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Financing a Start-Up: Fledgling Designers Court Kin, Kindness

With a keen fashion sense and some business savvy, or a numbers-wise partner, ambitious young designers are attracting some financial backing.

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It’s harder, though, to get money for a fashion business’ “inner growth” during its early stages, Roi said. “People often wind up regretting deals that they’ve made in a sort of rash manner with big backers,” she said. “It’s better to pine away and make sure your retailers really trust you.”

In addition to building relationships with retailers through store visits and prompt deliveries, Roi said young designers have to know when to turn away from that absolutely perfect fabric that just happens to cost $200 a yard.

“Designing more than two collections a year is sometimes helpful too, because you’re turning goods all the time,” she said. “For the most part, the drive alone is enough, but it’s a business and it’s helpful for someone to at least catapult you to a place where you can make enough money and then pay them back.”

Gilbert Harrison, chairman of investment bank Financo Inc., said financing sometimes comes from “angels” who want a shot at the glamour and publicity that comes from backing someone who could become fashionably famous. Venture capitalists will also consider, though very cautiously, upcoming designers and some strategic apparel and retail companies that appear to have the potential to grow into relatively big businesses.

Harrison said it’s becoming difficult to finance up-and-coming designers and he, as a self-described entrepreneur, empathizes with their predicament. “You have to finance and grow new ideas and companies.”

There’s been a move from European sponsorship of designers and brands to an American institutionalization of funding, said Jeffrey Kuhr, managing director at Sawaya Segalas & Co., a consumer products investment banking firm.

“Historically, one of the biggest sources of funding has been from European companies such as LVMH [Moët Hennessy Louis Vuitton],” he said. “But now, these firms are divesting smaller brands, and what is taking their place are American companies that are getting more comfortable with young designers.”

He pointed to Nike Inc.’s purchase of Hurley, Nautica Enterprises Inc.’s associations with Earl Jean and John Varvatos and Liz Claiborne Inc.’s acquisitions of Sigrid Olsen, Lucky Brand Dungarees and Juicy Couture.
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