Economy

Sex Toy Industry Has Quietly Turned Into Multi-Billion-Dollar Business

Smart high-tech product designers and clever investors are hunting down the next hot opportunity.

Earlier this year, Diamond Products acquired Jimmyjane, the San Francisco sex paraphernalia company. Diamond Products is a joint venture between Pipedream Products, another leading sex-toy company, and Brookstone Partners, which according to a Bloomberg is a New York-based “private equity firm that seeks to acquire companies or invest in growth equity situations in the middle market. The firm invests in companies located in North America and focuses on industrial light manufacturing, distribution and logistics, and business services.” And sex toys.

In keeping with America’s corporate business culture, neither company would disclose the amount of the all-cash deal.

The new Diamond Products describes itself in the following glowing terms: “The Company’s product portfolio includes adult toys, lingerie, games, lotions and creams that are sold in over 80 countries through 5,000 retailers as well as e-commerce websites.”

Sex toys are a big business that has been rebranded “sexual wellness.” U.S. revenues are estimated at $15 billion and the business site, the Street, projects sales to grow to $52 billion in 2020. The sex-toy industry has changed over the last decade, driven by a change in cultural values and the anonymity of the Internet. Sex-toy outlets have shifted from retail shops serving the raincoat crowd to online sites catering to every whim and price point. The hard-scrabble sex-positive activists who started San Francisco’s Good Vibration, Babeland in Seattle and the Pleasure Chest in New York have given way to Amazon, which offers an estimated 60,000 products, and Silicon Valley-backed ventures and crowdfunding fantasies.

Sex toys are a growth market attracting an ever-growing customer base as well as smart high-tech product designers and ever-clever investors looking for the next hot opportunity. And nothing is hotter than sex.

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Last year, Cave Inc., a San Francisco-based startup specializing in elegant, up-market sex toys, raised $2.4 million from a group of 60-plus angel investors. Michael Topolovac, the company’s CEO, was surprised at how little stigma he faced when pitching the company. For him, investors want results and sex is just one more market. "This is a massive market opportunity with very few players and a community eager for a new product," he said. 

"The quality of design for women's most intimate products has long suffered,” insists Ti Chang, the Cave’s co-founder and head of design. In an unlikely coincidence, Chang, a Georgia Tech graduate, met Topolovac in China where she was promoting her startup, Incoqnito, a venture integrating jewelry and erotica. They merged their efforts and Cave was born. She noted, the “dearth of good design, coupled with the fact that the industry is dominated by men designing for women, is exactly why I began designing sex toys."

"The industry is shifting and women are demanding more from their toys,” she added.

In February 2014, Shauna Mei, a former Goldman Sachs analyst and founder of AHAlife, launched AHAnoir, billed as “a premium destination for exclusive, high-quality adult products and boudoir accessories.” Mei raised about $21 million to launch AHAlife in 2010, a membership site offering recommendations on high-end clothing, cosmetics and other boutique products.

Other sex startups have turned to crowdfunding to raise early-phase monies. Brian Krieger, co-founder of Minna Life, a San Francisco sex toy startup, ran a successful IndieGogo campaign raising $83,777, well over its goal of $60,000. As Krieger said, "Most people don't personally think vibrators are taboo, but they think everyone else does. I want to tell investors, 'You're not the only one. Nobody cares.'"

VibeEase, co-founded by Hermione Way, is a San Francisco startup promoting an app-controlled vibrator. It bills itself as “the world’s first wearable, smart vibrator bringing fantasies to life with an immersive pleasure experience.” It raised $100,000 through IndieGogo, more then three times its original goal of $30,000, and is currently seeking seed-round funding.

Kickstarter, the world's largest crowdfunding platform, declines to fund sex-toy projects.

The experiences of two female sex-toy entrepreneurs suggest that all is not rosie in the American sex marketplace.

VibeEase describes its mission in bold terms: “We believe the world will be a better place when women can have orgasms as much as men do!” Says Hermione Way, “When I am pitching Vibease at events, spectators/investors normally fall into one of three categories.” There are those who “either giggle uncontrollably and walk past”; those who “turn red faced asking sheepishly ‘if that’s really a vibrator, for women?’ (‘Yes for the clitoris,’ I reply’)"; and those who ”get our technology straight away and want to invest.”

Stacy Rybchin is founder of two small New York-based sex-toy outlets, My Secret Luxury and My Secret Soiree, that sell high-end sex toys and organize in-home toy parties – “passion parties” – at which mostly women (including Christians) get together in a friend’s living room for fun and the perusal and purchase of adult novelty products.

Online service providers have repeatedly rejected Rybchin’s applications, restricting her businesses from growing. She tried to register with Stripe, the online payment service, and was turned away. She approached Volusion, an online shopping-cart service, and was again turned down. She then contacted SparkPay, a Capital One processor, to no avail. Facebook blocked her from posting ads and Pinterest “disapproved” of her pins.

Clearly, the road to success in the sex-toy industry is rocky. “And don’t even ask about looking for support at entrepreneur meetups,” Rybchin laments. They “are seemingly dominated by male founders in their early 20s and they can’t stop giggling, a lot of jitters.”

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Sex paraphernalia has gone mainstream. One can stop at a local specialty adult retail shop, go online to a site or stop at a Walgreens and pick up massage oils, condoms, spermicides, vibrators, lubricants, contraceptives and sex games. Sex toys are a multi-billion-dollar industry with an ever-growing customer base driven by women. Hungry startup investors and well-meaning crowdfunding donors are out there, willing to take a risk.

As the sex toy market grows, it will likely follow the trajectory of other high-tech industries. More investor money could flow in and drive increased consolidation (as represented by the Brookstone-Diamond acquisition of Jimmyjane). Amazon and other big retailers could jump into the game as they have done with the independent film and TV scene (e.g., Netflix). Like the videogame industry, everyone is looking for the next best thing. It’s the perfect time to turn a secret fantasy into a business opportunity.