Meet Fabulous Brands: A growth capital firm addressing the “capitalization gap” for modern luxury upstarts.
Having just come out of stealth, and with investments in Naadam and True Botanicals, Fabulous Brands is a new $50M fund that’s aiming to provide the growth capital young brands need to get from $5M to $50M in eighteen months.
BOSTON — Fabulous Brands co-founder Matthew Growney is exactly right — there is, without question, a large funding gap for early-stage emerging brands where the venture capital model just doesn’t quite work, and where private equity is too far down the lifecycle. This area, which Growney and co-founder Eric Lepleux call the “capitalization gap”, is exactly where they’ve positioned their new fund to operate.
Having just come out of stealth, Fabulous Brands (FB), which describes itself as “growth capital”, arrives at an ideal time. Funding for brands has seen a dramatic increase since 2012 on the venture side, and private equity has itself been noticeably more active in the modern luxury space over the last two years. The overall increase in investment activity means that more brands will find themselves left out of the VC and PE mix — and thus in need of what FB is offering.
All told, the fund will have $50 million at its disposal from an LP mix of family offices, including Growney’s and Lepleux’s own. And though it’s still in the process of raising towards that sum, the firm has wasted no time putting its money to work. Stemming back to late 2016, it’s invested in Naadam and True Botanicals — two names Lean Luxe readers should be well familiar with — plus a new e-commerce marketplace hub called Wanderset.
Targeting four distinct silos — fashion and apparel, home and hospitality, food, and health and beauty — the fund’s thesis, as explained by Growney, is itself very focused. Fabulous Brands, he said, invests “in the young brands of tomorrow that are already providing a truly authentic story and have already reached some financial milestone. All of our companies are at or near profitability. We don’t invest in dollar one.” Though, to be fair, there is some flexibility there, we found out.
Quick hits for context:
- Leplaux was the President of Avis Europe, and was also the CMO for Singapore Air.
- Growney ran Motorola’s investment arm, Motorola Ventures, which he grew to a $450M portfolio. He’s also a senior advisor for Puma on e-commerce and product development.
- LVMH Luxury Ventures
- Felix Capital
- Forerunner Ventures
- Silas Capital
- Fashion Capital Partners
- Grace Beauty Capital
Lean Luxe spoke with Growney to learn more about the fund and to talk about why it might be smart for emerging upstarts to think about adding Fabulous Brands to their pitch list. The conversation has been edited and condensed for clarity.
Highlights of our conversation with Matthew Growney:
Growth capital: On filling in the gap between VC and PE investment for young brands.
“What we found is that in discovering these young companies that were creating these brands of tomorrow, is that there is truly a capitalization gap.
Basically if you’re trying to raise your first $100,000 up to your first $3 million, most of these mid-tier MLCs (modern luxury companies) really don’t have any institutional or thoughtful capital sources to go to. They all pretty much got funded by their uncles and cousins and brothers and nephews, and typically that doesn’t really work out well. I mean it’s great to get the capital, but you don’t get the governance, the experience, and frankly there’s just a lot of relationship issues in just taking half a million dollars from your rich uncle.
It’s not until you need $10 million or $15 million — or even $20 million — checks that you’d start to see truly institutional, thoughtful capital providers pop up, like L Catterton, LVMH, and Bain. We said, look, why can’t we provide small capital financings to these darling upstart brands when they really need them — which is earlier on — and apply the same metrics we apply to our own previous investing?
That’s what the notion of Fabulous Brands is, it’s being a growth capital investor, but accessing younger companies than what is typically the norm of the larger private equity shops. That’s why we can catch True Botanicals in a Series A, or Naadam in a Series A, or Wanderset in a pre-Series A.”
The optimal deal size.
Ranging from $500K to $1.5M. Investing in single digit valuations. This allows them to enter in deals at the 10% – 25% ownership sweet spot, typical for a seed round.
That’s not to say they don’t ever consider pre-revenue deals.
Said Growney: “We do feel that it’s important to have a small allocation in our fund for revenue generating, but not profitable, young, young companies. Wanderset is a perfect example of a company that we invested in in February and it is launching in the next week or so as kind of [more specialized] version of Farfetch. We have done [these pre-revenue deals]. But it’s certainly not the dominant strategy of the fund.”
Engagement is a must.
Engagement is high on the list, though obviously engagement is not just a single metric. There are a variety that they track in order to determine how engaged a brand’s customer base is. “How many customers are you reaching? How many return customers are you seeing in terms of purchasing, repurchasing? What’s the frequency there? There’s also a social media element to it — so how much dialogue are you seeing through social media?”
The fund size: $50M.
Fundraising is still ongoing, but that’s the target. “Obviously we’re confident enough with the process of fundraising to have already made three investments. We do feel like a $50 million fund is the right size for the type of investments we’re investing in, and the size of the investments. If you have a $150 million fund, then you have to put out $10 million checks. Giving a company $10 million is just a different profile than giving a company $1.5 million when they need only $1.5 million.”
On managing expectations as a fund investing in brands instead of tech plays.
“There’s just a different sentiment where people who are investors in tech put, by far, the greatest emphasis on whether the technology works — and not so much on whether it will sell. That’s usually the kiss of death for most tech investments: They build something because they can build it, but they never really spend a lot of thought on being able to figure out how to sell it.
In the brands world it’s different. Here, you’re really focusing on finding the largest common denominator of buyers who believe in a certain product or offering proposition. Loyalty and predictability are critical because that’s how you’ll be able to grow a business with them over time.
So the question is usually, how do you tap into a specific group of people who you can pool together under a shared concern or need, and really deliver them an authentic experience or product? Well, you can buy those people [through customer acquisition] or you can help shepherd those people over to a single hub. They start at disparate areas, and you aggregate them into your own arena or community — or you’re finding the community already exists.
For brands, this community building aspect is huge. Usually, if you’re in the venture space, you build a technology because you think you’re solving a problem with it and then you spend all this time building it and then either you’re going to meet the problem or not. Why? Because either the problem has changed in the two years you’ve spent to R&D it — or you were off.
At least if you’re in the brands business, you’re able to dynamically morph your brand in an easier and more cost effective manner to mold it to the needs of a community. If you’re able capture that community with your new brand offering because you’ve built a relationship with them, then you’ll do well.”
The most interesting space at the moment?
Health and beauty. “There are so many things about it that intrigue me. And I’ll give you a few nuggets. One of the things I read, which was actually at Lean Luxe, was about [The Nue Co.]. They’ve created a supplements company, and rather than go to GNC, they’re offering it on Net-a-Porter. It’s just a complete shift in thinking about things. So we’re finding that even distribution now for supplements and food, because [brands like The Nue Co.] know where their demo is, they can go so far right in terms of traditional distribution, that they ultimately decide that they want to land on Net-a-Porter and offer food and supplements there. It fascinates me.
When I need to start thinking about digestives as being things that fit into traditionally fashion and apparel driven distribution channels, that is exciting for me. It’s a new age.”