As you’ll recall, a few days ago we discussed a men’s high end apparel company that received funding from a rather unique Silicon Valley investment group. So when another apparel deal was announced a few days later, I really took interest. The smart money appears to be betting that as the recovers, apparel will too. In this case, what also caught my attention was the type of company being invested in.
According to a press release, Gigi Hill Inc., a California-based maker of handbags and tote bags, received $3 million in venture capital funding lead by Maveron. Also participating in this deal was Trinity Ventures. Two members of the Maveron executive team will join Gigi Hill’s board as a result of the financing.
I frequently encounter small business owners who make two flawed assumptions:
- My company is too small to attract professional investors.
- My industry is not attractive to professional investors.
As you can see from the information above, in many cases both of these assumptions can be very, very wrong. So what attracted the investors to Gigi Hill? This quote from the press release sums it up nicely:
“ ‘Gigi Hill is a company that intersects two very compelling markets — direct selling and handbags,’ said Jason Stoffer of Maveron. ‘Gigi Hill stylists and customers share an incredible passion for the company’s unique line of functional and fashionable product. The company is building a community around the brand and fostering a strong relationship with its members.’ ” (emphasis added)
So despite their relatively small size and unique industry niche, the investors found two attractive elements in this deal: the method they use to market their products (direct selling) and the expected growth and popularity of their handbags. According to the press release, the U.S. handbag market is expected to reach $9 billion dollars by 2015, providing plenty of room for Gigi Hill to grow. But here is the real key to this deal in my opinion and why another Silicon Valley investor is interested in an apparel deal (from the press release):
“ ‘Trinity Ventures actively seeks opportunities to turbocharge traditional offline commerce models with the promotional power of the Internet. We are excited to partner with the Gigi Hill team to help accelerate the growth of its strong direct selling model,’ said Trinity Ventures General Partner Patricia Nakache.” (emphasis added)
That statement makes it apparent that the investors plan on using their experiences in online explanation given by the folks who invested in J. Hilburn. It turns out that these investors are going to help this company, started by two soccer moms in Southern California, expand dramatically.to help propel the growth of Gigi Hill. This is very similar to the
Focus on Your Opportunities
As I have said before, when you begin to search for buyers for your company, focus on what you do that is unique more than on what you don’t do so well. I find that too often small business owners can rattle off long lists of what is wrong with their companies but if you ask them to list five unique features, they get stumped. Or they say, “Everyone does things the same way in our industry.” A business owner who thinks this way will never be running abusiness and will usually sell to a non-premium buyer. And ultimately get far less than he/she should have.
In this situation, less experienced “experts” would have dissuaded the owners of Gigi Hill from even approaching professional investors until they were larger and had more earnings, or they would have been told to focus on investors that traditionally specialize in apparel or brick-and-mortar types. As we have seen, sometimes the optimal investor is someone well outside of the norm and who can take a perceived weakness (in this case an underutilized Internet presence) and turn it into a strength. So challenge yourself to think the same way when you search for investors for your business.
Consulting with an experienced M&A advisory firm can be a huge help to business owners as they examine those features of their business that buyers may find attractive. Quite often middle-market business owners are so closely involved with theof their companies that they find it difficult thinking objectively about the unique aspects of their companies. M&A advisors are experts in this since they have been trained and have the experience to ask the right questions and bring an outsiders view to the buyer brainstorming process.
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