March 25, 2020

#86 If the Suit Fits, Invest.

by The Pitch

Background show artwork for The Pitch

Founder Ray Li says he can make you a custom suit, out of a quiz. And his company, Sene, is already making a profit. Ray wants to pursue the technology AND build up a cool brand but the investors wonder if Ray would be better off choosing one or the other.

Today's investors are Maia Bittner, Elizabeth Yin, Sheel Mohnot, Charles Hudson and David Goldberg.

If you'd like to support Sene’s efforts to manufacture surgical masks, head to senestudio.com/pages/masks. And If you want business advice from our investors on what to do during this pandemic, go to thepitch.show/help

Transcript

Over the last decade, a whole new type of fashion company has exploded on the scene. Brands built on VC dollars and massive Facebook ad budgets. Think Stitchfix and Everlane. They all have their own unique message, whether it’s convenience or being socially conscious. Or sometimes it’s just that they have the right kind of cool.

Today’s founder thinks he can cut through the noise with an even newer trend, custom fit.

Ray Li’s company sells clothing made-to-order, just for you.

But can he convince our investors that his technology is good enough for Sene Studio to have its own moment on the fashion startup runway.

From Gimlet, this is The Pitch. I’m Josh Muccio. 

Let’s meet today’s investors.

  Elizabeth: I'm Elizabeth Yin

Elizabeth is a managing partner at Hustle Fund. And so far she’s has invested $30M in over 250 startups. One example, a company called Nerdwallet.

Charles: I’m Charles Hudson

Charles started Precursor Ventures, where he’s invested $45 million in over 100 startups to date.

Sheel: I’m Sheel Mohnot

Sheel has sold 3 startups for over $50 million dollars. Now he’s an angel, invested in several companies worth billions today.

David: I’m David Goldberg

David is a general partner at Corigin Ventures, where they’ve invested $38M in over 50 companies so far.

Maia: I’m Maia Bittner

Maia built two financial startups, and sold them both. Now she’s out looking for new startups for Sequoia, one of the biggest VC firms in The Valley.

The pitch for Sene Studio is coming up in just a moment. 

David: Hello.

Ray: Hi.

Ray: I'm Ray. I flew in from LA last night.

Maya: Maya. Welcome. 

Ray walks in the pitch room looking pretty fly by LA startup founder standards, a dark gray blazer and he’s repping his own brand, a pair of custom fit jeans.

Ray: So my name is Ray Li. And I’m the founder and CEO of Sene. But before I get into our strategy, our technology, our traction and how we’re already killing it, I want you to take a quiz… so underneath your seats, you’re going to find iPads. So why don’t we pull those out.

[laughter]

David: We get to keep these right?

Ray: If you open it should be questions.

Sheel: Yeah. Let’s do it. Questions.

Sheel: All right. Here we go.The first question is, how tall are you? I won’t answer that for the audience. 

Sheel: Ooh. Question for everyone here. What's my build?

Elizabeth: Mm.

Sheel: Pear? Rect... Rhomboid?

Maia: You’re not a pear. 

Elizabeth: My mid-section... Well, two kids later...it’s a little rough.

Elizabeth: My bra size. Did you guys get these questions?

Sheel: I did not, no.

Maia: Hm.

Sheel: Which is good.

A question that both men and women got is: “Let’s talk about your tush. Which best describes your butt shape?” Your options (with pictures) are “Normal Seat” “Prominent Seat” “Flat seat” and “Drop Seat.” I’m pretty sure that last one is a euphemism. Not sure for what exactly. The company takes the answers to these questions and runs them through their special algorithm to get a custom fit. 

Ray: Now the quiz isn’t just a concept, and our host Josh Muccio is here to prove it.

Investors: [oooh] 

Sheel: Oh my, exciting.

Josh: What’s up guys. 

I’ve already taken the same quiz as the investors a few weeks back. And I’m here now to model Ray’s flextech suit for the investors. I was a little nervous. I’ve never walked a runway before.

Charles: Looks good!

Sheel: Top button. Top button.

Charles: Top button, sir.

Josh: Okay, ooh yeah

Sheel: How’s the comfort level?

David: Do some jumping jacks.

Sheel: It looks, it looks comfortable, actually.

Maya: It does look comfortable.

Elizabeth: Yeah. 

I thought the suit fit well, not perfect like a tailored suit but better than off the rack … so I’d probably send it back to the company for some slight alterations. 

Sheel: What we're looking at is an athleisure suit.

Charles: Yes.

Then after soaking up my moment in the spotlight, I stepped out to let Ray have it back..

Ray: So suits was our first product, our strategy is really a flagship strategy where there's the lifestyle brand at the top, Sene, which is all about fit, personalization. And then underneath it we have a series of flagship products. So the Flex Tech suit was the first one. And then in October, we launched our Ever Jean, which is, ah, custom jean made with um premium stretch denim. For the last seven consecutive months, we've been growing at 60% month over month. We're at a 1.6 million run rate. And that's bootstrapped to date. 

Sheel: Cool.

Ray: And We're here today to raise 725,000. And that's to pour gasoline on the fire.

Charles: Cool.

David: When, when you say custom, um, I know there's a few different models there, right. Do you have a certain number of iterations and its best fit? Are you actually custom manufacturing? 

Ray: So, ours is actually truly custom. It's bespoke down to the level of, the reason you're getting the butt question is it's factored into the curvature of the waistband. 

Elizabeth: Well, it’s actually pretty amazing that from that relatively short quiz that we did, that really didn’t have that, like I didn’t have to measure anything, that you’re able to come up with something as custom as what Josh walked in with. How is that even possible? 

Elizabeth: I would be actually kind of nervous as a consumer to fill that out thinking like, obviously it's going to be slightly off when it comes back. 

Ray: Now what’s interesting about a quiz is actually if we can overlay a bunch of different pieces of data together, we can actually get really close to what, what you want. So if I know your height and your weight and your chest measurement, I can get to about 95% accuracy on the rest of your body measurements

Elizabeth: Interesting.

Ray: And then if we overlay more information, so if we start to matrix together what you typically wear for jeans, and what you typically wear for tops - we can get really, really close.

David: Do you, do you allow returns? Or exchanges? 

Ray: So how we have this thing called the sixty day guarantee. Free alterations, remakes, exchanges and returns. I think the most important indicator about whether people are happy is return rate. Because typically in, in apparel it's the worst return rate for both online and brick and mortar, right. It's a little above 30%. Our return rate for online orders is sub 6%. 

Elizabeth:My husband and I have ordered custom clothes, and actually, the biggest surprise, at least for me personally is that they are pretty terrible at fit. Like, even though it’s custom. And I think that that is fundamentally a problem and why you then end up having to go to a store, because the fit is not actually good enough. So I think this is where my top question is, and I think. This is what I’m trying to get comfort around.

Ray: Yeah.So traditionally the way it’s done is custom clothiers, they’re only capturing body measurements. But then the factories are interpreting the measurements to generate a fit. In our case, we’re actually generating the technical pattern. We have three factories - so it goes to them. That’s laser cut, hand assembled. Then it’s shipped to us. Right now, we fulfil, and that’s sent to the customer. So right now, the lead time is about two and a half weeks. And then we think within two years we can get it down to about five to seven days from order to delivery. So that’s the goal. The goal is, you take the quiz, anywhere in the world, and then in five to seven days you get something that’s totally custom to you at no risk. 

Elizabeth: So you have no inventory?

Ray: We have no inventory. 

It works! He can make a suit out of a quiz and people will buy it. And with no inventory, that means Ray can scale up quickly without a lot of capital. They’ve been growing 60% every month. And they’re already profitable. 

But to get to the next level, the investors want to know, can Sene actually compete with some of the biggest brands in the biz.

Maia: So your customers today, where are they shopping for clothes? Or like, like, like, before your product?

Ray: Yeah. So on the suit side, you know, they're shopping at Lululemon, Ministry of Supply, Rhone, for some of the, and Theory. Um, some Bonobos. 

Maia: Is your price point about the same?

Ray: Our price point is less. So our custom suit, ah the Flex Tech suit is 595, and that comes with all the free alterations, remakes, exchanges and returns. On the denim side, we originally thought we were going to price lower, but we found that the threshold to buy was actually higher than what we thought. So we price at 185. Ah, Rag and Bone, 7 For All Mankind, those are 200 to $300 products.

David: So first of all, I wanted to congratulate you. I mean to get to completely bootstrapped, get a product to market, get to a seven figure run rate, that's certainly praiseworthy. Um, to give a little bit more color, so before I came to the venture world, I built a company in men's accessories. And we partnered with over 20 different custom suit makers. And what we found is a lot of great brands out there, but when you're talking about a product that's, I don't know, $500, $700, maybe even a thousand dollars, that little extra convenience of being able to fill out a survey in someone's home, didn't overcome either the lack of trust or really the lack of quality when it came to fit. So when you look at companies like Bonobos, Indochino, Black Lapel, they wind up creating some form of brick and mortar ah guide shop to really get that person a little bit more comfortable and over the edge. What are you doing differently? Or how do you think about scaling and be able to maintain both that quality but with this fully distributed model?

Ray: Traditionally, whether it's Indochino, or one of these other custom shops, you can't return the product. The other thing is, most people want to say, that looks awesome, get me that. And if I just have to answer a few questions to get there, great. And you make the brand pretty sick, and the products have to be great. I think that's another thing is the products have to be distinctive, and valuable, even if they were standard size. And then you delight them with the fact that it's much better than something off the rack that they’d bought.

David: Even with the custom angle here, how do you compete against the consumer’s desire to want everything today? Everyone’s used to everything coming in 48 hours. What have you found in terms of overcoming that barrier with customers?

Ray: Yeah. So I think there’s … ultimately we do want to get to a point, and we think we can get there in about two years, where it can feel very similar to ordering anything else standard size online. Now, ah, in terms of how we compete, we’ve tended to focus flagship products in, at this stage, on things where fit matters. So you know for jeans, actually, especially for women, it’s very hard to find that standard size. 

Elizabeth: Yeah, I've been looking for this. For on the jeans side.

Ray: Awesome. And I think, people have spent years looking for the perfect jean, and some people still haven't found it. So the idea that, okay, I only have to wait two to three weeks to get something that's exactly what I want is super compelling.

Even though the investors are like, yeah I get the problem. I need to find jeans that actually fit! They aren’t sure how Ray is going to build a massive company on that. Will the quiz really be enough to set them apart? 

That’s after the break. 

[BREAK]

Welcome back. Ray has made the case that he has a good company - it’s even made some profit - but he hasn’t made the case that it’s a company worth investing in. Here’s David.

David: I'm still struggling with like the main value proposition here around the smart fit technology. I feel like I've seen dozens of brands with these types of quizzes around fit. I don’t think there’s anything novel enough in the underlying fit technology to build the whole base of the company around that. And I don’t think that will scale to be a multi hundred million dollar technology platform I would actually consider going even heavier on brand and leveraging the smart fit technology as part of the convenience, as part of the match of the materials that you use, and the certain customer base. And think about really diving into that brand and trying to build something that could easily be $100 million brand. 

Ray: I, I would say that my background before this was doing, um, sort of global rebrands for consumer product companies and tech companies. So I think for us we do feel like just within the products that we do ourselves is it’s a $100 million opportunity.

Sheel: I am so torn, because at the stage that I invest, the thing, I always say like the entrepreneur is what matters most. And I really like you as a founder. Um, you've had like continually good answers to everything we threw at you. I think I struggle with how big the opportunity could be. And then I think, ultimately I'm struggling with... is this a brand? Or is this a like technology? And... again, to David's point, I think like the brand is probably more interesting to me. And I think I'm going to pass. 

Ray: Okay.

Charles: So I think you’re super impressive. And I’ve been wrestling with this one. But I think ultimately for me it’s a pass. Mostly because I think the market is huge, but it’s really fragmented. And I keep coming back to myself and saying, gosh, like of the companies I’ve seen that are sort of of your ilk, what has it taken to get to a really large outcome. And it’s gigantic product catalogs.I think about Bonobos, Everlane, some of the companies I’ve seen that have achieved like pretty healthy run rates, different model, but it just feels to me like the number of shots that you’ll have to hit in a row to get to the size of company that makes sense for me, it’s, it’s a, it’s a difficult lift. 

Ray: Thank you. 

Maia: So I'm really, really interested in how your technology might shepherd in this revolution of, of custom clothing.

Maia: and when I think about the brand, I'm sure there's an audience, I'm sure it's cool, I don't really invest in, in fashion, kind of like CPG directly very much.

Sheel: So you're saying you shouldn't do it because that's not what you invest in? Or you're saying...

Maia: I'm saying it's hard to be venture scale.

Sheel: Okay.

Maia, Charles and Sheel are out because they just don’t see it as a massively scalable endeavor. Now Elizabeth however, has a different concern.

Elizabeth: I think you should go after the brand opportunity - because I think that’s where the money is made. When you think about it, like the holy grail in the custom clothes space is to get basically a universal sizing data set on people. And once you have that for all these individuals, you can pretty much sell them anything. 

Ray: I, I, I’m wondering if I communicated this incorrectly. Because the intent is to build the brand. I, I think the technology and the supply chain are competitive advantages to cut through the noise.

Elizabeth: Mhm.

Ray: Right. And they're an enabler, they're not the reason, you know, we exist.

Charles: And I think I've never seen a company where those things are so tightly coupled, that the technology powers the brand. So I always tend to think of it as an either/or, not an and. And like the way you just said it made me think, oh, maybe during the pitch I had the wrong conceptions, I just didn't have the tension between the two. Because I was thinking, oh, if you're so great at supply chain like, just like, dominate the supply chain and build a company around that.

David: I actually disagree. I've seen this before and I think. So to give context, we're investors in a company called The Inside, which is at the end of the day they're a furniture brand, a custom furniture brand. They leverage supply chain advantages. But at the end of the day, they know they're a brand. And everything built around it is a brand - and maybe it's a communication thing. But I think you're hedging bets a little bit.

David: That's where I wanted to hear doubled down. And I get also you talk to investors who want, you know, multiple billions or bust.

Elizabeth: Right.

David: Nobody likes brands anymore, and it changes by the month.

Elizabeth: Or licensing. Yeah, right.

David: I would just say like whatever, I'm not here to tell an entrepreneur which way they should run their business. I can say when it aligns with my vision or not. In this case, it doesn't. I would say, go with whatever is authentic to you and go hard on it and double down on it.

Ray: Sure. I think a reason we talked about the tech too is, it is actually part of the brand narrative. So like when we talk about our mission it's to empower people of all shapes and sizes to feel their best. And now we can use what we're doing to create something that's really special and beautiful and personal for people. It's not like we have this secret tech platform thing here and then we have the shiny brand here. It's like, this is...

David: So I hear you, and just to push back and to make you kind of think about the pitch and the brand… 

Ray: Thank you.

David: There's many attributes that go into a brand. Clearly, fit and sizing is one of the integral ones for you. I didn't hear any other layers. There was nothing really about the materials, which are actually unique I think to your business, there was nothing really about who your customer was, where they're maybe coming from. So I, if it really is about brand, you're gonna want to peel that back a little bit more. 

Elizabeth: So here’s where I’m landing on this. I, I truly believe that if someone can crack the nut on custom clothing, I think that’s a huge holy grail. And certainly lots of people have been trying, but I don’t think anyone’s done it well. Um, it sounds like this is very promising. For something like this, I would want to try out the product. Like, you know from soup to nuts. Give you guys some business. And would love to look at this, you know, as a potential investment in January.

Ray: I’m sure we can work something out. Let’s talk and figure something out.

Sheel: Yeah, me, I’m in the boat too. So… 

Charles: Thank you so much.

Ray: Thank you.

David: Awesome. Good luck.

Ray: Thanks guys. 

During the pitch the investors unanimously told Ray to build his company around his brand, rather than around the company's technology.

After the pitch, however, the investors zeroed in on how difficult it would be to actually succeed as a brand. It was like ‘hey man, your already-profitable company could one day become a really big brand!” ‘Oh, another thing: market forces are going to make it close to impossible to become a really big brand! Good luck, brah.'

David: The word fragmentation was used at one point and you’re just never going to be able to make everybody happy. Some people want that in store experience, get measured by hand. Others want the technology of body scanning. Others want to just try on a bunch of stuff and see what works for them. And then the majority of people are actually happy with the standard sizing systems.

Maia: Particularly for the price point, they’re happy enough.

David: Right.

Sheel: Yeah. For me, like I’m a like shorter guy, um. I like never found clothes that fit. Have, have a bunch of custom stuff. And then, when Uniqlo came to America, I was like, oh. This just fits me.

David: You found your brand.

Sheel: And now, literally everything I own is from Uniqlo. This pants, this shirt, like everything. And ah so if like you find, so for people like if you find the thing that works, then you probably will repeat it. And like, I’ve bought like so, like every year I buy like I don’t know 20 different articles of clothing from Uniqlo. 

David: You found your brand.

Maia: I mean, and I know a lot of people who buy most of their clothing form Everlane.

Sheel: Yeah. Same, same.

Maia: Same thing. It’s like, they’re like, you know, I just, I like it, it works for me.

Charles: It fits in a very specific way.

Maia: It fits. Yeah. It’s like my style.

When we come back … we hear from Ray … Who ended up striking out with our investors and every venture capitalist he pitched. And yet somehow, scrounged up 500k anyway. From a different kind of investor. Real, working class, salt of the earth, americans.

[BREAK]

Welcome back. I called Ray to follow-up two months after he left the pitch room with a good ol’ goosegg. 

Josh: Hey, how are you, Ray?

Ray: Hey, Josh, doing well. 

He told me that putting his company in the box of either tech or brand is to miss the point entirely. He couldn't get that across to investors, and that's why the pitch failed. 

Ray: There was this funny moment Josh, where I felt like I was giving spot on answers for everything people were asking. Then it came to the time where everyone was done with questions, I thought I nailed it, then they said, "Well, I don't know if you're a tech or a brand.” And then they all started passing.

Josh: Huh.

Ray: It was like, I thought we were at the end of a road trip and then they said, "Well, at the beginning of the road trip you didn't talk about your brand." I'm just like, "What?"

Josh: Yeah. The one person in the room who seemed like they may have interest, they wanted to try out the clothes and see how the whole process works and how it actually fit was Elizabeth. Did you follow up with her afterwards? 

Ray: Yeah. We were raising a round, um, through Seed Invest, which is an equity crowd funding platform, and so there are certain dates we have to hold to from an SEC regulation standpoint.So, we knew we had to be quick. So we emailed her immediately afterward. We sent her the paperwork in advance so she could see it, and then-

Josh: The investing paperwork.

Ray: Exactly, and then she came back and said, "Unfortunately there are certain terms in here that, you know, that I already don't agree with, and also ahh I don't have enough time for legal counsel to review this so unfortunately this is going to be a pass." 

Josh: Oh no! 

Now this is equity crowdfunding, part of the fundraise is for very small checks from unaccredited investors - in other words, regular people. Elizabeth didn’t want to be one of those. She normally writes 25K checks. But the agreement said you have to invest at least 50K in order to be an institutional investor, and get access to company financials and other information. Elizabeth didn’t care for that.

Josh: And, and why did you set it up that way?

Ray: It was actually Seed Invest drafted all the legal paperwork for us, so we were using their boiler plate documents. 

Josh: Well that's a bummer.

Ray: Yeah yeah. We wish we could have had her. Really liked her! But I was very happy that Sheel ended up investing.

Josh: What? Wait, rewind. How did that happen? Sheel invested?

Ray: Yeah, Sheel invested.

Josh: I didn't even think he was going to follow up with you afterwards.

Ray: Oh Sheel and I had an hour and a half call the next day. He was like, "Hey, let's talk tomorrow." Then we got on the phone early in the morning. He really got what we were doing and then he wanted to go through the experience, we made a suit for him and he said "If this fits I'm going to invest,” It needed some adjustments, and then we took care of that for him. There were some issues with the fit and so he wanted to just talk through it to feel confident, and then he invested a very small amount through the crowdfunding platform

Josh: How much did he invest?

Ray: He invested 5,000 through the equity crowdfunding platform. Invest, yeah through Seed Invest.

Josh: A little something there.

Ray: Yeah. It, it was, it was like, oh, that's nice. You know?

Josh: Yeah. So how much did you raise in total and what's the final tally?

Ray: Yeah, so we raised half a million - all the VCs passed and all the angels and customers came in so, it's not like we didn't try to raise VC. I think we're just walking a path that is a little bit different. Like money's not the most valuable thing for us, because we're fine with money. I think getting smart people to take dedicated time to look at our business, huge. And, to know that Sheel will be on board for a longer period of time ... We're not really in it for the checks. We're in it for people who wa- who want to spend time with us and give us their brand. So yeah, 100% worth it.  

Speaking of walking a different path, I called Ray a couple days ago to see how COVID19 is affecting him. Well, first he told me He’s holed up in his empty coworking space in LA. But then he starts telling me about a conversation he had with their factory in China.

Ray: They were saying, hey would you guys be interested in manufacturing and sellling masks? and we were like, no we don’t want to sell them but we would love to find a way to manufacture and donate them.

Josh: So this is like the on-demand, custom clothing manufacturer, reached out to you because they wanted to make medical masks. 

Ray: That’s right. 

Josh: But how are you involved in actually making the masks? 

Ray: So we're paying for all the production because, you know, we're in a good position financially. We're still able to like run our core business. But we also just felt like, you know, there's a responsibility, um, almost in a moral responsibility for those who are in a good position to- to help and just do our part. 

So then Ray sends out this email to all his customers … where he’s like … Hey, we're manufacturing and donating masks. Do you know any medical professionals who need them? 

Ray: And the crazy thing is this just went viral. We saw this appear in all these random place on the internet, (laughs) and even, like, random neighborhoods on Nextdoor where they just screen-shotted the email and shared it. So this just started as like, hey, let's just employ some of our capital making masks. But now we have hundreds of inbound requests of just different hospitals where people are saying, We desperately need masks. We are ..." You know, some people are wearing plastic bags on their face. Doctors are doing this because they just don't have any supplies.

Josh: Oh man.

Ray: "Technically you should be really wearing the N-95 masks, which are able to protect you much more safely-

Josh: Mm-hmm (affirmative). These are the ones that have like the seal around the outside-

Ray: That's right. That's right. Yeah, but the- but given how short supplies are, I mean, people don't even have these- the cough masks. The FDA cloth masks that we- we're- we're, um, you know, we're donating. They're like, "Please give us those because we're using scarves or we're using, uh, you know, grocery bags, uh, you know. They're- we're recycling old masks."

Josh: Mm-hmm (affirmative).

Ray: And this is from some of the biggest hospital systems. So it's just crazy.

Josh: Not good.

Ray: Yeah.

Josh: How many masks are you up to at- at this point?

Ray: Oh, gosh. This- it's like, I think it's over 500,000 requests. Or like 500,000 masks that people need. 

Josh: And how much have people donated? How many masks are like paid for-

Ray: Probably at 20 to 30 thousand right now.

Josh: So not even 10% of the way there.

Ray: That's right. As long as people are willing to be generous, we can make a huge dent in the gap in supplies. 

If you want to donate or if you know any medical professionals in need of masks, look in the show notes for details for how to get in touch. 

Ray says, that if enough people donate, their factory can make up to 100,000 masks per day. For their part, Sene will be putting 10% of their revenue into making masks.

Oh and if you’d like to take a deep dive into mask situation to find out what’s really going on. Check out the episode Science VS just put out called “Coronavirus: Unmasking the Facts”


The Pitch is hosted by me, Josh Muccio. Produced by Chris Neary and Heather Rogers. We are edited by Sara Sarasohn.

Theme music by The Muse Maker. Original compositions from Breakmaster Cylinder, Peter Leonard, SoWylie and The Muse Maker. We are mixed by Enoch Kim. 

Lisa Muccio coordinated the recording of this pitch. 

As a reminder, no offer to invest is being made to or solicited from the listening audience on today’s show.

Thank you so much for listening. We’ll be back with a brand new episode. In two Weeks, on Wednesday. See you then.