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Funding fashion: what do investors want from retail start-ups?

Drapers explores what makes start-ups a good bet for retailers and investors

Image heist studios the fifty

Hosiery brand Heist is among the direct to consumer brands to receive investment from Imaginary Ventures

For a fledgling fashion business, discovering what will convince investors to part with their cash is all-important. Funding the retail industry’s next generation of new ideas has become something of a hot topic over the last month. In April, Net-a-Porter founder Dame Natalie Massenet unveiled Imaginary Ventures, a venture capital firm she has co-founded with experienced retail investor Nick Brown.

Days later, luxury etailer Farfetch launched its technology accelerator, Dream Assembly. John Lewis rounded off the month by announcing its plans to expand its own accelerator, JLab, from a 12-week programme to an “always-on” initiative. It will also expand the accelerator’s remit to include more established businesses, as well as start-ups.

Clearly, there is an appetite among retailers and the sector’s entrepreneurs to partner with innovative new businesses. But the investment landscape is teeming with ambitious start-ups, looking for advice, mentorship and money. What makes an emerging business an attractive proposition for some of retail’s most renowned names? What does it take for a start-up to stand out from the crowd?

Appealing offer

“Structural shifts in consumer behaviour mean the retail sector is incredibly dynamic. Traditional retailers who want to stay ahead of the curve are increasingly investing in digital-first businesses through collaboration, equity investments and acquisitions,” explains Matt Truman, chief executive and co-founder of retail specialist investors True. 

“The UK has a strong start-up scene that has many early-stage businesses vying for investors’ interest – at True we see more than 2,000 young businesses a year, so they need to stand out from the crowd. What really captures our attention are start-ups that think about building future-proof business models and are tapping into a structurally growing market.

“With the amount of data available today we also like to see teams who combine creativity with a data-centric approach. The team behind the idea is equally important. Having a standout team with relevant experience that is open to feedback and added value will also be enticing to investors.”

The businesses Massenet’s Imaginary Ventures has chosen to invest in read like a Who’s Who of fashion’s most exciting new brands. Its portfolio includes US labels Everlane, Universal Standard and Reformation, as well as Khloe Kardashian’s size-inclusive denim brand, Good American, which is stocked by Selfridges in the UK. Imaginary focuses on early stage, direct-to-consumer businesses that “challenge the retail status quo”. Beauty brand of the moment Glossier and disruptive hosiery label Heist also feature.

Good american (1)

Size-inclusive denim brand Good American 

“Direct-to-consumer brands are fundamentally a very exciting sector for investors,” Heist CEO Toby Darbyshire tells Drapers. “Consumer spending is rushing online. Digital natives are responding to the seismic shifts in how people shop and what people now expect. Funds such as Imaginary are responding to what is going to be a long-term sectoral shift away from the brands we’re used to on the high street, who are struggling, to the brands which are now seeing real traction because of their innovation.”

Those brands that are able to win and attract investment are giving customers what they want

Toby Darbyshire, Heist

The brands Imaginary Ventures invests in position themselves as disruptors in their chosen sectors, and say they give consumers a product and often a service they cannot find elsewhere. Heist, for example, claims to have reinvented the humble pair of tights, and says it uses cutting-edge textile science to create perfect  hosiery.

On its website, Everlane breaks down exactly how much each of its high-quality basics cost to produce, giving customers a clearer understanding of the pricing structure. Fashion-forward plus-size retailer Universal Standard, meanwhile, offers to replace items from its core collection for free if a customer’s size changes within 12 months of purchase.

These new names are also able to build communities of customers who feel a personal connection to the brand that is the envy of much of the high street. Glossier, for example, is known for its cult-like following – it has 1.2 million Instagram followers – and sustainable womenswear brand Reformation has a reputation as the go-to label for cool girls in the know.

“There has been a profound shift in the relationship customers have with brands and this new crop is at the forefront of that,” adds Darbyshire. “Those brands that are able to win and attract investment are giving customers what they want. They’re doing things better and they’re doing things faster.”

Filling the gap

Those looking for investment and support have a growing number of options. Farfetch’s Dream Assembly is a 12-week twice-yearly programme offering technology start-ups access to early-stage funding, mentoring and networking opportunities. There will be ten start-ups in each initiative, the first of which will start in early September.

Have a clear view of what problem you are trying to solve. Show you have thought about the market

Stephanie Phair, Farfetch

“My advice [for new businesses] is to have a clear view of what problem you’re trying to solve,” says Farfetch’s chief strategy officer Stephanie Phair. “Not just ‘Here’s my product’, but go back and say, ‘What am I trying to sell? Who is my market? Who am I hoping to help?’ It’s about showing there has been a lot of thinking about the market and what is needed.”

The accelerator will enable Farfetch go back to its “founder-led, entrepreneur-driven” culture and fill a crucial gap in the start-up ecosystem, she adds: “There is a lot of funding available for start-ups. It’s an attractive and large, if fragmented, ecosystem. There are some very good venture capitalists that specialise in technology and in start-ups. But where we feel start-ups struggle is getting that initial idea and concept from the early stage to next level. They are not finding pointed and relevant mentorship, expertise and the ability to stress-test their ideas.”

John Vary, futurologist at the John Lewis Partnership, oversees the JLab technology accelerator. He estimates that he receives up to 70 approaches a week from start-ups and that colleagues are similarly inundated. The retailer is looking to partner with start-ups that can help it weather the digital disruption rocking the industry.

“[How start-ups can stand out] is a really tough question,” he says. “I’ve had businesses ask me whether they should send me wine, or whether they should come and physically knock on our door. To me, it comes back to that human touch all the time. Being able to come across [to potential investors] in the most approachable way possible is really important.”

In today’s competitive retail landscape, fashion start-ups need a unique proposition that can offer the market something different, whether it is a new technology, service or product proposition. Forward-thinking retailers such as John Lewis and Farfetch are keen to learn from new technology start-ups and funds such as Imaginary Ventures prove there is an appetite to invest in new brands, but only the most innovative will stand out from the crowd. 

Readers' comments (1)

  • The John Lewis model is not a great one for startups. True promotes businesses they fund. A real conflict of interest.

    Savvy startups steer clear. Hoping Farfetch is different.

    Unsuitable or offensive? Report this comment

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