Getting Investment in Fashion – An overview
If I were a tech founder, investment would be a question of when and who, rather than how. There is a well-trodden path laid before them by Silicon Valley and the various Unicorn's (companies valued over $1 billion) that now exist, such as Facebook, Twitter, Shopify etc. You have Seed Funding to get you off the ground, then Series A, B, C D etc. possibly culminating in a major IPO. To do this there are a whole host of incubators, private angel investors, venture capital and PE funds who all play a part along the way and are fairly easy to find.
So what about fashion? In my role as Chairman of Rise, we recently organised a round-table discussion with nine brands and various fundraisers in fashion to really get to the bottom of what this investment landscape looks like in the UK for fashion brands. There was total consensus about how fragmented and hard to navigate investment in fashion is. As an industry though it also has given seed to some of the most successful global brands, with 6 of the top 100 most valuable brands being in the fashion sector.
Having founded a fashion brand straight out of Exeter University, I have done a lot of fundraising in this sector. I started with friends and family, moved on to banks and then rather unusually, got external investment from a pre-existing brand in the form of British lifestyle success story, Joules. Having said this, the landscape of investment has changed dramatically, even in the last five years, driven in part by technology and government initiatives. Even debt finance is becoming more transparent, with marketplaces like Capitalise.com who match lenders to borrowers.
For early stage startups, the best route tends to be the Startup Loans scheme, which can offer up to £25k to enable brands to prove there is a demand, without needing any security. Friends and family are still a popular route and with the SEIS scheme this has become more appealing and less risky. Banks still can help for some businesses too, but without a track record and security, this can be a challenge! Kickstarter is a crowd funding platform and many creative businesses use it to pre-sell initial collections/products too.
When companies get beyond the £100k turnover mark, they are often cash hungry and need support in some key areas. With the EIS scheme enabling high net worth ‘would be investors’ to reduce risk by up to 30%, this is often where business angels come into their own. Clearly you have a customer and there is some demand, but shaping this into a multi-million pound business needs skill, experience and resource and if you get the right angel(s), you can tick all of these boxes. Tying into this, crowdfunding is booming currently. Crowdcube have had over £120 million raised on its platform, much of which has been invested in the last 9 months.
I now work with various brands, as Managing Director of multi-channel specialist, Rich Insight and have helped package and campaign manage brands like A Suit That Fits, who raised over £1 million on Crowdcube recently. The advantage of this route is that it is more of an emotional sell and you end up with a team of advocates, who will often be happy with a higher valuation, in exchange for some great rewards from a brand they love. These platforms often aggregate a mixture of institutional investment, angels, customers and members of the public who put in anything from just £10, so it is by no means around just putting your campaign live and waiting for the money to come in! Often 50% plus of the investment raised needs to come from the brand, through angels and customers.
There are also earlier stage funds like Pembroke VCT and Hambro Perks who work with earlier stage businesses and offer some great resource as well as a network of other investments in a similar position that you can often learn from. But institutions are not for everyone at this stage. As we heard at our event – ‘entrepreneurs are control freaks’!
For more mature businesses there is a more established route, going for institutional investment houses, like Piper Equity, BGF etc. Issuing bonds is also becoming increasingly popular (often on crowdfunding sites) to realise capital without giving away equity.
Once a route is selected, it usually takes 6 months to raise investment, so it is a decision not to be taken lightly! It is clear that there are a host of options available to brands, but not a lot of dialogue on this topic, which I feel is critical to creating a clearer picture on the options available for growing the brands of tomorrow.
Author: Richard Hurtley, Rise Chairman, Managing Director of multi-channel specialist, Rich Insight.
First published December 11, 2015