Investing in fashion start-ups: What VCs are looking for

#FashMash at Soho House - talking investing in fashion start-ups

#FashMash at Soho House

We recently held a #FashMash breakfast event at Soho House in London featuring three venture capitalists talking to the fashion and technology start-up space. Among them were Antoine Nussenbaum (AN) of Felix Capital, Tracy Dorée (TD) of Kindred VC and Suzanne Ashman (SA) of LocalGlobe. Here, we look at some highlights from the discussion, including what technology they’re seeing impacting the fashion industry and exactly what they look for in the businesses they invest in.


#FashMash: Given everything happening in the world right now, is it a good time to start a business?

TD: I think people start businesses because they have to solve a problem, because they can’t think of doing anything but that one thing, and I don’t see that type of macro trend of the uncertainty of Brexit or Trump or anything else that’s happening in the world affecting a great quality entrepreneur of getting started.

SA: I think it’s also easy to overstate kind of how the political turmoil over the last year has somehow impacted the funding landscape, because certainly at a really early stage we are backing entrepreneurs for five, seven, 10 years time. So, actually Brexit didn’t impact our investment cycle at all, we still made 25 odd investments last year… When we look back at our portfolio over the last 20 years we find that some of the best businesses were built in 2000 post the dotcom crash and 2008’s credit crunch, because people are looking for something new.


#FashMash: What technology are you seeing out there impacting fashion?

SA: I’d say the thing I’m seeing most of at the moment is the intersect between augmented reality and fashion. At the moment the vast majority of pitches that we’re seeing are very deep tech teams that have interesting products but not an end product that a consumer would actually wear – style is bottom priority and tech is top priority. I think the quality of those teams will improve over time as technical founders realise they need to work with someone with relevant domain experience to create a product that a consumer might want to wear. I got pitched an augmented reality t-shirt company and you know, it looks great, but at the moment it’s a t-shirt for 14-year-old boys. I can see over the next 12 months in this particular space that we’ll just see better and better things coming through.

TD: I also think we’re seeing less friction within payments thanks to mobile. People are designing experiences from a really mobile-first perspective. The first wave of online retail kind of looked like people were taking a warehouse and putting it online and it’s just a horrible sort of catalogue of walking through merchandise. But now people are really designing experiences for the platform on which they’re being delivered. I think the challenge with funding a B2C business, where you’re taking a new approach with your unique perspective, whether that’s to do with visual search or it’s to do with augmented reality or it’s to do with payments, any unique edge that you’ve got, is that you have to be able to show that the brand is going to have some type of longevity.


#FashMash: Which start-ups or new brands do you think are doing a good job and starting to prove they’ve got longevity?

AN: There’s a brand in France, which is great, called Sézane. The founder characterises exactly everything we’ve been talking about, to be extremely focused on the customer relationship and to be very true about what she’s building. It started off as a lifestyle business and grew into something very authentic with the customers.

SA: The brand I’ve seen recently that I think is executed super well, is Heist Tights – anyone that uses any form of social media will have seen their adverts. The founder there is also really interesting – he is super impressive and he’s all about the numbers. It helps if you can help us out by having some of the kind of standard metrics that we expect to see around a really strong repeat rate… Certainly things in the fashion space that we see, we really like people to have not just a product but some early numbers when they come to speak to us. From a tech perspective, I also think Hullabalook is an interesting example of two founders without a base in fashion, who have ultimately built a software enabler for e-commerce.


#FashMash: So beyond the numbers, what are you looking for in the start-ups that come to you?

TD: In whatever industry we’re looking at, we’re looking for this weird mix between the ability to think creatively, to have a unique insight, or a different perspective on something that people assume to be true. So that’s a creative vision piece with the ability to really get shit done. And to employ both sides of the brain is really hard. I’m excited for the businesses that use technology to make an existing workflow more efficient and that’s going to differentiate them in the long term.

AN: We see a new wave of people, of entrepreneurs, trying to create these companies that would connect better with, have a more authentic relationship with their customers. And from our end, we actually wouldn’t focus on the top line metrics looking at the business, but actually we would focus on something quite authentic being built in the relationship with the customer. It is not so much about the topic but about the interaction. It’s about how engaged the customers are and how engaged you are as an entrepreneur with your audience and your customers.

SA: At our stage, it’s really all about the team, it’s a little bit about the products, a little bit about the market but ultimately we’re backing a group of people as individuals to get through the next five years and overcome the many hurdles that stand in the way from where they are now to building a really big business.


#FashMash: Do you have any advice for start-ups on working with established retailers?

SA: As a start-up working with a big organisation, the one competitive advantage that you have as a small business, is speed and that’s the one reason why sometimes you have the opportunity to win against the big guys. Finding the person that’s going to really champion you within a retailer and help you navigate the maze of hierarchy and different workflows and different divisions is also so important.

TD: Two words of warning on working with really big clients: First, don’t end up doing work that is not core to your business. It’s very easy to want to work with X brand name and actually what they want you to produce is way off your product roadmap. If you think it’s going to be a massive distraction, that isn’t going to help you in your medium term vision, it’s tough to walk away and say no. The second thing is pricing. We often see start-ups working with larger brands offering heavily discounted products and it can be really hard to renegotiate that once you move from a pilot phase through to a longer-term relationship. So have that tough discussion about pricing up front.

This discussion has been edited and condensed.