Funding Increases for Fashion Startups

The future for fashion startups has improved in recent years, and several entrepreneurs have proven that fashion startups can succeed and have helped others launch their businesses by giving them tips based on their experiences.

Fashion industry startups raise less money on crowdfunding platform Kickstarter than startups in 12 other industries – art, comics, dance, design, film and video, food, games, music, photography, publishing, technology and theater. However, backers pledged nearly $18 million to 2,397 fashion startup projects in 2013. In 2010, they pledged only $275,233 to 180 projects.

Where to Find Fashion Investors

Kickstarter isn’t the only growing opportunity for fashion industry startups. In 2009, FashInvest became the first company to specifically connect fashion industry startups to investors. FashInvest director of operations Paul Fioravanti told the publication Fashionista that investors who meet entrepreneurs via FashInvest typically provide startups $250,000 to $1 million in their first round of financing.

Fashion startups have raised millions of dollars in their second rounds of financing after investors provided them seed money via FashInvest. Rent the Runway raised $15 million, Polypore $14 million, Moda Operandi $10 million, and Bonobos $8 million.

Incubators Support Fashion Startups

Business incubators are increasingly helping fashion industry startups. They’re based within companies, research institutions and educational institutions that provide office space, technical assistance and financing to startup companies. Y Combinator, a San Francisco incubator, invested in about 16 companies annually a few years ago. Today, it invests in around 100 per year. Typically, it invests $120,000 in exchange for 7% of equity, according to its site.

In 2013, Y Combinator funded eight fashion industry startup companies – Lollipuff, StyleUp, Teespring, Vastrm, 99dresses, Shoptiques, Kaleidoscope, and Fabricly.

In addition, entrepreneurs who are interested in starting fashion companies have a wide variety of resources to consult, including a list of more than 2,000 prospective investors for a fashion startup titled Fashion Angel Investors.

What We’ve Learned from Fashion Investors

Fashion industry startups are in much better shape than they were in 2010 when Daniel Gulati and Vivien Weng sought financing for FashionStake, an online marketplace for the fashion industry. They’ve said that many of their investors had never invested in fashion businesses before.

Finding investors for a fashion startup is easier than it used to be, but entrepreneurs for startups still often struggle to find them. Here’s what we can learn from those who’ve been-there-done-that:

  • Work with a well-known venture capitalist because they help startups connect to other venture capitalists and angel investors.
  • Try to get press attention for your startup before contacting prospective investors directly and try to get introduced to prospective investors by other prospective investors.
  • Focus on one to three things you do well rather than spreading yourself too thin. It’s not uncommon for one startup to actually be comprised of multiple startups (which is why many entrepreneurs have a difficult time answering the question, “What does your company do?”)
  • Avoid starting companies that are spinoffs of other companies.
  • Use social media to build your potential customer base.
  • Use seed money wisely. For example, custom apparel startup Bow & Drape raised $1.2 million during its first round of financing. CEO Aubrie Pagano told The Wall Street Journalthat her company will use some of the money to create and sell product lines, and she intends to use some of the money to experiment with 3-D printing.
  • Market test the product your company intends to sell before you show it to prospective investors.
  • Find your customers before you launch. Olga Vidisheva, 26, the founder of Shoptiques, which sells high-fashion labels, spoke to 800 boutique owners while she was still in business school. The business plan she formulated as a result helped her persuade Y Combinator to take her on. She is the first non-technical solo founder that Y Combinator ever accepted.
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