A huge conglomerate, a celebrity, a venture capital firm or your favourite cousin: when it comes to raising money for your business, where should it come from? For founders seeking external financing, there are a number of considerations — and knowing what you want can make the fundraising process easier and more efficient.
That raising money has gotten harder only complicates this decision. 2024 was a more conservative year for investing across both fashion and beauty given the macroeconomic uncertainty, geopolitical challenges and shaky consumer sentiment. Experts predict 2025 will be a stronger year for deals, but the landscape has shifted: profitability (or potential profitability, depending on the stage of the business), is even more important to demonstrate than extreme growth.
“Over the past five years, there’s been a shift towards looking at how businesses can scale profitably. There’s an even lower tolerance in the consumer space because the path to profitability is typically harder to materialise [than in tech],” says Marissa Lepor, partner at LA-based investment bank The Sage Group. This is particularly true in fashion, where investors are more discerning of growth potential after seeing the outcome of Farfetch, Allbirds and Warby Parker.
It’s not just investors who are shifting their priorities: founders are increasingly wary that the traditional venture capital, private equity or corporate investor route comes with strings attached, so they are looking for alternative ways to inject cash into their business.
“Be patient until you find the right investors. It’s like a marriage,” says Timmy Malkoun, managing director at investment management firm Ixora Holdings, which has invested in high-growth fashion brands such as Wardrobe NYC, Gigi Hadid’s cashmere line Guest in Residence and e-commerce platform Collagerie, which was founded by ex-Vogue editors Lucinda Chambers and Serena Hood. If an investor turns you down, try asking for some honest feedback — it may help your business, he adds.
There’s more to the decision than how much capital the investor is offering, experts say. What’s the investor’s objective? How big will their stake in the business be? What will the investment process look like, and how long might it take to close the deal? How long will the investor keep your business in their portfolio, and might they invest more over time? How soon will the investor want to cash in? Are you looking for an advisor, and if so, does the investor have any industry expertise or connections you can draw on? What ideas does the investor have for how your company could grow, and what’s the proposed timeline? How involved will the investor be in the business’s decisions — do they want a seat on the board or voting rights?
The companies in a potential investor’s existing portfolio can help founders make sense of what they’re signing up for, including the performance of brands, as well as the sectors and sizes of the businesses they tend to represent. Researching the structure of the fund or firm is also key, and asking other investors, bankers, lawyers and startups within the investor’s portfolio about a potential backer shows you’re doing your due diligence, experts say. It’s particularly worth speaking to lawyers and investment bankers about how to structure the terms to protect yourself and your business. A red flag to consider: does the investor want to grow the business as quickly as possible, or are they being thoughtful about sustainable, long-term profitability?
It’s also important to note that investment decisions are often made on a case-by-case basis. “At the end of the day, you’re partnering with a specific firm or fund, and also a specific team within that, so get to know them on an individual basis,” says Lepor.
Here, we break down what you need to know about fundraising from friends and family, crowdfunding platforms, incubators and accelerators, angel investors, venture capitalists, private equity, family offices and corporate investors.
Friends and family
Startups at a very early stage might raise a friends and family round from their personal network. “The nice thing is that most people invested in us because they believe in me as the founder, the vision and the mission,” says Judy Koloko, founder of luxury haircare brand The Steam Bar, which launched in 2020 and specialises in textured hair. While this may be the case, Koloko has been intentional about ensuring there’s structure in place. “I send quarterly newsletters, so they know how the business is growing. Whether it’s losses or winnings, I always make sure the updates are very transparent.” Keeping people in the loop can also open up the door to future investments, Malkoun adds. Malkoun suggests selecting a few really great investments rather than a whole slew of friends and family to update and manage.
UK startups in particular are seeing more and more interest from friends and family thanks to the government’s implementation of tax incentives, the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS), allowing citizens to claim tax relief on their investments. “Sadly I’ve spoken to so many brands who don’t know about [these tax-relief schemes]. They’re great to consider,” says Malkoun.
However, it’s important to understand the objectives of friends and family who invest, particularly in terms of what outcome they’re expecting. Everyone knows money can put stress on a relationship, so it’s best to only accept investment from loved ones whose risk profiles are aligned. “As a founder, it’s a lot of responsibility, because someone has given me their money in good faith and I wouldn’t want to lose it,” says Koloko. “Some people have bad experiences because they’ve got friends chasing them for money and asking how their funds are doing, but luckily not one person that invested has ever chased me.”
Crowdfunding
How much growth could your business see if thousands of fans, followers or random people on the internet gave you $10 each? Crowdfunding rose to popularity after the 2008 financial crash, when banks were much stricter with their lending policies. Initially quite unregulated, crowdfunding now has some restrictions around who can fund a business and how much they can contribute in order to protect crowdfunders, since it can be hard for them to liquidate their investments.
There are a number of popular platforms created to help companies crowdfund. Kickstarter has been used by Oura Ring, Allbirds and Peloton. Indiegogo, Crowdcube and Seedrs are also popular platforms. Each platform has its own policy concerning when the funds will be released to the startup, and they usually have a fee because they generate their revenue as a percentage of the funds raised.
Why might a brand or startup pursue crowdfunding? Along with being highly accessible, the benefit of crowdfunding is that it allows companies to understand the desire for their product (particularly in a specific market or among a certain demographic) and it can also be used as a marketing effort to connect with a loyal community. Vestiaire Collective launched a crowdfunding campaign last year to raise funds and deepen its relationship with customers as it eyes an IPO.
“The marketing you can get is amazing. You can reach a whole new community of people who become super-engaged customers,” says Malkoun. However, crowdfunding works better for some startups than others. “Especially in an environment like fashion that’s very conscious about how it presents itself, there can be concerns that crowdfunding feels less elevated,” he says.
Incubators and accelerator programmes
Startups can enroll in an accelerator or incubation scheme to scale, with many programmes involving investment or grants as part of the deal. The benefit for startups is clear: access to mentorship, advisory services, growing your network or visibility. However, it’s important to note that incubation schemes don’t guarantee success, so each programme must be evaluated concerning how long term the benefits are and whether it’s more about signalling support than actual support.
Values and strategic alignment were big focuses for Nina Briance, founder of online fashion marketplace Cult Mia, when deciding to take part in Morgan Stanley’s Inclusive Ventures Lab (which backs underrepresented founders). “[The programme] mirrors Cult Mia’s mission to champion small and emerging brands — over 80 per cent of which are owned by women,” says Briance.
The Steam Bar joined Sephora’s six-month accelerator programme this year with hopes to expand in the US. “Sephora has always been my dream to enter the US, but a lot of people have given me the advice not to go directly into Sephora and to go through the accelerator programme instead,” says Koloko. “That way, your marketing costs are zeroed out and Sephora will come on the journey and nurture you to give you the tools [to grow]. It’s a softer approach because they know your backstory and they want your brand to succeed because you’re coming out of one of their accelerators.”
Angel investors
Angel investors — wealthy individuals who invest their own money into a business, usually in exchange for a minority stake — can invest independently (so long as they are an accredited investor) or as part of a syndicate. Usually, they invest in early-stage startups and are more comfortable with higher risk investments. Often, an angel investor might be an entrepreneur themselves, someone with notable expertise in the startup area, or even a celebrity who’s personally interested in the company. As such, angel investors may also serve as mentors.
For Victoria Prew, CEO and co-founder of rental platform Hurr, an angel investor can signal a stamp of approval. “High-profile angel investors helped us legitimise the early rounds (including Michelle Kennedy, Sharmadean Reid and Giorgio Belloli) — they weren’t just writing checks, they were vouching for us, which opened doors we couldn’t have opened alone,” she says.
In November, biotechnical skincare brand OneSkin closed a $7 million series A funding round led by Selva Ventures with participation from Unilever Ventures and other VC firms, as well as two angel investors — Brazilian-American model Camila Alves McConaughey and tech entrepreneur Kevin Rose. “When investors are considered celebrities or experts, there needs to be a clear alignment with the values of the brand and vision, and we saw that with both Camila and Kevin,” says OneSkin co-founder and CEO Carolina Reis Oliveira. “When you’re raising money in the beginning, angel investors are a bit easier — the paperwork and the process with venture capital is a bit more stringent — so it’s a smart way of fundraising without spending too much time that you could be putting in the business.”
Venture capital
Venture capital (VC) funding is the most ubiquitous among startups. VC firms invest in high-growth startups (though they’re often open to investing in those that haven’t yet reached profitability). If they are the lead investor in a particular funding round, they may look to be involved in the startup’s governance, perhaps by negotiating a seat on the board or voting rights. “Venture capital is more risk tolerant but they also expect a higher return on their successful investments,” says The Sage Group’s Lepor. “VCs typically invest a smaller amount of money in more opportunities, understanding that some will 10-times their investment and others might go to zero over time.” Given how diverse the VC category is, experts suggest ensuring that the VC they’re working with has a proven track record in your particular sector.
Hurr founder Prew says VC funding has helped the business scale operationally and from a tech perspective, as well as financially. “Octopus Ventures (who have previously backed Depop at series A before its sale to Etsy) was a great fit for us given their understanding of the circular economy. They weren’t just excited about the financials; they got the mission,” she says. “We needed partners who were ready to roll up their sleeves and help us build. It wasn’t just about who could write the biggest check, but who could add the most value — whether that was strategic guidance, a network, or even just the confidence to make bigger bets.”
Cult Mia’s Briance agrees that VC funding has been a game-changer for her company. “VCs can leverage insights from their broader portfolio to help you anticipate challenges and prepare your business to meet the expectations of future funding rounds,” she says. “We’ve been especially fortunate to have very hands-on investors who go above and beyond — some have even joined me in senior hire interviews, which has been invaluable in building a strong leadership team.”
In some cases, startups with VC investment have felt pressured to grow at an extreme pace and have sacrificed profitability to their detriment. Oliveira has been cautious about which VCs to take on board. “We don’t want to give up control,” she says. It’s important to be “aware of their focus on scaling quickly and meeting specific growth metrics”, adds Briance. “Make sure you’re aligned on the pace and the direction of growth they expect, and whether this matches your long-term business goals or your personal objectives as a founder.” Not only that, the due diligence requirements from VCs can drain founders from an admin perspective — so it’s important to ensure there’s alignment on the timeline and a solid attempt to not spend over one year fundraising, suggests Malkoun.
Private equity
Venture capital is technically a form of private equity (PE), but when investors talk about private equity they’re usually differentiating the later stage of development, larger size of investment and the percentage of equity that a PE firm will acquire.
“Later stage private equity is more interested in opportunities where companies are breaking even, if not close to breaking even, and are increasingly focused on profitable businesses that can scale,” says Lepor. Given the increased involvement in the business associated with PE, Lepor says it’s important to be clear on the terms of the transaction: does the investor have rights over the budget, hiring and firing decisions, and what happens to the founder if the company isn’t performing to the investor’s expectations?
It’s not just about alignment, but also about preserving your brand — and potentially your name, says Malkoun. “The first thing I would ask is what does private equity mean for me as a CEO? Do I get to stay on? What does my day to day look like? Who am I responsible for? Who’s my boss? Selfishly, I would want to know what their plans are, how they’re going to build it up without taking shortcuts and what the next step is,” he says.
Family offices
A family office is a private investment firm that manages the wealth of a particular family. Along with external investments, a family office may manage the family’s taxes, accounting, real estate planning, legal affairs and other lifestyle management activities. The heirs of a number of large luxury fashion and beauty brands, from Chanel to Hermès to Estée Lauder, all have family offices.
Most family offices invest in steadier and lower risk opportunities (like bonds), but many also invest in startups the way a VC or PE firm might. “Family offices are typically less involved investors,” says Lepor. “VC and PE firms have rights as minority investors and may want a board set. Family offices can be more lenient on those types of governance laws because they don’t want to be directly involved or maybe don’t have the industry expertise to add value the same way,” she says, flagging that there are many exceptions.
Another key difference is that family offices are often more patient and the investment horizon (meaning the amount of time they’ll hold the company in their portfolio before expecting some money back) is longer. In comparison, a VC firm might expect a transaction in five to 10 years, while a PE firm might expect it in three to five years, Lepor explains. “Family offices aren’t always necessarily looking to sell in the future. If the business is performing and generating a strong return for them, they’re happy to hold the business for much longer or even in perpetuity,” she says.
Corporate investors
Large companies often invest in or acquire smaller companies. Corporations may have an internal mergers and acquisitions (M&A) team that handles this, while others have a dedicated venture capital arm (like LVMH Luxury Ventures, H&M Group Ventures or Unilever Ventures) that typically invests relatively small minority stakes.
A lot of these venture funds sit relatively separate from the main company, however, so it’s not a clear jump to being acquired by that business, experts note. “Some use it as a way to learn about businesses across categories, they’re really looking at it as a form of diversification, education and an investment strategy rather than as a way to acquire businesses in the future,” says Lepor.
It’s common for some founders to have anxieties about corporate investors. Will association with a large corporation dilute the emerging brand? Will it reflect poorly if the corporate partner only invests once? Will other large companies be put off investing because they think you’re already spoken for? Unilever Ventures isn’t a lead investor in OneSkin, which Oliveira says was intentional: OneSkin is able to tap into Unilever resources (such as expertise in clinical studies or in intellectual property), but the corporation doesn’t have too much decision-making power.
In October, Cult Mia topped up its seed funding with an additional $2 million from H&M Group Ventures, Fuel Ventures and Chanel’s David Wertheimer. “A corporate venture partner often has the ability to take a more patient and long-term view of their investment compared to a VC, who will always have an eye on your exit strategy,” says Briance. “With corporate partners, consider how their strategic goals intersect with your business needs. They often bring invaluable industry expertise and operational resources, but it’s essential to have clarity about their level of involvement and the nature of the partnership.”
Briance was attracted to H&M Group Ventures because of its global reach and potential to expand Cult Mia’s market access. “H&M Group Ventures, as a global retail leader, brings a uniquely exciting strategic partnership, with the ability to collaborate on everything from market insights to scaling operations at a global level,” she explains. “We needed investors who understood the nuances of marketplaces or international retail and could open doors to opportunities we wouldn’t have access to on our own.”
No matter which route founders go down, experts urge them to stick to their vision for their business. “It’s a very difficult industry to raise money in today, so people might get overly excited about investment, but if it’s not the right one then it’s not the right one,” says Malkoun. “You really need to find the right people who have integrity and that you can trust if things go awry, because things get tough in any business.”
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