The 411 on Fashion Crowdfunding

Crowdfunding has become one of the most popular methods of startup financing in recent years, rising from its humble roots to having grown to a $34 billion a year behemoth and is predicted to overtake venture capital funding in 2016. This new wave has created opportunities for fashion startups. This has also led to the creation of specialised fashion crowdfunding websites.

Benefits of crowdfunding:

• Most fashion crowdfunding campaigns are rewards-based. That means you do not have to give up equity in exchange for funding.
• Crowdfunding is a great way to test your idea.
• Crowdfunding gives those who would not qualify for traditional funding (such as debt, VC capital etc.) an opportunity to raise funds for their venture.
• You can continue to accept pre-orders (using InDemand on IndieGoGo) thus building your brand.
• Crowdfunding campaigns are relatively easy to set up and do not require technical knowledge (like business plans, financials etc.).

Now, we’ll look at a few websites that new designers and fashion entrepreneurs can use to crowdfund their brand.

Fashion crowdfunding platforms:

1. IndieGoGo: One of the largest crowdfunding websites. IndieGoGo (unlike Kickstarter) is open to international residents whose countries can accept Paypal payments.
2. Wowcracy: Wowcracy describes itself as an ‘endless fashion week’ and lets you pre-order apparel from new brands. They’re more of a pre-selling website than a crowdfunding platform.
3. Out of X: This new crowdfunding website operating from Tel Aviv is best for single products that need to sell under 100 units to go into production.
4. I am A La Mode: This new Europe-based platform is good for serious fashion designers.

Words of caution and tips:

• Many websites are only open to US citizens. Fashion being a global industry, therefore is at a disadvantage. Though there are international crowdfunding platforms, they cannot rival the popularity of US-based platforms like Kickstarter, IndieGoGo etc. Also, equity crowdfunding, now legal in the United States, is not legal in many other countries.
• Many brands are unable to consistently come up with high quality products and thus remain a one-hit wonder. It is important to have a long-term vision before launching your crowdfunding campaign.
• Many of these websites focus either on charitable causes or scientific innovations. Even the fashion projects on Kickstarter and IndieGoGo emphasize functionality over design and beauty.
• High failure rate of campaigns: As much as 80% of campaigns fail to reach their target. Remember, crowdfunding is not a source of free capital.
• It is expensive. You will need to spend thousands of dollars on sample making, professional photography, videos, scripts, and PR to ensure a successful campaign. It is often said that the amount you can expect to raise is 10 times your investment. So, if you’ve spent only $500 on your campaign, you can raise $5000 at best.
• Time investment: Running a crowdfunding campaign is a full-time job.
• Your brands need to be known before you begin your campaign. It’s a good idea to have a website and social media channels set up at least 2-3 months before your campaign goes live. Nobody wants to trust an unknown brand. Show them proof that you’ve made valuable connections and are professional enough to invest in.
• Note that you still need to pay tax on the money you receive through crowdfunding. Besides this, IndieGoGo takes 5% of the raise; Wowcracy and Out of X take 10% of the raise. You also need to pay 3-5% to Paypal in transaction fees. So, more than 20% of the money you raise will be spent in commissions and taxes. Please keep this in mind when you set a funding goal.

We hope this article helped you understand the basics of fashion crowdfunding. Happy fundraising!