Funding is a tricky one because there is no best way. Some entrepreneurs will go down the route of raising venture capital from investors in exchange for giving away a percentage of their business, while others may bootstrap i.e. self-funding and using any returns to fund your next move. In this guide to funding your men’s fashion brand, I won’t claim to know all the answers but will discuss the various funding options available to you, as well as the pros and cons.
When using the term venture capital, I am referring to any kind of funding which comes from an angel investor, a venture capital agency or a family member who chooses to invest. In plain English someone who gives you money to get off the ground, in return for something, which is in most cases is equity i.e. a percentage of the ownership in the business. Now at the beginning of our quest for funding, this is one of the areas we were heavily focused on but from personal experience, I would not recommend this route, at least in the beginning anyway. But nevertheless here are the various pros and cons of this route:
- Unless you are drop shipping or doing pre-sales, fashion typically requires a large financial outlay at the beginning on stock and meeting Minimum Order Quantities (MOQs) with suppliers. Venture capital can help front the money.
- An investor who is experienced in the industry will have a wealth of experience in addition to the financial wealth they bring to the table. They can help open doors with their partners in the supply chain and mentor you.
- Raising venture capital is very tough in the fashion industry and really requires some proof that you are already in demand and selling. The time taken to raise the money can be lengthy, not to mention the cost. You will have to pay solicitors (lawyers) to execute this and you may have a significant amount of back and forth between your potential investors, you and legal. We raised €12,000 in seed funding and this cost us €2,000 with a law firm which was just getting off the ground and the most reasonably priced that we could find.
- The obvious one is that you are giving up a percentage of your business, as well as your future profits, but it is not just about the money. You also give up a certain element of control which can be so beautiful about starting up your own business. That uninhibited feeling of being in the drivers’ seat is hard to beat.
- If you don’t know who Gary Vaynerchuck is, well you should. He goes to the extreme of saying that the day you raise money, is the saddest day of your life because you are now indebted.
Pre-sales are where you make your product available online without having your stock to hand, but with the caveat that your product will arrive perhaps within 30 days or something to that effect. If you are familiar with the streetwear brand, 11Degrees, this is actually how they first got off the ground.
- You don’t have the same financial risk, as you have the money already in your account before the product is ordered.
- If you have placed an order with a supplier, you can sell the product before it arrives so that at least you are cashflow positive and not losing precious time which could be spent selling, whilst waiting for your order. This will also allow for quicker order cycles so that the next wave of stock is made available quicker to your eagerly awaiting customers.
- Whilst you mitigate the financial risk, you increase the reputational risk with this option. What if your stock arrives from your supplier with a defect throughout the entire order, after your customer has already been waiting several weeks for their order? A poorly executed presales campaign could destroy your brand before it even begins.
This involves raising money from the public by involving them in the journey of your business and offering them some form of a perk for backing you, which could be some merchandise or a pre-ordered product. You can actually run a crowdfunding campaign yourself through Shopify, but for the purposes of this post, I will discuss this through the lens of using a crowdfunding platform like Kickstarter.
- This is a relatively safe way of testing out your idea and soft launching to see if it gains any traction without taking on debt. Everyone who backs a Kickstarter agrees to the provision that Kickstarter essentially holds all funds in escrow until you hit your funding goal. If you don’t reach your target the customer gets their money back. It lowers the risk for both parties.
- There is an established Kickstarter userbase of people who regularly back good ideas.
- A Kickstarter campaign is a great excuse to focus your efforts around SMART goals and to push your marketing efforts extremely hard over a specified timeframe.
- Kickstarter take a commission of the funds raised. 5% + the payment gateway’s processing fee.
- If you are targeting your end customer, they may not actually want to wait for your product, where you might miss the opportunity to sell to them directly.
- Throughout your campaign, you are driving customer data to Kickstarter, rather than your own website. While you still gain in brand awareness over the course of your campaign, if you put the same time and money into pushing your site, you walk away with all of the mailing list subscribers and useful metrics like conversion rate, clickthrough rate, etc.
This will be highly variable depending on where you are located but in Ireland at least there are several government-backed initiatives to assist with start-up businesses including Enterprise Ireland (EI), the Local Enterprise Offices (LEOs) and schemes like the Innovation Voucher and New Frontiers program. Your local enterprise office will be able to point you in the right direction and if you do want to pursue government grants further. The obvious pro here is that it is essentially free money, but you should know by now that there really is no such thing as a free lunch. So I am actually going to come at this more from the perspective of the cons alone because I am so far jaded at this point that it is very difficult to turn me.
Some of these agencies are a bit long in the tooth. We applied for funding at a time where we actually could have struck while the iron was hot and online advertising was much cheaper than it is right now. We made what is, in my opinion, a really strong research-backed case, supported by a long list of potential customers who wanted our product. The problem is that we were pitching to people who were clipping me over the ear for not listing Business Insurance on the financial projections section on my business plan.
To be candid my several experiences with applying to incubators, and government-backed bodies were nothing short of amateur hour, where you have people who are paid “experts” in the theory of entrepreneurship but have never been behind any business venture, let alone a successful one. Unless you are pitching an app or some other ridiculously slow burning technology idea, don’t even bother. It might be worth revisiting when you have already established sales, but don’t count on these supports to help get your start. You will waste a lot of valuable time and energy trying to convince the wrong people that you have the right idea. I remember back in 2014 pitching the idea for a restaurant aimed at young people which centered around healthy eating and gym culture. Essentially Roosters Piri Piri prior to its existence, which now has three very successful locations. I will not name the government-backed incubator I pitched to, but alas, I was informed that I should focus on sports nutrition, rather than gym culture and that no one will pay to eat healthy food in a restaurant.
Einstein’s definition of insanity is doing the same thing twice and expecting a different result, yet I did just that with Signature. We were met with claims of the enormous amount of money it takes to build a brand. Eh yeah, no shit sherlock but it is remarkably cheaper now with social media and was even cheaper nearly two years ago when we were pitching. With these bodies, by the time they catch up with where the opportunity is, the market is already saturated. Don’t waste your time while getting started. By the time you are successful, they will want to back you to associate their brand with yours.