Each morning, wherever they are in the world, Meg He and Nina Faulhaber wake up, get dressed and strike a pose — before sending a shot to thousands of followers with a snap, filter and click of their smartphones. The twentysomething fitness fanatics, who met in 2010 as analysts at Goldman Sachs, are launching an online workout-wear brand called ADay for millennial women. Shunning traditional marketing and advertising routes, they use Instagram and other social media to model their fashion line in a series of glossy shots, be it boxing on the rooftops of Berlin or strenuous yoga stretches on LA sidewalks.

“It is our way of building our story for fans of the brand, by showing ourselves to be spontaneous, nomadic women — the people we imagine our customers to be,” says He, a Beijing-born Stanford MBA graduate who spent several years at a clothes-swapping start-up.

He and Faulhaber, a former German gymnast and venture capital associate, have joined a slew of fashion start-ups that are bypassing Silicon Valley when establishing a home base. “It was obvious what side of the Atlantic we wanted our headquarters to be on,” says Faulhaber. “We knew that we had to be in London if we wanted our brand to gain real traction — it is now the fashion start-up capital of the world. And when we took the plan to our investors in both Europe and the US, they agreed.”


US investment in early-stage digital platforms continues to dwarf that found elsewhere. But Silicon Valley is no longer in vogue for some sectors, notably fashion ecommerce. Instead, Europe has emerged as the most successful springboard for this fast-expanding group.

Several homegrown deals unveiled earlier this year have sealed the continent’s reputation. In March, the Italian online retailer Yoox announced it was taking over its rival Net-a-Porter to form the world’s largest online luxury retailer, generating sales of €1.3bn from about two million of the wealthiest fashion connoisseurs on the planet. A few weeks earlier, Farfetch, a Portuguese-born, London-based marketplace website for offline fashion boutiques, garnered a whopping $1bn valuation. In May it acquired the upmarket UK bricks-and-mortar chain Browns, throwing down the gauntlet to retail’s old guard.

So why is Europe a hotbed of investment and innovation? “Put simply, creativity and design are areas where Europe has the edge over the US. [It] has a strong heritage and manufacturing roots that many of the technology start-ups want to be close to,” says Giuseppe Zocco, co-founder of Index Ventures, which made early investments in Nasty Gal, Farfetch and Net-a-Porter. He believes that geographical closeness to Europe’s fashion brands and leading art schools helps entrepreneurs build businesses.

Yoox founder Federico Marchetti, a billionaire who called his tie-up with Net-a-Porter “the defining moment of my career”, echoes this. Marchetti launched Yoox at the turn of the millennium as a place where fashion brands could profitably dispose of end-of-season stock. He expanded offerings to include full-price ready-to-wear, as well as separately running the digital operations of more than 30 luxury labels including Valentino, Dolce & Gabbana and Giorgio Armani.

“I found I could facilitate business development quickly closer to home, thanks to Europe’s established distribution networks, which were across more manageable distances, and build partnerships with the established but cautious world-famous brands who were all based close by,” he says. “The US has one language and one currency and can be extremely lucrative. But its scale means it can be hard to crack for early entrants, whether they come from home or abroad. The fragmented nature of the European market forces you to think more carefully and creatively.”

The US has produced a clutch of headline-grabbing fashion start-ups including Warby Parker, Rent the Runway and Gilt Groupe — but few have made waves beyond their own borders. Amazon, despite several expensive acquisitions, has struggled to build a viable luxury business.


Frédéric Court, a Frenchman and early investor in Farfetch, launched Felix Capital, a $120m London-based European fashion and luxury tech-focused fund, earlier this month. He believes Europe has taken the lead partly because many Silicon Valley power players do not appreciate fashion. “You can just look out of the window there and see that it doesn’t really play a large part in people’s lives like it does in Europe. There’s amazing innovation generated, which is seismically transforming the landscape of multiple sectors. But when it comes to fashion, the so-called Silicon Valley ‘hoodie brigade’ don’t value it and therefore they are less likely to invest in it.”

Many also argue that London has emerged as fashion technology’s epicentre because it is where capital and talent collide. Crunchbase, a site that gathers data on start-up investments, says 60 fashion start-ups have been founded in London in the past five years. The web-based fashion and footwear market in Britain was worth £9bn in 2014, says business researcher Euromonitor, and will grow to $16.7bn by 2019.


“It is fair to say that there has been more value for fashion created from London start-ups alone than has been generated in the entire US combined — around $10bn,” says Chris Morton, co-founder and chief executive of online fashion retailer Lyst, which uses algorithms to aggregate more than 12,000 fashion brands into one location, with options personalised using data from prior visits. In April, Lyst announced that it had raised $40m in its latest funding round, after almost quadrupling its sales in the previous 12 months. From his Hoxton Square office, close to bustling Silicon Roundabout, Morton says that London is unique in attracting a melting pot of creative, engineering and data science talent, thanks in part to free movement of labour within the EU. By contrast, across the Atlantic, creative and engineering talent is divided between New York and Silicon Valley.

Net-a-Porter president Alison Loehnis adds that the diverse staff of her company has underpinned a “constant rethinking the rules”. A recent effort is its new app, The Net Set, which allows users to follow fellow shoppers and join communities based around the brands that they love.


“So much of the disruption going on in our industry is coming from London, where the players are confident enough to experiment with their business models,” says Loehnis. “We really believe it is the most exciting place to be.”

Europe is also leading the way in adopting new technologies, despite a unique cocktail of challenges. “With fashion business models you have to factor in consumers’ emotional reaction to product and presentation, not just rational behavioural patterns or functionality. That can be hard to predict,” says Harry Briggs, until this month of Balderton Capital, the largest institutional investor in Yoox before its 2009 IPO. Briggs has now joined the Business Growth Fund, a new £200m fund focused on British start-ups.

An understanding of how and why shoppers spend on fashion has fuelled European frontrunners such as Paris-based Vente Privee, the pioneer of online flash discount sales on fashion collections. Berlin’s mass-market platform Zalando floated last October to become Europe’s largest dedicated online retailer.


“European fashion start-ups tend to eschew becoming duplicates and focus on breaking new ground, as seen with its mobile-focused ecommerce, trunk-based models and platforms driven by social sharing,” says Briggs. For instance, Rad, a French start-up showcasing 1,500 hipster brands, has made savvy use of social media to become a stalwart of continental teenage wardrobes. But what unites it — and most of its European peers — is a shared goal of dominating North Americans’ wardrobes too.

“There’s no question that the US remains the next frontier for us — we expect it to become our biggest market within the next six months,” says Rad’s chief operating officer Alexandre Ali, who opened an office in New York in March. “You need that market to really succeed.”

It is hardly surprising that Europeans are chasing billion-dollar dreams across the pond, especially while weakness in the eurozone continues to take its toll. But though few will speak of it amid breathless valuations and frothy marketing campaigns, fears are brewing of structural changes in the increasingly overcrowded fashion ecommerce market that could make it harder for fledgling brands to fly.

Few of these companies, wherever they are in the world, are profitable. The fight for a foothold in the business often comes at the expense of a company’s bottom line, leading to speculation of a fash-tech bubble. Further pressure could also arise as offline luxury behemoths such as LVMH and Condé Nast, long the sleeping giants of the digital space, wake up to the possibilities of reaching new consumers.


Still, nascent brands such as ADay are not dissuaded. They insist that an ultimately rootless approach to growth is essential for long-term success. “We still spend a week of every month in New York and travel all the time — all we need are laptops and we can work anywhere,” says Faulhaber, adding that while ADay has already launched in the US, a roll-out of product in its local market won’t begin until the autumn. “Technology is about dreams, and creating exciting futures, whatever the sector — and we know that what we are constructing is a reflection of how we want ours to be.”

Elizabeth Paton is an FT news reporter based in London

Photograph: Bloomberg

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