F-U-N-D-E-D: Silicon Valley bets $100M that computers can help you look good

Beauty and fashion startups hope to edge out the local mall by creating software that learns and anticipates what people want to wear.

Silicon Valley wants your next beauty consultant to be an algorithm. Kirsten Ulve/Corbis

What if Siri could give you beauty tips?

Silicon Valley got a step closer Monday when venture capitalists wrote a $100 million check to a startup called Ipsy to build the next-generation, global beauty brand.

Ipsy's doing it with a $10-a-month subscription for a themed "Glam Bag," which is filled with five types of cosmetics like eye shadow, brow gel or lipstick. On the outside, Ipsy's bag looks the same, but that's where the similarities end for most Ipsy customers.

"A couple of months ago, the bag was themed around Bohemian Beauty...but the products are customized to the individual subscriber," said CEO and co-founder Marcelo Camberos. Ipsy customers receive one of 200 different combinations of cosmetics based on their answers to 12 questions that give the company's software a sense of what they like. "The products in the bag would be completely different for you as it would a young black woman or a white woman who's really into red lipstick."

Welcome to Silicon Valley's answer to the beauty industry. Startups like Ipsy believe the future is super-intelligent software that knows your tastes so well it will send products you're guaranteed to like.

It's not a new idea. Netflix and Pandora changed the movie and music industries by offering recommendations based on what their users watched and listened to. Now, the venture capitalists backing startups like Ipsy believe they can do the same thing to the mall's corner beauty store.

There's a large prize if they succeed. Worldwide revenue for beauty care products is expected to jump to $461 billion by 2018, up 21 percent from 2013. So far, San Francisco-based Ipsy has grabbed about $150 million of that total each year from its 1.5 million subscribers.

There are others, like NYC-based startup Birchbox and Berlin-based GlossyBox, that send out a monthly box of cosmetics products for men and women after they answer a questionnaire like Ipsy's.

The idea doesn't just apply to beauty. Le Tote, a San Francisco startup that's raised $12.5 million from venture backers, sends subscribers three garments and two accessories each month (in a tote bag, of course). Meanwhile Stitch Fix, a Le Tote competitor that has raised $47 million, saying the clothing and accessories it sends are gleaned from a "personal style quiz."

Last year, venture capitalists invested $765 million in beauty and fashion startups, according to venture research firm Pitchbook. By mid-September of this year, they had invested $712 million.

Expect the trend to continue, says Sonya Brown of Norwest Venture Partners whose investments include startups focused on women's beauty such as PCA Skin and Madison Reed. Brown said the technological change will push companies to try to personalize their products further, possibly including even the cosmetic giants.

Sephora, for example, is already feeling the heat. Last month, the French company said it would begin delivering a mixed bag of cosmetics to subscribers for $10 a month, just like Ipsy.

With $100 million in new cash and three years of profitability -- a rarity among Silicon Valley-backed startups -- it's hard to argue with Ipsy's algorithm. But a quick glance at some users' responses indicates Silicon Valley hasn't cracked the beauty code just yet.

"I'm a black woman but Ipsy constantly sends me skin products for white or light-skinned women," Phoebe M. wrote on a product review site earlier this month. "Ipsy is a fantastic lovely little surprise every month, but I really am tired of receiving all of the wrong skin and hair products."

Ipsy's Camberos acknowledged that there are still kinks to work out. "That's where the algorithm is not foolproof," he said.

F-U-N-D-E-D is a regular column looking -- and sometimes laughing -- at what Silicon Valley has backed in the last week.

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