Karla Mora on Sustainable Investing in the Apparel Industry

30th April, 2021

Episode 05: Show Notes.

Karla Mora is driven by an unwavering desire to create real change in the world through dealing with the deep, underlying problems that persist in our society. Through her venture capital fund, Alante Capital, Karla and her partners help apparel brands become more sustainable, while still making a profit. The apparel industry has become renowned for the damage it inflicts upon its workers and the environment, but so many brands are looking to decrease their negative impact, and so many companies have the technology which can enable them to do so. On the show today, Karla explains how Alante Capital bridges the gap between these key players in the space, and what makes their fund unique. We discuss the innovative technologies that Alante is investing in, how much more accessible sustainable apparel has become in the past few years, what being a female-founded company has meant for the fund, and the exciting direction that Karla sees the apparel industry heading in. Sustainable apparel should be a win-win for all, and Karla is on an admirable mission to make that our reality.

Key Points From This Episode:

  • Karla’s range of work experience and how these jobs inspired her to embark on the journey she is currently on with her company, Alante Capital.
  • Exciting developments that Karla became aware of in the apparel industry and why she chose this as Alante Capital’s niche.
  • Complexities in the apparel industry and how Alante Capital uses these to their advantage.
  • Levi’s: Alante Capital’s first brand partner.
  • The service that Alante Capital offers to the brands that they work with.
  • Some of the new and innovative technologies that Karla is seeing in the apparel space.
  • Forces that impact sustainability in the apparel space.
  • How the price points of sustainable apparel have changed over the past few years.
  • Two conditions that determine whether Karla invests in a business or not.
  • The win-win solution that Karla always aims for.
  • Types of companies that Alante Capital invests in and the kinds of investors that they work with.
  • Karla’s thoughts about how being a women-founded, women-run company has impacted their portfolio.
  • The commitment that Alante Capital has made with regard to their pipeline. 
  • Competitors to Alante, and how the company distinguishes themselves from the rest.
  • Changes that the pandemic has accelerated, and the developments in the online space that Karla expects to see in the coming years.
  • Misperceptions around impact investing that are changing.
  • Details about the companies that Alante Capital has invested in so far.

[INTRODUCTION]

[0:00:18.5] JM: Hi, I’m Jenny Merchant, Co-founder of PitchBoard and welcome to The Pitch Podcast. We’re here to have thoughtful discussions with forward thinking managers who are taking unique approaches to professionally investing capital. Through these conversations, we hope to introduce you to new ideas and strategies that will help you better manage your own portfolios.

[DISCLAIMER]

Before we begin, we want to remind our listeners that everything in this podcast is for educational purposes only. Nothing here is tax, legal or investment advice. We don’t endorse any products, services or opinions made by our speakers. Some statements in this podcast may contain forward-looking projections. These projections do not guarantee future performance and any past performance does not guarantee a future result. Finally, nothing in this podcast is an offer to buy or sell securities. Speak to your own advisor before making any financial decision.

[INTERVIEW]

[0:01:04.9] AH: Hi, this is Andrew from PitchBoard. I spoke with Karla Mora of Alante Capital. She explained how the world of apparel is becoming more sustainable and talked about how her portfolio companies are poised to take advantage of this emerging trend. I think you’ll enjoy the conversation that follows.

Hi, this is Andrew Hepburn from PitchBoard. Today is my pleasure to introduce our listeners to Karla Mora, founder and managing partner of Alante Capital. Alante is an early-stage venture capital firm focused on sustainable technologies in the apparel industry. Karla is an economist and finance professional by training with 15 years of experience, strengthening and investing in startups.

Karla, it’s great to have you on the podcast today, thanks so much for joining us.

[0:01:47.0] KM: Pleasure to be here, so thanks for having me.

[0:01:49.9] AH: I think we could probably talk for an hour just about your background, which is pretty fascinating in how you came to launch Alante. Do you want to give us sort of – our listeners, just a [inaudible 0:02:01] sort of version?

[0:02:04.5] KM: Sure, I’m happy to. I definitely became a VC fund manager through a roundabout path. It wasn’t the straightforward path of getting an MBA, becoming an analyst into an associate and working with a fund until you have the experience to launch your own. I took a different path. I studied international relations and economics at undergrad, graduated and went straight to work with the United Nations on a project on supply chain reform in the coffee sector.

It was really fascinating for me, my passion has always been, since I was in school, thinking about economic incentives and figuring out ways how to internalize the negative externalities of the market. And what we were doing with the UN was trying to find ways to make fair trade and organic coffee more sustainable and cost effective, so that it was just the way that coffee was produced. Beautiful idea, did not work at all.

What we did, we had a lot of resources behind us, we were doing all this great work but ultimately, the leaders of industry in the coffee sector at the time, in 2005 or so, were not ready for this to be the way that coffee was produced and kind of kept stopping us at every turn. That was a pivotal moment in my early learning about the direction I was going to take my career.

I really realized at that time that I wanted to be a part of an industry transformation and needed to make sure that the industry was ready, wasn’t going to be something I’d be fighting from the outside but working really from the inside to figure out and understand the nuances within industry and figure out ways to incentivize real, true change.

I spent about a decade doing economic development work overseas in emerging markets, looking at supply chain reform, trying to help strengthen economies. The last country I lived in was in Afghanistan. I spent about six months in Kabul working on a project there that was looking across a variety of supply chains and helping to create quality jobs. It was an incredible time and it was also at a time when impact investing and social entrepreneurship really started to emerge as this new, exciting field.

I was sitting over there in Afghanistan, thinking about what’s next and I got really excited about this idea of no longer working for the public sector but straight from the private sector to make the private sector better.

I left there, joined the world of impact investing. That was kind of how I came to finance originally and spent about four years as the COO of a fund that was investing in emerging markets. But it was very impact heavy and it wasn’t necessarily scalable, venture ready types of companies and I learned a lot and it was very interesting, I had a big portfolio of investors that I managed, managed the impact reporting of the companies and our portfolio as well.

But ultimately, I got a little bit bored. I thought, “These problems are always going to persist, we’re just creating kind of a Band-Aid solution instead of really looking at the underlying inhibitors to change.” That economic development thinking if you will.

I left and I moved up to San Francisco, worked with an amazing group called Village Capital and they had a series of accelerators that I led, early-stage entrepreneurs that were solving problems across industries. B2B solutions that were really looking at, “How can we help transform and create the future of industry?” And what was special about that experience was they combined both the corporate leaders to the innovation landscape. So bringing the startups to the big players to make sure that they were really addressing each other’s needs. Those startups were building solutions that actually could get brought through the industries.

I love that idea. Let’s have the corporate sector be a part of their future transformations. I led their investment fund for a while there in San Francisco and I was doing due diligence for a company in the agriculture space that was looking at indigo in the apparel industry and something struck me that was very exciting and it was Levi’s.

Levi’s was working with this startup that had a sustainable way of producing indigo, that was more expensive and not as scalable and I couldn’t completely understand why they were interested in this solution over what was already available and it led me down this rabbit hole that ultimately led me to creating Alante Capital.

[0:06:28.3] AH: Alante focuses just on the apparel industry, apparel technologies, right? Is it from that experience, that that evolved?

[0:06:40.1] KM: Yeah. Thinking about the single industry and why would we approach it that way? Ultimately, when I was thinking about what was happening in apparel, I got really excited because it was the leaders of industry, Nike, Levi’s, the GAP. It wasn’t just Patagonia and Eileen Fisher, but these were just the mainstream brands that we all know, making huge commitments to being more responsible, more sustainable and it was really because they were concerned about resources and their supply chain becoming limited.

They were cotton dependent and if there’s crop disease in India where they’re getting their cotton, that’s going to greatly affect margins. With climate change kind of coming in and looming, they were really looking for, “How do we diversify our material’s portfolio? How do we become more efficient in our manufacturing processes to stop over producing because we just make so much that we start having to mark down everything, which diminishes brand value?”

I mean, there was so much happening at the intersection of profitability and sustainability within this single industry that I got excited. I just thought, “Here we are.” From that early experience I had in coffee, here we are, we’re finally at a place where it’s the right time with the right industry who is actually looking for and eager and ready for change.

As I started looking into it, I had done a lot of work in food and ag before that, which I loved but apparel was even more interesting because there are so many steps to make a garment. I mean, from the material that’s grown on the ground to the synthetic fiber that comes from petroleum, how that’s mixed, how that goes through each step of the supply chain to get to the place where it’s actually made into my jacket and then sold to me.

There’s so many areas for innovation versus food and ag. I loved the idea of how complex it was. I think in terms of supply chain, so that is just an exciting challenge for me. It just showed me that there were many places that we could create improved modern techniques and technologies that could make everything more efficient and cost effective for these brands but also improve sustainability greatly.

To do that, you have to understand a complex industry and that’s where the whole single industry advantage comes in for us is, we had to be incredibly valuable to the apparel industry to be able to get the information that we required to make sure we were making the best bet on the best entrepreneurs.

For us, it came with this [inaudible 0:09:03.7] of, we’re going to look and specialize within an industry and invest in a variety of tools that are going to help improve the performance of leaders of industry so that we can become real valuable to them and be able to gain incredible insights into what the demand really is, what the complication really is and help the technologies in our portfolio actually scale by having those close relationships with the brands.

What we did before we even began investing was we started to build our portfolio of brand partners and Levi’s was the first.

[0:09:36.1] AH: Can you tell me a bit more about, how do you work with brands?

[0:09:40.0] KM: Sure, Levi’s for example, since that’s the one we discussed. We walk in, we met their head of sustainability, director sustainability and innovation, we can pitch to them what we were doing, which was building a pipeline of startups that were investable, that were scalable, that were high quality and that were creating solutions that Levi’s would need at the intersection of profitability and sustainability.

They loved that idea, they’re an innovative brand yet they didn’t have the team onboard to look as far down on the innovation landscape as we could. They couldn’t see the earlier stage startups that we were having access to. We sign NDA’s with the brands so that they can openly talk about what products they’re going to bring to market, the price of the competitive fabrics.

All the nuts and bolts that it takes to actually do the work that we’re hoping to scale. And then we come in and we show them kind of all of the innovations that we track and begin to build relationships with startups directly with the apparel companies.

Since we began doing that, we built out our apparel company portfolio, we work with the GAP and VF Corporation, Kering Group, adidas, Nike, a wide array. We also work with some direct to consumer and smaller brands. What that really does is it sets us apart. We’re able to attract fantastic entrepreneurs because all of them are looking for ways to meet these companies, to be able to get into their supply chains and we have access to do just that. It helps us de-risk our investment process because they provide really important information around the feasibility of these technologies so as we’re assessing the entrepreneurs from a business case, looking at the technology, we do due diligence on that as well. We’re also hearing from the brands; real, true feedback and are seeing when they’re going to be going to market and then we get to invest alongside them.

[0:11:29.9] AH: They’re sort of like an unofficial advisory board in a way, not an advisory board but is that sort of how they function for you guys, that you can use their expertise to – as you say, to de-risk your portfolio?

[0:11:41.5] KM: Yes and no. We have an advisory board of incredible people. Many that came from our apparel brand partners who really dive in with unbiased opinions and look into the scientific background of each of the companies that we’re investing in so, we tap onto our advisory board of experts.

The way we work with brands is slightly different. We bring a ton of value to these relationships and they provide in return, this feedback on viability. But when we invested in our first two companies, we invested alongside adidas and Patagonia because we knew they were coming in, they were excited about this, they were going to be bringing it to market, we were both vetting the company in the entrepreneur side by side. We were more confident in the technology because this was a new materials company that was not yet in the market and so, being able to hear from our brand partners that they were able to kind of test it and make sure that it was truly viable, we were able to get confident enough to come in at that stage, which meant that we were able to get a board seat, [inaudible 0:12:38] and continue to follow on. The process is much more of a partnership than simply an advisory board and it’s very key to our strategy.

[0:12:47.8] AH: Right. What are some of the most exciting technologies that you’re seeing these days?

[0:12:54.4] KM: Yeah, there’s a lot happening in apparel and being single industry specific, we had to also make sure that we had diversification required to really hit the returns that we’re expecting for a venture capital fund within the timeframe of a 10-year fund.

We look at not just materials but we’re looking at digital solutions, we’re looking at rental and resale models, we’re looking – yesterday we made an investment, we’re kind of in the process of deploying it now which is very exciting, in the technology that is dealing with fit, which is a huge problem but it’s an even larger problem now since e-commerce has become kind of the lifeline for many industries, apparel number one.

This technology is exciting because it helps customers and shoppers understand the fit so that it can decrease returns, increase conversion. It also allows the brand to get a lot more information about their consumers so they’re able to do targeted marketing omni- channel, so both in store and online, able to actually have a lot more information about what the customer can fit into, what their interests are and really customize the experience to them, which can unlock a great deal of capital. It also provides them with the data that they need to be able to think about production so that they can start to produce the right amounts to the right size, to the right fit at the right look.

It’s solving a lot of problems, it’s a fantastic entrepreneur, his team is excellent, we’re really excited about them coming in there with a couple of co-investors that are top notch. We’re very excited about that, solving a number of problems that you wouldn’t immediately think are sustainable but have a huge connection with sustainability.

[0:14:30.7] AH: I was going to say. I think everyone wears clothes but most people are probably unaware of so many of the issues in the way our clothes are made, right? I think I was – we were chatting yesterday and I was mentioning a documentary that I saw and I think you’ve seen as well about most of our blue jeans that we wear, right, that there is – ends up polluting the rivers inside Indonesia. Is there a growing consciousness among the consumers about issues of sustainability in apparel?

[0:15:05.0] KM: Absolutely. You know, the growing conscious consumer, you can see it indicated across clean beauty, across food, and it’s in fashion. It’s definitely a large growing pull, the demand for sustainable apparel. However, it’s not the only thing. Brands are – and before it was as big of a thing now for consumers, brands were already looking this direction, thinking about how are they going to stand out, how are they going to be able to connect to their consumer beyond just the brand by telling an interesting story, by being innovative, by bringing a new fiber to market. Thinking about just making sure that as they scale and continue to make exorbitant amounts of clothes, that they have the inputs required to do that because if they reach a point where those are now scarce, it’s going to impact price greatly. They were already thinking about sustainability and there’s customer pull.

When we think about sustainability, what we’re really looking for is the best product. If it’s a sustainable product that’s subpar, it’s not going to perform as well as the incumbent technology, incumbent material, it’s not going to scale, it’s not going to have a tremendous impact.

What we’re looking for is the next generation of technology and material that is just going to be better, like you know, the common example around a Tesla. Looking at, how can we build something that the customers just want because of the quality, because of everything about it as opposed to it just being about the impact?

[0:16:30.8] AH: How much does price play into that? I mean, you know, many consumers are, unfortunately if there’s two pairs of jeans and one of them is significantly cheaper and maybe it has harmful side effects and there’s another one that’s more expensive, that’s more sustainable,many people will buy that cheaper pair. Are sustainability processes improving now to the point where a brand can be not only better for the earth or better for the climate but cost competitive as well?

[0:17:06.1] KM: Yeah, that’s very important to me. When I was starting Alante, looking at sustainable fashion, it was so expensive. It was very privileged to be able to even access sustainable fashion and what we wanted was for people to not even to know it was sustainable. For them to just buy a shirt at a mall somewhere and have it just been made in a way that wasn’t destructive, that wasn’t extractive.

That is where we see systemic change and right now we’re seeing a lot of effort made in that direction and now you can actually access sustainable clothes at an affordable price. GAP is doing work, Levi’s is doing a lot of work in this, H&M has done a tremendous amount and you can find people who get frustrated because there’s green washing happening across the industry but there are actual real efforts happening across a lot of these brands that are making fibers that are made sustainably, more accessible.

Labor is another issue and that’s another one that we’re paying attention to and that there’s a lot of regulation around to make sure that that also comes into price and why the price of things are the way they are. Yeah, part of our strategy is really, how can we work with brands that are at a significant scale to help scale these materials so that they can get to a price point that makes sense and that is competitive because they’ve reached that economy of scale that now, you know, smaller designers can afford it, it can be integrated into many brands and actually be accessible to all of us.

[0:18:40.6] AH: When you go to work every day, how do you balance in your mind, not that these are opposing forces but making an impact versus essentially, making money.

[0:18:51.9] KM:  Honestly, if you don’t invest in a great business, that’s going to be scalable and you know, huge, it’s not going to have a huge impact.

If we looked at impact first, that’s not going to see – we’re not going to be able to actually see that truly be successful to us unless it also has a solid business model. For us, what was very important from the beginning is that we were looking at investable companies that were going to reach venture scale returns that had solid business models with great teams and better technologies, that’s number one.

Number two is, and they have transformative impacts. If they have number one and they don’t have number two, we’re not interested but they have to have number one.

[0:19:36.7] AH: Has your sort of theory of change, for lack of a better term, changed since you worked in development economics where, more on the civil society public sector side, and now you’re on the venture capital side?

[0:19:49.8] KM: Yes and no because, really, what I learned in my early career in development economics was really, you have to tie things to incentives to make things work and make things change. What does that actually mean? If you’re really wanting to create a healthy economy or make a change within a country that’s going to unlock a certain economic opportunity, you have to be able to speak to the pocket book of the people who are in that position of control.

If you’re looking at a company and you’re wanting them to be sustainable, if I just go and say, “Be sustainable, your customers are going to want it,” but it’s going to cost them way more than they’re going to get from increased purchases, they’re not going to move forward in doing it.

What we really look to understand is, are there incentives there to actually help every single person across this value chain. Is the company able to increase revenue? Are they going to be able to decrease losses? A lot of what we do is looking at efficiency. Ultimately, they’re decreasing cost while being able to tell the sustainability story that can increase conversion and get more customers. That’s a win-win solution.

That’s really the area that we’re looking for and a lot of that comes from early education in understanding economic development and figuring out how to make change in that context.

[0:21:06.9] AH: As a fund manager, would you rather be concentrated in a few investments or given how early stage many of these companies are, would you rather sort of spread your bets around? How do you think about that?

[0:21:26.0] KM: We’re investing in between 15 to 18 companies in this first fund, we typically come in at the seed stage or series A. Depending on the model, like I was mentioning before, we do invest in a variety of models. So if we’re looking at a SaaS company, we’re going to expect to see some revenue, some traction and it might be at the seed stage.

Versus the materials company, we may have come in at the series A and they still might be pre-revenue but they’ll have done a lot of development work to get there and we’ve been able to verify that the technology works. We don’t have a cut in stone kind of method that if an entrepreneur comes, they don’t have to have a certain amount of recurring revenue, we really look at it from a case-by-case basis and then across business models have thresholds that they need to meet.

We think about our portfolio construction, about a third of it will be in new materials and we have two of the companies, our first two companies were in that space and then we look at about a third of it is going to be in kind of B2B SaaS and – well, maybe a little bit more than a third and then the remaining in consumer tech.

It’s much more digital than it is on the material side. Material is a little bit more costly and make up will be about 15 to 18 of those companies.

[0:22:35.0] AH: What would your typical investor be like? Are they investors who are primarily concerned with impact investing or are they looking at returns first and they see that the fund, that there’s great opportunity in impact investing nowadays?

[0:22:54.1] KM: When we were starting this, my business partner was at JP Morgan in their social finance unit and she was investing in impact funds and I was in impact investing and we wanted to move a little bit away from that because really what we’re doing is different. While this is transformative impact, this is also a traditional VC fund, you know, we are looking for the same type of returns profile. We’re just also expecting this impact, it’s just an added challenge.

When we went to shop it around, we actually kind of stayed away from the phrase impact investing. We thought that at the time, when we were beginning, that it was still thought of as worse returns, which we don’t agree with, but you know, that was the perception of many. That wasn’t really who we were going after and for us, it was really – this is a huge market opportunity. I mean it is a 2.1 trillion dollar industry, no one is going to stop wearing clothes. It is an industry that is modernizing fast, it is a huge opportunity for investors, so we went with that.

And we have, a large majority of our investors are traditional investors who also care about climate change s that is the area where the impact coincides. We also have a good amount of the LP’s that came from the apparel industry, so operators [inaudible 0:24:07] funds, our GP, an anchor investor is Eileen Fisher whose apparel industry that are in, she’s had her brand for about 35 years now. She is also a leader in sustainability, so we kind of have a mix of fashion and finance professionals and we have three institutions as well.

[0:24:24.8] AH: With the firm itself, sort of stepping back from the portfolio construction, one of the things I thought was really cool when I looked at your presentation is that it’s an all-female firm. Was that intentional or is that just sort of the way things sort of shook out and how has that played out as far as when you’re meeting with either investors or potential sort of investee companies?

[0:24:54.4] KM: Yeah, it’s interesting and it’s changed over the last four years of doing this with my partner Leslie. You know, our experience as female fund managers in the beginning versus now, it’s really evolved. Times have changed in that short amount of time but it was not intentional. I just was looking for a partner who I could build a business with far beyond [inaudible 0:25:17.5], somebody who had the right complimentary skillset to me.

Somebody who saw the vision and was incredibly passionate and wanted to make this their life’s work, somebody I communicate well with, can really work well with and it ended up being her, you know? I talked to a few others, I actually started working with a man in the beginning and then that wasn’t, kind of, the right fit and he went in another direction and so when I met Leslie it was just a great fit and then Eileen. You know, she came onboard and then there were three.

It wasn’t necessarily intentional but the really interesting thing, because we just tend to attract a more diverse portfolio or diverse pipeline. I think being women it might be easier to approach us if you are a woman or a person of color or any group that isn’t the typical funded startup and so what we did was we made a commitment in our legal docs and everything that says we’re committed to over 50%, 50% of our pipeline has to have founders that either are people of color or women founders.

We believe that if we have a diverse pipeline that will result in a diverse portfolio. What we didn’t put it on the portfolio, we did it on the pipeline and so far, we have a 100%. A 100% of our three company portfolio plus our investments now and it will still be a 100% have female or minority founders or on the executive team. We are excited about how that’s kind of shaken out and we’ve also noticed that our LP’s are much more diverse than you would see in a typical fund.

We had, I think we have about 54% now female LP’s, which is also not common but I think we attract – it’s both us being women but it is also us being in the apparel industry and that women get it in a way that oftentimes men didn’t. When we were going out in the beginning talking about apparel and sustainability, oftentimes men would be like, “Oh I don’t do the shopping,” or “My wife buys me my clothes.” I think it’s like, “Oh it’s artists and bracelets.”

We were like, “No, this is an industry and you’re wearing clothes,” [inaudible 0:27:30.8] versus women kind of understood what we were doing and didn’t have this strange perception at first, so that was something we were up against in the beginning but even that’s changed.

[0:27:41.5] AH: It must be a big plus for you to be diverse in the sense that it’s a good signal to startups that may want to work with you, right?

[0:27:53.8] KM: I mean yeah, I think that we definitely attract, we can cast a broader net, so we definitely attract a lot, a wide range of founders and we have a specific thesis looking at production, distribution, waste recovery, all of the backend in the apparel industry. We don’t invest in any apparel brands. We’re just looking at the backend, that’s a pretty unique thesis. You know, we have probably now about 250 companies that are within the timeframe [inaudible 0:28:24] that fit that thesis that are in our pipeline that we know, that we talked to. And that number is growing all the time.  We have far more that are slightly outside but it’s been very easiest for us to become a magnet.

I think partially because of the unique thesis, partially because Eileen Fisher is, her name is on the fund, and anyone working in apparel that’s trying to get to brands is looking to get to her, so it’s a natural magnet and then we’re approachable, so I think that also helps.

[0:28:54.1] AH: Do you have many competitors in this sector or do you largely have the pick of startups to invest in?

[0:29:03.2] KM: Yeah, there are a few funds that are structured just like us looking at the same types of companies and focusing on the apparel industry. They’re all in Europe. There are about three or four of them in Europe. There is one in New York that is doing something similar and another one that is looking at recycling and is now looking at circularity in the fashion industry in New York. We are co-investors with all of them.

Where we see more interest, there is a lot more interest now than there was early on from traditional VC funds. We’re seeing groups like Google and Gradient Ventures coming into deals that we’re also looking at. It’s just huge and I think the pandemic really shined a light on the problems and challenges that the apparel industry faced and that it was going to require technology to get out of it. Now, retail tech and fashion tech, we just made one, are about to make two more investments in that part of our vertical and those areas are very hot right now and competitive and hard to get in.

That’s been interesting to see, so it’s not just that we’re the only ones in the game. There’s a lot of people but we are the ones with the specific value to add that is very important and we get invited to seats at the table because of that.

And we often get access to major investor rights even though we come in for a small amount and board seats, because we add this layer of value to these startup founders that’s really important, which is helping them to understand and navigate the apparel industry across the supply chain and all the brands.

If they’re going to go to market with adidas, I can get them access to a non-competitive other brand to go to market with as well, help them understand exclusivity challenges, all of that. Where other investors might not have that value add to bring, so that really gets us that seat at the table.

[0:30:43.0] AH: When you look, say, three to five years out, how do you see the apparel industry evolving and how do you see the fund and maybe sort of your portfolio evolving?

[0:30:54.2] KM: Two to three years out, is that what you said?

[0:30:56.3] AH: Yeah, two, three or three to five years out, yeah.

[0:30:59.0] KM: Okay, that’s going to be an exciting time. There’s been a huge amount of investment recently in new materials and that has a pretty long to-market timeframe. You know, I am on the board of a company there. We have another investment in that space and by next year and the year after, we’re going to see all of these new materials able to be purchased in garments by leading brands that we all know the names of and that’s going to be very exciting and it’s going to just drive a ton more consumer interest into this space.

It’s a long road to get there. So we invested in 2019, they’re going to be probably in the market fully in 2022, 2023, likely be able to have a path to exit around that time or very soon after because at that point, the demand is huge and the only thing lacking is the capacity. It is going to be likely an acquisition looking at some of these companies [inaudible 0:31:48] and that’s just going to really make this more mainstream, so that’s exciting.

I also think, I mean my head is a little bit in this like fit-tech retail-tech space because I’m making three investments in this area right now, different kinds of business models. But looking at how we all interact with technology, I mean look at us now having this panel on Zoom and how many Zoom calls have we been on today, right? We are so used to living like this and online and having these experiences that are more lifelike but on the Internet, right?

Like now instead of just having a webinar, we’re going to have a podcast that is – you can see me talking and that is really going across every industry when we’re buying things, we want it to be more experiential, be like it is we’re in a retail environment but here in the comfort of our home, on our computers without having to touch things that other people have touched.

We are seeing it in beauty where virtual try on for beauty.  We’re seeing that happening in fashion, there’s a huge opportunity right now in, kind of, virtual fitting rooms so that people can be like doing this at the comfort of their home. Targeted marketing, people are – there is going to be kind of an e-commerce 2.0 and that’s what’s going to be exciting because it is a crowded space. It’s not just direct to consumer brands. Now every brand is really focusing on their e-commerce channel, I mean, it’s their lifeline through the pandemic and will continue to be very important as we come out of this.

The experiences when you’re shopping online are terrible for the most part, unless it’s a direct to consumer brand who got it right from the beginning. Really, there is a lot of innovation that’s able to help fix that and that’s going to be a big space.

[0:33:27.3] AH: Has the pandemic sort of accelerated the innovation that was going to happen already?

[0:33:32.2] KM: Oh yeah, I mean –

[0:33:33.6] AH: Sort of put on fast-forward?

[0:33:34.9] KM: Definitely. When we started Alante, it was thinking about climate change. We were thinking about this big looming problem and how that would affect macroeconomic policies and regulation and actual challenges of supply chain and then hit COVID and supply chain stopped, you know, there were challenges getting everything we needed to produce our stuff. We had over production of certain things, everybody’s behavior changed.

Now, we’re all wearing sweatpants. Like, the fashion industry was turned upside down and didn’t know what to do. Our thesis was made more relevant very fast. Our apparel brands that we already worked with were calling us, were having us come and speak to their staff about innovation to keep them excited about the future and thinking about how to get out of this. I talked to brands often doing that kind of a role where we’re helping to get these legacy companies on board with thinking about the future because the future is now.

It could have been nice to have a division thinking about this and go slow before but now it’s like sink or swim, we need to focus on this now or we’re not going to get out of this and that’s an exciting time for us to be here. It’s changed the conversation with investors too. [inaudible 0:34:44.2] the importance and relevance in a whole new way. It has definitely accelerated things.

[0:34:48.8] AH: Do you think that most consumers who are, what I’ll call, non-specialists when it comes to apparel, do you think they will be shocked two, three years from now when we see how the industry has evolved? Because you see it on the ground floor whereas most of us will probably only realize it when it hits us, right?

[0:35:09.5] KM: Yeah, I mean I think you start to see – people are starting to see it now in a different way. If you just start to see how common the language around sustainability is, like if you walk into the mall, our mall here in Santa Barbara that half the stores are closed but the stores that are there have pictures in the window of trees and of clothes and it says you know, it’s like organic cotton or recycled fiber and it’s just Old Navy or Lulu Lemon or whoever. These are just your mainstream mall brands that everybody’s walking by every day and sustainability is front and center.

It’s like, the conversation is starting and if you’re even a consumer who didn’t really care about that, you are starting to hear the story that you’re supposed to care about it and you start to ask, “Why? How was this made before?” And there’s a lot more information out there. There’s so many movies and documentaries about what’s happening in the fashion industry but for me, even though I am deeply altruistic and care so much about impact, I don’t believe that is going to be the driving force. Consumers need to buy it because they like it and it hits their price point and it’s a good thing that’s there when they need it and it just happens to be sustainable, that’s where we’re going to get.

[0:36:20.4] AH: Is that shift in consumer consciousness, do you think that’s having an impact, for lack of a better term, on investors? I mean just going back to something you said earlier, it used to be, back when it was called ethical investing, as you mentioned there used to be this perception that there was this tradeoff, that the people who were so-called ethical investors, which I guess today we would call ESG investors were sacrificing returns to be an ethical investor. Is that perception dissipating?

[0:36:52.5] KM: Absolutely. I mean absolutely, when BlackRock came out and talked about the importance of that, what was it? January of last year that really changed the conversation. JP Morgan just launched a huge fund looking at the space. I saw the announcement a couple of days ago. I mean it is mainstreaming from every institution and that’s really helping investors see that this is a hugely investable place that we can still make a great amount of money and have transformational impact.

I think that’s the key is, when you’re looking at ESG or impact and it depends on the asset class and how you’re looking at it because it can happen across every asset class and, you know, there’s a lot of investments that being very impact driven, yeah it will sacrifice returns. For more slow capital investments that should be PRI’s for non-profits or foundations that are helping become great business models that will always be relatively small but at least not relying on grants.

That is a place where there is going to be, that’s a more of an impact investment in that stage, you know, but that’s not how it is anymore across the board like when we’re talking about Tesla earlier or something like that kind of a technological innovation that is just the future of how we’re going to be consuming and we’re just – we have the technology and the ability and the brilliance around us now to produce in a way that is responsible and that’s just going to be the direction it is and therefore, there is going to be a massive amount of money to be made by early investors that get into the space.

[0:38:23.1] AH: It sounds like there’s not – I mean, you mentioned there’s only a few funds right now in this new space that you’re in.

[0:38:30.0] KM: Yeah and a lot of apparel companies. You know, we invest alongside huge companies that are, you know, they are putting their money into this as the direction industry is headed. We also have a lot of large mainstream VC’s that are coming into certain verticals that are looking at just the biomaterial space or just at the retail tech. They lean on us because we have access to this kind of due diligence process that gains insights from the brands but we’re seeing more and more interest from people without a strategy like ours, looking at this space, like looking at what’s happening in apparel because it’s been a massive transformation over the last few years.

[0:39:09.7] AH: This has been fascinating. Is there anything that we’ve not touched on that you’d like to tell our listeners about, about your fund or about where you see the world of apparel going?

[0:39:21.4] KM: I mean I could tell you about our companies, that’s always fun.

[0:39:24.0] AH: Yeah, let’s talk about it.

[0:39:25.3] KM: A little illustration about what this all is. The first company that we invested in is a company called Mango Materials. Three scientists from Stanford developed this about a decade ago, the original technology while they were back in school, spun it out and made a company and it’s incredible. It is essentially using methanotrophic biology to eat waste, methane gas, so they collocate at methane treatment plants. They have one in South San Francisco. They convert that methane into a PHA that can be used as a biodegradable plastic alternative across every industry.

They are in beauty and apparel, they can also be in plastic bags or anything but they’ve narrowed in here because they have IP that enables them to actually take that PHA, the pelletized plastic made from methane gas and [inaudible 0:40:15] spin it into a polyester fiber that can actually compete against polyester inn terms of performance, right now in terms of recycled polyester, in terms of price, and eventually at a level of scale be cost competitive to polyester.  That one is really exciting. It’s a smart team, really thoughtful approach to how they are scaling. We have great people around our table there, investors and brands, so that is a very exciting example of one kind of technology.

And then we also invested in a company called Lizee out of Paris that is the white labeled kind of backend solution to rental for brands and retailers. Rental has just exploded, rental and resale, and it is often put onto third party markets that are gaining all of that value.

This technology actually let’s brands own that experience, so they can offer rental programs. They can reach a consumer base that maybe can’t afford them but is aspirational. They want to own Patagonia or they want to own Eileen Fisher or some brand but they can’t yet and they can get into this rental program.

It also starts to eat away at fast fashion because the younger generation likes to have an ever revolving change in wardrobe. You know, fashion has been turned into single use plastic in some senses because it’s like, wear it once, get rid of it, let’s get something else. Rental actually meets the consumer where they’re at with the way it is affordable in some situations and also that ever changing piece that lets them feel refreshed and on trend. That’s another technology company that we invested in.

And the third is a recycled technology that breaks down old clothes, removes the two fibers, the polyester and the cotton and actually gets those back into the industry to be completely competitive recycled fiber versions of the virgin, so that is another really exciting company.

Those are just an example of the portfolio and we’re just getting started. We have three more coming down in a couple of weeks here.

[0:42:09.2] AH: It’s going to be really interesting as a consumer to see all of these, to see  a lot of this stuff come to life in our – in stores and the clothes that we buy. As I was saying, you see this on the ground floor but I think it sounds like a lot of us are going to be shocked by how things changed.

[0:42:29.9] KM: Yeah, it’s cool to see. I mean you can go to adidas right now and see their recycled collection. They are trying to phase out all virgin plastic by, I forget their date or 2030 or 2025, I can’t remember but yeah and so they’re doing a ton of recycled poly. They are actually very innovative looking at a lot of the space. Nike is doing a lot in it too but those things you can actually go in and purchase. You can purchase recycled jeans made of recycled fibers now at the Gap.

This stuff is getting more and more accessible and the stories are very cool to hear from the brands as you start to learn about it. I remember watching Super Bowl with my husband and there was a commercial for, I think it was Reebok offering like a sustainable shoes, like recycled fiber, something and I was just like, “Wow, here we are at the Super Bowl and they’re talking about this, leading with their product that they think is the future.”

You know, four years ago, I’m trying to tell people, “I think this is a thing,” and now here we are, it’s a thing, so it’s very exciting.

[0:43:28.5] AH: I think we all know how expensive Super Bowl spots are, so they wouldn’t do that if they didn’t think they needed to do it and that it was in their interest to do it, right?

[0:43:37.8] KM: Yeah, absolutely. I had so many people, friends and family who kind of know what I do but not to much, text me, “Did you see this commercial? Isn’t this what you’re doing?” I was like, “Yes, I can see it.” Yeah, soon everyone will understand sustainable fashion because it will just be everywhere. We’re almost there.

[0:43:55.1] AH: Almost there. Okay, well, let’s leave it at that. This has been a really informative conversation. Karla Mora of Alante Capital, thanks so much for your time and your insights. It was a pleasure to speak to you today and thank you to our PitchBoard listeners and we’ll see you here again soon.

[0:44:10.6] KM: Awesome, it was great to be here. Thanks so much.

[END OF INTERVIEW]

[0:44:14.0] JM: Thanks for joining us on this episode of The Pitch Podcast. Make sure you check us out online at thepitchboard.com. If you liked our podcast today, please make sure to subscribe to The Pitch Podcast so you don’t miss an episode.

[END]

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