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The fashion industry is notoriously difficult to raise capital for, for a few reasons:
1. It’s a very difficult industry to operate within that has an innumerable amount of competitors. It’s hard to prove to investors (and customers) that your brand is truly differentiated from the pack.
2. Fashion companies are capital intensive to get off the ground as you traditionally have to invest heavily and blindly into inventory that may or may not liquidate.
3. When selling through traditional wholesale accounts you may be vulnerable to chargebacks, requests to buy back unsold inventory, and even requirements to rent retail space or sell on consignment only.
Did I forget anything? Oh yes.
4. It takes a long time for fashion companies to build brand recognition and breakeven. On average 5 years or more to arrive at breakeven. But once brand recognition is established with a customer base, the opportunities for revenue-driving can be astronomical. For example, it took Michael Kors 30 years to build the multi-billion dollar revenue brand they have today. But what investor wants to wait 30 years for a return? Investors want to make their return as soon as possible. Which is why technology is currently a much sexier industry for investment than fashion.
Knowing how difficult fashion is to raise capital for, I was quite surprised when I was introduced to Linda Balti by a general purveyor of awesomeness Brit Morin of Brit & Co, whom we are collaborating with for a collection on Rent The Runway this Spring. Balti co-founded sustainable fashion brand Amour Vert, and recently exited. I wanted to democratize Linda’s knowledge and ask her about the different stages she encountered while raising capital for AV alongside her co-founder and husband, Stanford adjunct professor Christoph Frehsee.
Linda was born and raised in France to an Algerian mother and a Tunisian father. A far cry from the fashion industry, she studied computer science and communications and worked for a large defense company in France as part of a team working on developing simulators for fighter jets and helicopters.
Balti founded Amour Vert (AV) in 2010 right after she moved from Paris to Palo Alto where her husband (who was then her fiancé) was doing an MBA at Stanford and a Master’s in Environment and Resources. Their shared inspiration for starting AV was founded on her husband being a serial entrepreneur who sold his company back in 2008, after which they went on a tour around the world. Balti shares, “In Peru, someone had left a Newsweek at the beach hotel we were staying at. I grabbed it and started reading the article that would change my life. It was one of the first articles about the impact of the fashion industry has on the environment and on people. For the first time, I read that fashion was the 2nd most polluting industry after oil.” She was shocked. From that moment, she decided to radically change the way she was consuming fashion. She started buying only second-hand or clothing made from organic or recycled fibers.
Balti grew Amour Vert from being a wholesale only brand operating from her living room to a direct-to-consumer brand with 6 retail stores and a strong e-commerce business, with 8 figure revenues and over 60 employees. What set AV apart from its competitors is that it is founded on the belief that fashion can be sustainable and ethical and still
affordable. Balti adds, “Because it was so hard to find textiles that would fit the bill of being sustainable, ethical, scalable and affordable I had to engineer new blends of eco-fibers.”
Balti and Frehsee raised a $16M in capital over 3 rounds to execute her vision for a more sustainable fashion world. She shares, “When I started AV I wanted to focus on what mattered most to me and that was creating the best sustainable and ethical products. Over the years, I realized that if you have a vision no one will be better than you at executing it. Eventually, I decided to sell my shares and move on to start a new business where I can apply all the lessons I learned the past 8 years.” At the moment, she’s being mum about exactly what her new venture is.
Questions about Various funding stages:
AA: Did you use crowdfunding or do any accelerators in the Early stages of AV to test the market? If so which do you do?LB: I never used crowdfunding or any accelerators because I was lucky enough to be able to have friends and family invest in the business very early.
AA: Any accelerators you would recommend fashion startups to look into?
LB: I am a member of the CFDA, and if I would start a brand today I would try to get into the CFDA fashion fund program or the CFDA launchpad.
Friends & Family
AA: What steps did you take to successfully fundraise your friends & family round in the early stages of AV?
LB: It’s all about selling your vision and allowing people who know you best to be part of your journey. You also have to be very honest and tell your family and friends that they can lose their investment. It is part of the risk of investing.
AA: Is there advice you can offer other entrepreneurs about how to pose the inquiry of investment to F&F members without making things awkward?
LB: You have to treat friends and family like any other investors. You have to show them that there is a market, that you can capture that market, and that you are the right person to take this to the finish line and eventually provide them with a nice return on their investment.
AA: What should an Entrepreneur do when F&F member says no?
LB: You have to respect their decision. Investing money is a very difficult thing when you are not a professional angel and it is your first time being approached with an investment opportunity. When you invest in someone you might make 10x your money but you can also lose it all. The probability of losing it all is much higher than making a return. If they say no it is not because they don’t believe in you it is because they might not be in a position to lose their savings.
AA: Did you have angel investors and if so, how did you know it was time to start approaching angel investors for the next stage of your business?
LB: Fashion is capital intensive and when I realized the potential of the business was limited by our financial ability to satisfy the demand from our customers, I knew it was time to raise money.
AA: How did find/approach your angel investors?
LB: The angels who invested in AV had a personal connection to me and my husband.
AA: What advice would you give to consumer product entrepreneurs seeking angel investment?
LB: Ask everyone you know if they know of anyone with whom your story/product would resonate. Everyone is a potential angel. Be open to smaller check sizes if someone is bringing value.
AA: Have you approached VCs for investment?
LB: I prefer family offices to traditional VCs. Family offices have values that are generally better aligned with more traditional businesses like fashion. With that being said, for VCs to be interested in your business you need to be able to show exponential growth and the ability to be able to either sell the business or IPO in a 5/8 years time horizon. This is a lot of pressure.
AA: What can VCs offer that the other categories of investors don’t?
LB: VCs can offer more structure than family offices with financial, legal, business development advice because they usually have larger portfolios and more staff than family offices.
AA: Anything fashion entrepreneurs should look out for when working with VCs?
LB: Fashion is about building a brand that can pass the test of time. This takes years to achieve. Look at Ralph Lauren, Donna Karan, Michael Kors, Tommy Hilfiger, their massive success didn’t happen overnight. VCs are more short-term and it is not necessarily a match because goals are not aligned.
AA: Anything else you would like to add?LB: My husband and I always joke that cash flow is more important than your mother. As an entrepreneur, you should never run out of cash. You should always be fundraising. You never want to have to slow your growth because you are running out of cash. I know the anxiety of being close to not making the next payroll and this is the worst feeling.
Linda Balti is co-founder of sustainable fashion company Amour Vert. She recently exited the company and is working on something new. She resides in Palo Alto, California.
December 29, 2018 at 05:09PM
Forbes – Entrepreneurs