How to find investors for a clothing line pt.1

Posted by Kathleen Fasanella on Aug 7, 2006 at 2:05 pm / Intellectual Property, Newbies, Popular Topics, Small Business, Sourcing / Trackback

One of the most frequent questions I get is how to find an investor to produce a clothing line. Unfortunately, it is much easier to define who won’t get money rather than who will. In this series, I’ll be exploring the reasons people don’t get funding, followed by people who are more likely to get it. To start, here’s an example of someone who won’t get money and why:

I have a clothing line ready to launch, without going in to it too much. I have everything EIN, RN, wholesale interest and other clientele. I have samples in production as we speak. What I need is a resource for capital. Believe me when I say this will be HUGE!! Some items are patent pending as they are new to the market. I have innovative designs with a unique twist. Everything is copyrighted, trademarked and pending registered trademarks. For our full Executive summary and business plan please contact asap. We are looking to launch the tshirts first and move to the active wear.

Here are some reasons why this line won’t be funded -at least not by people who are in the business.


First, she says that some items are patent pending -being innovations in the marketplace- copyrighted and trademarked with samples in production and then you find out she’s launching tee shirts. There’s nothing patentable about a tee. Anybody in the business will know this designer is dramatically overplaying questionable advantages; those statements will only impress others on her same level (or lower) but not backers. That’s no way to win over an investor. You need to deal with them on their level and according to the criteria they weigh most heavily.

Let’s pretend the designer is telling the truth and has secured trademarks, patents and the like, it is most likely she paid someone else to do it for her which was a big waste of money. If she’s wasted money like this, for something of so little value, an investor has no assurances that she’ll spend money wisely in the future either, so why would anyone give her still more money? Paul Graham says investors avoid giving startups too much money and I’d imagine it’s because investors know startups waste it otherwise. I mean, startups are new, they haven’t learned priorities very well yet so of course they’ll waste money. Having full funding will only compound the problems.

Her frame of reference is skewed. Perhaps “innovative designs with a unique twist” will impress consumers but to investors, a tee shirt is a tee shirt; it’s far from innovative. Padding a product description in this way is a mistake because backers interpret this as either dishonesty or immaturity. If you can’t be honest about your product -even if only to yourself- a backer will be hesitant to believe anything else you say. They won’t know how much of what you say to believe.

If “having everything” means an EIN and a RN number, this designer has a very limited view of what it takes to produce a line which doesn’t instill a lot of confidence in an investor. While it’s great that she has those -not taking much more than 10 minutes of computer time- it’s not going to impress anyone who knows anything. Investors are more likely to back someone who has worked at developing products, knows how to produce them or knows where or how to get them produced, even if they don’t have EIN and RN numbers (the project plan details the skeleton of this process which is then incorporated into the business plan). The reality is, investors are more likely to fund people who’ve invested their efforts in product development or sourcing product development. Investors will assume you’ve covered the basics, they aren’t interested in someone who can regurgitate a bullet pointed list found in any Business 101 magazine article.

Another item of little interest to an investor -at this stage of business gestation- is a formal business plan. Surprised? A business plan really doesn’t mean much, not when you’re talking about manufacturing businesses. Investors will want to see a project plan. You cannot -cannot- devise a business plan without a project plan so if you’ve got a business plan but no project plan, all of your money, time and effort was wasted (and I’m sorry if you paid oodles of money to a consultant who wrote you one). It is much better to walk through the elements of a project plan, filling in all the blanks that you can (see pgs 199-200 of the guide) before developing a business plan. A business plan does not serve to define the unique parameters of manufacturing; this is not like a restaurant or a service business. For one thing, any kind of sales projections for stylized consumer products are unmitigated fiction. Sales projections are a fiction because you can’t know what or how much you’re going to sell. Consumers are fickle. Those of us in the business can tell you endless stories of companies we’ve known who produced really cute stuff -that nobody bought! Perhaps worse, the styles that none of us liked became hot sellers. While you can occasionally get lucky, it’s just not predictable and there’s no reason to assume you’d be the exception to the rule (sorry). I really do not like telling you these things.

Related entries:
Don’t borrow money to start a clothing line
How to find investors for a clothing line pt.1
Investing in a clothing line
Investing in a clothing line 2
Business plans for funding are over rated/
Stone Soup Entrepreneurs
Partnerships
Why contractors won’t partner with you
Factoring invoices: Financing a fashion line
ADHD dump: factoring
ADHD dump: factoring 2

18 Responses to “How to find investors for a clothing line pt.1”

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TheBizofKnowledge
August 7th, 2006
5:05 PM

Wow, I just wanted to say that this was a fantastic analysis of a seemingly straightforward email! I am not involved in the fashion world at all, but think that the points you made can apply to start-ups in many different industries. Thanks for the info, and I’m looking forward to reading the rest of the series!

Julie Knox
August 7th, 2006
9:23 PM

I am continuously surprised by all this mention of patents, both in the book and on the site here – obviously a lot of people you have dealt with talk about getting or having patents.

When I was first conceptualizing starting an apparel business, it wouldn’t have even crossed my mind to try to get a patent (not that it would now either). I’m not inventing the lightbulb, or teflon or something, it’s just clothes. I did want to eventually register my brand name and logo for trademark protection, just because it would suck to have brand confusion, and if you’re registered, then anyone else getting started can search their name ideas, and yours will show already in use if it’s the same..

I’m just wondering where this idea of patenting everything comes from. Is it a cultural thing? Is someone advising people that this is important or necessary? Who, as a start up, has the money to go to court and defend their patent anyway?

Gary Wassner
August 8th, 2006
7:31 AM

Investors want track records, not ideas, when it comes to apparel. Sales of the product, whether produced and shipped or just in the form of firm Purchase orders taken, are evidence of a viable product. There’s much more involved in bringing the product to market than simply the design. I look at everything before I commit to a new company, and I usually don’t finance start ups who haven’t yet had at least one season. There are exceptions though. If the designer and principals have worked extensively in the same market before, either for themselves or for other companies, I might be willing to work with them the first shipping season of the new company.

gmt
August 8th, 2006
12:02 PM

I couldn’t agree with you more. The fashion industry is so laden with hype, trends and the ‘next big thing’ that some designers go into it without knowing about the gritty mfg., production, legal and financial aspects that really carry the business. As I designer, I spend a week working on designing, the rest of it is calculating costs, mfg, resources, sales paperwork, paperwork..

alonzo
August 20th, 2006
10:13 PM

WOW. Thats a good article on business investors and the do’s and dont’s, of a business plan and running a business otherwise it’s really good knowledge. Im starting a clothing line and thats good info. Thanks

Gary J. Heim
September 12th, 2006
9:56 AM

So based on the above article, taking into consideration the DO’s and Don’t that are emphasised, how would you proceed if you had the product/designs, projected production costs, project timelines and COGS for the product. The line is not revolutionary in design but concentrates on an industry in active sportswear that is experiencing a renewed vitality……tennis apparel! There has to be a listening ear and interested investor somewhere! Every idea presents and opportunity…….who knows this might be it! The right eyes have to see it………….thank you for your article.

Kathleen
September 12th, 2006
11:18 AM

Why not just do it yourself? Nobody is going to invest in you if you don’t even have prototypes. You have to come up with protos first. I’d recommend you get the book. I don’t know how you’ve costed it out but I guarantee it’ll cost less than you think. For comparison, you might want to review the whole analyzing business plan series I’ve been doing (five parts are up). The guy who’s plan I’m reviewing doesn’t even have protos either. I can’t see him getting any takers on his concept either.

Deibe Rondon
August 12th, 2007
8:23 PM

this industry is very hard – and to find backer is even harder – financing yourself – its so hard – but also gives you less problems in the long term. – very nice article!

Andre McCline
January 30th, 2008
4:34 PM

The comments above as well as the article are very informative. I myself am trying to develop a clothing line. Im starting a T-shirt line first and letting it grow for a while. Finding a backer is hard, I think starting small with drive, focus and a realistic plan. Backers will have to notice you. Make noise with your lines style and never look back.

Michelle Anderson
December 3rd, 2008
12:04 AM

Great blog. Very informative. Fashion design is something I definite plan to pursue, as of now I’m currently designing my own clothing and taking orders here and there. Before jumping into this business I’m doing as much research as possible and making sure I understand the do’s and don’ts before I invest ANY money. And truthfully I rather get a few business and fashion merchandising classes under my belt before jumping into it. But I must say I’m getting complements from white women (and men) who shop and Neiman Marcus & Nordstroms to black teenagers and adults who would rather wear Coogi over Robert Cavalli. So I know I have the potential, I just need extensive knowledge of production and merchandising.

Derick Abram
November 30th, 2009
6:02 AM

This article is good but every type of clothing brand is different. I have plenty of celebrity friends who have clothing lines and some of them are doing very well while other may not. In either case, it just depends with each brand. Some investors like business plans, some like sales reports, others don’t care about anything but the bottom line. It’s just how much work you really put into that will determine what you get out of it. I’ve met all types of clothing CEOs from BCBG, Ed Hardy, Armani Exchange, to Miskeen, LRG, Phat Farm, and Rocawear. All of these people said that if you listen to every story out there that it will drive you crazy. You gotta just take control yourself and put yourself out there to be seen. You will learn as you grow, it’s a part of life. It’s good to have people who are already in the industry to give you connections to make some things easier but in the end it’s all up to you. I know plenty of people who don’t have patents til this day and they are selling like crazy. Others have patents and are doing okay. I’m not saying don’t get it but if you don’t have the budget for it, don’t stress it. My first orders came from Australia and Germany and I wasn’t even catering to them so it’s all about getting your feet wet and crawling before you walk. Nothing in this life comes easy but it gets better with time. Much love!!!

Wendy
July 16th, 2010
8:31 AM

I wanted to start my business really hand to mouth to see if what I was designing got a possitive responce. I have been doing NYC craft/flea markets for the past 3 years, and have gotten a great responce, and am always a top seller. My problem is it’s only me making everything.
My business needs to grow, in order to grow. How to I find someone to invest at this point?

Thanks!

Kathleen
July 25th, 2010
5:04 PM

Wendy: Other than to suggest following the guidelines and suggestions in this post (and its comments) you’re responding to, I can only copy and paste the comment I’d written above to someone who’d asked much the same:

Why not just do it yourself? You have to come up with protos first. I’d recommend you get the book. I don’t know how you’ve costed it out but I guarantee it’ll cost less than you think. For comparison, you might want to review the whole analyzing business plan series I’ve been doing (five parts are up). The guy who’s plan I’m reviewing doesn’t even have protos. I can’t see him getting any takers on his concept either.

Kathleen Fasanella
January 4th, 2012
8:00 AM

A note to those who have read this post and email me because they’re looking for an investor.

Keep in mind that anyone you ask to help you find an investor will expect compensation for their time whether they find someone for you or not. If they do find someone, they will expect an additional finder’s fee.

Finder’s fees can be very pricey (>30%). I know people think they can pull the finder’s fee out of the funding they acquire but all the parties involved know that’s what you’re thinking so the deal is structured in such a way as to prevent it because the investor doesn’t want to pay for that.

It may not seem fair but pretend the situation is on the other foot; an individual is looking for an investment opportunity. In that case, the investor pays the finder’s fee. The company being invested in shouldn’t have to subsidize a deal they did not solicit. That company will be doing their own negotiations for tangible and intangible benefits if they welcome the deal.

Eric Gunther
September 21st, 2013
12:46 PM

Gary Wassner is giving good advice. We both actually work in the funding side of the apparel business. A new brand needs to invest in themselves at first, prove they can get the orders, and then borrowing becomes possible. Once you have a track record of sales at a certain level (normally over at least 3-5 million would anyone have interest in investing. The exception would be a highly seasoned team with an unusual track record for success. Truth is, you may NOT want an investor to dilute your ownership. If you can simply borrow the money to make your goods and ship then things are looking great!

Best,
Eric Gunther
linkedin.com/in/ericgunther

Amani Phipps
November 18th, 2013
10:41 AM

Spectacular,
I am a high school student looking to well actually into the start up phase of my own clothing line and this really has helped me figure how to contact investors. It was again a fantastic, understandable analysis of the lesson learned from a failure. One i will acknowledge to prevent a potential setback in my own work. Thank you for this blog I plan on reading many more.

sohel rana
March 19th, 2014
9:39 PM

We searching a reliable partner that we going to open our new Denim project ASAP.

Rachele
June 9th, 2014
11:58 PM

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