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How One Fund Wants to Rethink Venture Capital’s Relationship with Brands

Former Nasty Gal executive and angel investor Deborah Benton has launched a new fund with investor Amanda Schutzbank, aimed to set founders up for long-term success in a competitive digital landscape.
Bra brand Harper Wilde is one of Willow Growth's portfolio companies. Willow Growth
Bra brand Harper Wilde is one of Willow Growth's portfolio companies. Willow Growth (Carmen Chan)

When Deborah Benton left Nasty Gal in 2014, where she had been the president and chief operating officer for two years, it was clear to her that the start-up financing model was broken.

Nasty Gal raised tens of millions of dollars in venture capital on the premise that, for a compelling brand in the wide-open e-commerce market of the early 2010s, the sky was the limit. The reality was more complicated: because it was so easy to launch a brand online, ever-increasing competition meant finding and retaining customers was a constant grind. Even with its venture capital war chest, Nasty Gal struggled to cover the costs of logistics and open stores. The brand filed for bankruptcy protection in 2016 and its intellectual property was acquired by Boohoo for just $20 million in 2017. Among investors, Nasty Gal is seen as a cautionary tale about the mismatch between the needs of consumer brands and the start-up world’s growth-at-all-costs mentality.

Since leaving Nasty Gal, Benton has invested her own money in early-stage brands like the activewear retailer Carbon38 and beauty brand Uoma Beauty. Now, she and Amanda Schutzbank, formerly of VC firms Amplify and Primary Venture Partners, have launched Willow Growth Partners, which they position as a different kind of capital for emerging brands. Their aim is to offer the sort of early-stage investment typically provided by venture capital firms, only with a mindset that prioritises profitability and operational support over rapid growth.

With $28 million from their first raise, the pair have invested in 10 businesses, including the online fashion resale platform Goodfair and the hair accessories label You Go Natural. Half of Willow’s limited partners, or investors, are women. And three-quarters of the founders Willow has backed are women or minorities.

“One of the things that Amanda and I are really explicit about when we talk to founders before we ever invest, is we want to make sure we’re aligned on how we think these companies should scale,” said Benton. “We start with: what are the exit opportunities?”

We want to make sure we’re aligned on how we think these companies should scale.

Benton said that mindset is a departure from what founders typically hear when raising their early rounds of institutional funding. At that stage, investors are more often interested in how quickly they can increase revenue to justify high valuations. That mentality comes from the world of technology, where costs are frontloaded in research and development, resulting in a big payoff when the company’s user base explodes.

But for fashion and beauty brands that need to develop, produce and hold and distribute inventory, more sales come with different, additional costs. Fast-growing sales can also obscure problems that will become dangerous as a company gets bigger, like an overreliance on marketing, and reach such high valuations that would require a more than billion-dollar exit to be successful.

While there have been successful exits in fashion – and potential IPOs from Warby Parker and Allbirds could add to their ranks – many brands buckle under the pressure to grow. Direct-to-consumer retailer Brandless, for example, was valued at $500 million two years before it shut down in 2020, citing a “fiercely competitive direct-to-consumer market.” (A Utah-based group later bought its assets and continues to operate the business.)

“Founders are realising that spending on Facebook just to spend is not going to get them the end goal that they want,” said Schutzbank. “And giving up a lot of their company and taking a lot of dilution [in equity] is not going to get them the end goal that they want.”

New venture capital firms raising funds are more active than ever, but more investors are more interested in finding the next Shopify than the next Bonobos. Investment in retail technology tripled year-over-year in the first quarter of 2021, according to CB Insights, the highest in five years. And recent fashion-related investments from venture capital firm Forerunner Ventures — which backed Glossier, Birchbox and Dollar Shave Club, among many others — have included a universal shopping cart app, Nate, and a US-based livestream service for Chinese shoppers called ShopShops.

Willow isn’t the only fund offering another path for brands selling physical products. (The firm is also investing in some e-commerce services startups.) Private equity firms and corporations, which have historically preferred to take majority investments in more mature and profitable companies, are also getting involved earlier.

Examples include Footlocker, which like Benton invested in Carbon38, and Unilever Ventures, established in 2002, which has backed True Botanical and The Inkey List. LVMH Luxury Ventures, which LVMH set up in 2017, has invested in Gabriela Hearst and Madhappy.

Benton and Schutzbank said Willow is looking to invest in brands that are generating between about $1 million and $5 million in revenue. They may not be profitable, but their margins need to show that as the business grows and the cost of each product declines, “you start to get that operating leverage, we can see a path to profitability,” said Benton. Other key factors include how often customers make repeat purchases and the ratio of unpaid to paid marketing costs.

The fund is also looking for founders who espouse values through their businesses, for example with a focus on areas like transparency in the supply chain or diversity and inclusion, especially in the fashion category.

“Fashion companies that are strictly coming out as a fashion company, without a perspective on fabrication, or production, or recycling, I think they’re gonna have a tough time [with funding],” Benton said.

The investors are also looking for businesses with strong enough brands to sell more than a single “hero” product.

“Something that is changing now and that we’re looking for is building more of a community, more of a platform,” said Schutzbank.

And then, depending on their goals, when Willow’s portfolio brands reach about $8 to $10 million in revenue, it will be time for them to look for their next partner, which Benton said should be a “lower middle market” private equity fund or a strategic investor that can help brands mature.

“We want to help [founders] build the company that they want to build,” said Benton. “That could be ‘I’m in it for 10 years, and I want a billion-dollar exit,’ or ‘I want to do this for four or five years and I think I can build a really beautiful $50 million brand and get to profitability in three years.’ Those are very different paths when you’re thinking about how to support these founders.”

Related Articles:

Why Venture Capital Is a Bad Fit for (Most) Fashion Businesses

A Guide to Early Stage Fundraising

How to Sell a Fashion Brand

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