As Paul Evans sidesteps the VC circuit, other fast-risers, like Tracksmith and Lively, embrace it.

At your next social gathering, if there’s an entrepreneur attending, pull him aside, get him liquored up. Wait a few minutes, and after you’ve built up a nice rapport, see if you can get him to reveal his biggest business fears, stressors, and problems that stand between him and his version of success. Watch as he takes a deep breath, and with an exasperated shake of the head and a quick roll of the eyes, begins to speak in hushed tones about cash flow, recruitment, profit margins, growth, payroll. It’s unlikely, though, that you’ll hear him mention anything about investors begging him on bended knee to take their money.

To say that there are worse problems to have as a founder, than venture capitalists pinging your inbox for coffee dates, persistent and ever-hopeful for the chance to invest in your company, would be a supreme understatement. Getting traction can be tough, but entrepreneurs quickly discover that with success come more headaches. When business is booming, word gets out, and when you’re a modern luxury enterprise on the rise, investors start salivating, all too eager to throw in on what they now deem to be something of a sure bet.

There are anecdotes aplenty. The Cormack brothers, Jamie and Lyndon of Herschel Supply Co., have famously turned away over 500 investment offers. Jack Erwin’s Ariel Nelson and Lane Gerson had their current backers pursue them in early 2014, just months after a successful launch. Globetrotting golden girl investor Carmen Busquets (who has homes in Switzerland, Spain, Paris and Miami, but “spends most of her time on airplanes”) implored Farfetch’s Jose Neves, on more than one occasion, to let her invest in his company. Even Lean Luxe subscriber Evan Fript of Paul Evans knows what it’s like: When speaking to Lean Luxe for this report, he had just returned from two investor meetings that day (over cappuccino, no less).

As 2016 investments in Eponym, Outdoor Voices, Away, and Phlur alone have shown, investors have displayed an eagerness to latch on to emerging luxury opportunities in recent years. The ongoing successes of Warby Parker, Bonobos, Net-a-Porter (and most recently, Dollar Shave Club’s $1B purchase by Unilever), only add to the growing fervor.

More attention is being garnered, and no wonder. The personal luxury goods market, what’s considered the core of the luxury economy, has tripled over the last 20 years, going from roughly $86 billion in 1994, to $283 billion in 2014. It’s on track to reach $330 billion by 2020, reports Bain, who also reported that online sales in 2014 hit $13.5 billion, with accessories and apparel dominating a whopping 70 percent. That trend should continue: Exane BNP Paribas is forecasting $43 billion in online sales by 2020; for 2025, McKinsey is estimating $78 billion. That would make e-commerce the third largest luxury market after China and the US.

Tangentially, the activewear market, a big one for modern luxury, is already $44 billion in the US alone, while another important modern luxury sector, the global men’s market, is predicted to reach $33 billion by 2020.

“Look at all the failures. They fund a ton of crap. That’s their business model, to spray and pray. So how much business expertise can they really lend?”

These figures are staggering. Even moreso when considering that modern luxury companies are absent from the calculations. (The bulk of these totals and forecasts are gleaned using reported figures from the likes of LVMH, Kering, Tiffany & Co., and Richemont, among others — all noticeably, firms that are on the downswing.) As private companies (who sometimes like to keep things close to the vest), modern luxury founders are not required to report their numbers. And frankly, it’s unlikely they’re even on research firms’ radars to begin with. Still, these gargantuan figures give a sense of the size of the market and the ample opportunity that modern luxury upstarts have in siphoning market share away from megabrands and multinationals.

There may be a bounty to be had for modern luxury brands heading into 2020 and beyond. But for them to reach those heights, they’ll need more than just money. Many VCs are still fond of wrongly classifying modern luxury upstarts as commodified e-commerce companies, simply because they mostly sell online — rather than seeing them for what they actually are: holistic brands that just happen to prefer the direct-to-consumer route. So it’s important for brands raising money to find investors who get it, and who can help them blossom over time with expertise in the right areas — institutional investors, in other words, who can do more for their business than simply write a check.

A great deal of modern luxury companies that Lean Luxe is currently tracking have taken on some sort of institutional investment. New York-based Paul Evans, however, is one of several that have so far avoided doing so. Evan Fript and fellow founder Ben Earley have instead taken on two rounds from family, friends, and non-institutional investors, totaling close to $200,000, but have turned down all VC advances at the time of this report. It’s prove to be a prudent move: They celebrated their first $1 million milestone in 2015 by bootstrapping and running a clean, lean operation.

“In their minds it’s not a quick exit, this is taking the time to build a brand properly.”

Speaking to Lean Luxe, Mr. Fript says that his and Mr. Earley’s apprehension toward taking on VC backers stems from the desire to maintain control. Additionally, the venture capital track record is a poor one, he argues. “I mean the whole model is silly. They’re not looking for singles and doubles, they’re looking for home runs every single time,” he says. “Look at all the failures. They fund a ton of crap. That’s their business model, to spray and pray. So how much business expertise can they really lend?” The deal structures, he adds, suggest that VCs are less interested in helping founders than they are in receiving a large (and quick) return on their investment. “Do you ever see a VC come in on the same level as the founders? No, they always take preferred shares with a liquidation preference.”

Tracksmith, based in Boston, and Lively, stationed in New York, are more optimistic. They’re excellent modern luxury case studies in properly teaming up with institutional investors who can help guide, connect, and offer industry-specific advice — the epitome of investors who offer more than just money.

Both raised rounds with their current backers in August 2015: Lively, a $1.5 million seed round with New York-based Gelmart International, a firm with a six-decade track record operating in the intimates space; and Tracksmith, a $4.1 million Series A with Pentland Group, a UK-based firm with ownership stakes in sporting brands like Hunter, Speedo, Reebok, and Lacoste.

Both Lively and Tracksmith speak to the immediate benefits of their respective partnerships, a word taken quite literally by both of them. Lean Luxe subscriber and Tracksmith CEO Matt Taylor says that the “biggest things really aren’t the sexy things”, but whether it’s operational hiccups, supply chain road bumps, or manufacturing connections, Pentland has proven to be invaluable in helping him solve those problems.

Having a long term outlook is also an added plus in these arrangements, says Mr. Taylor. Pentland in particular understands the time horizons, he says, which is where the word partner becomes even more important. “In their minds it’s not a quick exit, this is taking the time to build a brand properly,” he says. That’s worked out to Tracksmith’s advantage in one specific case: When he wanted to expand into retail too quickly, Pentland poured cold water on that idea. “They said, ‘Whoa put on the brakes, don’t worry about that yet. Let’s get the unit economics of your core business refined and working towards profitability. Then we can be strategic about the next area of growth.’ It’s been good to have that guidance and the ability to look long term.”

This same behind-the-scenes expertise has helped fellow subscriber and Lively founder, Michelle Grant, bring her brand’s bras to market. Bras are surprisingly complex to manufacture. They can take up to 40 different components to create, and require up to 40 different suppliers. Ms. Grant says that without Gelmart, tracking these suppliers and finding the right factory with the ability to engineer her bras in the right way would have been tremendously difficult on her own.

Gelmart provided that expertise and had the right relationships already in place to allow Lively to produce its products economically. “I think the biggest advantage also, outside of creating a world class product,” says Ms. Grant, “is that we were able to enter the market with a broad size range because we have them as our partners. They were willing to work with us to figure out how to offer 18 sizes in one colorway, which many startups aren’t able to do.”

When it comes to taking on VC backers, a healthy dollop of skepticism is certainly a good thing to have. But Lively and Tracksmith show the type of investor arrangements modern luxury founders would be wise to seek out if they want to increase their odds of surviving to 2020.

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