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In early February, British womenswear brand Dai hit a crossroads. After three rounds of fundraising against a challenging backdrop of global crises, the business was struggling to balance its sustainability ethos with a level of financial growth that would satisfy shareholders.
Founder and CEO Joanna Dai had three choices. She could pursue a so-called “down round”, diluting the value of the brand’s stock in order to bring in additional finance and keep the company afloat. She could look for a permanent home for the brand through M&A, hiring costly advisors and taking weeks out of the business for due diligence, to try and find a buyer that matched its values. Or she could bring in a CEO to reboot the strategy — another time-consuming process with no guaranteed outcome.
Dai realised closure was inevitable, and that the best route would be to cut costs and sell remaining stock to minimise the impact on staff, suppliers and shareholders. She took the difficult decision of reducing headcount from 13 to four and stopped paying herself a salary, slashing operational costs by 75 per cent.
In a statement posted on the brand’s social media channels and website in September, Dai said: “We kept hitting record sales, received countless major press coverage, dressed unbelievable women, and opened eight prominent store locations [pop-ups in London and New York]. We built a community of 65,000+ with our timeless designs, and as a result, we were able to meaningfully support Smart Works [a UK charity that supports women into work]. We felt like we were making an impact. But it still wasn’t quite enough…”
Dai embarked on a long and winding road to closure, officially shutting up shop on 10 December. All of its staff had found new roles, its suppliers had been paid in full, its debts had been cleared and the majority of its leftover inventory had found new homes.
Dai hopes the closure can act as a clarion call for investors and policymakers to support sustainable businesses, helping other entrepreneurs marry environmental and social concerns with commercial interests. Otherwise, she fears, the industry risks disenfranchising founders and alienating potential changemakers in the process.
The fundraising challenge
Dai started up the brand from her personal savings in 2017, fresh from an eight-year career in investment banking. Despite the dismal statistics about female founders’ chances of fundraising, she was optimistic that her experience would carry her through. In April 2019, an initial pre-seed funding round led by Redrice Ventures brought in £409,000, which lasted the company about 18 months, during which time it enjoyed a surge of organic growth and positive press coverage.
Just under a year later — as the Covid-19 pandemic plunged Dai’s frequent-flyer, powersuit-wearing clientbase into a long period of athleisure at home — the brand closed a second round of £1.3 million, led by Rianta Capital (the family office of New Look founder Tom Singh) and including Closed Loop Partners and Redrice Ventures. Two former LVMH CEOs – from Thomas Pink and Donna Karan – also joined the board. Still, it wasn’t easy: “We lost several investors at the last minute in that round, as borders closed and uncertainty spread,” says Dai. “But we came through that in what felt like a strong position.”
By the time Dai closed its third and final funding round in June 2022 — a mixed round including previous institutional investors, family offices and community crowdfunding, totalling £1.63 million — it seemed to be gaining momentum. Revenues were up 40 per cent year-on-year for the first quarter of 2023 (Dai will not disclose figures). But shareholders were expecting much faster growth than the brand could deliver.
This isn’t unusual. Many venture capitalists still expect sustainability-minded startups or companies with a triple bottom line (an accounting framework that takes into account social, environmental and financial performance) to deliver the same returns on investment within the same time frames, says Karla Mora, founder and managing partner at Alante Capital. As a result, these companies increasingly forego big fundraises in favour of slower capital with a longer-term view.
“We need more awareness of other types of funding, because brands who raise the wrong kind of capital often can’t keep up with growth expectations or raise further,” Mora explains, pointing to small business loans and angel investing as potential alternatives to venture capital. “So many founders fill their cap table with people who aren’t aligned with their mission. Bringing in the wrong type can mean closing the doors to your business before you’re ready to.”
“There is an expectation among investors that sustainability should be added to the mix, but not at the cost of profit,” adds Jocelyn Wilkinson, partner and associate director at Boston Consulting Group (BCG). This kink in the current system needs ironing out. “Any commercial decision has to consider all stakeholders, including nature and the people in a brand’s supply chain. Not doing so would be quite unpalatable to investors and consumers alike, especially for brands with sustainability messaging.”
Closing the brand has forced Dai to reconsider her definition of success. “We’re fed this ego-driven narrative of founders who get VC funding and eventually exit,” she says. “I’m trying to question my professional norms and the educational curriculum that is setting people up for failure by preaching growth at all costs.”
Balancing purpose with profit
From the outset, Dai was intended as a sustainable brand, balancing performance and durability with alternative materials and ethical production. The brand certified as B Corp in 2020, with a score of 97.4. But, as investors’ growth expectations rose, the brand’s commitment to sustainability waivered. Dai had weathered the pandemic, but costs were skyrocketing with inflation — up between 15 to 25 per cent year-on-year in 2023 — and the cost of living crisis meant that customers couldn’t keep up.
To cut these costs, Dai was considering moving production from Portugal to China. “It would have been cheaper to produce in China, but it also would have increased our carbon footprint and meant rolling back some of our environmental and social commitments,” says Dai. “I agonised over that decision in a way that a more commercial CEO wouldn’t have. Eventually the board and I realised that to continue would have meant to make compromises on people and the planet.”
Throughout, there was a disconnect between the future fashion industry Dai was trying to bring forward and the reality consumers were shopping in. “In our final weeks, we launched a sale which we called the ‘We’ll Miss You Sale’. That was our Black Friday campaign in the sense that it happened in November, but we didn’t call it that,” says Dai. “Then, a bunch of customers told us they were waiting for the Black Friday sale, even though we already had up to 75 per cent off. The week before Thanksgiving, we changed the sale’s name to ‘The Farewell Black Friday Sale’ and it was the best week we ever had. Consumers are so brainwashed by marketing language now.”
Going into lockdown, approximately 75 per cent of Dai’s sales came from its core collection of elevated basics in performance fabrics, following a somewhat traditional take on the capsule wardrobe in relatively neutral colours. The price point was aspirational: trousers ranged from £145 for tailored leggings to £350 for wide-leg wool pants, knitwear started at £195, and blazers stretched to £395 for the bestselling ‘BAU’ style. While Dai and her team placed a lot of emphasis on materials and construction behind the scenes, it was hard to convey online, and even harder to justify the price point to consumers who couldn’t see the difference. “You can’t tell the wearer’s experience or see the extended life cycle of our products online,” she says. “A black trouser just looks like a black trouser.”
Its final collection was much more seasonal and trend driven. “I quickly realised that core wasn’t going to be enough to stand out, so we hired a creative director and expanded into knitwear, outerwear and more seasonal designs,” says Dai. “You need to create desirability to shift products. The story of longevity and durability doesn’t land with customers — what lands is newness.”
“It’s tough to run a consumer business in any market,” says Mora. “Right now, with the shift to e-commerce since the pandemic, one of the largest challenges brands face is how to stand out to their consumer base. Often, earlier stage brands have to spend so much on marketing and PR to win and keep customers, but people still jump from website to website much quicker than they could ever walk from store to store. People look more at style than brand loyalty now. Sustainability can’t be the only thing.”
Ending on a high
By the time Dai realised she needed to close the brand, she had already committed to its Autumn/Winter 2023 collection. Rather than pursue insolvency, and risk not being able to pay suppliers back in full, she decided to keep the brand open long enough to sell the collection. “We created a beautiful campaign, which we called ‘Greatest Hits’, and gave ourselves and our customers one last chance to celebrate the brand and end on a high,” she explains.
The brand’s final sale that ran in early December, at up to 60 per cent discount, reduced the remaining inventory from £300,000 at cost to £25,000. Not only did this allow Dai to pay its suppliers and debts — with some leftover capital for shareholders — it also gave employees more time to find alternative roles. Many had been on work-sponsored visas to the UK, which would normally mean they had just 60 days to secure new positions after insolvency; Dai was able to give them six months. “It’s been incredible to go through that and come out ahead.”
“I don’t feel like it was a failure, I think it was a success,” adds Dai, who is taking time to travel and figure out her next steps. She points to the brand’s swan song as a sign of its impact. From September to December, its revenues were up 113 per cent year-on-year. November alone was up 175 per cent. “Our customers and communities came out in volumes at the very end, which meant we were able to find homes for our finished goods and pay all of our employees, suppliers and creditors, with some leftover for shareholders. I’m going to walk away from this feeling very proud.”
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