OEN Member NewsWith Wildfang, Pensole and Revant leading the way, here are Oregon’s next crop of crucial apparel companies (Portland Business Journal)

Kate Delhagen calls it the barbell. For years, Oregon’s athletic and outdoor industry resembled a weightlifting bar. Giants Nike, Columbia Sportswear, Adidas North America and Keen were the iron plates on the ends. There wasn’t much in between.

“It was a couple of large companies and a perennial crop of new companies,” said Delhagen, an industry veteran and founder of the Oregon Sports Angels, a group that mentors and invests in startups.

That’s about to change.

2019 could be a landscape-shifting year for the athletic and outdoor industry, with several companies, including Wildfang, Looptworks and Pensole Footwear Design Academy, on the verge of breakout years. The development is critical. Since 2010, business and civic leaders have proclaimed athletic and outdoor Portland’s signature industry. Employment grew 49 percent between 2005 and 2015 and payroll topped $3 billion.

But Portland has struggled to grow the next-generation of companies, which are seen as critical to fueling a healthy ecosystem, similar to how the economy-defining Silicon Forest started 20 years ago. Insiders say the industry could use more financing options, certain types of workers and a helping hand from government agencies, but they say boom times are coming.

“We are in a phase now, between 2019 and 2020, where a few companies will reach that double-digit millions in (revenue) critical mass,” Delhagen said. “It’s a reflection of several seeds planted five-six-seven years ago maturing.”

No longer a barbell

The industry’s barbell shape has made it hard to grow a startup.

Historically, executives at the giant corporations weren’t known for giving back or advising young companies.

“Outside of (Nike co-founder) Phil Knight and the Boyles (of Columbia Sportswear), nobody really founded anything here in Portland in our industry,” said Looptworks founder and CEO Scott Hamlin. “A lot of executives spent 20-30 years in the space. They made it to the finish line. Then they’d retire and go build a second house at the beach or Sunriver or wherever. They didn’t think about giving back to the industry because they didn’t start anything, and they didn’t have the experience of going through that.”

On top of that, capital has always been tough to find for athletic and outdoor companies. They grow slowly and don’t tempt venture capitalists with home-run multiples. Getting a traditional loan was just as tough because athletic and outdoor companies need months, if not years, to get products on shelves.

Adding to the industry’s recent challenges, in 2007 the Portland apparel brand Nau raised $14 million in venture capital, then closed its doors a year later. (It’s since reopened under different ownership.)

The company had great product, a talented management team and an ahead-of-its-time business plan that revolved around direct sales and sustainability.

“Nau put a big black eye on venture funding in the space,” Hamlin said. “It had highly credible, highly respected individuals who were running the show.”

Nau’s stumbles had a flip side, said David Howitt, CEO of Portland’s Meriwether Group, which advises consumer brands. The lack of venture checks forced entrepreneurs to focus on fundamentals.

Many of the companies now blossoming were founded five to 10 years ago, in the wake of Nau’s demise.

“They had to get consumer adoption without trying to cut corners,” Howitt said. “We’re starting to see that paying off. These founders and their teams have done it with bootstrapping, blocking and tackling, hard work, building community, building an authentic relationship with consumers and not only putting great product in the market but creating really great experiences.”

Howitt pointed to Portland-based Wildfang as an example. Co-founder and CEO Emma McIlroy has raised more than $4 million in venture capital, but she’s mostly grown the company organically, thanks to a deep understanding of the company’s core consumer. Founded in 2013 as a retailer of feminist fashion, Wildfang now employs around 30 and has roughly $10 million in annual revenue.

“If you gave me $5 million today I wouldn’t know where to spend it,” McIlroy said. “That’s not how we work. We place much smaller bets much more frequently and try to learn from them.”

Hamlin’s Portland-based Looptworks is another company that’s grown without significant investor cash. Hamlin said the business doesn’t have debt. He also said it doesn’t have a line of credit.

In December, Looptworks moved into a 3,400-square-foot space in Southeast Portland. The company, founded in 2009, makes “upcycled” products out of discarded material, such as airline seats. It recently announced several significant deals, including an agreement to make new products out of retired University of Oregon sports uniforms.

“Every penny we spend goes right back into the brand,” Hamlin said. “When you don’t have a margin for error, you have to be very conservative about how you do it.”

Another player that’s sprouted without the help of institutional funds, Pensole, was launched by former Nike designer D’Wayne Edwards in 2010. The school teaches aspiring athletic footwear designers and is known for making opportunities available to women and people of color who are underrepresented in the industry. Two weeks ago, Foot Locker announced a $2 million investment in Pensole. Edwards said he will use the cash to hire staff and expand Pensole’s core business.

“(Companies) are now starting to hit those numbers and trajectories where cash flow is going to start to fuel growth,” Howitt said. “And because they’ve built a culture around doing it the right way, now they have the ability to be the next Columbia, or the next Nike, or the next Pendleton.”

The success of companies like Wildfang, Looptworks and Pensole is increasingly making Oregon a magnet.

“People who want to start outdoor and sport product companies say, ‘Why aren’t we in Portland?” Delhagen said. “The talent and the ecosystem are in Portland.”

Rumpl, which makes high-performance blankets, moved to Portland from San Francisco in late 2017. It employed 11 at the time and expected to do additional hiring.

“San Francisco is a very tech heavy place,” founder and CEO Wylie Robinson said of moving to Portland. “It’s been awesome, and we had some good mentors there, but the support the Portland community provides is unprecedented.”

In November, Kestrel Materials, which is developing next-generation textile technology, moved to Portland from the Bay Area. The company employs seven and expects to hire five more this year.

“We’re interested in connecting with the community here,” said CEO Brent Ridley. “There wasn’t the same base of talent in San Francisco.”

A third company, with around a dozen employees, is expected to announce a move to Portland in the next few weeks.

Delhagen and others pointed to numerous additional promising companies in the ecosystem, including Revant Optics, Society Nine, NW Alpine Gear, Handful, Showers Pass, Portland Product Werks, Dovetail Workwear, Proper Skateboarding, Gear Up Sports, Portland Gear, Portland Accessories, OBVS Shoes and Baseballism. It adds up to never-before-seen momentum.

“It feels to me like critical mass and some of that flywheel effect is happening,” Delhagen said. “You can see the wave now. You can see it and it’s real.”

‘A hub and a home’

Lynn Le founded Society Nine in 2013. The Portland-based company makes martial arts equipment and apparel for women. At the time, there weren’t many places for apparel entrepreneurs to compare notes, a natural result when the industry is shaped like a barbell.

“That’s one aspect that’s changed,” she said. “The networking.”

Le said Built Oregon, which was started by Mitch Daugherty, Rick Turoczy and Terry St. Marie in 2017, has brought apparel entrepreneurs together. Built Oregon also serves food and beverage companies, another sector for which Oregon has a strong ecosystem.

“What we realized was that we needed a hub and a home for consumer products,” Daugherty said. “We can be the Silicon Valley of consumer products. There’s no place like Oregon.”

Built Oregon had 17 events in 2017. It had another dozen last year. It isn’t the only networking option that’s emerged.

The University of Oregon launched a Sports Product Management master’s degree in 2015. The program is housed in Portland and run by former Nike executive Ellen Schmidt-Devlin. Although criticized for a curriculum some consider tailored to the next generation of product managers for industry giants, its advisory board has become a critical gathering spot. The board includes representatives from more than 30 companies, including Nike, Adidas, Columbia, Danner, Dakine, Keen and Revant.

“Ellen masterfully integrated almost all the major employers into her advisory group,” said Hamlin, who is part of the group. “More than anything it’s a focal point for the industry to be able to come together in a noncompetitive way.”

Schmidt-Devlin’s program has even spun off a company — the backpack company OddLot Labs — and trained a lawyer — Chris Keefer — who understands the industry’s unique legal demands. It also played a role in the foundation of Delhagen’s group, Oregon Sports Angels.

The idea behind the group was that instead of a simple angel fund, Portland needed to take advantage of its deep roster of executive athletic and outdoor talent. Oregon Sports Angels investors are required to give time and money.

“People who’ve been in these executive seats have had to make decisions … from shoes to clothes to whatever,” Le said. “These individuals understand capital deployment and what it takes.”

To date, Oregon Sports Angels has invested $500,000 in a total of five companies. Among the items on Delhagen’s wish list: a formal gathering spot for entrepreneurs. A lot of meetings take place in donated rooms or event space.

Graduates of the University of Oregon program, and a graduate certificate program at Portland State, are now employed across the industry. The University of Portland’s Entrepreneur Scholars program also is giving the industry a boost. Wallet startup Paramine and backpack company Pac Back both recently emerged from the program.

The community-building has paid off for founders, such as Society Nine’s Le, who recently moved into a permanent space near the airport. She was recently able to tap her network to find “wicked talent” and expand into activewear.

Dinner and a debt fund

On Monday, Wildfang’s McIlroy got together with Maria Pope, CEO of Portland General Electric Co., the city’s $2 billion electric utility. On Tuesday, she met with Mat Ellis, one of Portland’s most visible technology entrepreneurs and CEO of Cloudability.

She said it’s not unusual for Portland executives to make time for each other.

“It’s a very collaborative community,” she said. “That goes for CEOs and advisers, the media, others. Portland has a strong collaborative bent and that’s why Wildfang is still kicking and still here.”

But while it’s easy to get face time with business leaders, McIlroy and others said Portland still lacks in several areas, including certain types of talent, government services and, most importantly, capital.

The presence of industry giants Nike, Adidas North America and Columbia has made Portland a hotbed of executive talent. And Portland’s professional services firms understand the ecosystem. But as brick-and-mortar stores become less important, brands need more workers who understand online sales.

“We don’t have any e-commerce businesses based here,” McIlroy said. “The people in my category who have been wildly successful … none are in Portland.”

Hamlin said Portland also lacks workers who can run sewing machines and enough factories that can fulfill small orders. Studio 317, founded in 2014, Portland Garment Factory, founded in 2008, and Portland Apparel Lab, founded in 2014, are among the resources for companies that need small batches of merchandise, but most footwear and apparel is still made in Southeast Asia. It’s a high hurdle for entrepreneurs.

McIlroy said government agencies also could do “an awful lot more to fuel entrepreneurship.” As an example, she said simple measures like reduced-cost TriMet passes for those who work at startups could make a difference.

Prosper Portland, the city’s economic development arm, has a number of programs to assist the industry, including grants for hiring, help growing exports and property tax exemptions. It also hosts a networking group for young professionals.

More than anything, industry insiders said additional financing options are needed, especially venture funds and small, short-term loans.

Society Nine’s Le, who has raised capital through a crowdfunding campaign and convertible notes, said she’ll soon seek additional investment. She doesn’t expect to do it here. She expects to visit with investors in New York, Seattle, Los Angeles and the Bay Area.

McIlroy said the missing piece is an early-stage, “quick and not crazy high-interest rate growth debt fund.” Built Oregon and Prosper Portland, the city’s economic development arm, are considering launching such funds. Meriwether Group already offers one.

If everything comes together, McIlroy hopes a few of her peers get big enough to sell and inject the proceeds back into the local economy, similar to how Oregon’s Silicon Forest got started.

“We need a couple of folks to exit for $30-$40-$50 million and what happens is those founders start again and hire again,” she said. “To me it’s about the money staying in Portland. It’s about a founder and the founding team and the money invested in them staying in Portland.”

Source: www.bizjournals.com