In the race to revolutionise the fashion industry, many innovative startups are coming to the forefront. Whether it’s a new rental platform or sustainable activewear, companies are taking the initiative to create Earth-friendly fashion brands.
Of course, that means that many founders are in need of capital. Last year, over $30 billion was invested into the industry. However, there are multiple ways to raise funding which we’ll cover in this article.
6 ways to raise funding for your fashion startup:
Bank loans are a common way to raise initial capital. How much you get and how much you’ll repay will depend on several factors. Banks will need to see a business plan and how you plan on repaying back the loan. Your personal credit score and debt, if any, will all be taken into consideration.
If you do succeed in getting a business loan then you’ll have capital to start your business and you’ll be able to keep 100% of your business. If you pay the loan back on time, you can build business credit which increases your chances of being approved in the future.
It’s worth noting that business loans can be hard to qualify for. They also typically require monthly payments which may put pressure on your cash flow. You need to have a solid revenue stream and the grit to make things work.
Friends and family
A popular option for many founders is asking their family and friends to help them out. Like a bank, you still need to present a business plan and show professionalism. But with friends and family, you have a relationship to lean on. Most of the time, they will invest because they trust you and believe in your success.
Before you think “Well I don’t know anyone with loads of money”, it’s important to understand that friends and family rounds usually raise smaller amounts of money.
Conna Walker, the founder of House of CB, started the brand with £3,000 from her father. She used the money to buy inventory and sell on eBay. She repaid her father back and used the business profits to grow the business. In 2018, they made $15 million in profit with no outside funding.
Even if you don’t have a family member to lend that much money, you may have 6 friends who can lend you £500 each. Maybe you’re popular and have 30 friends who can lend £100 each.
Like anything, there’s always cons. Friends and family may not be savvy when it comes to investing, not understanding how it works and having unrealistic expectations. There’s also the complications of money which in the worst cases can affect the best of relationships.
There are many different types of crowdfunding. The main one that you may have heard of is equity crowdfunding. This is the sale of a stake in a business to a large number of investors in return for their investment.
As a fashion founder, you can approach a platform like Seedrs and we’ll see if you’re eligible to raise capital from our pool of thousands of investors. The added benefit is that you’ll be able to invite your customers, family and friends to become investors too. All they need to do is invest as little as £10.
Lemonade Dolls are a great success story. The subscription based underwear brand came to us to raise £90,000 for their startup. Excitingly, they exceeded their target and closed on £258,000 from 377 investors. The power of the crowd. You can read about their experience here.
Venture capital is a form of private equity funding for early-stage companies with high growth potential. The startups typically raise a substantial amount of money with the ambition to exit in a few years. Whilst they invest in early stage companies, you still need to show PMF (product-to-market-fit) and an MVP (minimum viable product) to validate your business.
After partnering with factories and buying them out, TALA (a sustainable activewear brand) recently raised £4.2 million through seed funding. The round was led by private equity firm Active Partners and VC firm Venrex. The activewear brand plans on using the funding to widen their market and provide even more accessible options. The key thing here is that they were able to provide proof of a business that’s very much needed.
On the other hand, accepting VC means that your ownership stake in your company will be significantly reduced. It’s also a full time job on its own to find investors. Hiring help or working long hours is something you’ll need to consider. Due to the large sum of capital you may obtain, it can take some time to handle the transaction, complete due diligence and more. You’ll want to make sure you have some runway capital to keep the business afloat whilst you raise investment.
Fashion Angel and UK Government schemes
If you look within your area, you’ll find that there are schemes and organisations to assist you. In the UK we have Fashion Angel, an organisation dedicated to the support of fashion entrepreneurs.
Fashion Angels have partnered with British Business Banks to offer low interest business loans between £500 to £25,000 per co-founder. The loans can be repaid between 1-5 years and you get free mentorship. Previous success stories include Solace London which is now stocked on NET-A-PORTER and Farfetch.
The British Fashion Council has an initiative called the VOGUE Designer Fashion Fund. From applications, they select a group of designers to go through a judging process. One of the designers will be awarded with a cash prize. Sustainable brand, Bethany Williams won the 2021 fund and was awarded £200,000.
Short term solutions
Sometimes you just need a small injection of cash and that’s where short term solutions come in. These are often in the form of credit cards or an arranged overdraft. Access to these options will depend on your personal circumstances and credit score and should be seen as short term solutions only. Whilst there is risk which can impact your personal finances if not managed, there are brands who have succeeded with this option.
Alongside a small amount of savings, Ainsleigh-Paige Rigby used credit card financing to fund Beach Doll in 2018. This was after being refused a bank loan for being deemed ‘high risk’ as a fashion startup. After a few years of the hustle and grind, Beach Doll surpassed multiple six figures in 2020 and became a million pound business in 2021.
There you have it, six different ways to fund your fashion startup:
- Bank loan
- Friends and family
- Equity crowdfunding
- National schemes
- Short term solutions
If you are considering crowdfunding and want to see how Seedrs can help you, reach out to us here.