"Jewelry Industry Digital Transformation Needed: Can Shopify Jewelry Save the Day?"

Pitch one day one vertical SaaS. What is it exactly? A skyscraper that talks back? An upright teenager? No, it's software made specifically for one market. Or vertical. It's companies like Toast, who makes software for restaurants, or mindbody, who you may have used to sign up for a class at the gym. Both are worth billions. Vertical SaaS is the crown jewel of venture capital. Investors just can't get enough of it. You'll hear why in today's episode. But with so many VCs chasing after the same deals, the prices for vertical SaaS, they're going up, which in turn means investors expect these companies to be flawless. No pressure. On our show today, a founder building vertical SaaS for jewelers. Will investors find a priceless gemstone or will slight imperfections below the whole deal? I'm Josh Muccio. Welcome to the Pitch, where real entrepreneurs pitch to real investors for real money.

Hi, I'm Paige Vendaugherty, founding partner behind Genius Ventures. And welcome to San Diego.

Hey, I'm Neil Bloom, managing partner at Analog Capital.

Hi, I'm Elizabeth Yin, general partner at Hustle Fund.

I'm Mark Phillips, founder of eleven Tribes Ventures.

Hi, I'm Charles Hudson, managing partner, Precursor Ventures. I think we should have some, like.

Entry music going, like, pumping up.

Oh, yeah, that'd be good.

Hey. Hey. Hi, guys. Hi, how are you? Nice to meet you. Can I say hi to everyone?

Yes, you can.

Hi, I'm Madeline.

Elizabeth.

Nice to meet you.

Hey, I'm Mark.

Hey, Mark.

Nice to meet you. Madeline.

Nice to meet you.

Madeline. Hey, Charles.

Hey, nice to meet you.

Thank you. All right, guys, this is so much fun. I'm so excited to be here. I'm Madeline Fraser, the founder and CEO of Gemist. Jemist is a B2B vertical SaaS platform that's here to bring the jewelry industry into the digital era. The jewelry industry is one of the largest and most lucrative industries that virtually has no technology innovation. It's very, very traditional. In fact, 75% of the $300 billion global industry is not online. And there are virtually no technology solutions that are catered to the unique pain points of the jewelry industry. Until Jemist. These are tech pieces that we've been building over the last two years, primarily as a D2C brand. They're proven, they're user tested, they work. We officially started selling the tech to the jewelry industry this January. And so with $0 in marketing spend and me as our sales team, we've been able to sign four large jewelry brands just in Q1 of this year. At an annual contract value of 500k. And we've built a 30 plus brand wait list that has contract value of over 3 million. So we're doing a $3 million round to really enable us to grow our engineering team primarily so that we can take that awesome wait list and actually execute this in a really meaningful way. So right now it's being led by Entrada ventures. We have 2 million committed and we're kind of looking to fill that last 1 million in the next few months here as we get this off the ground.

I want to see the process.

It's such a visual thing. Okay, so the three core solutions are customize, stack and home Try on. These are three solutions that essentially can get integrated into online brands, existing websites. So this is customize. It's a design experience that enables consumers to essentially build their own pieces. Stack is visualization on model of multiple pieces. Mix, match, style, personalize, see things come to life and then try on. You can build a try on box, any category of up to three products. It's replica pieces that are then sent to your home. You can wear them, feel them, make sure you love them and then check out with confidence.

Does Gemist enable the replica production?

We do. We also do that. Wow. So we have a manufacturing team in downtown la. We've been able to really execute a gorgeous replica. They're made of sterling silver, gold plating and Swarovski crystal. So when you look at them, apples to apples, they look identical and beautiful to the real thing.

How did you get into this?

I'm actually a three time founder, so I've been doing this for a very long time. I think like all of my companies, I find a problem and then I get really curious about it and I decide that I have to solve it. And it actually came to me when I was getting engaged in my personal life. I thought I could go online, design what I wanted, try it on. I thought it would take like a week or two. And boy was I wrong. I mean, I couldn't purchase a ring online and that like literally blew my mind. And I went to downtown LA and met with a random guy in his office and gave him a cash deposit. Had no idea what the hell this was gonna look like. And so not having visualization, not having beautiful experiences that support creativity around jewelry, is a huge loss to the industry. And it was something that I felt really needed to change.

So originally you built the site to allow people to create their own custom jewelry. Is that what I'm hearing? And then you moved into supporting other jewelry.

Exactly, exactly. We launched the direct to consumer site with this base technology, like right around Covid. And it was interesting because I saw that shift in the industry where all these brands were shuffling to get online. And the problem is that the one size fits all models do not work for jewelry.

I would be curious to understand, like, what your pricing model looks like on the B2B side.

So the one thing to note also about the jewelry industry is if you think of like the top big brands in your brand that equal jewelry to beers, Tiffany, Cartier, that's only about 12% of the entire industry. And so the industry is actually primarily made up of the SMB market. So with the SMB side, they're not going to spend cash upfront really willingly. What they are super into and willing to do is revenue share. And with them we do a monthly licensing fee that's around $1,000 a month. And then we pair that with a transaction percentage on anything sold through the Jemist experiences. And that usually ranges between 3 and 10%, depending on how big the company is. For larger enterprise Companies are doing 20 million-plus in annual revenue. It's the opposite. They are super down to throw down cash. Right? Yeah. So we start with implementation fees anywhere between 30 and 75k. And then we do a higher licensing fee based off of SKUs. And right now we're looking at an average annual contract value around 100k.

Does this integrate with their web experience? Does it replace it? How does it fit into their current tech stack?

So right now we're targeting brands who are already online. They've made that shift. They've spent the time, the money. They all have horror stories of working with like, you know, Shopify and other, you know, dev teams and in Prague and things like that. And, you know, they're looking for a way to enhance their current site. Right now it takes about one to two months to integrate and get them live. And we're going to automate that as we grow and scale. And we are going to be also offering that entire headless experience of a full website. And at that point we'll be building out payment processing.

What do you need to do to become the Shopify? Like, what level of effort is that to sort of remove the need for them to have any other platform?

Sure. So we're. We're actually already doing that right now with two of our brand partners. The only thing we're relying on is Shopify for like, order processing. However, my CTO and engineering team is already building that out. We're trying to aim to have that live by the end of the year. So it's not a crazy lift.

You said it takes one to two months to integrate what is involved in that?

Sure. So it takes that long. Only because we're just doing our first four partners right this second. Our first partner actually just went live this week. They're called Greenwich Street Jewelers. They're a big jewelry brand based in New York City. Once we have their Shopify app live that's packaged, so then I can just rinse and repeat that model for every other brand. Right. So my CTO and my co founder, Anu Mararka, who comes from 30 plus years in engineering from Adobe and Apple, he really feels confident that we can get that down to about three weeks as we scale this.

Can you talk about the sales process with Greenwich? Just bring that to life for us. When did you meet them? How did you get introduced? And then how long did it take to close?

It took six weeks to close. I emailed them cold. That's all I'm doing. I'm literally not kidding. The sales cycles are anywhere between four and eight weeks. Right now I'm like, okay, I'm just gonna target the US and right now there are about 55 to 60,000 retailers just in the United States. So if I take that percentage of ones that are already online, that's about 9,000, give or take brands. So if we can tap into 20% of that, we're already at about 200 million in terms of take home revenue for Gemma. So it's one of those things. This is something that can really be amazing as a company and very scalable without having crazy market penetration.

I fully believe that. I have multiple friends who run online jewelry brands that do super well for them as small businesses. So I believe that the sales cycle's super quick.

Yeah.

Actually, this is probably one of the few businesses where I'm not worried about the sales cycle. Yeah. But the thing I think I'm still hung up about is this integration. Even at scale, three weeks to get a partner onboarded still feels really long to me. And you'll need a big team to start all of a sudden onboarding all these different folks, right?

Yeah.

The capital structure on this feels very heavy.

I agree with you. We'll get it faster and faster, of course. But to me, when I think about how much revenue each partner brings in and how much revenue these brands are just pulling through their company in general. So I actually think it behooves us to really nurture each partner make sure that it's a gorgeous experience that's perfect for that brand and that they feel really like we're a partner. That's the biggest thing. I don't want this to feel transactional. I don't want this to feel too fast, actually. I want it to feel slightly bespoke, slightly handheld. Because that's what they want. Right. That's just how jewelry people are. They want trust. They want to talk to you. They want to, you know, touch you and have a handshake.

Right.

It's a different industry.

So actually, if we could just talk about pricing more holistically and kind of break it down, it sounds like you've got roughly 1k per month monthly fee. And that has super high margins. And then you have this try on product which presumably has near zero margins.

No, no, it has margins. It's like a wholesale. So it has at least 50 to 70% margins. Got it.

And then you charge 3 to 10% on transaction fees.

Yes. And that's like we track anyone who goes into the experience, and if they go in there and they check out, we get that percentage. If they go in there, they look around and they go buy something else, we also get a percentage. Ah, okay. Seems like you make.

You make money at every turn.

It feels like. Yeah, because that's the thing. Right. I was just talking with Carter Cast, who's the founding CMO of Blue Nile, and he was telling me that, like, conversion rates on diamond center stones are 0.44%. Wow. Bounce rates are abysmal in jewelry. So this isn't just happening to the little fish. That's happening across the board.

So far, this pitch sounds flawless. Like a diamond, one could say. But even the finest diamonds have imperfections if you look close enough. The grading of Gemist is coming up after this. Welcome back to the World of vertical SaaS jewelry edition. Madeline's business is hitting all the right notes for investors. Gemist has a whole stack of products, and if a customer so much as breathes near the product, Gemist makes money. But Madeline isn't the first one to try to solve this problem. Here's Paige.

You mentioned Blue Nile earlier. I think that was like one of the things that was top of mind because their from my understanding, like one of the larger customizable jewelry companies. So I would be curious to understand, like, where you see them fitting into a competitive landscape.

Yeah. So I think the thing about the current online experiences that are available right now is that their tech isn't wonderful. It's clunky it's slow, it's overwhelming. So for great example, you go to Blue Nile, you go to select a diamond, you literally get presented an Excel spreadsheet on a website. You do you know what clarity is? Do you know what fluorescents are? Do you know what ratio means? I barely do. And I've been doing this for a while, right. And who wants to see a thousand of anything? Like it just, it makes you like sweaty and nervous, right? That's what happened to me when I tried to design my ring. I was like what's happening? This is so bad.

Sorry to go back to my original question. So you don't think they're going to enter this space Blue Nile?

Well no, because they already technically have a version and hasn't changed in 10 years. I think they should hire Jemist. And I think to me what it comes down to is jewelry. People trying to build technology. I don't come from jewelry. That's my biggest asset. In my opinion that's literally the best thing about me is I can look at this industry, you know what I mean? Like big picture bird's eye view and sort of say hey this is what's wrong. And not really have an ego about it but just say let's look at what consumers are doing, let's test this, let's see what they think.

How much money have you raised before on this company?

Sure. We did a pre seed and a seed round. So we did a million in our Pre seed and 3 million in our seed.

So you've already raised 4.

So what were the valuations that you raised on for the pre seed and the seed?

We did convertible note for the pre seed I believe 6 million cap and then seed round was 3 million 11.5 post and this one is 15 and a half post.

You can almost see the gears turning in the investors heads. They're trying to figure out if the cap table is this full already. Will Madeline still own enough of her company when it comes time to raise the series A? But maybe Jemist won't need to raise another round and if they get money the old fashioned way. Here's Mark.

You had talked about four large brands, contract value of 500,000. Can you be specific about where you at from a revenue perspective like trailing 12 month and then I guess even the MRR from call it May at this point.

Yeah. So mrr is about 50k a month just because we haven't the brands are going live now. Right. So I'm dealing with mainly implementation fees and some licensing transaction fees. Haven't hit yet. So that'll start scaling soon. So we'll at least get to probably 1 million in ARR by the end of this year. That's a big goal. And then as we scale before series A, we'd like to be somewhere between 5 and 7 million in ARR.

You think that's a 2024 goal?

Yeah, probably by the end of 2024, mid into 2025. But like I said, with the fact that we're bringing in so much revenue per partner, it's fairly lucrative. Right. So we're not going to be burning like crazy. And so that, you know, I. The 3 million gets us two years of Runway.

Okay, I got pretty close on this one, but I think I'm out. I was just doing some math on the cap table here, and I just. I worry about what it's. To me, there's one simple fix which is to give you and your founder more equity in the A, which will come out of the pockets, as it should, of people who invested previously. And I think for me, I'm most excited about the sort of get Shopify out of the mix piece. And I think I see you getting there. I just don't know that it will all come together in time for the A. But it's a very impressive presentation and it sounds like you really are. I mean, we throw around this term domain expert a lot, but you are a domain expert in this. So very impressive.

Thank you, Charles. Appreciate that.

So I think you are very impressive. I think you're onto an interesting problem and I completely agree with you on the sales cycle. I think it's going to be a really good sales cycle for you. I think given where the business is after this round, you'll have raised $7 million. And it seems like you're just sort of at the beginning of the customer acquisition cycle. I'm worried about the capitalization and the cap table. I'm also worried about the valuation, given where the company is as well. And so for that reason, I'm out. Okay, thank you.

There are a few things I really like about this business. You are an incredible domain expertise. I think you have a lot of clarity on pricing and what these companies are willing to pay for. The thing that I struggle to get past is the cap table dilution, and that's more for you as a founder and staying incentivized along a long road, which I believe will take more capital to push out Shopify in the market. So for that reason, I'm out.

Can you share your perspective on the cap table, like, where is it at and how do you as a founder feel about it?

Well, I still have over 50%. Listen, I'm not. I don't want to have to raise too much more funding rounds. My goal is to become profitable, execute this, and grow quickly, get through the A and see how we do. I want to sell this. There's an incredible amount of companies that will buy this. I'm positive about that. Shopify could buy this, Amazon could buy this. Right. This could expand beyond jewelry. I think it's really smart to start super focused. But this could become fantastic for luxury accessories, for shoes, for handbags, for watches. But I don't know if this has to be a venture company forever and ever and ever, I think we can get to a really good, profitable, solid place and scale from there.

Where do you see profitability on the roadmap?

We'll be cash flow positive on our way to profitability before Series A. Yeah, definitely.

That's great.

Yeah.

I really enjoyed this and I like it so much that I want to invest 100,000. So I'm in.

Amazing.

Yeah.

So I'd like to join in and participate at least at 50k. Okay. Amazing. Our style within interlock is to look and see what domain experts we have relevant and helpful. Okay, fantastic.

Follow up from there.

Okay, Perfect. Wonderful.

Nice.

Well done. Thank you so much.

Thank you, guys. You are all so fantastic and wonderful and you give me hope as a female founder. Been doing this for a long time, you know, really lovely room of people. So thank you for listening and, you know, considering Jemist.

Of course.

Of course.

Thank you.

Yeah. Thank you so much. Okay. In. Great. Well, I'll. We'll. We'll talk. So nice to meet you.

Oh, you're whipping out the alcohol.

The. The.

I figure it's afternoon now, so.

Yeah, absolutely.

No, actually, we're in here because the.

Pitch fund wants allocation too. Really?

Okay.

I mean, if. If they invest.

The pitch fund. Invest.

Wow. That's amazing. I've been impressed with you since our.

First call, like, so I'm super excited.

Thank you. That's very exciting.

Yeah.

Awesome.

That was fun.

All right, Chris. Thanks, man.

Thanks, Josh.

You can leave the tequila.

It's fine.

Yeah, you can leave that in here.

We'll.

We'll take care of it.

We'll take the drink.

We'll take care of the.

What? Give. Give us the horror stories that you've seen of overly diluted cap tables at a seed plus round.

I had a ton of them in 21. The problem was all of the new money was like, oh, we'll fix this. We'll just issue a bunch of new pre money options to the founder and dilute all of the previous investors.

Yeah.

And since all that dilution happens before my money goes in, Mr. Or Ms. Founder, how much of a top up would you like? In some cases it was 10, 15% on top of the option pool.

Yeah. So now like if we're looking at 12 pre 15 posts and then if you have another top up, you know, it starts to eke up to 20 plus is your effective entry point.

If this was a clean 10, I would have put in 100k on like a clean 10 with like clean post. Clean 10 posts with like good founder ownership. I would have put it.

Yeah, I think I would have too. But the. I felt like there was no negotiation room because this Intrada.

I think she says she's got two out of the three commands.

So, you know, I'd be curious to ask, like, what is your benchmark for how much equity a founder should have at this stage?

I would like, I'd like people to be in the very, very high 30s to low 40s going into the egg. It's just hard with seed extension with everyone doing two seed rounds. I used before, I would have said 50% going to the A. It just doesn't, it doesn't happen that often in our. If you do a pre seed, A seed and a seed extension, you're not.

She was 5 to 10 percentage points off of where you were, which is why you said the 10 flat would have made sense. Do you does what she's saying about, hey, I want to raise an A and then go profitable, change your perspective?

I think if.

Do you buy that?

I do buy it. Just because of the nature of. There's no one, I think, who's going to be nipping on her heels. It's not scooters, it's not food. There's not going to be anybody who's like nipping on her heels where she's got a irresponsible. We have companies in our portfolio who've done this playbook that they've taken some venture money, gotten to a place of cash flow, break even and grown and continue to grow. And I'm happy. I know everyone here has a small fund. Dilution is our enemy. So if she could really, if she had maybe led with that story too, I might have said, oh, if that's the plan, maybe I'm a little bit less concerned about.

That's interesting.

But she talked about the ace. I'm like, so we have at least another 20 to 25 points of dilution coming when she does that.

I fully agree with you. I mean, if she didn't have to ever raise again, then these issues that we're talking about from a cap table perspective go away.

Yep.

They don't apply.

I'm fully with you.

So vertical SaaS. I have a friend that started a business like this and funny enough, very interesting. It's in the shed industry.

Oh, great.

And he started like a decade ago building a 3D configurator. And he built that for a while, realized that was really hard to scale and super custom build outs for every company. And so then he ended up pivoting and building essentially the whole Shopify stack for shed companies. And it's just extremely sticky.

The money in vertical SaaS is full stack.

Yeah.

Like that's the playbook. Like you do it all.

Yeah.

Yeah.

This is gonna be trite, but if you're building a. If you have a consumer company that's kind of meh. Have you pivoted into the B2B version of it? There's probably something interesting there.

Yeah.

Especially if you've already built and learned a lot through being essentially your customer.

Your customer.

Yeah.

She discovered all the problems of that.

She built her fun. Yeah.

Awesome.

That was fun. Yeah. Sounds good. Good.

Thank you, guys.

Thank you.

Yes. Madelyn walked out of the pitch room with 150,000 in commitments from Mark and Neil. After the they went into diligence to hear that story. Go listen to episode 115 of the Pitch podcast link in the description. I'll see you next week in the pitch room.