Saturday, October 26, 2013

Valuations: What all fashion-tech entrepreneurs should aim to know- Part 1


According to Financial Times : “For every Net-a-Porter – the luxury ecommerce site sold by Natalie Massenet in 2010 to Richemont for $500m – numerous other heirs apparent, often backed by hefty venture capital funding, have sunk without trace.”

No matter which way you look at it, starting up and raising capital is a challenge, let alone exiting that successfully, but the above sentence is reassuring in a strange way…because it re-emphasizes the fact that eventually success in the market-place is all bout being loved by your customer for what you offer , not how much money you raised as capital. Sure, a solid dose of financial backing can’t hurt, but it won’t guarantee success.

According to the same article in FT – “Some industry observers have questioned the sustainability of ongoing investor excitement and even warned of a growing ‘fash-tech bubble’. Oliver Chen, a retail analyst at Citigroup, says he does not believe it is a bubble situation ‘Yes, some companies are falling flat, but the rapid innovation and growth rates driving the fash-tech shopping space – ecommerce and m-commerce are having 20 per cent and 40 per cent annual growth, respectively – won’t be going anywhere soon.’ ”

Also note-  according to this article , relying on cheap money to fund customer acquisitions expensively is a bad way to go. So a number of subscription-based start-ups that have raised significant capital to invest aggressively on marketing, essentially on inflated “life-time-value” assumptions, might not make it. The winners will be the ventures that have been built on a profitable business model that can be sustained in the long run.

So that’s got to be good news, Fashion-tech is overall considered a good space to be in right now. If you are a fashion-tech entrepreneur, you can feel glad that investors are open right now,  to investment in fashion-tech businesses.

But remember- you must not look at raising capital as your big ticket to entrepreneurial success, because it isn’t. You must first concentrate on getting that product/service up and running. Check  and tweak your offering till your target customers like what you’ve got, then hit a few growth/revenue milestones and THEN  you’re in a much better position to talk…the funds are going nowhere, don’t worry.

So let’s presume that’s happening, you’ve managed to come as far as you could have by bootstrapping, and now you need to approach angels and/or early stage VCs. How much should you ask for? What’s your business really worth?

How much stake (read control) would you have to give up?

Where do you start?

For starters you need to educate yourself, that old excuse about not being a “numbers guy/gal” isn’t going to fly…and it’s not cool.

You want to run a big business? Buckle up and learn to get comfortable (if not love) numbers!!

I’m no Guru, and I have to learn all of this too, because I own a Fahsion-tech startup and we will be looking to raise funds sometime in the near future.

Teaching yourself by researching and writing an article/post seems to be a good way to do it!

So, I shall be writing another post (at least) on how to go about arriving at an appropriate valuation figure for your startup, more for my own clarity than anything else…and I hope a few other people will find the post useful too.

Meanwhile here are some useful resources:

Valuations: What all fashion-tech entrepreneurs should aim to know- Part 1