Endue Time: How FashInvest Brings Venture Capital to the Atelier
Year after year, designer hopefuls launch brands in their own image with eyes widely set on an editorial credit in Elle, Vogue or even Cosmopolitan – if they’re being modest.
Their needles are threaded. The sewing machines, fired up. But there’s a spindle of slivery thread that sometimes goes unnoticed.
It’s an elusive term called “venture capital”.
Venture capital is money that’s invested (or available for the investment) in the ownership element of new or fresh enterprise. Talented designers undoubtedly would rather draping and pinning ‘til their heart’s content, but the model to which they’re doing business must be considered.
Luckily for me, Karen Griffith Gryga, the CEO of FashInvest, a company that shepherds the relationship between fashion and finance by paying attention to a businesses’ growth, was kind enough to give my rudimentary understanding of finance a bit of a facelift.
Nicole: Fashion and finance have a long history but why should a designer think about venture capital?
Karen: As an entrepreneur, you should be aware of the equity financing options available to you. They break down into six categories:
- Family and Friends
- Angel Investors
- Institutional Angel Investors
- Venture Capitalists and Private Equity
- Economic Development and Other Forms of Government Back Money
- Strategic Partners
Each of these financing options is very different in terms of investment goals, process, due diligence (an investor word which is the process of research, performed by investors, into the details of a potential investment, such as an examination of operations and management and the verification of material facts), investment structure and terms, returns profile (what they look to make in return for making the investment), and the value that they can bring to you as the entrepreneur.
Value that an investor, venture capital or otherwise, can bring to an entrepreneur should be thought about in these categories:
- “Guardian” investor who bring both entrepreneurial and industry expertise. Many have been successful entrepreneurs in the same sector as the new companies they back. The “Guardian” investor is the Holy Grail of investors.
- “Entrepreneur” investors who have experience starting companies but come from different industry sectors.
- “Operational” investors who bring industry experience and expertise but generally from large, established companies, and many lack firsthand experience with an actual startup.
- “Financial” investors who typically invest purely for the financial return.
The venture capital and private equity investors offer (typically) a great deal of knowledge, industry contacts, service provider contacts and recommendations (lawyers, accountants, insurance, bankers, investment bankers), and experience with the demands and needs of a growing company. The institutional investors are able to leverage their portfolio of investments typically into a larger pool of relevant contacts, potential hires, strategic introductions and market trends and strategies.
Nicole: And how does that play in to the role of FashInvest plays in the industry?
Karen: FashInvest is focused on creating a healthy ecosystem for entrepreneurs within fashion, branded goods, retail and fashion tech. A healthy ecosystem consists of knowledgeable entrepreneurs who have the tools to raise capital for their business. Investors who are hungry for high quality deal flow. Industry executives who are interested in the emerging growth side of the industry as well as high quality service providers who know how to work with and guide venture (equity) backed companies.
Through our events and website, we help create this healthy ecosystem. Recently we are working to develop our website so that information on emerging growth company financings, exits, and launches are readily available to that the players within the emerging growth segments have an understanding of what is getting financed and getting traction in the industry. We are just getting started on this but we strive to be the one-stop information resource on the emerging growth companies within branded goods, fashion, retail and fashion tech.
Nicole: In the past two years, I’ve watched some talented designers fall by the wayside because of funding. How much does it take on average to launch and make it through the first year?
Karen: There is no one answer to that question. It really depends on the designer, product lineup, strategy and experience base and team. Many designers really do not know how to raise capital and have trouble pulling the information together that they need in order to go through the process. Many are nervous about the process and don’t understand that raising capital is a numbers game. It is about taking the time to find the right investor fit for your business and vision.
I coach entrepreneurs that they need to plan for a 6 – 18 month fundraising time frame with the earlier stage companies needing more time and those entrepreneurs with more experience or progress needing less (than the 6-18 months).
Earlier stage companies need to figure out how to launch and prove out their concept through bootstrapping or raising initial capital from family and friends, which typically is in the few hundred thousand dollar range.
Nicole: And how long before they begin making a profit?
Karen: This really depends on the strategy of the business and the growth plan.
Nicole: Do you think having a bottom line and investors to answer to hampers a designer’s creativity?
Karen: At the end of the day, a designer has to have a business in order to express their creativity. An investor invests in a company because they believe in the entrepreneur, the vision and the opportunity. An investor should be viewed as a partner and not as an adversary. Working with their investors, designers are empowered to build a sustainable business that enables them to express their creativity through their product.
Nicole: FashInvest hosts events where entrepreneurs pitch their ideas. What are some of the key words, if any, that potential investors listen for?
Karen: There are no key words and there are no set answers. The investor has to believe in the entrepreneur and the team around the entrepreneur and in the business opportunity. If they believe that the team is addressing an opportunity in the market and that the team has a business model that will experience growth and profitability, an investor will be interested. An entrepreneur and team need to be prepared, however, to talk about their business as a business. It is an absolute requirement that the product or service be one that is desired by the marketplace but, at the end of the day, an investor is looking to make money from their investment. In addition, the investor needs to believe that the entrepreneur and team are “coachable” – that they will listen to advice and feedback and react accordingly.
Nicole: With some many templates and websites devoted to business plan creation, what would you consider the most important aspects to include? And just how out of the box can your idea be?
Karen: In developing any plan, first start by brainstorming on the 5-7 aspects of what you are doing that are your strengths and differentiate you from others in the marketplace and why you think you are going to win. Make sure these strengths or unique characteristics are stated, described and supported throughout your plan. Remember that the length of the business plan is not what is important, it is thinking through your business and your execution that is important and showing proof points along the way.
An investor analyzes any plan by its risks. Think about what are the most critical points in developing your business and how you can de-risk those elements and encapsulate this in your business plan. Does the market want your product, are the price points correct, can the product be produced at a reasonable cost with appropriate quality for that cost, do buyers want your product, … At the earliest stage of company development, especially, you need to think through how you can show desire for your product be it through online sales, surveys or marketing or some sort of popup shop so that you have information about your business opportunity to present to the potential investor.
Always address your relevant experience, your team, your vision, the important milestones towards your vision (especially the first 12 – 18 months), why your product or service is needed in the marketplace, how you are going to get your customers, what you know about your customers, and how you are going to develop revenues and profitability.
If a business is early in its development, do you have ideas of specific individuals or types of individual for future critical hires? Have you developed an experienced and relevant board or advisory board? The earlier you are in your execution, the more critical the team and the advisory team is to validating the idea to the potential investor. Also address how you are going to listen to the marketplace and incorporate the feedback from the marketplace into your business and planning.
I always go back and look at the original business plans of those companies that we have invested in which successfully grow and develop. These plans never reflect the reality of the business a couple of years later. The unifying characteristic of those entrepreneurs that succeed is that they are able to listen to the market and deliver and product or service that is desired by the market and they are able to develop a team that is able to execute on delivering that product or service to the market.
A business plan should not be thought about as something static that is put on a shelf once it is completed. A business plan should be a living document that guides the execution of the team and helps to define milestones and metrics that need to be continuously measured.
An idea can be way out of the box as long as they are consumers wanted to buy the product or service.
Nicole: After hearing, what I’d assume is thousands of pitches, what makes you the most optimistic about the emerging business owners?
Karen: Do I believe that the entrepreneur and team around them can execute on their vision? Do I believe that the entrepreneur and team will listen to the feedback from the marketplace and adjust their vision accordingly? Is there a core need in the marketplace that the product/service fulfills in a way that can develop into a profitable business? Is the risk level appropriate to the amount of capital being raised and to the structure of the investment (valuation, etc.)?
Nicole: Of course everyone thinks that there idea is the greatest one and rejection is a hard pill to swallow. What can be learned from a “No”?
Karen: Most investors don’t just say no. They ask a lot of questions and provide feedback on the business. Feedback can be in terms of the product offering, the sales and marketing, the competitive positioning, the business model, the team needs, etc. etc. etc. Everyone has an opinion and not everyone is correct in what they say but if you start to consistently hear the same feedback with the no over and over again, you need to really listen and think about how can you address the concerns or questions that are being raised.
Nicole: If I was to come to the next FashInvest event, what should I have in my hand?
Karen: Business cards, executive summary, investor pitch and lots of energy and enthusiasm. Know your business and business model, know the competition and display good industry sense and knowledge.
Nicole: What’s next for FashInvest?
Karen: We are working on our Second Annual FashInvest Capital Conference which is being held December 6th (Opening Reception) and December 7th in New York City. Entrepreneurs within Branded Good, Fashion, Retail and Fashion Tech (technology) will have the opportunity to pitch their business to investors and industry executives interested in investing in and working with emerging growth companies.
Coming soon, we will have an application available for entrepreneurs to apply for a presentation slot. It is highly competitive and many of the companies we featured last year subsequently have raised capital. The presenting entrepreneurs will be selected in mid to end of October and will have a mandatory coaching day in November. Our coaching really prepares the entrepreneur for the fundraising process. We have received 100% positive feedback on the coaching we provide. The actual Capital Conference will have international attendees and is the only Capital Conference solely focused on Fashion, Branded Goods, Retail and Fashion Tech.
Of course, go to our website as well to get the latest news on financings and developments with many different emerging growth companies within these sectors.
