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Once upon a time, there was a unicorn. But no one knew that the unicorn was a unicorn. Why? Because the unicorn actually looked like a baby frog! The frog hopped from place to place, hoping to find an angel. It had the potential to change the world. But no one wanted to give the frog a chance.
(Caption: Look at this frog. Would you like to kiss it?)
One day, after much searching, the frog found an angel! The angel believed in the frog and kissed it. The curse was broken! The frog’s valuation shot up through the roof and it turned into a beautiful unicorn! That unicorn blazed a fiery trail through the world. It grew bigger and brighter with every milestone and changed our lives as we know it. And everyone lived happily ever after!
Right now, your startup/small business is like a baby frog! But it can scale and evolve into a unicorn with the right angel investors. This guide is for owners of startups and small businesses in the fashion/textile industry who are wondering how to find investors. Let’s take a look at the different types of investors as well as some facts & myths about them.
Investor Myth: Big Cities Are Where It’s At
All the good investors are found in metropolitan cities. New York, Shanghai, Dubai, London etc. is where they’re at. You must go there to find your angel investors. In fact, you may need to shift your business as well. We beg to differ!
Investors are everywhere. In the United States for example, “63% of angel investors live outside New York, Boston, and Silicon Valley.” This means that you can go local (in fact you must) and find investors for startups in your own city.
(If your brand is too young to look for investors or if you’re yet to kickstart your business, our article on Bootstrapping Your Fashion Brand with $1000: A Guide From Fashinza might have better insights for you!)
Investor Tip: How to Find Investors in Your Niche
Many (if not most) investors prefer to specialize in their investment ventures. This means that they restrict themselves to a specific industry, business model etc.
Ever heard the phrase “write what you know?” The same principle applies to investment. Investors tend to invest in the industry they have knowledge/experience in. For example, a successful fashion designer will prefer investing in a fashion startup as opposed to an automobile one. You must adapt accordingly and search for the investor that is a fit for you.
As a fashion startup/small business owner, you should knock on doors in the industry for investment. An investor in the fashion industry is knowledgeable and more likely to invest in your business. They are also sympathetic to your specific struggles and able to provide insight where needed.
Angel Investor or Venture Capitalist?
You must decide if an angel investor or venture capitalist is best for your business. What is the difference between the two? In a nutshell, an angel investor is a high net-worth individual while a VC works for a management firm with an investment fund.
An angel investor is a high net worth private individual(s) who boosts growth during the early stages of a startup. Angel investors invest smaller amounts in return for equity or other forms of compensation. Such investors for startups are satisfied with smaller returns in general.
Venture capitalists on the other hand work for firms that manage a large investment fund. The capital for your startup comes from this fund. Here’s an example of a VC firm called ‘Fashion Capital Partners’. It is based in Paris and specializes in fashion technology.
VC firms invest larger amounts of money in startups and expect larger returns (often 10X or more). VC firms also act as investors for startups at various stages (i.e., seed round, Series A, B, C etc.) An established VC firm will have various investment divisions and has more stringent requirements for investment.
Which is best for you: an angel investor or a venture capitalist firm? While that answer depends on your situation, the general rule of thumb is to go for an angel investor in the very early stages. Such an angel can offer lesser capital amounts that should suffice for your startup/small business. When your business is in the “pre-puberty stage” (i.e., it shows potential for significant growth, sales as well as return on investment), you should consider pitching VC firms.
Angel Investors or Angel Syndicates?
Here’s a myth: angel investors usually work alone. This is not true. Investing is expensive, time-consuming and often risky. As such, investors can work together as “angel syndicates.” These syndicates share the investment risk as well as equity. You should be on the lookout for individual angel investors as well as angel syndicates.
Accredited Investors (for USA markets)
Can your dad invest a million dollars into your business venture? If you’re Donald Trump, the answer is yes. But most of us are not Trump and we don’t have wealthy parents. That leaves us looking for legitimate investors. Note the term ‘legitimate’ i.e., not all investors are worth your time and attention. How does a startup owner find legitimate investors? If you’re in the US market, start by searching for accredited investors for startups.
The term ‘accredited investor’ is a designation created by the US Securities and Exchange Commissions. It is a certification tool (as well as an honor badge) that is used by high net worth individuals and entities. An accredited (individual) investor will meet at least one of the following criteria:
- They have a net worth of $1 million or more
- They have, over the past two years, earned $200,000 individually or $300,000 jointly. Also, such an investor will continue to maintain the same income level over the next few years.
Why does an accredited investor matter? Because these individuals/entities are financially well-equipped and capable of investing in your startup/small business. Investment platform AngelList also notes that “most startups only raise money from accredited investors.”
By now, we have examined some basics about locating investors for startups and small businesses. You should also have some knowledge about the types of investors as well as when and how to approach them. In our next article, we will discuss how to find the right investors for your brand. Subscribe to Fashinza for authority content as well as more information about the fashion industry.