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Thursday, February 28, 2013

A Start-Up Aims to Upend E-Commerce by Selling Nail Polish

It is hard to imagine Silicon Valley venture capitalists analyzing nail polish shades. But a number of prominent technology investors are making a big bet on Julep, a start-up that makes nail polish and other beauty products.

On Thursday, Julep announced it had raised $10.3 million in financing from Andreessen Horowitz, a well-known venture capital firm, and Maveron, the investment firm of Howard Schultz, founder of Starbucks. Previous financiers include investment firms affiliated with Will Smith and Jay-Z.

Julep aims to use innovations in e-commerce to upend the beauty industry. It sells paraben-free products including 186 colors of nail polish as well as mascara, lip gloss and face scrub.

“We think the next major beauty brand is not going to be built over the counter, it’s going to be built online,” said Jane Park, a former Starbucks executive who founded Julep five years ago.

Julep designs, produces and sells its products. It works wit scientists and manufacturers that develop products for big beauty brands. The streamlined approach means there are no markups for third parties, and it can make available a new nail polish shade soon after it is shown on the runway.

A similar strategy is employed by many e-commerce companies, including Warby Parker, which sells eyeglasses, and others selling products from office supplies to bedding. Though the economics are better than in traditional retailing, the challenge is to persuade consumers to discover the brand when it is not sold by a major company.

Julep dealt with the challenge by selling its products not just in its stores and online, but also places like Sephora and QVC. Ms. Park sai! d she had focused on brand-building, describing Julep as a brand that encourages women to connect over beauty instead of compete.

Julep also taps into other current trends in e-commerce. It asks its customers for ideas about what to sell (think ModCloth), uses social media to build brand loyalty (think Nasty Gal) and sells subscription boxes of products (think Birchbox.) An Instagram feed invites people to share photos of their nails and a blog has tips from professional stylists.

Julep does market research offline, too. It has four parlors in its hometown, Seattle, where women go to have their ails done, socialize and give Julep tips on what they like and dislike, from package design to new colors.

As for pitching tech venture capitalists, most of whom are men, Ms. Park said she had to do some teaching. Men are often interested in how many times a customer could use one bottle of nail polish, like toothpaste. But women rarely finish nail polish, she explained.

“It’s about fashion,” Ms. Park said. “You want access to color for your outfit or your mood, not squeezing every last drop before you buy the next color.”