Why The Fancy Could be a Game Changer in Social Commerce

At North Atlantic, we invest in business-to-business technology companies. While I spend the majority of my time looking at that spectrum of the technology landscape, I also have a deep interest in consumer tech and try to stay up on emerging companies in that space. “Social shopping” is one of the segments of consumer tech that I have spent a lot of time thinking about over the past year or so. Ebay and Amazon allow consumers to buy what they want online when they know what they want, but there has not been a major site to come along and help consumers decide what they want in a social environment. It is no secret that this is a major opportunity, and there are several independent players in the space in addition to the big players who are trying to get in the game (Facebook, Google, etc) . Over a year ago, I briefly wrote about Svpply. They have built a nice product, but I’m not sure they have completely cracked the code. Then there’s Pinterest, which is the pinboard style photo sharing website that has really separated itself from the pack, amassing an estimated 11 million registered users (80+% of which are women, and 75% of which do not have a college degree). Pinterest is probably the hottest consumer company in the world right now, reportedly contemplating a Series C round of capital that would value the company at around $1 billion.  The company has done a fantastic job appealing to certain demographics (women, Midwest, etc) and I wouldn’t bet against it, but there is another company in the space that most people have heard of yet that I would rather bet on right now: The Fancy.

The Fancy is a New York based company that was founded in 2009 as ThingD by Joseph Einhorn. Einhorn is an impressive entrepreneur who previously co-founded Inform Technologies, and was also the first employee of Capital IQ at the age of 16. The basic experience on the site is fairly similar to Pinterest and Svpply: you create your own stream of clothing, gadgets, vacation spots, etc. by “Fancying” photos that you like. The company has raised $19 mm from Allen & Company, Jim Palotta, General Catalyst, Jack Dorsey, and PPR . Despite the impressive group of people involved, the company has not been covered that closely by the media, and has a relatively modest user base of around 325,000 at this time. There are a few reasons why I think this will change in the near future. 

The main reason that I think The Fancy is poised for explosive growth in the future is that it has done a great job making sure that there is only high quality content on the site, and I think people will gravitate to that. Trend setters like Kanye West, and Bar Rafeli have associated themselves with the site, not to mention the fact that the lead investor of the latest round of financing was PPR ($16 billion French company, owner of Gucci, other popular fashion brands). Pinterest, in my opinion, has a lot of watered down content and I can see this becoming an problem in the future. I’m not predicting that Pinterest is destined for the same fate as MySpace, but this situation sounds familiar: a rapidly growing site with a high percentage of lower and middle class, relatively uneducated users (MySpace) being dethroned by an upstart network of wealthier and  more  highly educated users (Facebook). I think the people and brands that are associated with The Fancy will play a big role in the company’s success, similar to the way that the people and Colleges that were associated with Facebook impacted the long-term growth of that company.

The other major reason that I am so excited about The Fancy is because of the way that it seamlessly incorporates commerce into the experience. Users are able to discover, select, and purchase luxury goods and services without ever leaving the site. This is unique to The Fancy; on sites like Pinterest, when you want to make a purchase you are directed to the website of the maker of the product. People are inherently lazy and the more friction there is in the buying experience, the less likely people are to buy. I think the friction-less commerce experience is going to be another way that The Fancy differentiates from the competition.

15 April 2012 ·

Crowdfunding

The JOBS (Jumpstart Our Business Startups) Act passed the House of Representatives today after being passed in the Senate last Thursday. The bill will become law when the President signs off, and all signs are pointing to him signing off very soon (he has been a vocal supporter of the bill). This has huge implications for our country, as it democratizes entrepreneurship, providing entrepreneurs easier access to capital, and providing anyone in the country the opportunity to  invest in a private startup company.

Currently, to invest in a private startup, one must be an “accredited investor”, which the government defines as having a net worth of $1,000,000 or earning $200,000 annually for the past 2 years. This is an antiquated law that is in the best interest of the people with wealth (wealthy angel investors, venture capitalists). The JOBS Act will eliminate the “accredited investor” rule, opening up startup investing to the entire US population. While startup investing is an extremely high risk endeavor, and its certainly not for everyone, I think that the bill is great for people who would like to diversify their portfolios and gain some exposure to high risk early stage investments.

Something I will be keeping a close eye on is the formation of websites that broker capital raises, vetting startup companies for the public and acting as intermediaries between investors and entrepreneurs. Kickstarter is a great crowdfunding platform that new crowdfunding companies will look to as a model of success. Over $99 mm was pledged to projects on Kickstarter in 2011. The difference between Kickstarter and the companies that will form from the new JOBS bill is that on Kickstarter, the money pledged is a donation to a project, not an investment. The new crowdfunding sites are going to have to provide much more financial information regarding companies than Kickstarter currently does regarding projects. It’s a completely different ballgame when equity ownership is at stake.

I will be keeping a close eye on new crowdfunding sites like Crowdfunder, Wefunder, CircleUp and Microventures (I’m sure there are others, and I would love to hear about them). I also wouldn’t be surprised to see existing dominant players in adjacent markets (Kickstarter, Angellist, Gust) get into this space. If the public has an appetite to fund $99+ mm of projects without financial incentives, I think that there will be an ENORMOUS appetite for early stage private investment, and I think that some great companies will emerge from this law change.

27 March 2012 ·

Some Exciting Marketplace Startups

Anyone who has read this blog before knows that I love online marketplace businesses. North Atlantic’s most recent investment was in an online marketplace called OnForce. I am typically attracted to a marketplace business that has two features: it makes a sector dominated by concentrated and powerful suppliers more efficient, and it introduces a new and powerful behavior in the process. An online marketplace must have BOTH of these features to really get me excited.

There are many interesting online marketplace startups out there right now and I wanted to highlight a few of them:

Skillshare- Skillshare is a NYC based company that is really knocking the ball out of the park when it comes to the main two characteristics that I look for in a marketplace business. The sector that Skillshare is making more efficient is education, which, in my opinion, is the most inefficient sector there is right now. Our country’s colleges and universities are the education sectors “concentrated and powerful suppliers”. They charge exorbitant amounts of money to teach students skills that are not always applicable to the working world. Skillshare allows people to develop more relevant skills for much cheaper. In the process, the company is introducing new and powerful behavior by making it dead simple for anyone to teach a class on a topic that they have expertise in. They are truly democratizing education, and I look forward to watching them grow.

TaskRabbit- Based in San Francisco, TaskRabbit is a marketplace that enables anyone to do any task, and get paid for it. It is definitely introducing a new behavior- the notion that work can be down anywhere, on an on-demand basis. It is unclear to me whether or not the company is making a sector significantly more efficient, and this is something I’d like to investigate further.

CoachUp- CoachUp is an online marketplace for private one-on-one coaching that was founded in Cambridge, MA by Jordan Fliegel, who is a good friend of mine. Jordan was a private one-on-one basketball coach himself, and that experience made him realize that the process of acquiring new customers and processing payments was inefficient. So he set out to solve the problem by creating a platform where coaches can market themselves to prospective students and receive payments and feedback. I think that CoachUp certainly has the second characteristic that I look for in a marketplace- it introduces a new behavior (allowing anyone with a skill in a certain sport to be a coach). I think the jury is still out on the first characteristic though. The private coaching market today is already pretty fragmented and CoachUp is going to need to demonstrate real value to coaches to get them on-board. Jordan is a super smart, hardworking founder though. I definitely wouldn’t bet against him.

I’m always interested in hearing about new businesses that fit this model, so if you are working on one, or know somebody who is, drop me a line!

22 February 2012 ·

“Mocked and Misunderstood”

In the venture capital business, it pays to be a contrarian. The best early stage technology investments of the past 30 years were all laughed at as stupid ideas early on by the masses (Apple, Facebook, Paypal, Salesforce.com, eBay, and many many more).

Several prominent venture capitalists have blogged about this in the past, and Fred Wilson chimed in yesterday in a great post titled “Mocked and Misunderstood”. Fred claims that in the case of early stage technology companies, there is a high correlation between being “mocked and misunderstood” and having breakout success. He cites Twitter and Kickstarter as two companies in his firm’s portfolio that were widely mocked and misunderstood by the general public. With 170mm monthly users worldwide (up 60% Y/Y), Twitter has clearly achieved breakout success. Kickstarter is well on its way. I agree with Fred’s general point; clearly, many companies that are laughed at by the masses on go on to be world changing companies. Often times when the mainstream media mocks and misunderstands them, it is the sign that a tipping point has occurred. But the immediate question that comes to mind after reading the post is: “What about the mocked and misunderstood companies that flop?” Surely, you can’t just assume that every company that is “mocked and misunderstood” is going to go on to be a billion dollar company.

 I think that along with being “mocked and misunderstood”, the companies that experience breakout success have another thing in common: they have a small, but passionate and rapidly growing user base. Companies like Apple, Salesforce.com, Twitter, and Kickstarter were all mocked and misunderstood by the masses, but understood and used on a daily basis by a passionate group of early adopters. Great early stage firms like Union Square Ventures, Accel, and General Catalyst are skilled at understanding early adopters and why they use products, and then predicting whether or not the products will be able to “cross the chasm” and ultimately appeal to the mainstream public.

28 December 2011 ·

#HarvardTech

There is a lot of talk these days about how great the New York City technology scene is.  The talk is well deserved: great consumer web companies like Foursquare, Tumblr, Etsy, and Gilt Group have been built in NYC in the past few years and major early stage funds like Accel Partners, First Round Capital, Polaris Ventures have recently started offices in NYC. While there is certainly much to be excited about in NYC, it seems as though Boston, which had for a long time been regarded the #2 tech hotbed in the country, has taken a back seat. So it was really nice to see the Boston tech community come together Tuesday night for the first Harvard Tech Meetup. I think this could be the start of something special.

Around 400 people attended the event, which was held at Burden Auditorium on the Harvard Business School campus. The event featured Spark Capital partner Bijan Sabet as its keynote speaker, as well as demos from 10 exciting startups with roots in Boston. The companies were: Hopscotch, CustomMade, Skillshare, Bon’App, Eventplease, AppBrick, The Eatery, Speech4Good, and Tivli. Thanks to HBS students Adam Besivinick and Dan Rumennik for organizing the awesome event! For those who missed it, the next one is coming in the winter so be on the lookout.

16 November 2011 ·

OnForce

I am happy to say that North Atlantic has recently closed an investment in OnForce, which is the leading online marketplace for on-demand IT services labor. In past posts, I have expressed my love for online marketplaces, and I have studied different types of marketplaces closely for the past several months. OnForce is one of the best emerging online marketplaces in the world today, and after an introduction by a business development person at Autotask (a NAC portfolio company), I reached out to CEO Pete Cannone. The rest is history.

OnForce is a Lexington, MA based company that is led by an outstanding management team and an amazing group of investors (General Catalyst, Accel Partners, Best Buy) who we are excited to work with. There are a number of reasons why we are excited to help OnForce with their expansion. The biggest reason is that we believe the nature of work is changing. Ubiquitous digital communication and advanced information systems enable employers to disaggregate jobs into specialized tasks, which can then be performed remotely. This facilitates rapid growth in part-time and contingent employment. OnForce is at the forefront of the change. They have patented technology, a defensible network of high quality IT Services labor, and they generate a significant ROI for companies that use their platform. OnForce is ruthlessly efficient in helping companies deploy onsite labor and is the leader in the space by a wide margin.

Another reason we are so excited about OnForce is we believe that enterprises have an antiquated and inefficient model of deploying IT service that is changing drastically. According to McKinsey & Company, 58% of employers say they will hire more temporary and part-time workers in the near future. As companies face shrinking product margins, high fixed costs, and difficulty matching supply to unpredictable demand, they will increasingly use the OnForce platform. We believe that OnForce’s increased focus on large enterprises will rapidly accelerate growth.

For the first 6 or so years, the company’s focus on the “buyer” side of the platform was the SMB market. 5 to 50 person managed service providers used the OnForce market to provide IT service to its customers. OnForce became well known in the market as the most reliable place to find and deploy high quality service professionals, and it has been able to build a large network of users.  About a year ago, the company shifted its focus to become a service provider for the enterprise as well as a marketplace for SMB’s. Today, Apple uses the OnForce platform to deploy all of its SMB Apple Genius professionals in the US. Several other enterprises are following suit, and we believe  this trend will continue as companies strive to operate more efficiently.

On top of the business model and the outstanding partnerships, the other thing we really love about the company is the management team. Led by Pete Cannone, the team is highly talented, and perhaps more importantly, very passionate about the problem that they are solving. The OnForce model is disruptive and we are betting that Cannone, along with COO Bill Luchini and the rest of the team, have what it takes to continue disrupting the labor market in a big way.

1 November 2011 ·

Online Video

While “mobile”, “social”, and “local” are the buzz words that everyone in Tech likes to  talk about these days, online video flies under the radar a bit. Everyone knows and uses YouTube, which Google acquired in 2006 for $1.65 billion in stock. But aside from YouTube, there has not been as much hype surrounding online video as you might expect. According to Gartner, online video is still in the very early stages of its growth. On Gartner’s “Hype Cycle”, the video content management and delivery space lies at the very beginning of the cycle, at the “technology trigger”. This means that the companies in the sector have penetrated less than 1% of the target market. I agree with Gartner and think that this is a space to keep a close eye on in the coming years.

Here are some facts to think about: 1.) Americans watch 5.3 hours of television a day. 2.) 91% of households still pay for television. These two numbers are staggering and I expect the numbers to come way down as innovative internet companies disrupt the antiquated television model and figure out ways to make the viewing experience more enjoyable for consumers.

When I watch video currently, I do it three ways: on TV, on Youtube, and sometimes on network websites like ESPN.com and ABC.com.  I often feel unsatisfied with this experience. I can’t really put my finger on why I am unsatisfied, I just know I am, and I know that the experience could be SO much better. I can’t wait to see what companies do to make this experience better for me in the future.

Here are four innovative companies that I am excited about right now in the online video space:

27 October 2011 ·

App of the Week: #TodaysKicks

Some of the apps I use on my iPhone are based on brilliant ideas that solve major problems. Favorites of mine include Twitter (which helps me get realtime information), Foursquare (which helps me learn more about the places around me), and Pulse (which aggregates all the news sources that I like into one place). There are other apps I enjoy that are not necessarily based on extraordinary ideas that solve major problems, but are instead simply fun to use. TodaysKicks is one of those apps, and I encourage you to check it out if you are a shoe lover like myself.

TodaysKicks is simple. Take a picture of the kicks you are wearing and post it on Twitter with the hashtag #todayskicks. The TodaysKicks iPhone app and web service pulls in all images that use the hashtag. Users can search for shoes through different categories, like “Newest”, “Best”, “Mine”, and “Loved”. It is a great way for sneakerheads to bond and has even inspired me to go out and get my shoe game up!

11 October 2011 ·