6 Methods of Fashion Funding
Fashion is really a unique area for financial backing. In big or little tech, you have so many avenues to go down. Applying the same concepts in tech don’t always apply to those in fashion.
Companies in the start-up phase could begin with very little money, or a large sum of money. This is really dependent on the products and the market of entry. So lets review some different types of funding that fit a few different needs.
Beginner- ANGEL/CROWD FUND
Maybe 50-300 units in 3-5 styles. The beginner is truly catering to the localized community and not selling on a statewide level. Or maybe you do sell items across the country through the online store, but if it takes a while to sell this number of product, your company may still fall into this group.
I have seen crowd funding to be a good way to ask for the $100-5,000 dollars you may need to grow. Crowd funding allows friends and family to have a structured way of donating money in exchange for product and piece of mind. Lets say you have a collection and you want to get some finances for the making of the items, a person may donate the retail cost towards the fund, and when the goods arrive, you send them the product. It really is a good way to gain customers, feedback, and funding for future goods as well. I know of a few companies that do this 2 times a year. They will do a crowd fund style for just the people who invest.
Angel Investors will sometimes invest smaller amounts, and want to be aware of the growth of a company, but won’t be seeking regular reports on fiscals and your wins, and losses. Generally they maybe a person in your community with vested interest in helping another person out. I always like to say that I never want to let these guys down. After-all they believed enough in my idea to invest in it. So its a nice thing to keep up on a monthly newsletter for your investors. Covering sales, new business, loss, and etc.
The Consistent or Unique Grower-Venture Capitol ($100,000+ ask)
If you have seen sales growth be consistent and meeting the healthier aspects of growth, the bank groups or venture capitol firms can become apart of the funding process. They want to see really clean finances, sales tracking, and good products. The companies must be customer centric, and not egocentric. A VC always wants to work with workable growth focused companies.
What you need to bring to the table: VC firms have a vested interest in helping shareholders grow their money. Usually they are looking for patented goods. They may be more focused on biotech, or SAAS based companies. In apparel this is harder to do and one reason for approaching clothing/ fashion related VC companies. If you want a VC, just keep working with groups experienced in apparel.
What do you exchange for money? This totally depends upon the deal/terms that was orchestrated. Majority of times they will become a part owner in order to retain a chunk of the company. Depending on the performance they might exit sooner than later. Often times a VC is accompanied with several business contacts that can push the company along. One thing to understand is they don’t want to micromanage or be a babysitter. They simply want you to succeed. Many incubators work with VC funds. If your company consistently misses the financial marks of success, or lacks ability to organize, they will NOT do a deal. You want a term sheet within the week after the pitch if it was successful.
These are big stop signs for any type of investor. So if you find you are not getting funding in this area, it could be that your own company actions are the thing that is holding you back.
Behaviors that hold your company back: Do you listen to your team? Do you listen, but still do your own thing? Do you ask everyone the same question regardless of experience? A Venture Capitol firm wants to know your company listens to advice, asks questions about the professional advice, and uses it, or can actively say in the moment, why they may not want to use the advice. If advice is given, and gone against with poor results, they feel you're not in it to win it. They look for partners that can demonstrate good leadership by example, and always want to grow, and learn. The VC reasoning is based on all the retirement funds and 401 k funds that this feeds into. Your company is no longer serving a few people, but a community. http://fortune.com/2016/12/14/vc-raise-money/
Look at the behaviors and not what is said.
This was a great post about VC's and reality of context. It provides many examples of the importance of listening and perspective. https://hackernoon.com/the-one-thing-most-entrepreneurs-get-wrong-about-venture-capitalists-1a92e6629842
Small list of fashion focused VC groups.
http://fashioncapitalpartners.com: Based in Europe
https://www.alantecapital.com: Funding for sustainable companies
https://www.maveron.com: Seattle.
https://www.axial.net/forum/companies/apparel-accessories-luxury-goods-private-equity-firms/: MULTIPLE GROUPS
The Mid-sized Consistent Growth - Factoring ($70,000 + ask with orders written)
Lets say you work with 20 different boutiques and two department stores in flagship cities. Your revenue in wholesale sales is $50k- $100k a year. This type of structure may be the best time to start bringing on a factor. So what is a factor?
Factors are a financial company that helps forward the finances for production, logistics, and perform credit checks for new vendors. They get paid by adding interest to the sum of money borrowed. They handle all the payments of the order of goods and the invoicing on sales orders. This way they are keeping track of the product finance side of your business. The great part about factors is they only like control in this area. As long as you manage the other money and profits generated. The companies can retain more ownership while a VC always wants to be a shareholder.
Link list for fashion oriented factors.
Grants
Because the risk in the industry is so high (93% failure rate)we recommend against borrowing against home or other business. Seek out a SBIC grant/ Government grantinstead. Again the bank will be able to see inconsistent financial data, and see a cover up a mile away. Be honest with your numbers as it does apply to the law. Some banks are awarded 5% of profits to go directly into SBIC grants.
Minorities may be able to apply for small business grants. The SBA .Gov website can help put you in touch with state and federal grants. For example the city of NY was awarded grant funding for fashion and manufacturing groups. This was to stimulate the dying fashion markets in the once prestigious production city.
Education Based funding
Sometimes colleges across the country offer pitch "Get seeded" competitions that can allow a start up to grow. The only catch is that one of the founders must be enrolled into the collegiate system. I do funding judging at the University of Utah Lassonde Institute. Usually the companies have 50/50 student to private partner ratio. The benefit is the ability to work on your business, network, and refine the pitch process overtime. The good part is that a designer can better understand running a business while being able to develop the business concept to a much more articulated level. They will learn about pricing, laws, inventory, taxes, and etc.
List of entrepenuership and fashion programs.
State of Utah Lassonde
Various Colleges 15 largest $ fund competitions.
FIDM Fashion Institute of Design Merchandising
Parsons School of Design Michael Kalil Endowment
TELEVISION
Some people also go down the road of using t.v. shows to grow their business. I have known several contestants on Project Runway, and it does give them some press, but their work usually has to stand on its own over time. You can win and be out of business in a year if the money and placement is poorly managed. I also had friends on the show that were shown in a light that wasn't even close to who they really are. One person couldn't get work for over 2 years. Hiring managers had a preconceived idea of her. She has said it is one of her most painful expiereinces to date.
If you try for shows like Shark Tank, you must have a clear idea of business, otherwise the group will tear you apart nationally, thus making it harder to raise funds. The video below shows the pitch that was most likely hurtful to the company.
The team shows a lack of the ability to answer the questions. The team keeps trying to sell them, rather than answer questions with intimate knowledge. They have prospects, but there is no term sheet from the expected business. They have passion, but can't talk the business. They are so focused on the idea, they are not able to hear the behavior based feedback. Time stamp 5:40 into the video shows what a VC thinks. Then again at market 7:20 when the VC says he feels that he would be driven batty (lack of listening and organization). The actual deal was not finalized and the company filed for bankruptcy shortly after the show aired. This speaks to what you see is what you get. Action rather than words. If potential investors saw the show, they have preconceived ideas of your company. It is a double edged sword. Shark tank is a VC, while Project Runway is more of a incubator/ grant/ capitol growth award. This is accompanied with a CFDA mentorship. Possibly because many still had a hard time understanding business components. The CFDA also has a show called the fashion fund on Amazon. https://cfda.com/programs/designers/cfdavogue-fashion-fund
Hopefully this is helpful for understanding the different methods of getting money, and when to ask for funds. Remember that fashion and consumables are really different businesses from tech. Therefore the way money is raised will look differently. The biggest keys are not to sell, but to listen, ask questions, and know your business intimately. Seek out mentors in the community you are making goods in. For example a restaurant owner can only give so much advice to a fashion company before there is a disconnect.