Venturing into Fashion Tech

VC Series: Why So Few Fashion & Retail Tech Funds? with Rohan Bansal

• Beyond Form • Episode 70

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Lack of Fashion & Retail Tech Funds:

The fashion tech sector raised nearly $3 billion in 2024, yet there's a surprising lack of specialised VC funds focusing on this growing market despite proven exits and significant market potential. In this final guest episode with Rohan Bansal, he chats with Peter on what some of the blind spots are for many investors.

The Struggle with Specialised VC Funds:

• Generalist VCs lack specialised expertise in fashion industry dynamics and operations.
• Traditional investors struggle to build the right networks for strong deal flow and exit opportunities.
• An estimated $20-30 billion annual funding gap exists in fashion tech and closing this gap requires collaboration between corporate investors, government subsidies, accelerators and public funding.

Connect with Rohan on LinkedIn: linkedin.com/in/rohan-bansal-50328179/

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The show is recorded from Beyond Form, a fashion tech innovation platform. We build, invest, and educate fashion tech entrepreneurs and startups. We’d love to hear your feedback, so let us know if you’d like to hear a certain topic. Email us at podcast@beyondform.io. If you’re an entrepreneur or fashion tech startup looking for studio support, check out our website: beyondform.io

Peter Jeun Ho Tsang:

Hi, I'm Peter Jeun Tsang, founder and CEO of Beyond Form. We're kicking off the first mini-series of 2025, and it's all about VC investing in the fashion and retail tech space. I'm going to be joined by Rohan Bansal for four episodes where we explore what it's like going into the VC investing world, what's hot right now in terms of deal flow, technology startups to look at and everything in between.

Peter Jeun Ho Tsang:

On this fourth and final episode of this mini-series, I'm back again with Rohan, where we try to answer the question why are there not more VC funds investing into the fashion and retail tech space? Even though we have seen fashion tech companies raise money, we've seen IPOs happen and some investors seeing a great return, there still seems to be a gap there. So why is this?

Rohan Bansal:

If you're a generalist VC, you're focused on more broader verticals, so you don't fully map fashion tech space and you might miss out on some deals because you just didn't have your finger to the pulse. And then also having experts that you can talk to and rely on. And then exits, because one of the roles that VC do as well is they help induce exits. But if they don't have the network they can't talk to people to get the right exits.

Peter Jeun Ho Tsang:

Let's get this conversation going with Rohan on today's episode of Venturing into Fashion Tech. How are you today, Rohan?

Rohan Bansal:

Doing great. How are you?

Peter Jeun Ho Tsang:

I'm good, thank you, looking forward to today's conversation. Big, big question mark why are there not more funds looking at fashion tech and retail tech? I don't know, there's a huge void. J ust to hear your thoughts in a second, but to set the scene for our listeners. Data on traction. So the startup investment fundraising platform that tracks all of this activity showed that in 2024, the global fashion tech industry raised a total of 2.97 billion us dollars in equity funding across 200 investment rounds. This marked a significant year for the sector, with funding distributed across subfields such as textiles, verbal tech, e-com platforms and AI-driven design tools Just under $3 billion there, showcasing that actually this is a credible category to invest in.

Peter Jeun Ho Tsang:

Exits have also been happening. For example, in late 2023, futuri raised $200 million on the Tokyo Stock Exchange and Mishi India secured $100 million on the Bombay Stock Exchange. So there are actually exits happening as well. And, of course, previously we've had some blockbuster ipos as well, with people like farfetch money is going into the space. Evidently exits have happened. So why are there not more investors in firms putting dedicated funds for fashion and retail tech? So that is the conversation for today. Big, big question, mark rohan. Why are traditional venture capital firms hesitant to invest in the fashion retail tech system at least?

Rohan Bansal:

That's a question I've been thinking about for quite some time myself as well, and I don't necessarily have a fixed answer for this. It's maybe the fact that they don't have comfortability within this space, because, generally speaking, you need people that are experts within this, and generalist VCs just don't have that many people that they hire from the fashion industry or the retail industry. Just don't have that many people that they hire from the fashion industry or the retail industry. You know, like they tend to go with people with tech backgrounds or financial backgrounds who understand fashion to an extent, but not enough to potentially be investing in them. You know, then, the other thing as well was previously that there was just not that many exits at 10 years ago.

Rohan Bansal:

So the change in that is now happening as well. It was reaching an inflection point, and many of the big groups are now realizing there's a lot of regulation that's coming in, so they need to be in the right sort of regulation and they need to do innovation and investments to help scale that. So that's also why maybe one of the reasons why there wasn't because there just wasn't that much M&A and big groups were not interested in that to a certain extent. And then, finally as well. The other thing is that people were focused on very specific niches and consumer brands, or a little bit of consumer tech, or a bit of marketplaces and e-commerce. They were on the fringes, but they were not dedicated to that. But now, as you said, there's three-diligent funding that happened last year a lot of exits as well, which shows that it's a dynamic industry going through change and there will be a lot of VC. There's going to be a lot of funds that are going to be created in this space in the coming years.

Peter Jeun Ho Tsang:

So it sounds like potentially, these digital firms are just scared because they don't have the in-house expertise or know where to get in-house expertise to make things happen for them. In our previous conversations you talked about how the fashion industry works in cycle goals and how that may affect the investment decisions and how people are aborted from the investment world. Of course, this means volatile trends, potentially complex supply chains, consumer demand fluctuating up and down, as we've seen recently. We were just talking this morning and you said to me, Peter, Intertech shares have gone down, the consumer demand has gone down. Of course, all of those things affect the investment world as well.

Rohan Bansal:

So how does that impact VC investment decisions? Vcs are constantly kind of trying to get a pulse on the market right, but, like we said previously as well, vc is not a game of months or quarters. Vc is a game of years, sometimes even a bit longer. Maybe hiring people that are professionals in the industry, people that have a good background in the space, because, as previously discussed as well, it's not just about funding, but it's about what can you bring to the portfolio after the funding as well.

Rohan Bansal:

So many times, what makes or breaks an investment or a company is the amount of value that the VCO or the investors are bringing to them, because that can help accelerate their growth. That can help them fast-track a lot of their initiatives. So there's definitely a bit of that as well. There's also a lot of consumer shifts, a lot of governmental support as well. That's kicking in now, because governments want a lot of solutions that are more environmentally friendly, because, as you know, 10% of all the CO2 emissions and pollution that's caused in the world is related to fashion, manufacturing and retail apparel. So governments have woken up to that. The EU is doing a lot of initiatives and a lot of policymaking against that as well, to combat that. That's going to drive a lot of growth into this space and it's going to drive more founders that are going to want to create something in this space and, yeah, it's an exciting time.

Peter Jeun Ho Tsang:

Yeah, so, from what I understand, vcs that are lucky into the space or want to look into space and to look a little bit more holistically is that what I understand? Yeah, yeah. So looking not necessarily just tech or the space within fashion, but how, as you said, the governmental issues is going to affect everything and therefore making you know good opportunities within the space. However, I know, as I mentioned earlier, inditex, the owner of zara, bershka and so forth shares have gone down.

Peter Jeun Ho Tsang:

I believe is the fact that they are not innovating quickly in to differentiate, either through product or through their customer journeys or their retail experience, which tech is obviously one way to solve all. It's almost like a caps 22. Not innovating means less customers because they're going elsewhere, retention rates are dropping, they're getting bored with your brand and so forth. This obviously is they're making the investor think well, is there a problem with the fashion industry, the technology that's shaping the industry, so it's almost creating like this whole vicious cycle. And does this lack of innovation from those brands signal or impact these VCs in any way and therefore making specialized VC funds? I guess?

Rohan Bansal:

Yeah, yeah, of course, because when VCs are making investments, they're also looking into exits and they want to understand who can acquire. But if they see that some of the big fashion groups are struggling, there's kind of two sides to that coin. So they could say that, okay, yeah, now they are in dire need of M&A because they need something that can help revitalize the brand, both in terms of, let's say, brand building, but also maybe in terms of tech and innovation. To include the margins and I haven't fully gone through the Inditex report at this point, but I definitely will Most of the times, these big groups don't tend to do these things in-house.

Rohan Bansal:

They either partner up with someone or they buy someone. So Some of their portfolio companies will be getting good exits in the coming quarters and years. But then, at the same time as well, you need to kind of realize that when you're on the public markets, you have a report card every day with your stock price, and right now, investors have given a giant F to the Inditex report card saying that you kind of failed because your stock went down like almost 14, 15%. But what that also means is that Inditex now will be looking for something to be game changing and consumer brands are realizing that there's too much, too many of them out there. They need to find ways to if you understand their customers a bit better target them better, retain them better or just attract new customers, and they're going to need a lot of tech-powered solutions for that, and they might be going to VC-backed companies for this.

Peter Jeun Ho Tsang:

It sounds like there is opportunity there for the specialized ones, for example, fashion tech, retail tech, because these brands are going to need to find, as you said, there might be those game-changing solutions, those anecdotes, to the fact that the customer is not buying from them. It sounds like that these investors, or potential investors or investors, should get onto that wave, then, of that game-changing nature, to be there when it does happen. And I honestly do believe. Obviously, for Fashion, we are in a bit of a slump right now, but it's going to pick right up again.

Peter Jeun Ho Tsang:

You know, this quarter we've seen LVMH post very good results, we've seen Valkyrie Groups posting very bad results. So it's not necessarily just fast fashion in the case of Inditex, it's also affecting the other end of the spectrum, with luxury brands as well, and everyone's now, as you say, they're going to try to scrum, to find anecdote for that slant, which obviously, in our biased opinion, tech and innovation is one way to solve that. So then, on the notion of innovation, what we've seen so far is that soft tech ie software does a lot better in the investment space than hard tech ie factories and machinery. Why is that happening? How has that come about?

Rohan Bansal:

I think it's maybe because software is much easier to scale. It's just easier to sell that and to that um, because the costs are much lower when it says sass or recurring business model. But then, at the same time, some of the big brand like nike as well, I don't know. You know, like when we were growing up, nike was hot stuff, like everyone had the latest white nike sneakers, the air jordans or whatever. Now they do it, yeah, exactly, yeah, we kind of, we kind of aged ourselves with that. Oh yeah, so, yeah, so yeah. But I think what's happened is that now you're having a lot of cool brands that are coming out, like On Running, which is one that Roger Federer invested in. I think he put a few million now and now it's worth 300 million for him, so that's great. Then there's also other running brands, like which is actually bought by the parent company Uggs, actually 10 years ago.

Rohan Bansal:

The reason why they're so successful is because they can pivot quite fast, they have a digital first strategy and they understand the customer super well. So having someone that can understand customers really well is very important. And hard tech is super important, because margins are decreasing, so you need to find ways to produce efficiently or to produce at scale in an environmentally friendly manner, which will require hard solutions, which will require deep tech solutions which won't just require software, because also software, while it scales faster also people can easily move away from software as well, because there's always something new coming in. But if it's hardware it's very hard to replace it. Or if it's a hard tech solution that's really powering a lot of stuff that's going internally it's hard to replace, which also then decreases churns. A lot of opportunities there.

Peter Jeun Ho Tsang:

So, then, innovations are happening. There's opportunities within innovation, in your opinion, obviously from both sides of the spectrum of high-tech and soft-tech. If a generalist VC or anybody looking to create a specialized VC fund, what are some of those risks associated with creating such a fund? Well, first of all, if it's a generalist VC, that's looking to create a specialized VC fund.

Rohan Bansal:

What are some of those risks associated with creating such a fund? Well, first of all, if it's a generalist VC that's looking to create such a fund, it's convincing investors. Why are they moving away from the strategy, especially if they've done really well with the existing strategy? Then find the right profiles to hire, because obviously they're not going to hire generalist people now. If they're building a specialized fund, they're going to hire specific people for the specific, let's say scope that they're going for. Find the right profiles for that. Giving them the right incentives is super important as well.

Rohan Bansal:

Then also deal flow Building a network and relationship to understand where the best deals are coming from, because if you're a generalist VC, you're focused on more, broader verticals, so you don't fully map the fashion tech space and you might miss out on some deals because you just didn't have your finger to the pulse at this point, you know. So there's those pitfalls as well. And then also having experts that you can talk to and rely on. And then exits, because one of the roles that vc do as well is they help induce exits. But if they don't have the network they can't talk to the people to get the right exits. They need to just induce the right conversations. And the right conversations will only happen if, let's say, they have a dedicated fund and this person within the fund has that network or they know how to access these people.

Peter Jeun Ho Tsang:

It sounds like quite often, the limitations of the manager of that fund and their network could be the limiting factor. Actually, yeah, manager of that fund and their network could be the limiting factor, actually yeah. So it's quite often said that within the fast food industry, to modernize, there's an actual annual funding gap of between 20 to $30 billion in terms of financing. What changes are needed, then, to attract more VC funding into the space, to make it go forward and ultimately revolutionizing in some ways, which is quite a traditional industry? Excellent question.

Rohan Bansal:

It's a big gap huh 20 to 30 billion. Yes, it's a massive gap. It's massive, massive gap. I think corporate buying and corporates doing pilot programs, doing projects around this needs to be kind of also investing with other VCs and co-investing. It's super important. Government subsidies and funding and like R&D initiatives, you know, to kind of spur research and development to the space as well, is needed, because without the right amount of governmental support and subsidies maybe you might not have that traction. Then you also need a lot of early stage ecosystem accelerators that can power the company so that they can get their lift off the ground, so that later on, when they're CVSB, cvc, they can have the generalist VCs maybe kicking in at this point. So I think that's super important. And then, finally, more public investment as well. You need public institutions and public organizations to give money to startups or to VC funds to kind of grow within this ecosystem or to target certain things that they think needs to be power.

Peter Jeun Ho Tsang:

I think it's a sound fact that there needs to be several stakeholders and parts of the ecosystem that have to come together to make it work. Absolutely, fashion grounds, the VC, funds, public money, all working in tandem to actually fill that gap that is happening. So I'm just going to finish off this conversation with a quick fire round of questions. The first answer that comes to your head Are you ready, rohan? Yeah, I'm ready, true or false. Most VCs understand fashion industry dynamics well, false. Would you rather pitch your room for the fashion editors or tech VCs slash LPs?

Rohan Bansal:

Tech VCs slash LPs, but just by by, just by, just by a section, right enough if you had to wear one outfit for a year to secure for a new world? I think a crisp white shirt can't go wrong with that?

Peter Jeun Ho Tsang:

keeping it classic. Which is riskier investing in apparel brands or fashion tech?

Rohan Bansal:

platforms, I think. I think it's hard to differentiate with apparel brands. There's a lot of them coming out and they have a little defensibility at times. So, favorite fashion we checked out, we looked into it a few years back. It's also one that got away, actually, because it was just bought very recently by Electra, I think last year, for a very good multiple. I think it was just a million. Yeah, exactly, there's something even slightly above that as well, I think.

Peter Jeun Ho Tsang:

Yeah, so they purchased it for 50 million euros, but it's not for the full company and there's going to be an acquisition plan for the remaining share. Exactly.

Rohan Bansal:

Exactly, those are very good earn out as well. Yeah, I think launch metrics is exactly the kind of deal we're thinking about as well, because VCs that got in early had a great return on it and, yeah, the company has.

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