MassChallenge, a four month global startup incubator program in Boston, Massachusetts, came to an end on Wednesday.
Before heading home Vagan Martirosyan, the managing director of Dressformer (one of four Russian startups that made the final 128), talked to me about the project and his experience in the US.
“Revolutionise the way people shop online”
I was left in no doubt that Vagan is proud of his product, and has big plans for it. If you want to see Dressformer’s fitting room in action, you can try it out on Facebook or watch the video above.
The idea is simple - to help online retailers reduce losses by bringing down return rates, which Dressformer claim to be as high as 42% in the US and Europe. It does that by allowing users to upload their body measurements and a photo of their face to create their own manikin. They can then ‘try on’ items of clothing to see if they fit/suit them.
I was a bit disappointed not to find a male manikin to try out, but Vagan assured me that the male version is coming soon, pointing out that online retail is particularly appealing to men who often prefer not to set foot in a shop if they can possibly avoid it. As the firm tries to go global it also plans to add Chinese, Indian and Afro-Caribbean manikins before the end of the year.
The Mass Challenge experience
Vagan didn’t try too hard to hide his ambivalence towards his company’s time in the Mass Challenge incubator. He felt that as his company was already at a more advanced stage than many projects, it had less to gain from the process, while I think he was also disappointed to have been overlooked when the top-26 projects were chosen.
He did however have good things to say about the Russian Venture Company (RVC) and about Russian Innovation Week, which visited Boston and San Francisco in September and through which they connected with an investor now likely to fund the project.
Mass Challenge also provided the opportunity to see how American early stage startups work. Vagan noticed that, compared to Russian startups, their engineering tends to be much weaker, but that they understand marketing and monetization better. So, in short - the stereotype about Russian startups being great at tech but not so good at selling it isn’t far from the truth.
The Delaware Switch
Aware that no US investor will commit funds to a company that isn’t registered in the States, Dressformer completed a Delaware Switch on 1st May this year, becoming a US company. It is currently working on transferring its patent to the US, another prerequisite for securing US funding.
Once that is all sorted, the company is hoping to raise a $6-7 million round in the States, which it will use to pursue “aggressive business development”.
Dressformer seems to have clearly chosen the US over Russia as the place to secure further investment. I asked Vagan, who has fundraising experience in both countries, what are the main differences he had noticed. He highlighted VC culture as the most striking contrast. The Russian venture market remains much less mature, despite the government’s efforts to accelerate its growth, and the consequences of this are very real for startups. When pressed, Vagan elaborated, mentioning three ways that contrasting VC cultures affect startups seeking investment.
Vagan was struck by the openness of US investors and funds. In Russia, he says that VC employees tend to act as untouchable, and you’ve no chance of getting to talk to the managing partners of major funds. In the US it’s very different - you can talk to almost anyone.
When Vagan mentions his valuation of the company to Russians, he says they are generally taken aback and say that its way too high. In contrast, Americans seem to agree that its quite reasonable. This makes it easier to secure good investment terms in the States.
Problems with Seed Capital
Another problem in Russia is a lack of access to seed capital. Russian funds tend to prefer companies that have already proved their business model and are making money, which means that it is difficult for early stage companies to secure the support they need.
The Dressformer team fly back to Moscow this week before heading to Finland almost straight away for the Slush conference, and then Vagan will be flying to the States again. Mass Challenge might not have lived up to expectations, but this Russian startup seems to have chosen America nonetheless.
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