When Startup Rules Don’t Fit: A Different Approach to Funding and Growth in Fashion

As the summer break comes to an end, the fashion world is gearing up for its bi-annual tour de force: fashion week. During September, the fashion industry’s focus moves from one fashion capital to another, where brands - from small to large, and from new to centuries old - present their latest collections. To this day, the best-known fashion weeks are Paris, Milan, London, and New York. Notice anything? Fashion week is very European.

That is remarkable because Europe is no longer the world’s largest fashion market. The US and China are both way ahead of Europe, and have been for some time. Yet Europe remains a dominant force on the creative side of the fashion industry. Not only do the major fashion weeks mostly take place on European soil, many of the world’s leading fashion schools are still located in Europe.

Culturally, Europe has managed over centuries to maintain a leading position in fashion, largely thanks to its luxury brands and industry. European luxury fashion brands remain among the most valuable in the world. In Brand Finance’s 2026 Apparel 50 ranking, Chanel was the world’s most valuable apparel brand, while nine French brands alone accounted for 37% of the total brand value of the ranking.

There is, however, an interesting contradiction here: Europe's cultural relevance in the fashion industry may have big names as headliners but is overwhelmingly made up of small businesses. Part of that equation is that Europe is exceptionally strong at creating and designing fashion, but that strength does not translate into an equally strong financing environment for the companies creating it.

An Industry Built on Small Companies

Europe’s broader textiles, clothing, leather and footwear ecosystem employs 2.2 million people, with 99.5% of companies classified as SMEs, according to the European Commission. Older Eurostat-based figures specifically for textiles and clothing put the share of micro companies and SMEs at 99.8%. The exact numbers, of course, depend on how the sector is defined.

The European Commission also notes that fashion companies are most often micro-enterprises with fewer than 10 employees. This is an important characteristic of the European fashion industry. It is not primarily an industry of large corporations. It is an ecosystem of founders, designers, manufacturers, independent brands and specialised suppliers, many of them operating at a relatively small scale. The industry relies heavily on the entire ecosystem of specialists to come to a finished product.

The traditional financing recipe for all these brands and companies reflects that reality: the founder’s personal savings, FFF (friends, family, and fools), grants, and the reinvestment of early revenues. For already established companies trying to make it through setbacks or accelerate growth a little bit, traditional bank or small-business loans and the occasional angel investor can supplement organic growth. That model works. But it is very different from the financing model that has developed around technology startups, and the advice many fashion startups get as a consequence.

Startup Funding Beyond VCs

Fashion is considered risky business, and is not particularly attractive to the average investor or VC. As part of the consumer retail and D2C segment, it is perhaps not surprising that only a very small share of venture capital goes into fashion. The precise percentage depends on how “fashion” and “venture capital investment” are defined, but the financing gap is real. Tech.eu's 2025 European funding data, for example, records €62 million raised by 18 fashion companies across 19 disclosed funding rounds, representing 0.1% of the sector funding tracked in its database.

The underlying reasons are fairly straightforward. If a startup designs clothes, holds significant physical inventory, deals with sizing and fit like few other industries, and sells online via direct-to-consumer, the economics look very different from those of a software company. Inventory ties up cash. Production requires upfront commitments. Returns can be substantial. Collections are seasonal. Demand is difficult to forecast (even for AI). And scaling sales does not necessarily mean scaling margins.

From a traditional VC perspective, even innovative fashion and fashion tech companies can look much more like retail than technology - and retail is not usually the business model venture capital was designed around. In the already more conservative European investment climate, compared with, for example, New York or Silicon Valley, fashion is therefore not the class favourite. Statistically speaking, the probability of getting traditional VC funding as a fashion brand is close to zero. It doesn't mean that the business is bad though.

There are exceptions, of course. High-margin resale, fashion tech in the form of software, and novel materials or bio-fabricated textiles are attracting considerably more interest from venture funds. Recent European funding illustrates the point: among the larger fashion-related rounds in 2025 were companies working on sustainable materials, resale and fashion technology. That distinction matters. A software company selling to fashion brands is a very different investment proposition from a fashion brand producing physical collections.

Both may call themselves fashion startups but they are on opposite ends of a big spectrum of business models in the fashion industry.

The Startup Rulebook Does Not Always Work for Fashion

With all that talent coming out of European fashion/design schools and art academies, it is no surprise that Europe counts many ambitious and creative fashion startups. But starting and growing in the fashion industry, without the funding buffet available to traditional tech - and thus most startup companies - means that a lot of the conventional advice around financing, determining your startup’s financial mix, or pitching to investors is simply not very suitable for a fashion startup. Navigating that maze as a starting founder in fashion or fashion tech is particularly complicated.

Many fashion founders never had a business education. On top of the steep learning curve they have to go through on that front, they encounter a lot of “startup rules, tips and tricks” that simply do not apply to the industry they are in.

It's Not All About the Money

In the first years of Elegnano, now more than a decade ago, I spent hours explaining to “startup advisors” how the fashion industry works, in an attempt to make their advice and expertise - usually gained at software or technology companies - relevant and applicable.

One example is the almost universal startup focus on scaling quickly. Fashion startups, like many startups, are encouraged to grow fast, raise money and use that money to accelerate.

But fashion has a different relationship with speed and growth. Because the market is extremely saturated and very trend-sensitive, consistency and longevity matter more than speed to capture market share. At fashion week, you're unlikely going to make the big splash commercially on your first participation. What matters is coming back season after season, showing a clear vision, continuing to innovate within a strong and consistent brand, and demonstrating that the company is still there. That matters creatively, but it also matters commercially.

For a retailer considering whether to start stocking a young label, there is a certain risk involved. The retailer needs to know that the collection will arrive, that it will arrive on time, and that the brand will continue to exist over several collections to make it worth their while. One good product, design or collection can kickstart your brand, but if followed by a bad collection 6 months later, you're back to square one. Your ability to create collection after collection, consistently from a creative perspective, while continuing to operate as a business, is therefore part of the value of the brand. Longevity itself becomes a signal. And you can't accelerate time.

This does not mean that fashion startups should never raise money or should always grow organically. Quite the opposite. It means that the financing strategy needs to reflect how the industry actually works. Presenting new products every 6 months is capital intenisive. For a fashion company, equity may have a role. But so can grants, bank financing, working-capital financing, supplier terms, partnerships, collaborations, crowdfunding, non-dilutive alternative funding, angels, strategic investors and, perhaps most importantly, revenue.

A company carrying physical inventory, production commitments and a longer working-capital cycle, has a very different capital requirement from a software company. Financing inventory with equity may not always be the most sensible solution. Equally, trying to grow a brand organically when a particular investment could unlock meaningful growth can be unnecessarily restrictive, but forecasting that growth is often harder to solidify in a trend-driven commodity industry and requires an approach far beyond market and trend reports. Whether it's pitching your startup, raising money, finding co-founders, or determining your go-to-market and growth strategy, the bulk of startup advice stems from industries that operate very differently. Of course, there are lessons to learn and universal truths, but as a starting founder still finding your way in the startup world and in the fashion industry, it can be really hard to distinguish between it all.

A Different Kind of Funding Runway

In the early days from Elegnano, I was bombarded with startup advice and founder books, designed for tech startups. While Elegnano is at the intersection of fashion and technology, the products we build are physical - not digital. In the end, I learned most from people who had actually built a fashion company from the ground up in the five to ten years before Elegnano. Over the last few years, I have mentored and helped more than a dozen fashion startups myself leaning on over a decade of experience, including founders at different stages trying to figure out the financial questions around their business.

For the second year in a row, Start it @KBC, Belgium’s largest startup incubator, together with the City of Antwerp, home to the Royal Academy of Fine Arts Antwerp and its internationally renowned fashion department, is organising Fashion Funding Runway. Once upon a time - now more than ten years ago - I went through the classic Start it @KBC trajectory myself. In recent years, I have been a mentor at the incubator.

Fashion Funding Runway is a short incubator track designed to get fashion startups ready for funding. The programme is designed around the realities of fashion businesses rather than asking founders to force their companies into a standard technology-startup financing model. Fashion founders who are ready to grow their company can apply until 7 September 2026. The 2026 programme is open to eight selected startups and offers personalised financial coaching, an expert financial report and access to further financial expertise.