The Expert Guide: How to Raise Venture Capital Funding as a Consumer Brand
For any emerging brand or company, securing funding is a critical step towards growth and success. Venture capital (VC) is one of the most significant sources of funding available, but understanding how to leverage it effectively can be a challenge. It requires careful planning, strategic alignment with investors, and a deep understanding of your business metrics
In a recent webinar featuring The Folklore’s Founder & CEO, Amira Rasool, brand founder Autumn Adeigbo, and Austin Clements, Partner at Slauson & Co., emerging brand owners gained valuable insights into the venture capital landscape, the funding process, and strategies to secure investments.
What is Venture Capital?
Venture capital is a form of private equity financing provided by firms or funds to startups and early-stage companies with high growth potential. VCs invest in these companies in exchange for equity, or ownership stake, and aim to achieve significant returns when the company goes public or is acquired. This type of funding is particularly suited for businesses poised for rapid expansion and needing substantial capital to scale.
Funding Options for Consumer Brands
Emerging consumer brands have a variety of funding options at their disposal:
Debt financing: Loans from banks or alternative capital sources like Community Development Financial Institutions (CDFIs), which focus on backing local businesses.
Grants: Available from programs aimed at supporting underrepresented entrepreneurs, including people of color and women.
Friends and family: Early-stage funding often comes from personal networks.
Angel investors: High-net-worth individuals who provide capital in exchange for ownership equity or convertible debt.
Venture capital: For businesses further along in their development, VCs provide significant funding in exchange for equity, expecting high growth and scalability.
How to Raise Venture Capital
Develop a minimum viable product (MVP): Start by creating a basic version of your product that meets the core needs of your target customers. This demonstrates your concept and provides a foundation for growth.
Build a strong business plan and deck: Once you have an MVP and initial traction, develop a detailed business plan and an investor deck. This should include your market research, revenue projections, customer acquisition strategy, and financial metrics.
Seek angel investors: Before approaching VCs, engage with angel investors. These individuals are often more willing to take risks on early-stage companies and can provide not only funding but also valuable mentorship and connections.
Network relentlessly: Attend industry events, join local startup communities, and leverage platforms like LinkedIn to connect with potential investors. Building relationships is key to securing investments.
Pitch to venture capitalists: When your business has demonstrated consistent growth and you understand your key metrics (customer acquisition cost, lifetime value, etc.), start pitching to VCs. Highlight your unique value proposition, market potential, and scalability.
When is Venture Capital the Right Fit?
Venture capital is ideal for businesses that:
- Have a validated product with proven market demand.
- Require significant capital to scale rapidly.
- Are positioned for high growth and potentially large market share.
- Are prepared for the pressure and expectations of rapid expansion and eventual exit strategies, such as acquisition or going public.
Adeigbo, who successfully raised over $4 million in venture capital for her fashion brand, emphasizes the importance of understanding your business metrics and having a solid customer base before seeking VC funding. She also notes that early funding often comes from personal savings, second jobs, and angel investors. Adeigbo was working as a fashion stylist during the day at W magazine and started hostessing at restaurants in the evenings. She saved the money she made from hostessing to create nine dresses, which she used to start her brand.
Aligning with the Right Investors
One crucial takeaway from the webinar is the importance of aligning with investors who share your vision and goals. Clements stresses finding investors who understand the size, scale, and timing of your business growth. This alignment ensures smoother operations and strategic support, reducing potential conflicts down the line.
For example, Clements’ VC fund Slauson & Co. focuses on early-stage businesses led by underrepresented founders, providing not just capital but also mentorship and a network that supports long-term success.
The Venture Capital Process
Application and review: Submit a detailed application to potential VCs, including your business plan and financials.
Evaluation and comparison: Review funding offers from multiple investors to find the best fit for your goals and vision.
Negotiation and funding: Finalize terms with the selected investor(s), agree on the details, and receive the funds.