Entrepreneurial success in the traditional startup playbook — be it for beauty, consumer goods or tech — usually looks like scaling a business, gaining external investment and eventually exiting after it’s acquired. This pathway is less common (and harder) in creative industries. But experts and investors agree that small to medium-sized fashion brands have a thing or two to learn from the startup world.
The typical pathway for a designer starting a brand includes graduating from fashion school, doing an internship or two, launching a label, and scaling it through a combination of wholesale, fashion show press, and mentorship via talent incubators. But the struggles of independent fashion brands are by now well documented. In January, beloved avant-garde label Y/Project closed after struggling to find a buyer without designer Glenn Martens at the helm. In 2024, there were a series of closures across independent brands including Dion Lee, The Vampire’s Wife and Calvin Luo.
Executed correctly, a traditional startup playbook could lead to more commercial stability for indie fashion brands, experts say.
“We see it time and time again where no matter how much goodwill and press attention brands get, the clothes don’t sell so they go out of business,” says New York-based designer Adam Lippes, who started his career in investment banking before pivoting to fashion, rising the ranks to creative director at Oscar de la Renta before starting his first brand, which he sold to Kellwood Company. Lippes then went on to buy back his name and launch his current eponymous label.
Whether a designer is looking for external investment or not, developing a stronger foundation of business and financial acumen can help a brand stay afloat during a challenging macro environment — even just by developing a business plan.
It’s a fine balance, however, and creativity must remain at the forefront. “Treating a fashion business as a machine to make money doesn’t work. If you do that then you end up standing for nothing and selling that to lots of people,” says Alice Wells, managing director of investment bank Lempriere Wells, which focuses on mergers and acquisitions (M&A) in the consumer sector. “For an emerging designer who’s trying to identify a customer, the creativity, brand and customer have to come first.”
Managing risk with a long-term view
There are risks associated with taking on external investment. Venture capital firms in particular expect high growth, which is often not sustainable in a creative business. Investors stress that fashion brands shouldn’t treat fundraising as a way to stay afloat — the business should be able to sustain itself — but rather to expand in some way, perhaps by adding stores or launching in another market.
Exit strategies, which are sometimes a condition of majority investment, can be thorny for creatives, too: creative businesses are often more personal, so the founder’s vision is integral, making it harder to scale and exit the business. “You need to be able to present a world to investors where the value of the business is going to increase when you’re no longer there,” says James Tatro, co-head of London-based law firm Addleshaw Goddard’s consumer sector, where he works across M&A and equity investment transactions.
It can be disappointing for designers to see what may have started as a very personal project evolve in a way they disagree with, or even close down. Earlier this month, designer Cecile Reinaud, who founded maternity brand Seraphine, shared that she was “heartbroken” to see the brand go into administration (Reinaud exited the company when she sold it to private equity firm Mayfair Equity Partners in 2021). The founders of Scandi label Saks Potts opted to shutter the brand last year rather than risk handing over the reins.
It can hit even harder when it’s the founder’s name on the door, as is so often the case in fashion: Karen Millen sold her business in 2004, but later expressed regret in signing away the rights to her name.
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The risk goes both ways. Private equity backers lost out as American Apparel, Nasty Gal and Outdoor Voices fell into financial distress, and their valuations tanked (Outdoor Voices this week announced that its founder Ty Haney is back at the helm after a public falling out five years ago).
Because of that risk, investment and exit opportunities are fewer and farther between in fashion. “It’s very hard to predict risk for fashion businesses,” says Timmy Malkoun, managing director at investment management firm Ixora Holdings, which has invested in high-growth fashion brands such as Wardrobe NYC and Gigi Hadid’s cashmere line Guest in Residence. “You can make an educated guess — that’s the business of investing — but at the end of the day, those private equities are looking across consumer categories, and others are more appealing.”
The constant need to churn out newness and creativity in fashion is at odds with the investment world, in some ways. “The customer expects a level of creativity that doesn’t support robust business, measurable outcomes, or the ability to forecast unit economics predictably,” says Wells.
It works out for some, though. In February 2024, Samuel Ross exited A-Cold-Wall, selling the entire business to Tomorrow London, before Frasers Group-owned Four Marketing bought it from Tomorrow in November. The designer was intentional about not naming the business after himself, with the idea of exiting in mind. Ross’s business partner, Yi Ng — who has worked with him for a decade and is now CEO of newly co-founded venture SR_A — says there’s a way to structure a fashion business with an exit in mind. “If you want to set yourself up to exit, you model the business closer to how an entrepreneur would: you have a long-term view on your consumer, your product market fit and understand how to engage and position your product within popular culture,” she says. “You have to be very clear early on about what your product thesis and your consumer thesis are.”
In the tech world, an addressable market is the first thing entrepreneurs think about. “It’s something that’s often missing from a creative business — how big this market can be, and why they fit there better than existing players,” says Max Williamson, VP of strategic investment advisory Brooklands Capital Strategies, which is based in San Francisco.
The best way to set yourself up for external financing is by showing consistency in brand presentation and ongoing traction around certain business fundamentals, experts say. That includes business structure with regards to ownership, tax, payroll, trademarking and accounting. Accountant Vikram Menon, who has been consulting and mentoring emerging fashion brands in London for two decades, stresses that founders should have an understanding of what’s going on with their balance sheets and profit and loss accounts. “Even if it’s not your forte, the onus is on you to learn about these things and seek help — and not just through ChatGPT,” he says.
There are ways to build this into the culture of the business: from day one, Lippes set up his brand to have quarterly board meetings, monthly closings and weekly finance meetings.
“A really clear green flag is when a founder or designer understands their business in a practical and sustainable way,” adds Williamson, referencing Dôen’s founders, who grew the business to nearly $100 million in revenue without any external help. “That kind of discipline is something that shows us someone is a really good steward of capital.”
To mitigate risk, it’s also important to ask the right questions and know what you’re looking for from an investor while ensuring your goals align with their expectations.
Designing for investment
Every investor Vogue Business spoke to for this story stressed the importance of profitability. “If you’re profitable, you have so much more control of your future,” says Wells.
One of the biggest mistakes emerging brands make is not investing in their own direct channels, says Malkoun, as it can hurt margins in the long term. “Relying too much on wholesale is very addictive, but the brands that invest in their own channels are most protected when there’s distribution across wholesale because they’re able to grow their customer on their own,” he says. Williamson adds that relying too much on wholesale today can be a red flag to investors. “It says that maybe you don’t know who your customers are.”
There are a number of low-stake ways to engage directly with the consumer. Peter McMillan, co-founder and partner at Brooklands Capital Strategies, suggests that hosting customer-facing events can be a successful path forward. Malkoun suggests hosting a pop-up at a top client’s house. It’s also possible to develop a direct relationship with the customer when doing wholesale: Lippes travels to the department stores he’s stocked in multiple times a year to speak directly with customers.
For Ng, the trick to operating in a way that attracts investment without compromising creativity is to have a clear creative vision. “Consumers are looking across categories and price points to place value on brands, so you need a clear point of view that’s authentic,” she says. “If you have that, you can be more flexible with thinking outside the traditional codes of the industry and looking at ways to leverage your position and scale long term.” This has also allowed SR_A to develop a licensing model, working with the likes of Inditex, Hublot and Beats to build partnerships with joint intellectual property — another way of boosting profitability while reaching consumers across touchpoints.
Another factor that shows awareness and derisks the business in the eyes of investors is having a strong team — a separate CEO or chief of staff, an accountant or even just a consultant or advisor with a good track record. “If they’ve got someone working with them to think around corners who has actually scaled a business before, that’s a really good sign,” says McMillan.
While creative and business skill sets are often seen as opposing, Ng stresses that neither should be siloed when building a brand that aims to be both commercially and creatively successful. That’s how fashion businesses can scale and operate in a way that attracts investors without losing the creativity that makes them special.
“The creative and business leaders need to understand the language and metrics of each discipline,” she says. “If creative and business leaders are able to find that mediation and build trust, then those decisions don’t position the artistic value or business value as the only priority, but more so a negotiation.”
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