Starting a business is not an easy job. It requires a lot of planning, time, patience, and money. But how do companies get money to start? Although this may seem like a question for a financial expert, we can explain what raising capital is in a simple way.
HOW DO COMPANIES RAISE CAPITAL?
Imagine you want to start a fashion business. You already designed the first collection, you have a branding and a marketing plan, and your team is ready to start working. But how can you get funding to begin producing your pieces? One way to do that is to get a loan from a bank or an investor. You would use this money to finance your first projects until you start selling your products and profiting from them. When that happens, you can pay the lender back the money with interest.
Okay, this was probably an oversimplified way to explain how companies raise capital. In real life, there are a lot of challenges that require careful consideration before an investor decides to lend money for a new business. When you are an investor, you have to consider if spending cash on a new business is worth it, especially in the fashion industry.
During the Covid-19 pandemic, many companies faced financial difficulties. Multiple retailers, such as JC Penney, J.Crew, and GNC, could not stay in business with the decrease of in-person sales. Their bankruptcy scandals caused investors to rethink their standards before financing new companies. In an interview for Business of Fashion, Richard Klin, a London real estate entrepreneur, mentioned that investing in companies with more than 30 stores is no longer attractive. “But if a brand has a clear story, solves a problem, and is going digital, I see a market for it,” he added.
Going digital is a big attraction for investors. The reason for that is the increase in online retail sales during the Covid-19 pandemic. In 2020, online sales generated approximately $497 billion, and the forecast is to keep increasing every year. Companies that could adapt during this challenging period got an increased customer base, sales, and outside investments.
In addition, there was an increase in the number of online shops. From Online Marketplace shops to brand-new clothing stores, the pandemic made people get creative. And now, what started as a hobby has become a real business for many people.
E-COMMERCE IS ESSENTIAL
The ability to adapt is essential for any entrepreneur. This skill is also crucial to raising capital for your business. After the coronavirus pandemic, investors realized the importance of adapting to the digital for the fashion world. And when we talk about adapting to digital, we’re not talking about an Instagram account and paid advertisements. We are talking about digital marketing strategies that could cost less and be more effective.
Building a digital audience has become the key to growing your business. According to Business of Fashion, companies with an audience that grows organically are seen with better eyes by the investors. That helps to raise the capital by attracting investors and attracting new customers. Having good reviews by real people on your products makes them more valuable too.
Overall, raising capital is not an easy job. Whether through outside investors or starting as a small business with a credit card, there is much work involved. But remember: adaptation is essential. That is the only thing all industries have in common in their business plans. The world is changing faster and faster, and this could not be different for the corporate world.