as hardware inventory piles up and cash flow becomes constrained. You just can’t get a launch wrong.

Getting to a point where the prototype was usable and somewhat reflected the final product in its feature set was a lengthy process.

In part one of this EC-1, we looked at the three-and-a-half years of Tonal’s origins and how a scrappy entrepreneur in the form of founder and CEO Aly Orady continued to iterate upon prototypes of an all-in-one strength-training device powered by electromagnetics — a technology he had never worked on before. We also saw how he eventually won over several investors including Bolt, Mayfield, Shasta and Sapphire Ventures, who saw the potential in his device once they experienced it for themselves.

Tonal’s individual components were all ready, but how should it bring them together and create a successful launch?

Company building, brand building, launch strategy and marketing tactics are key to the success of most startups — and that’s what this second part of the Tonal EC-1 is all about. We will look at how Tonal’s designers changed the product based on feedback during its beta period. We’ll look at how Tonal’s product focus on strength training forced it to adapt a typical hardware launch strategy to optimize for the consumers it was hoping to target. Finally, we will explore the company’s marketing and launch strategy — and one key and seemingly smart decision at the time that proved to be an early blunder and humbling lesson in hindsight.

Iterating when a build isn’t one click

Unlike, say, productivity software where a user might be logged in for much of a work day spewing out usage data, Tonal is a strength training device, which means that users only use it for a limited period of time a couple of days per week. That made receiving sufficient authentic feedback on early units challenging.

Getting to a point where the prototype was usable and somewhat reflected the final product in its feature set was therefore a lengthy process. Following the small alpha trial in 2016 that Ripped Labs (later renamed Tonal) performed in a San Francisco apartment, the startup began an extensive year-long beta trial in early 2017 that placed prototype devices into 25 homes with at least two people in each home, and the company tracked those users for a year.

#ec-consumer-health, #ec-ecommerce-and-d2c, #ec-1, #health-tech, #tc, #tonal

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Building online communities for fun, profit and product

Once a fitness tech company like Tonal launches its product, it immediately faces another challenge: how to keep those users engaged. It’s not enough that a customer purchased the device; it’s equally as important to keep them using it over the long term so they continue to pay the monthly subscription fees required for access to classes. In Tonal’s case, recurring revenues generated from those monthly subscription fees are significant, as the startup charges each user $49 per month with a minimum 12-month commitment to start.

To keep their users engaged, at-home fitness companies energize online communities by building Facebook Groups and significant Instagram and Twitter accounts. Since it launched its first bike in 2014, Peloton has catered to its large audience with a robust Facebook group that numbers nearly the population of San Francisco. Likewise, newer entrants such as Mirror and Tempo also developed their Facebook presence with nearly 86,900 and 11,200 followers, respectively.

While it has pursued a tried-and-true community engagement strategy, Tonal has also had to evolve its tactics as it learns the unique tastes of its strength-training demographic and how they differ from other fitness users.

Tonal is no different. Across social media channels, Tonal currently has over 155,000 followers, with its own private Facebook Group, “Official Tonal Community,” having roughly 12,900 members. At this point in Tonal’s lifespan, the community experience is decent, but more along the lines of Peloton’s engagement three to four years ago.

Yet, while it has pursued a tried-and-true community engagement strategy, Tonal has also had to evolve its tactics as it learns the unique tastes of its strength-training demographic and how they differ from other fitness users. In this third part of the Tonal EC-1, we will look at how the company grew its nascent community, how it shifted its strategy of engaging users, how the team uses community to hone its product, and how the future of Tonal’s community will look like as the company continues its rapid ascent.

A planned community, but what to build?

With its online community, Tonal’s strategy was deliberate and staggered, mirroring the approach it took with its August 2018 launch, in which the startup first launched in the San Francisco Bay Area and expanded to all of California before going nationwide in March 2019.

The startup hired its first community manager, Sarah Johnson, in October 2017 — nearly a year before that public launch. Her initial focus was monitoring users during Tonal’s alpha and beta trials, and she regularly called users to solicit feedback about their experiences working out with the device. Among Johnson’s early observations: Unlike the gym, which inherently has a more physical social element, Tonal users, who may have partners or families, wanted their at-home classes to be the most efficient workout possible in the shortest amount of time.

#ec-consumer-health, #ec-ecommerce-and-d2c, #ec-1, #health-tech, #tc, #tonal

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Can Tonal become the luxury fitness market champion?

Over the last three sections of this EC-1, we’ve seen the genesis of Tonal, transforming from a series of prototypes in the mind of CEO and founder Aly Orady into a unique strength-training entrant in the luxury at-home fitness market. We’ve also seen how the company extensively alpha and beta tested its device, designed a launch and marketing strategy, and also cultivated a nascent community to hone the company’s products while engaging customers.

While the market is huge and the competitors are hungry, Tonal’s success pivots exclusively on whether the device itself is worth its quite prohibitive price.

Yet, with Peloton such a dominant force in this market and multiple other fitness upstarts targeting the same affluent customer, there’s a natural question to be asked: Why should any customer ultimately spend upward of $3,000 on a base Tonal device? The answer to that question will determine Tonal’s eventual success, and that’s the theme we will explore in this fourth and final part of the EC-1 as we consider the competitive landscape of this white-hot market.

So what’s the product really like?

While the market is huge and the competitors are hungry, Tonal’s success pivots exclusively on whether the device itself is worth its quite prohibitive price. For me, using Tonal has been largely a positive experience, although it’s worth noting I received my Tonal loaner device within 14 days, far faster than the 10-12 week timeline that many customers have experienced in the pandemic-induced surge. The startup works with a third-party delivery service, which reminds the user the day before via email and also calls 30 minutes ahead of arrival.

Tonal’s device. Photo via Tonal.

Compact as the Tonal device is compared to gym weight stations, it was still a squeeze finding a spot in my crowded 900-square-foot apartment, and using it still requires me to move some dining chairs around to make space for my workout. While this probably won’t be an issue for many Tonal owners who live in larger homes (particularly in the suburbs), I suspect city dwellers may encounter similar challenges as I did.

#ec-consumer-health, #ec-ecommerce-and-d2c, #ec-1, #health-tech, #tc, #tonal

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The NFT craze will be a boon for lawyers

The non-fungible token (NFT) mania has inspired Ethereum fans to spend more than $224 million on crypto collectibles so far in 2021 through marketplaces OpenSea and Rarible, but many buyers may not understand what they actually own.

“An NFT is not that different from any other crypto purchase in that you are buying control over information in an entry in a ledger,” said attorney Nelson Rosario, one of the founders of Smolinski Rosario Law.

NFT buyers don’t actually own the media files associated with their blockchain receipts, whether those files are JPEGs or GIFS or MP3s. The best way to know which aspects of the NFT craze will outlast this trendy boom is to look at the history of comparable assets. As it turns out, people have been making crypto collectibles for nearly seven years.

Zebedee co-founder Christian Moss, who has been working on blockchain-based games since 2014, said he stopped making Bitcoin-based collectibles because transaction fees shot up. To make matters worse, some buyers viewed tokens as investments instead of as toys.

“They were tokens on Bitcoin,” Moss said. “A lot of developers ended up trying to pump their tokens and prices. … It felt like people who played those games felt like they were investors on the board. I don’t want my game to be an investment vehicle. Then players might try to sue me if they lost their tokens. It changed the dynamic of the game.”

These days, Moss helps people earn small amounts of bitcoin by playing mainstream video games like “Counter-Strike.” That way, there’s no confusion about how to value virtual assets; cryptocurrency is money and in-game assets are toys.

“NFTs aren’t game items at all; they are receipts,” Moss said. “If you have the receipt, you might be able to get an item in a game, but they can’t allow a Zelda sword NFT [in “Counter-Strike”], for example, because that might be copyright infringement. There are legal implications there.”

Indeed, legal implications are the crux of the NFT trend. Whether a court would protect the receipt-holder’s ownership over a given file depends on a variety of factors.

“It’s great if the artist intends to transfer any copyright for a work of art to an NFT purchaser, but can that be perfected to the point where a court of law or copyright office would recognize that transfer? That gets into additional questions of jurisdiction,” Rosario said. “Brands and platforms need to make sure they have the right agreements in place to govern these relationships.”

With regard to NFT sellers who take screenshots of other people’s content and profit from a corresponding NFT, Rosario said it’s hard to say whether that violates any laws.

“You probably start by looking at Twitter’s terms of service and begin the investigation there. It really depends,” he said, adding that impersonation or stealing someone’s passwords are different issues entirely.

And there are still open questions beyond copyright issues and fraud, such as sanctions and porn regulations.

Finding a space for adult content

A growing number of adult content creators are selling erotic NFTs on platforms like Rarible, often earning hundreds of dollars per photo. One such artist, PolyAnnie, said she has earned more from selling NFTs on Rarible alone than her average annual earnings across platforms like OnlyFans, Patreon and ManyVids combined.

“I sold 90 NFTs, bringing in 10.11 ETH in 5 months,” she said. “I purchased 18 NFTs from other creators, too.”

Some jurisdictions have age-verification requirements for platforms with adult content, while other jurisdictions make platforms potentially liable for child porn or revenge porn if the platforms don’t heavily moderate explicit content. As such, platform providers tend to be conservative about their terms of service.

“A lot of these NFT platforms don’t want to deal with the risks of sexually oriented content,” PolyAnnie said.

That’s why some sex workers have had their content censored by platforms like Rarible. As for the most popular NFT platform, OpenSea, which raised a Series A round from a16z earlier this month, CEO Devin Finzer said his team moderates the platform and limits search results for adult content, so those NFTs can only be found by someone going directly to the creator’s profile.

“We haven’t exactly nailed it down, but one option is a separate section of our site for that type of content,” Finzer said.

#blockchain, #cryptocurrency, #ec-ecommerce-and-d2c, #ec-media, #ec-news-analysis, #media, #nft, #tc

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CEO Manish Chandra and investor Navin Chaddha explain why Poshmark’s Series A deck sings

Mayfield partner Navin Chaddha and Poshmark founder and CEO Manish Chandra met all the way back in 2003, well before Poshmark was even a glimmer in his eye. They stayed connected over the years, through Chandra’s sale of his startup Kaboodle to Hearst and after he left.

At a breakfast one morning, Chandra told Chaddha he was going to try to do everything from his iPhone for the next six months.

Over the course of that time, the idea for Poshmark started to percolate into something more concrete. Chandra, following Kaboodle, knew he wanted to do several things differently. The first was create an engagement and revenue model that was symbiotic, rather than starting with engagement and having to build out a business model later. He also knew he wanted to start with people first, and build a founding team that had deep DNA in the fashion world to pair with his technical background.

He met Tracy Sun, brought her on, and got to work.

This was back in 2011, and Chandra was absolutely adamant that he wanted Poshmark to be an app, not a website. So adamant, in fact, that during beta he actually provided 100 users with video iPods. (He recalled that he only got 20% of them back.)

“Lead with love, and the money comes.” It’s one of the cornerstone values at Poshmark. The company practiced that early on by holding IRL, and then virtual, parties, allowing users to show each other their wares and create an engagement cycle that offered instant gratification. The user base grew from 100 to 150 to 1,000 and so on.

“We still to this day use a similar kind of strategy in a much more compressed timeframe as we go to different countries,” said Chandra. “We focus on building the community first and then scale that community.”

Chaddha and Mayfield led the company’s Series A deal a decade ago. On the latest episode of Extra Crunch Live, Chandra and Chaddha sat down with us and walked us through that original Series A pitch deck (which you can check out below). They also participated in the Pitch Deck Teardown, giving their expert feedback on decks submitted by the audience. If you’d like your deck to be featured on a future episode of Extra Crunch Live, hit up this link.

Poshmark’s Series A Deck

Time stamp — 11:00

Poshmark was built on a couple fundamental premises. The first was that the iPhone would transform the way we do just about everything. The second was more pointed: That fashion, at the time underserved by technology, was a discovery process over a direct search process. A decade ago, Chandra envisioned a fashion marketplace that mimicked shopping in the real world — walk into a shop and let natural attraction do its thing — without holding any inventory.

#ec-ecommerce-and-d2c, #ec-how-to, #ecl, #extra-crunch-live, #manish-chandra, #mayfield, #navin-chaddha, #poshmark, #startups, #tc

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E-commerce roll-ups are the next wave of disruption in consumer packaged goods

This year is all about the roll-ups. No, not those fruity snacks you used to find in your lunchbox; roll-ups are the aggregation of smaller companies into larger firms, creating a potentially compelling path for equity value.

Right now, all eyes are on Thrasio, the fastest company to reach unicorn status, and its cadre of competitors, such as Heyday, Branded and Perch, all vying to become the modern model of consumer packaged goods (CPG) companies.

Making things even more interesting, famed investor and operator Keith Rabois recently announced that he too is working on a roll-up concept called OpenStore with Atomic co-founder Jack Abraham.

Like any investment firm, to be successful, a roll-up should have a thesis or two providing it with a cohesive strategy across its portfolio.

Thrasio has been reaping the benefits of the e-commerce market’s Cambrian explosion in 2020, in which over $1 billion of capital was invested in firms on a mission to acquire independent Amazon sellers and brands.

This catalyst can be attributed to a few key factors, the first and most notable being the pandemic accelerating spending on Amazon and e-commerce more broadly. Next is the low cost of capital, a reflection of interest rates making markets flush with cash; this has made it easier to raise both equity and debt capital.

The third is the emerging and quantifiable proofs of concept: Thrasio is one of several raising hundreds of millions of dollars, and Anker, a primarily Amazon-native brand, went public. Both stories have provided further validation that a meaningful brand can be built on top of Amazon’s marketplace.

Still, the interest in creating value through e-commerce brands is particularly striking. Just a year ago, digitally native brands had fallen out of favor with venture capitalists after so many failed to create venture-scale returns. So what’s the roll-up hype about?

Roll-ups are another flavor of investing

Roll-ups aren’t a new concept; they’ve existed for a while. In the offline world, roll-ups often achieve much greater exit multiples, known as “multiple arbitrage,” so it’s no surprise that the trend is making its way online.

Historically, though, roll-ups haven’t been all that successful; HBR notes that more than two-thirds of roll-ups fail to create value for investors. While roll-ups are often effective at building larger companies, they don’t always increase profits or operating cash flows.

Acquirers, i.e., those rolling up smaller companies, need to uncover new operating approaches for their acquired companies to increase equity value, and the only way to increase equity value is to increase operating cash flow. There are four ways to do this: reducing overhead costs, reducing operating costs without sacrificing price or volume, increasing pricing without sacrificing volume or increasing volume without increasing unit costs.

E-commerce could present a new and different opportunity, or at least that’s what investors and smart money are betting on. Let’s explore how this new wave of roll-ups is approaching both growth and value creation.

Channel your enthusiasm: Why every roll-up needs a thesis

Like any investment firm, to be successful, a roll-up should have a thesis or two providing it with a cohesive strategy across its portfolio. There are a few that are trending in this particular wave.

The first is the primary distribution channel upon which a company grows. Evaluating companies with a common distribution channel can be helpful for creating economies of scale, focusing marketing and growth resources in a specific channel versus diluting resources across several.

On the downside, these companies become reliant on this distribution strategy and any changes could create vulnerabilities for their portfolio companies. As a study, let’s take a look at how two companies take different approaches:

#amazon, #business, #column, #e-commerce, #ec-column, #ec-consumer-applications, #ec-ecommerce-and-d2c, #mergers-and-acquisitions, #roll-ups, #tc

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Staying ahead of the curve on Google’s Core Web Vitals

One year.

That’s how long Google gave developers to start implementing required changes to improve user experience. In early May 2020, Google published a modest post on one of its developer blogs introducing Core Web Vitals — a set of metrics that will result in major changes to the way websites are ranked by the search engine. In May 2021, Google will officially add those Core Web Vitals to the various other “page experience” signals it analyzes when deciding how to rank websites.

The quest to improve a website’s position in search results has spawned hundreds (if not thousands) of how-to articles over the years. Businesses that are scared about taking a hit to SEO from Google’s new metrics have been pushing developers to optimize company websites. At the same time, developers have been frustrated because there’s a lot that goes into user experience that isn’t reflected in the Core Web Vitals. A lot of details have to be juggled.

Aside from improved SEO, small business websites optimizing for the new metrics will reap the rewards of an improved user experience for their site visitors.

But what about the startups, tech companies and small business owners who handle their own websites in-house? What about the agencies and enterprise platforms that manage or host hundreds or even thousands of websites for clients? While many are looking at the Core Web Vitals as a big hoop to jump through to please the search powers that be, others are seeing — and seizing — the opportunities that come along with this change.

Improving user experience will be rewarded

Small businesses wondering “What’s in it for me?” should recognize that if all other things are equal, optimizing for the Core Web Vitals is going to be a significant tiebreaker between websites. If a company’s site is ranking really well with these rigorous metrics, it will have an edge against competitors in searches when content and ranking are otherwise comparable.

Aside from improved SEO, small business websites optimizing for the new metrics will reap the rewards of an improved user experience for their site visitors. Internet users frequently complain about long wait times as pages are loading, or problems with an entire page shifting just as the user goes to click a specific button — which results in them clicking the wrong button and causing further delays. For online retail websites, a poor user experience leads to lost revenue as users abandon shopping carts and never return to a site. Once the Core Web Vitals go into effect, companies that have made the efforts to provide smooth and speedy performance for visitors will win out against competitors that retain sluggish designs.

Sparking overdue conversations

#advertising-tech, #column, #ec-column, #ec-ecommerce-and-d2c, #google-search, #search-engine-optimization, #user-experience, #website-design

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Our favorite companies from Y Combinator’s W21 Demo Day: Part 2

We’ve reached the end of Y Combinator’s biggest Demo Day, which saw more than 300 companies pitching back-to-back over eight hours.

Earlier, we highlighted some of the companies that caught our eye in the first half of the day. Now we’re back with our favorite companies from the second half. From a marketplace to help you resell formalwear to a startup that offers self-driving street cleaners, it’s quite the mix.

If you’d like to browse all of the companies from this batch YC has a catalog of publicly-launched W21 companies here.

Terra

Heading into this particular demo day, I had my eyes peeled for startups focused on delivering services via an API instead of offering managed software. Happily, there have been a number to dig into, including Pitbit.ai, Bimaplan, Enode and Terra.

Terra stood out to me because it solves a problem I care deeply about, namely fitness data siloization. My running data is stuck in one app, biking data in another, and my weight-lifting data is stuck in my head, though I doubt Terra has an API for that interface quite yet.

What Terra does is permit fitness app developers to better connect their services, which permits the sharing of data back and forth. Presenters likened their startup to Plaid — a popular thing to do in recent quarters — saying that what the fintech startup did for banking data, Terra would do for fitness and health information.

Getting developers to sign on will be tricky, as I presume all of the apps I use in an exercise context would prefer to be my main workout home. But I don’t want that, so here’s hoping Terra realizes its vision.

— Alex

AgendaPro

Calling itself “Shopify for beauty and wellness” in Latin America, AgendaPro wants to help small businesses in the region book customers online and collect payments. 

The company’s idea isn’t as radical as some companies that we heard from today — Carbon capture! Faster drug discovery! — but the company did share several metrics that made us sit up. First, AgendaPro has reached $152,000 in MRR, or just over $1.8 million in ARR. And representatives shared that its gross margins are 89%. As far as software margins goes, that’s pretty damn good.

The startup has more than 3,000 merchants using its service at the moment, and it claims that there are more than four million businesses that it could service. If AgendaPro can get software and payments revenues from even a respectable fraction of those companies, it will be a big, big business. And who doesn’t love vertical SaaS?

— Alex

Atom Bioworks

One of the holy grails of biochemistry is a programmable DNA machine. These tools can essentially “code” a molecule so that it reliably sticks to a specific substance or cell type, which allows a variety of follow-up actions to be taken.

For instance, a DNA machine could lock onto COVID-19 viruses and then release a chemical signal indicating infection before killing the virus. The same principle applies to a cancer cell. Or a bacterium. You get the picture — and it looks like Atom Bioworks has something a lot like this.

#ec-cloud-and-enterprise-infrastructure, #ec-consumer-applications, #ec-consumer-health, #ec-ecommerce-and-d2c, #ec-marketing-tech, #ec-news-and-analysis, #startups, #tc, #y-combinator

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Where is the e-commerce app ecosystem headed in 2021?

The pandemic-induced growth of e-commerce is, by now, now well documented.

What is happening in the app ecosystem that supports e-commerce? Is it growing? Are we likely to see consolidations or IPOs? Are there superapps that will emerge?

This post is less about conclusions and more about taking you along while I go through the rabbit hole to satiate my own curiosity.

I see all three trends forming:

  1. Superapps are likely to emerge. I think companies like Bold Commerce will be among the earliest superapps.
  2. There will be consolidations anchored around large SaaS players and roll-ups powered by private equity funds.
  3. There are players like Tiny that acquire early-stage firms and let them run independently.

The closest match to the growing e-commerce stack is the marketing automation stack. While there are significant overlaps, it’s fascinating to compare and contrast the growth of these ecosystems and what drives consolidation.

The closest match to the growing e-commerce stack is the marketing automation stack. While there are significant overlaps, it’s fascinating to compare and contrast the growth of these ecosystems and what drives consolidation.

Between 2015 and 2021, the martech stack grew from 1,800 to 8,000, meaning it roughly doubles every three years.

The explosion of the martech stack is common knowledge and is well documented by Scott Brinker and his famous supergraphics. What’s worth noting is that the consolidation we expected to happen is happening, and yet the pace of new companies coming up in the space makes up for the consolidation — and some more.

According to Brinker, the martech landscape grew 5,233% between 2011 and 2020. The fastest-growing category within martech in 2020 is data and governance, which grew in numbers by 25%. The martech app ecosystem more than tripled between 2015 to 2018, powered by the growth of SaaS and e-commerce industries.

I am an avid tracker of this space, but I am also interested in how we can apply martech’s evolution to the e-commerce stack. The e-commerce stack also grew 3.5 times between 2017 and 2020. But much of the growth is ahead, and so is the upcoming consolidation.

#app-store, #column, #d2c, #e-commerce, #ec-column, #ec-ecommerce-and-d2c, #ec-marketing-tech, #ecommerce, #martech, #saas, #software, #startups, #venture-capital

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NFTs could bridge video games and the fashion industry

Non-fungible tokens (NFTs) offer new ways for consumers to collect, wear and trade fashion online, and now that most fashion shows have scaled back or gone virtual, they may become an important tool for the industry.

Because some of the most profitable NFTs are produced by celebrities with teams, it makes sense that music corporations, fashion brands and designers are venturing into the NFT market as well. Just this month, sneaker brand RTFKT Studios garnered $3.1 million in seven minutes by selling crypto collectibles. In December 2020, NFT startup Enjin partnered with Netherlands-based fashion house The Fabricant on a virtual collection. Real-life fashion brands use NFTs for marketing in virtual worlds like Minecraft, plus several Atari and Microsoft video games.

The fundamental value NFTs offer to bridge virtual fashion items with video games is the option to secure custody of the item for use in other games or mobile apps.

“Brands are coming up with some creative solutions because the pandemic is persistent, and fashion is something that is so close to our identities,” said Bryana Kortendick, Enjin’s VP of operations and communications. “You can snap a photo of yourself wearing your Atari-branded NFTs. You’ll also be able to wear them in video games.”

Breakout NFT star Beeple said he imagines a future where fashion NFTs could be redeemed for specific items in physical stores, especially at luxury retailers like his former client Louis Vuitton.

“You can relate NFTs to clothing in new and interesting ways,” he said. “This will be seen as the next chapter of digital art history. This is a continuation of digital art history that started decades ago, by that I mean art made on a computer and distributed through the internet.”

Fashion designers like Schirin Negahbani are already creating NFTs that represent actual clothing. Precisely because multimillion-dollar NFT sales are breaking records, spectators have been prompted to question the role speculative trading plays in this trend.

Textile designer Amber J. Dickinson says fashionable NFTs shouldn’t primarily be viewed as speculative trading opportunities. “The way I think fashion translates to the digital world is to view an NFT as a collectible piece of the garment for history,” said Dickinson, known for hand-made silk scarves and her work with Alexander McQueen. “I would only buy art as a piece that I liked. Whether digital or in the real world, I don’t take an investor’s point of view.”

There are many fashion fans who disagree with Dickinson, preferring to invest through assets like Birkin bags. They may have a different approach to NFTs. The DIGITALAX crypto fashion platform, for example, is being built with a plethora of trading features. As for Dickinson, she said she is still looking for her tribe of crypto-savvy artists on Twitter.

#blockchain, #cryptocurrency, #ec-ecommerce-and-d2c, #ec-gaming, #ec-media, #gaming, #media, #nfts, #non-fungible-tokens, #startups, #tc

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The NFT market is just getting started, but where is it headed?

Every once in a meme-ified blue moon, the wildly irrational cryptocurrency ecosystem gives birth to something that might outlive the hype.

The crypto art hype may be silly and expensive, but it might also empower artists from emerging economies and underrepresented groups to access the global art market in ways that they couldn’t before.

On March 5, Twitter CEO Jack Dorsey auctioned off a blockchain receipt, called a nonfungible token (NFT), for a screenshot of his first tweet in 2006, and bids for it promptly exceeded $2.5 million. Since 2018, people have spent roughly $237 million on NFTs, with the vast majority of those funds spent since the trend exploded in January 2021.

The crypto art hype may be silly and expensive, but it might also empower artists from emerging economies and underrepresented groups to access the global art market in ways that they couldn’t before.

Bryana Kortendick, VP of operations and communications at the NFT startup Enjin, said the platform and corresponding NFT wallet’s growth is up 100% since December 2020, now tallying more than 47,426 registered users. Her company was funded by a token sale in 2017 that amassed 75,041 ether (ETH), worth more than $130 million today. Kortendick declined to comment on how the cryptocurrency treasury is managed, other than to say they have enough runway for the startup’s continued growth because “Enjin has retained a portion of the funds raised through our ICO in ETH.”

As of 2021, Kortendick said the wallet app’s fastest-growing markets include the United States, Korea, the United Kingdom, Iran, Germany, Canada, India, Indonesia, Turkey and Australia. In sanctioned countries like Cuba, Iran and Venezuela, NFTs provide one of the only ways for up-and-coming artists to transact with global art collectors. It can also be a way for dancers to make money by selling NFTs with GIFs showcasing specific moves or NFTs that allow video game characters to dance a specific move.

“There has been an influx of new [app] users in countries like Iran, and we are working to localize the app accordingly to make it more accessible for these growing markets,” Kortendick said. “We recently saw a surge of [web] users in Cuba too, which prompted us to translate our entire website into Spanish.”

A new world coming under compliance

It remains to be seen if that type of market activity is sustainable, with regard to compliance across jurisdictions.

The U.S. Treasury penalized the crypto company BitGo in 2020 for allowing users to transact with people in sanctioned countries. Maintaining financial sanctions appears to be one of the regulator’s priorities in 2021. In any case, companies can delist artists and pieces, which means anyone who isn’t fluent in command-line Ethereum tricks can lose access to their NFTs. It will still exist “on the blockchain,” yet it would be quite a stretch to call NFTs “permissionless” art, as many blockchain advocates do.

#beeple, #blockchain, #cryptocurrency, #ec-ecommerce-and-d2c, #ec-news-analysis, #finance, #media, #nft, #nfts

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Coupang follows Roblox to a strong first day of trading

Another day brings another pubic debut of a multibillion dollar company that performed well out of the gate.

This time it’s Coupang, whose shares are currently up just over 46% to more than $51 after pricing at $35, $1 above the South Korean e-commerce giant’s IPO price range. Raising one’s range and then pricing above it only to see the public markets take the new equity higher is somewhat par for the course when it comes to the most successful recent debuts, to which we can add Coupang.

The company’s mix of rapid growth and slimming deficits appear to have found an audience among public money types, so let’s quickly explore the price they paid. What was the company worth at its IPO price, and what is worth now? And, of course, we’ll want to calculate revenue run rates for each figure.

Oh — we’ll also need to calculate how much money SoftBank made. Inverted J-Curve indeed!

Coupang’s IPO and current value

As Renaissance Capital notes, Coupang boosted its share allocation to 130 million shares from 120 million. This made the value of both primary and secondary shares in its public offering worth a total of $4.55 billion. That’s a lot of damn money.

At its IPO price of $35, the same source pegged the company’s fully diluted IPO valuation at $62.9 billion. By our accounting, the company’s simple valuation at its IPO price came to $60.4 billion. Those numbers are close enough that we’ll just stick with the diluted number out of kindness to the company’s fans.

Doing some quick math, Coupang is worth around $92 billion at the moment. That’s a huge number that nearly zero companies will ever reach. Some do, of course, but as a percentage of startups that start it’s an outlier figure.

#coupang, #ec-ecommerce-and-d2c, #ecommerce, #fundings-exits, #gaming, #softbank, #startups, #tc, #vision-fund

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Mind the gap: E-commerce marketers should revise their TAM and SAM estimates

2021 is going to be another glorious year for e-commerce.

It is that time of the year when most of us are looking back at the “total addressable market” estimates to plan for specific campaigns. Unlike us, if you had your 2021 kick off in Q3, bless your soul. You are an enlightened being.

For the rest of you, for whom e-commerce is a strategic market, I have a question — have you built your total addressable market (TAM) and serviceable addressable market (SAM) estimates for 2021 considering how things evolved in 2020?

It’s important to understand the underlying business model dynamics of companies and visualize TAM from those perspectives.

For most of us, research is a mind-numbing, repetitive exercise of clicking through links on Google until they all turn purple — at which point we start seeking the simplest possible explanation. For e-commerce, addressable market estimates come in the form of headlines from platforms like Shopify. The company quotes a merchant count number in its earnings calls and that becomes the basis for guesstimating the current TAM of e-commerce companies.

The other, rather simplistic approach is to look at the user-base count from several databases that publish tech platform-level user stats.

In reality, the simplest answer is not the right answer.

Mind the gap

Let’s take e-commerce shopping cart installations. Shopify, Magento, WooCommerce, BigCommerce and others publish installation numbers that run into millions.

Here is the dichotomy that should frame your TAM discussions.

E-commerce is long-tail heavy. Yes, there are millions of merchants, but e-commerce revenue is a fat-tail phenomenon — meaning, a disproportionate amount of e-commerce revenue comes from a few tens of thousands of companies.

PipeCandy publishes bottom-up TAM estimates with detailed data cuts by technology, logistics and payment system adoptions by firms across revenue tiers across all major markets. One of the common misconceptions we see in how firms misinterpret TAM estimates is that they equate revenue to spend potential.

#amazon, #column, #ec-column, #ec-ecommerce-and-d2c, #ecommerce, #online-shopping, #retail, #shopify, #total-addressable-market, #web-applications

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Fintechs could see $100 billion of liquidity in 2021

Three years ago, we released the first edition of the Matrix Fintech Index. We believed then, as we do now, that fintech represents one of the most exciting major innovation cycles of this decade. In 2020, all the long-term trends forcing change in this sector continued and even accelerated.

The broad movement away from credit toward debit, particularly among younger consumers, represents one such macro shift. However, the pandemic also created new, unforeseen drivers. Among them, millennials decamped from their rentals in crowded cities to accelerate their first home purchase, to the benefit of proptech companies and challenger mortgage players alike.

E-commerce saw an enormous acceleration in growth rates, furthering adoption of online payments platforms. Lastly, low interest rates and looming inflation helped pave the way for the price of Bitcoin to charge toward $30,000. In short, multiple tailwinds combined to produce a blockbuster year for the category.

In this year’s refresh of the Matrix Fintech Index, we’ll divide our attention into three parts. First, a look at the public stocks’ performance. Second, liquidity. Third, we highlight one major trend in the sector: Buy Now Pay Later, or BNPL.

Public fintech stocks rose 97% in 2020

For the fourth straight year, the publicly traded fintechs massively outperformed the incumbent financial services providers as well as every mainstream stock index. While the underlying performance of these companies was strong, the pandemic further bolstered results as consumers avoided appearing in-person for both shopping and banking. Instead, they sought — and found — digital alternatives.

For the fourth straight year, the publicly traded fintechs massively outperformed the incumbent financial services providers as well as every mainstream stock index.

Our own representation of the public fintechs’ performance is the Matrix Fintech Index — a market cap-weighted index that tracks the progress of a portfolio of 25 leading public fintech companies. The Matrix fintech Index rose 97% in 2020, compared to a 14% rise in the S&P 500 and a 10% drop for the incumbent financial service companies over the same time period.

 

2020 performance of individual fintech companies vs. SPX

2020 performance of individual fintech companies versus S&P 500. Image Credits: PitchBook

 

Fintech incumbents and new entrants vs. the S&P 500

Fintech incumbents and new entrants versus the S&P 500. Image Credits: PitchBook

E-commerce undoubtedly stood out as a major driver. As a category, retail e-commerce grew 35% YoY as of Q3, propelling PayPal and Shopify to add over $160 billion of market capitalization over the year. For its part, PayPal in the third quarter signed up 15 million net new active accounts (its highest ever).

#affirm, #afterpay, #column, #covid-19, #ec-column, #ec-ecommerce-and-d2c, #ecommerce, #finance, #fintech, #klarna, #payments, #paypal, #plaid, #startups, #venture-capital

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