An Introduction to Fashion Crowdfunding

Katy Eary | Source: katyeary.com

Katie Eary | Source: katieeary.co.uk

NEW YORK, United States — Next week, BoF will launch The FashionStake Diaries, a new series chronicling the development of FashionStake — a new online crowdfunding start-up focused, as the name suggests, on the fashion space. It’s traditionally been extremely challenging for emerging fashion brands to get the financial and marketing support they need. The crowdfunding approach — pooling together funds from fans via the internet to finance young designer businesses and one-off collections — could very well help to address this market failure.

But FashionStake isn’t the only company to launch this kind of model for fashion. In recent months, crowdfunding has become an industry buzzword as several new start-ups are aiming to see if the model used by the likes of Kickstarter can be successfully applied to fashion.

So, before delving deeper into the forthcoming FashionStake Diaries, it’s worth getting to know some of the other crowdfunding start-ups that are looking to disrupt the existing investment and operating models. Here are some thoughts in the words of their founders.

STYLETREK, Cecilia Pagkalinawan, CEO and Founder

Style Trek Screenshot | Source: Style Trek

Style Trek Screenshot | Source: Style Trek

In their words: StyleTrek.com will select emerging designers for their fresh and unique vision, quality of execution and offer this to the global consumer. If the designer is submitted by a StyleTrekker they will receive 74% of sales and the StyleTrekker 1%. If the designer submitted him or herself they will receive 75% of sales. Designers will receive a robust e-commerce platform, social media marketing support (on Facebook, Twitter and StyleTrek’s community) immediate international presence and a growing network of fashion fans who can help them develop new design ideas and even pre-order. StyleTrek will receive 25% of sales.”

Recent Buzz: Following blog posts in The Wall Street Journal and Cathy Horyn’s On The Runway, hundreds of designers submitted applications and over 50 people contacted StyleTrek for job opportunities. The angel funding round was oversubscribed and European and Asian investors were added to the original American investor base.

Our take: This is not, strictly speaking, a crowdfunding model, but it is what one might call crowdsourcing, enabling fashion fanatics to suggest designers to be stocked on StyleTrek. Though, it must be said that the current reward for doing so may not be enough of an incentive unless sales volumes are large. In order to make $100 in commission, a fan would have to refer a designer who sells $10,000 of clothes. Compare this to the $25 credit one receives on Gilt Groupe for making one referral that results in a sale. That said, founder Cecilia Pagkalinawan seems to have struck a chord with industry insiders. Her direct ecommerce experience at Burberry and La Perla, and relationships in the fashion industry will serve her well.

Launch Date: September, 2010

CATWALK GENIUS, Helen Brown, Co-Founder

Catwalk Genius Screenshot | Source: Catwalk Genius

Catwalk Genius Screenshot | Source: Catwalk Genius

In their words: “In Catwalk Genius’ crowd-funding scheme, the finance raised creates a new collection. Then, all the revenues from sales are split equally between the supporters, the designer and us. The return for everyone involved is therefore directly linked to sales. In the case of our collaboration with Katie Eary, once VAT and affiliate commission are deducted, supporters may earn anything from £0 to £12 for every £10 share they purchased.”

Recent Buzz: There has been much online conversation about Catwalk Genius’ support and link to young design star Katie Eary, whose collection on the site is the only one that has successfully been completely funded by the public, albeit at a lower amount of £5,000. Even though Eary is only a very young designer, it has helped to build awareness and lent credibility to the Catwalk Genius project.

Our take: Getting Katie Eary on board was a coup and if Catwalk Genius can make this designer relationship a success, then others may follow suit. But apart from Eary, most of the remaining selected designers have failed to raise sufficient funds through Catwalk Genius. If the wisdom of crowds truly works, then this means that Catwalk Genius supporters believe in the potential of Katie Eary, but the other designers have failed to inspire them. Catwalk Genius should aim find other high potential designers to generate more consumer interest. Stay tuned.

Launch Date: 2009

FASHIONSTAKE, Daniel Gulati and Vivian Weng, Co-Founders

Fashion Stake Screenshot | Source: Fashion Stake

FashionStake Screenshot | Source: FashionStake

In their words: “The business model works by allowing designers to offer exclusive collections directly to the public. Revenue from the collections is split between the designers and supporters of the collection. Supporters are people who bought ‘stakes’ in the designer’s collection. They receive their revenue in the form of clothing credits, redeemable for any purchase on our site. FashionStake takes a percentage of sales.”

Recent Buzz: Following an article by Reuters wire service, news of FashionStake’s launch went viral, with follow-on pieces in The New York Times, New York Magazine, Huffington Post, Washington Post, WWD, and Fast Company. The company’s pre-launch email registration list now stands at over 10,000 people.

Our take: In order for FashionStake to succeed, Weng and Gulati will have to focus on picking the right designer talent to make their model work. Crowdfunding in the way FashionStake has structured it means they must be focused on designers who have exemplary talent, some recognition and respect from the industry, and ideally some household recognition as well. The founders say they have “internationally recognised designers” in their stable, but are keeping mum about the details.

Launch Date: September, 2010

Next week, BoF debuts the first instalment of The FashionStake Diaries, a new series providing a behind-the-scenes look at the crucial first months of a crowdfunding fashion startup, seen through the eyes of its founders. First up: From Idea to Traction with $1000

Related Articles

Post a Comment

8 comments

  1. If a busniess owner has a decent credit history and solid business plan in place acquiring a small unsecured loan is relatively easy and cheap. Crowdfunding in general seems to be a way of skipping the business integrity checks put in place by investors and banks to reduce risk.

    VC’s know that an idea for a product or service is only half the success, the other half is having a good business model in place and someone who understands business to make it a commerical success.

    Providing an eCommerce platform for these emerging designers is a great idea, and providing investment to their business is essential, however success will only come if a solid business model is also in place by each designer.

    The stumbling blocks to acquiring startup investment are usually business model related. Removing these obstacles and providing designers cash seems risky with no business integrity checks.

    I think more designers need to be equiped with the business acumen to run their business before receiving cash handouts. The CFE (http://www.fashion-enterprise.com) is the only fashion focussed Incubator I know of who is helping designers improve their business and not by simply giving them short term access to easy investment opportunities. We definately need to see more of these types of incubators for all businesses.

    I would like to know how these Fashion Crowdfunding sites are tackling these business issues and ensuring backers are receiving secure, valuable investments.

  2. Alistair Allan raises some very valuable points! As a fashion designer myself, starting out with little to no money, I was very excited at these new investment models/methods. But after closer scrutiny, I realised that such a model isnt as rosey as first seemed.

    Rather, involving a number of essentially complete strangers to invest in your business, is 1. Risky and 2. Complicated.

    I think Alistair said it best, these new crowdfunding businesses are ultimately providing…

    “…short term access to easy investment opportunities.”

  3. Good article, there is also this website which I find interesting.
    http://www.fademo.com/

    veena from Bangalore, Karnātaka, India
  4. I think its down to the designer to convince the crowd of not only their talent but also their business acumen credibility.
    The crowd can then use their collective wisdom and ultimately the click of their mouse to decide who is investable and who is not.
    These are the fundamentals of crowdfunding and it doesn’t follow the legacy of the offline VC model.
    Catwalk Genius, Kickstarter, Rockethub and Crowdcube (http://www.crowdcube.com) are forging new ways of funding.

  5. I think StyleTrek is a genius idea–allowing the fashion obsessed to directly connect to the hottest emerging designers AND buy their clothes in a user-friendly way (i.e. not in a boutique or on an obscure site)? Yes please! I wrote about how much I love the site and the designers it feature on my blog, seriouslyfashionblog.com

  6. A group of entrepreneurs from the Instituto de Empresa have decided to launch a new business model based on an innovative web platform, never seen before in Spain. This website introduces the “crowdfunding” concept in the world of fashion.

    http://www.fanstylers.com

    In FANSTYLERS , the users will find a selection of independent fashion designers, unfamiliar for the general public. The deployment of their designs in the website will allow them to gain awareness and know the preferences of their potential customers, who will also give them their assessment. This process also offers very valuable information to the designers before they actually launch their products, which is a novelty in the sector.

    Once there is a compromise between customers and designer, the funding stage or “crowdfunding”, comes into play. At this stage, the designer sets a sale price, a number of minimum customers required, and a period of time to obtain them.

    A multidirectional relation is then established, where customers are a key part of the creative process. They help to develop the products that are launched into the market and act as shareholders by committing to purchase the product. In exchange, they are rewarded with discounts, limited editions, new experiences…

    Within some weeks, FanStylers will be available for the general public. You can now request the first exclusive invitations in our webpage (http://www.fanstylers.com)

  7. I think this concept is totally amazing! I’ve also heard about Carnet de mode or Meet My Designer. This last one is about to launch. I’m so looking forward to seeing what they are going to do!

    Doriane from Midi-Pyrénées, France