The economic case for investing in sustainability has strengthened in recent years, and many pure plays in the space aren’t available on the public markets. Luckily, investors can turn to equity crowdfunding to find sustainability-minded businesses, such as Wearwell, a subscription service for ethically and sustainably made clothing. Wearwell makes it easier to buy clothing that creates a positive impact. If you invest in Wearwell, you could get a slice of the socially conscious market before it hits its stride.
When subscribing to the Wearwell service, users create a profile with their style preferences. There is a team of expert stylists who use that information to curate a selection of clothing and accessories, which are delivered digitally to the customer’s inbox.
The user purchases products they like directly through their website, provides feedback and continues working with their designated stylist to tailor future selections to their personal preferences.
The biggest benefit to this is that you do not have to spend hours considering the variety of options available for conscious shopping, knowing that indeed sustainable materials were used.
The service saves time and provides solutions at a low monthly cost of $8.50. The founders are Erin Houston and Emily Kenney who met each other while studying at American University. (It is worth mentioning that the deal is supported by Wharton Impact Venture Associates (WIVA).)
Wearwell’s Business Model
Despite its good intentions (such as shelling out one mask to a hospital in need for each mask bought), Wearwell is still a for-profit company.
The company earns revenues in two ways:
1) The monthly membership fees
2) The sales of clothing and accessories
The monthly membership fee is $8.50 for members to receive a monthly selection by a stylist of clothing and accessories. According to the company, the average of each transaction on their platform brings in an additional $92 per order. The profit margins are as follows:
The average margin is 55% on products sold. The company has set the goal of increasing that margin to 65% over the next 2 years. The financial projections mention the goals of increasing the membership to 3,000 monthly members by early 2021 and based on the current financials and unit economics, to exceed $17 million in revenue by 2022.
What Are the Market Features and Competition?
The growth of global retail sales for the apparel and footwear market reached $1.9 trillion U.S. dollars, and sales are expected to rise to above 3 trillion U.S. dollars by 2030. Further, the more specialized market for millennial women who identify their selves as conscious consumers is estimated at $66 billion. Capturing a small portion of this market would be considered positive for sales growth for Wearwell.
The competition Wearwell faces from other companies such as DoneGood and Stitch Fix (NASDAQ:SFIX) is intense, and the company intends to face it with a focus on both operational advantages and customer-facing.
The key focus of Wearwell is on conscious consumers, having a lower carbon footprint model with operational advantages, allowing for the discovery of emerging brands and strengthening social connections built between stylists and consumers.
Risks of Investing in Wearwell
Having addressed the risks before investing in any stock is essential for due diligence and making well-informed and sophisticated investment decisions. The key risks associated with the company are the following:
• An early phase for the company implementing its business plan.
• The amount of capital raised in the current round may not be enough to sustain the business plan.
• Changes in government regulation can harm the business.
• No present market for the Securities.
• Potential dilution problems in the event of additional funding rounds.
• The U.S. Securities and Exchange Commission does not pass upon the merits of any securities offered or the terms of the offering.
What Are the Deal Terms?
Important financial metrics that investors should know about Wearwell:
- The valuation cap is set at $8,000,000. Why is important the valuation cap? Because it specifies the maximum valuation at which the investment converts into equity or shadow shares and it is directly associated with the potential return.
- The type of security is Crowd SAFE. The investors provide cash and will get stocks at a later stage.
- The discount is set at 10% if a trigger event occurs.
- There is a minimal investment of $100.
- The funding goal is set between $25,000 and $1,070,000.
- The deadline is Oct. 1, 2020.
How to Invest in Wearwell
You can now invest in Wearwell stock as the company has set up a crowdfunding campaign on Republic. There are some perks for investing in Wearwell.
These perks apply to a minimum investment of $200 getting a two months free membership to investing $100,000 having the chance to get a five-day trip to Cambodia, meet the founders, visit brand partners and getting a lifetime free membership.
Wearwell has raised $200,000 in a pre-seed round and it has more than 500 monthly members. The additional funding capital will be used for scaling the business. If you support the concept of social impact, this investment seems interesting. However, I suggest you further analyze the risks before you invest in Wearwell.
Investing through equity and real estate crowdfunding or asset tokenization requires a high degree of risk tolerance. Despite what individual companies may promise, there’s always the chance of losing a portion, or the entirety, of your investment. These risks include:
1) Greater chance of failure
2) Risk of fraudulent activity
3) Lack of liquidity
4) Economic downturns
5) Dearth of investor education
Read more: Private Investing Risks
As of this writing, Stavros Georgiadis did not hold a position in any of the aforementioned securities.