As the need to address climate change becomes more urgent, there has been a notable shift in consumer preferences for sustainability and transparency in their fashion purchasing decisions. Despite mounting pressure, the fashion industry remains one of the least environmentally sustainable industries globally, accounting for approximately 2.1 billion metric tonnes of greenhouse-gas emissions each year, which, according to a 2020 McKinsey report, is equal to 4% of annual global emissions.
This has led to a much-needed change in the fashion industry as brands have turned their focus to developing circular business models and ways of reducing emissions in their supply chain operations.
In light of rising consumer demand, investors are increasingly gravitating towards investing in sustainable fashion brands as well as repair, rental and resale offerings. Investments into fashion start-ups over the past year suggest that the time is ripe for growth investments in innovative fashion businesses who wish to focus on sustainability and expanding their circular models.
Sustainable fashion growth
Given its forecasted global valuation of $8,246.1 million by 2023 (according to the Global Ethical Fashion Market Report 2020), it is no surprise that the sustainable fashion industry has been of recent interest to private equity and venture capital firms, both in the UK and worldwide.
For example, sustainable active wear brand TALA raised £4.2 million ($5.7 million) in seed funding with Active Partners and Venrex in return for an undisclosed percentage equity stake in the business. Founded by influencer Grace Beverley, TALA aims to offer affordable, high-performance and sustainable active wear. It has a strong focus on ethics, sustainability and transparency at every stage of production, with the brand's products and packaging being made from upcycled, recycled and natural materials.
In addition, the British Fashion Council (BFC) has created a fund called Venrex BFC Fashion I in partnership with Venrex, which will provide a range of businesses with access to finance at early or growth stage. The fund has already invested in companies such as Vollebak, a clothing range which includes Solar Charged Jackets that store and re-emit sunlight, t-shirts that turn into worm food and hoodies designed to outlive the owner, and Digital Village MMO Metaverse, which allows users to display, wear, use and exchange their digital assets with their communities.
Furthermore, Material Exchange, the B2B SaaS-enabled platform allowing brands to source sustainable materials from a host of verified suppliers, has raised £21.3 million in its Series A funding round led by venture capital firm Molten Ventures. The company aims to use the investment to scale its operations globally and endorses AI as the future of sustainable sourcing.
Similarly, British luxury fashion brand ME+EM, the online women's luxury brand that offers direct to consumer clothing using responsibly sourced materials, has also recently secured £55 million in its latest funding round in March of this year, which was led by venture capital firm Highland Europe (the growth investor behind Matchesfashion.com, Threads and Huel). The brand will use the investment to fund its international expansion in the US, Canada, Australia, Hong Kong, Switzerland and the Middle East.
Reduce, re-use, recycle
With millions of items manufactured each year, and only a small fraction of these clothes being sold for a second time, it is also encouraging to see that investments in repair, rental and resale brands are also on the rise. For example, in April, London-based tailoring and repairs app Sojo raised $2.4 million dollars in pre-seed funding led by CapitalT. The app's software connects brands and consumers with local seamstress businesses in zones 1-2 in London, encouraging consumers to repair and reuse items of clothing rather than sending these to a landfill.
Moreover, in March, UK based peer-to-peer fashion rental platform By Rotation raised £2.6 million pounds in a seed funding led by Redrice Ventures, Closed Loop Ventures and others. By Rotation is the UK's first and only digital fashion peer-to-peer rental app. The app allows its users to calculate the carbon emissions saved through renting instead of purchasing a brand-new item.
Similarly, in January, Belfast-based re-commerce fashion tech start-up Responsible raised £5.3 million pounds ($6.6 million dollars) in a seed funding round led by Barclays Sustainable Impact Capital for the development of its “Buy Back” technology, which incentivises brands and consumers to buy, sell and trade their clothes and facilitate consumers' returns processes. Responsible is planning to use the funding to expand its reach throughout Europe and extend its network of brand partnerships.
As fashion businesses continue to adapt to the climate emergency and the resulting consumer demands, it is clear that investors have a significant role to play in bringing sustainable fashion brands to the fore. There is a wealth of opportunity for institutional investors, asset managers and venture capital funds to provide crucial support for the expansion and growth of sustainable offerings as well as with funding the early stages of operation in the shift to more circular business models.