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Underwear brands are having a bit of a moment in the venture capital world.

Globally, VC-backed underwear and lingerie companies raised $457 million in funding last year鈥攖he highest amount in at least five years, Crunchbase data shows. 鈥檚 shapewear brand and 鈥檚 lingerie brand were among the largest funding rounds. Other notable raises last year include 鈥檚 Series A and Series B, which totaled $30 million together, and Canada-based 鈥檚 $53 million Series B.

Underwear companies aren鈥檛 exactly reinventing the wheel. But, there is a big market opportunity, especially after the dominant player in the women鈥檚 underwear market鈥�鈥揻ailed to adapt to changing tastes and fell out of favor with many consumers. The lingerie giant鈥檚 market share fell from 32 percent in 2015 to 19 percent in December 2020, according to

Victoria鈥檚 Secret, known for its supermodel spokeswomen and provocative ads, spent the better part of a decade marketing to millennials that intimates should be sexy, prioritizing appearance over comfort, according to , a partner at , which has invested in underwear brands like Parade and .听

鈥淭he most important thing really, is this notion that the consumer has changed, and really a lot of retailers are way, way, way behind the curve,鈥� said , co-founder of retail advisory firm . 鈥淭hey don鈥檛 realize that, yes, all kinds of women want to feel sexy. They don鈥檛 want to worry that they鈥檙e going to hit the edge of the size barrier, small or large. Sustainability is really important. Social good is really important.鈥�

The upcoming generation, Gen Z, values other qualities.

鈥淭hey value inclusivity, they value self-expression, they value, I would say, diversity and inclusion, but they鈥檙e looking for products that they鈥檙e proud to wear,鈥� Strandberg said.

The largest funding rounds for VC-backed underwear startups in 2021 went to:聽

• SKIMS: $154 million, led by ;
• Savage X Fenty: $115 million, led by ;
• : $100 million, led by ;
• Knix Wear: $53 million, led by ; and
• Parade: $20 million, led by .

Market timing is also a big part of it, according to Strandberg. Five years ago it would have been much more difficult for a Gen Z-focused underwear brand to find success as the generation was still young teens with less discretionary money to spend.听

Parade, she added, came up right at a demographic transition for its consumers. And it incorporated elements of social good into its business (shoppers can donate 1 percent of their order to nonprofits focused on issues like sexual education and reproductive rights)–something Gen Z values.

In Parade鈥檚 case, Strandberg noted, the Gen Z consumer was underserved by the incumbents, creating an opening for companies like Parade and CUUP to move in.听

The economics of underwear

Underwear is something (almost) everyone wears. It鈥檚 also a category with high customer loyalty鈥攐nce a consumer finds underwear they really love, they tend to keep buying it, according to Strandberg.

鈥淐andidly, you鈥檙e looking for a large market, it鈥檚 like any other venture bet where consumers spend and they spend often,鈥� Strandberg said. 鈥淭his is a space where repeat buying and purchasing is fairly consistent.鈥�

Underwear is one of the easier items of clothing to take the direct-to-consumer route, Rosenblum said,聽 because once a customer knows the sizing, they can keep ordering online.听

DTC underwear brands also don鈥檛 tend to have to deal with high return rates, which helps their bottom line, because underwear is relatively cheap and many consumers won鈥檛 bother returning it. It also doesn鈥檛 have to fit perfectly, as long as it鈥檚 comfortable, Rosenblum added.

鈥�(Investors) like the idea of not having stores if they can get away with it, they鈥檙e still under the misconception that you can have a successful retailer without stores,鈥� Rosenblum said. 鈥淏ut of all the spaces, underwear can get away with it.鈥�

Some VC-backed underwear brands have established a physical presence. Parade opened its first store last month and shoppers can now buy SKIMS at , for example. But DTC underwear brands can also market their products fairly inexpensively online during a time when many consumers are more comfortable shopping online than in-person.

Gen Z and millennial buyers were already spending more time online, behavior that was 鈥渟upercharged,鈥� during the pandemic, Strandberg said.听

That, combined with new players more in touch with diversity, inclusion and comfort set DTC underwear brands up to succeed.

鈥淚t鈥檚 the wrong time for 鈥榣et鈥檚 be the most beautiful woman in the room,鈥欌�� Rosenblum said. 鈥淚t鈥檚 much more of 鈥榣et鈥檚 be the most beautiful women we 补谤别.鈥欌赌�

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