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Fashion Tech Boom: Why It’s Happening and How Startups Get Funded



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One way is through Fashinvest, a three year old company that acts as a resource for connecting fashion entrepreneurs to investors. The company was founded by Karen Griffith Gryga and David Freschman, who collectively have over 25 years of experience within the investment world and realized there had been no such avenue. We spoke with Paul Fioravanti, director of operations at Fashinvest, who told us he gets emails every day from entrepreneurs talking about their companies–as well as investors wanting to know what’s out there.

Regarding what investors are looking for in a startup, he said, “They’re looking for the value proposition that the company offers them–if it’s a valuable entry into the market with limited barriers of entry with little competition and what a lot of people like to call a company’s ‘special sauce’ or ‘secret sauce’–that differentiating factor.”

Of course, a good idea has little value without a plan, an experienced team, and maybe a little help from Fashinvest. “Investors won’t invest in a concept; they want to make sure things are in place and that their investment is sound,” Fioravanti said.

It can also be tricky for investors and fashion entrepreneurs–who typically come from different worlds–to understand each other. “It’s hard with fashion because it’s so creative and the creatives tend to be like, ‘You know, this‘ll work and just trust me; this is a great idea; this is something that fashion needs,’” Fioravanti said. “That doesn’t really work with investors.” Then, you have investors who aren’t necessarily in tune with the interests of the 18-35 year olds these start ups are targeting. “That’s one of the key elements that I bring to the company specifically is really trying to be that liaison and to say, ‘This is a great idea.’”

The amount of money a startup can raise depends on what stage it’s in. A brand new startup will usually get a smaller-scale seed investment of $250,000-$1 million to start the companies. According to Fioravanti, these have been the most popular types of investments lately.

In the experience of Fab’s Jason Goldberg and Bradford Shellhammer, getting first round capital was pretty easy. “Even before we launched, we had people banging on our door wanting to give us millions of dollars,” Shellhammer said matter-of-factly. Goldberg’s prior experience as a serial entrepreneur was one advantage. “People are more inclined to take a meeting and write a check to people who have proven themselves in the past, so his kind of success stories really helped us.” They also made sure to “convince people that we were going to get shit done.”

Shellhammer insists it’s not necessarily that hard with investors racing to snatch up the next big thing. “If you’re doing something interesting in the technology space, chances are someone’s going to call you.”

According to Fioravanti, investors are particularly eager to invest in ecommerce sites. In fact, investment amounts for ecommerce companies doubled from 2010 to 2011. Why? “The amount of sales represented through ecommerce in fashion is really only 9% so that leaves such a gigantic margin. That’s one thing thats’ really attractive to investors is being able to get into a space that is wide open and has a huge amount of possibilities in terms of getting revenue and earning money.”

In December, once Fab started breaking sales records, they raised another $40 million. “Once you’re successful it’s really easy to raise money.” Wright, who has studied the subject extensively, says you’re only going to see multimillion dollar investments in established companies with enough users and uniques that a valuation can be made. “So in a few years they can be sold. That’s why you can see people investing in fashion startups.”

What we know unequivocally is that the momentum fashion startups are having–and this phenomenon of fashion, technology and finance coming together–won’t be slowing down in 2012. There are several new companies poised to invade our daily lives and change the way we experience fashion. Stay tuned for our list of ones to watch.



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