Finding and approaching investors, as well as determining just how much money you need to ask for, can seem a daunting task. But by breaking it down into pain points, important questions, metrics and goals, the process can be easier
Two of the biggest pain points in financing are first, finding the needed capital and, second, knowing what to do with it after obtaining it. So before you approach any investors, ask yourself these questions:
What is my product?
What is my brand?
What do I see this company making money from?
What would I need to know to justify an investment, if I were the investor?
First, you need to understand your brand positioning. What is your product? What are its differentiators? Then, you should understand your target market. Who will be buying your product? What problem does your business solve for them? Also have a clear gasp on how your brand looks, feels and speaks. How do you communicate to your customers? What is your brand’s personality. You should also know your assortment plan. What are you planning on producing? How many types and variations of products do you want to launch with? And lastly, you should have an idea of what margins you are targeting. What profit margin do you need? How much are you planning to spend on production and overhead?
Now, if you are just starting out, you likely won’t have concrete numbers for all your financials ready to go. And that’s okay! In lieu of data, have ready reference points and research to back up your projections. You should also strategize with consultants before approaching investors so you have a more sound understanding of what you are presenting. Read data analytics and reports, too, so you are well-informed of the market.
When it comes time to make your asks, be sure you know the answers to these questions:
What do you need the money for?
What is your total addressable market?
You should also look into existing points of leverage you may have. Simply put, leverage points are who you may know that can help give you access to things like production, marketing, sales channels, graphic design, etc. The right network can make a world of difference, and open doors for you while also reducing the amount of unknown variables. Also lean into your own strengths. If you are an excellent graphic designer, do your own logo and deck design work in-house.
Most businesses these days start by being self-funded, meaning you will likely have to save and invest your own funds into your brand to get started. You can also source funds from friends and family, as well as your own savings. There’s no harm in asking, but be prepared to tap into your own savings for the most part.
Now, when it comes to pre-launch fundraising and capital, you will need money not just to launch, but also for ongoing operations, and to scale your business. That means your initial lump sum of investment should cover your first 18-24 months in addition to your pre-launch costs. Keep in mind, the first 12-24 months of any business have a low chance of being profitable. Instead, during that time you will be refining your product-market fit. Because of this, approach your capital from a “worst-case scenario” perspective to ensure you have enough capital to cover you. Remember, the majority of fashion brands are self and privately funded first, or make use of SBA loans.
Crowdfunding can sometimes be a good first step, but the strategies are often quite expensive. They are best used more for getting attention and PR than solely for funds. Crowdfunding equity, however, can help more. You can get money without giveaways, set a repayment schedule and look into micro-loans that are manageable.
You may also want to look into Angel Investors. Similar to friends and family, these are groups of investors that are often found in networks and strategic hubs. They can offer equity transactions that are structured in useful ways. Before you enter into any level of transaction, though, talk to a lawyer to ensure your business is setup properly and the right equity ownership delivered.
Second round funding typically comes around 24+ months into business. You’ll have had a chance to see traction in sales, social capital, etc. to have a clearer picture of your business going forward. This is the time to scale up your resources and look into lines of credit, loans, etc. so you can reinject capital into your business.
At the end of the day, securing financing requires a through understanding on the back end of your business of:
What tractions looks like for your brand
The stepping stones to get there
And a thorough plan
At Scaling Retail, we’ve launched brick-and-mortar and e-commerce businesses all over the world. Questions about building, launching, or growing your fashion business? Send an email to hello@scalingretail.com for a complimentary consultation.