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Consumer
Powered by Battery  |  September 13, 2018
The Hype Around a New Model for Trust—in Sneakers

“Hip hop used to be a niche music market—now it’s pop music. The same is happening with sneakers and streetwear.” – Alex Benik, Battery Ventures Partner

It’s not every day that our Battery consumer-tech investment team receives truth bombs on consumer markets from our resident enterprise-IT expert, Alex Benik, who made his name investing in networking and other back-end IT companies. But Alex is no ordinary, fleece-wearing venture capitalist: As evidenced in the photo below, he favors cool streetwear in the office, including gear sold on online marketplace StockX* (he’s wearing a StockX pin here).

Alex isn’t the only one who’s noticed this cultural and fashion shift. Over the last few years, we’ve been seeing more Yeezys and Jordans than loafers, and more cool T-shirts than button-ups in the office. Tabloid-like articles are being written about Silicon Valley CEOs and their sneakers. Last year, famed streetwear brand Supreme sold a controlling stake to Carlyle, valuing the company at $1 billion.

The consumer demand for these hip products isn’t limited to the U.S. market. It’s a global phenomenon, but one plagued by artificially low supply, which helps buoy a fast-growing resale market for sneakers and streetwear. This also introduces the risk of fraud, as some nefarious resale merchants attempt to take advantage of naïve and eager consumers with counterfeit products. In an online market that is lacking in trust, some new marketplaces have introduced an innovation: explicit trust.

Explicit Trust

EBay was founded in 1995 and, for more than 20 years, there has been little innovation in how most online marketplaces establish trust between third parties transacting on these sites. Buyers and sellers build trust by taking risks, transacting in the marketplaces and collecting reviews from counterparties who have had positive experiences. The trust in the future delivery of the product or service is implied by past performance.

Companies like StockX and others have recently introduced a new marketplace model built on explicit trust. Instead of trusting a review system, and simply hoping that a seller will ship authentic goods after a transaction, the products on these marketplaces are shipped to a central location where the companies use a team of experts to actually authenticate the goods. Sellers therefore have an incentive to send authentic goods, and counterfeits get confiscated by the companies.

These models have helped facilitate a fast-growing resale market for popular sneakers and streetwear. The U.S. sneaker resale market alone is growing ~50% YoY to an estimated $1.5bn in 2017. Within four to five years, StockX and a handful of competitors have morphed from small startups into larger companies making up a majority of the sneaker resale market.

StockX has a stock-market like auction system in which both buyers and sellers can post bids and asks. Sellers can accept a bid from a buyer at any time, and buyers can accept an asking price from a seller. StockX offers sneakers as well as authenticated streetwear from brands like Supreme, Kith, Off-White, Bape, Palace and many others. The company also sells handbags and watches.

As active consumer marketplace investors, we get excited when we see the convergence of new, innovative e-commerce models with a violent shift in consumer preferences. We think the convergence of explicit-trust e-commerce models for considered purchases, combined with the growing demand for streetwear brands, will help companies like StockX create durable franchises over the coming decade. We’re excited to announce our $44 million Series B investment in StockX, which we co-led with GV.

Today, we are calling it “streetwear” but tomorrow we will just call it “fashion.”


*StockX is a Battery portfolio company. For a complete list of all portfolio companies, please click here.

No assumptions should be made that any investments identified above were or will be profitable. It should not be assumed that recommendations in the future will be profitable or equal the performance of the companies identified above. Please refer to Section 1 of our Terms of Use for further information.

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