WWD’s lead story today reveals that TSM Capital, an offshoot of Marvin Traub Associates, has invested in  London-based Matthew Williamson, having raised funds from a silent investor. The deal gives TSM a 22% stake of Williamson’s business. Last year, Williamson took on investment from Baugur Group, where Aslaug Magnusdottir, now one of the key individuals behind TSM, was responsible for venture investments, like the one in Williamson.

The investments will focus on early stage businesses in fashion apparel and accessories. Traub described to WWD the market gap that TSM is aiming to fill:

“Over time, we frequently saw many great companies whom we thought were talented, and who could use funding. But if you’re trying to raise a range of $5 million to $25 million, it’s much more diffi cult than if you need to raise $50 million or $100 million.”

Despite some market uncertainty, it seems there is still interest in fashion investing, even if it is at the riskier end of the investment spectrum.

Photoclip courtesy of nymag.com

Two legendary doyennes of the fashion world have been making news this week — and not just for their colourful fashions.

Today, Betsey Johnson announced a majority investment in her business from Boston’s Castanea Partners. Some observers are questioning Castanea’s logic for investing in a 30 year old brand whose namesake is already a grandmother and whose high-profile days are long over.  On the contrary, the business  has a solid own-retail network of 51 stores and a respectable $200m in sales. This could provide a great platform for further growth, as long as Castanea doesn’t dilute the brand’s famous quirky irreverence, which is what is most appealing to its loyal fans.

Earlier this week British fashion icon, Zandra Rhodes, garnered yet another high profile article highlighting the resurgence of interest in her designs around the world. While she doesn’t have a business on the same scale as Johnson, she is still finding news ways of capturing value from over 3 decades in the industry, using her iconic colourful style as the basis for a series of licensing agreements with MAC (for makeup), Pologeorgis (for furs), and the Dash Partnership (for jewellery).

So, why are the fashion grannies on the rise?

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This week’s Economist ominously warns of “The Trouble with Private Equity” at a time when many in the fashion world are wondering how the infusion of private capital will impact their industry. In the last month alone, La Perla, Samsonite and Valentino have all been snapped up by private equity funds. Just today, The Sunday Times broke the news that Prada has also been in talks with private investors. (Not surprisingly, Prada has denied these reports, but it is not hard to see why this would be a natural option for Patrizio Bertelli, especially given several failed attempts at taking Prada public.)

The recent investment exuberance around fashion brands is a dramatic departure from the stance that many professional investors took even just a few years ago. Back then, they said there was too much “fashion” risk and that without predictable and stable revenue streams, their highly-leveraged (heavy on debt, light on equity) investment strategies were untenable. Now, with more and more money fighting for fewer investment opportunities, it seems much of this wisdom has been thrown out the window. 

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Taking on financing is one of the most important decisions an emerging fashion company will make.  This step is absolutely essential because the early stages of growth often requires significant amounts of working capital that cannot be generated by the business alone.  So, unless you are independently wealthy and sitting on a pile of cash, financing decisions will be part of your critical path, early on.

What is the difference between equity and debt?
Financing can come in many forms, but it basically comes down to equity versus debt.

Equity investors (in this case, venture capitalists or angels) provide cash to invest in your company and  therefore end up sharing ownership of the company with you. They invest in the hopes that your business will grow and that they will have some positive return through shared profits and upside.  They may offer you resources and expertise to help drive the business further. In fact, this is much preferred to someone just giving you cash and leaving you to fend for yourself.  If, however, you disagree fundamentally with your investor on where you want to take the company and how you will do it, then you may find their “help” a nuisance. Thus, when evaluating equity investors, choose someone who is aligned with your strategy and who has the industry and/or functional experience that your business needs to grow.

Debt financing, on the other hand, usually comes in the form of loans, where you are required to pay back  the money you have borrowed, plus interest, using a fixed schedule of payments that can be spread out over many years. While debt providers won’t be actively involved in your day to day business, taking on debt will mean you will have an additional cash outflow that your business will have to be able to support each month to stay on good terms with your bank. If payments aren’t made regularly, you may quickly find yourself dealing with irate calls from your bank manager. In the worst case, taking on too much debt  could drive your business into bankruptcy. Debtors are always paid back before profits are shared amonst the shareholders of your company.

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