For technology start-ups seeking investment to grow, the path is well-trodden by Silicon Valley and successes such as Facebook, Twitter and Shopify.
And it is relatively straightforward: you have seed funding to get you off the ground, then Series A, B, C and D funding, and so on, possibly culminating in an IPO.
But this is not the case for fashion. UKFT Rise, which runs events for owners of new and emerging fashion businesses, recently organised a roundtable discussion with nine brands and various fashion investors. There was a consensus that, for fashion brands, the investment system is fragmented and difficult to navigate. It has also changed dramatically, even in the last five years, driven in part by technology and government initiatives.
For early stage start-ups, the best route tends to be the government’s Start Up Loans scheme, which offers up to £25,000 to enable brands to prove there is demand without needing any security. Friends and family are still a popular route and the Seed Enterprise Investment Scheme (which offers tax relief to investors) has made this more appealing and less risky.
Banks still can help for some businesses too, but you tend to need a track record and security. Many use crowdfunding platforms like Kickstarter or CrowdCube. When I set up a fashion brand straight out of university, I started with friends and family, moved on to banks and then, rather unusually, got external investment from a pre-existing brand in the form of Joules.
When companies get beyond the £100,000 turnover mark, they are often cash-hungry and need support in some key areas. The Enterprise Investment Scheme (another one offering tax relief) enables high-net-worth would-be investors to reduce risk by up to 30%. This is often where angel investors – who use their own personal finance to take shares in a business in return for equity – come into their own. Clearly, you have a customer and there is some demand, but shaping this into a multimillion pound business needs skill, experience and resource. If you get the right angel or angels, you can tick all of these boxes.
Earlier this year, I helped A Suit That Fits raise more than £1m on CrowdCube. The advantage of this route is that it is more of an emotional sell and you end up with a team of advocates, who will often be happy with a higher valuation in exchange for some great rewards from a brand they love. These platforms often aggregate a mixture of institutional investment, angels, customers and members of the public, who can invest as little as £10. But you can’t just set your crowdfunding campaign live and wait for the money to come in; you have to put in the hard work to raise investment through angels and customers.
There are also earlier-stage funds like Pembroke VCT and Hambro Perks, who work with earlier-stage businesses and offer some great resources. For more mature businesses, there is a more established route: going for institutional investment houses, like Piper Equity or BGF. Issuing bonds is also becoming increasingly popular, helping brands to realise capital without giving away equity.
Whichever route you select, it usually takes six months to raise investment – so it is not a decision to take lightly.
Richard Hurtley is chairman of UKFT Rise and managing director of Rich Insight