Good news for brand investment as inflation is set on cooling off this year. Having said this, 2023 taught investors to closely monitor customer acquisition costs and seek diverse retail distribution networks. This means that in order for companies to secure funding, they must possess a combination of key elements: capable founders, groundbreaking products, and a well-defined route to financial success.
“Just a few years ago, investors were more willing to take risks … the context has changed,” Virginie Birade, partner at Paris-based premium consumer brand focused private equity Experienced Capital, told Business of Fashion last week. “Now they’re looking for brands that strictly adhere to their theses.”
Organic Growth is More Crucial Than Ever
Prior to 2023, chasing growth could get by on increased advertising costs and investor wariness around bloated marketing spend.
In 2024, however, investors don’t want to see brands advertise exclusively through routine Instagram ads or influencer campaigns, but instead that they’re getting unpaid engagement and being strategic about where and how they appear to customers.
More Traditional Channels are Also Being Prioritised
Investors closely scrutinize advertising expenditures, many brands are shifting towards more traditional avenues to connect with customers, particularly through wholesale channels.
According to Birade, investors no longer exclusively favor digital brands and have shed their apprehension towards retail. The prevailing sentiment is that to maximize value, mastering every channel is essential. Being confined to a single channel is perceived as a vulnerability.
Take Halfdays, a skiwear label that entered retail just a year after its 2020 launch who now retails in Nordstrom, Bloomingdale’s, and Dick’s Sporting Goods. Its quick expansion into wholesale has become a significant attraction for investors. Ariana Ferwerda, the co-founder and CEO, highlighted that the brand’s entry into retail played a crucial role in securing a $3.3 million seed round in October, with plans to pursue a Series A in early 2024. Furthermore, the profitability of wholesale has matched that of direct-to-consumer, as it enables cost savings on marketing and shipping expenses.
Wholesale also contributes to enhancing brand perception. Veronika Kant, co-founder of sustainable apparel brand Bite Studios, pointed out that partnerships with high-end retailers like Moda Operandi and Neiman Marcus have solidified the brand’s luxury identity. This strategic positioning is instrumental in persuading customers to invest in their $200 merino tank tops and $1,000 silk skirts.
‘Who You Know’ Matters Now More Than Ever
In a slower, more risk averse environment, investors are more likely to go with the founder they know.
Keeping up the ongoing conversation with investors and continually showing them a brand’s progress is essential to maintaining a positive relationship in the long-term.
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