Finlatics Investment Banking Experience Program

Project 2
Sustainable Fashion Company
1. According to me, among the five stages, the product of this company is
currently in the first phase of commercialisation stage. In this stage, an
investor is essentially betting on the business plan and the product-market fit
is yet to be developed. As a business plan, the idea is quite relevant in current
times. Consumers are gradually growing to be conscious of their purchase
behaviour in the fashion industry. There is a rise of thrift stores on various
social media apps and consumers largely purchase from them, as their
products are sustainable and some of them also being hand-made and hand-
picked.
In this stage, the investor is quite exposed to high levels of risk and
uncertainty with respect to the entrepreneur’s business plan. The risk in case
of the sustainable fashion company is that the product has low chances of
attracting mass consumers as a considerable amount of them are still into fast
fashion brands that are low priced.

Strength
 Reuse, Reduce, Repair, Recycle
(less wastage of raw materials)
 Creates fashion that is
individualistic and unique
 Ethical
 Flexibility of using new materials
and experimenting with
innovation
Weakness
 Not attracting masses
 Less adaptable as not everyone
will possess the same mindset
 Might not be up to date with
trends as their main focus is on
eco-friendly and sustainable
fashion

Opportunity
 Poor image of fast fashion brands
due to them being in the news for
exploiting labour and providing
clothes at low prices
 Government initiatives in the
support of ethical fashion
 Celebrities increasingly
promoting sustainable fashion
will garner quality traction
Threats
 Expensive Technology
 Low pricing of fast fashion
brands attracting majority of
target consumers
 Difficult application

2. Many shoppers have realised the cost at which cheap fast fashion comes at
and are becoming increasingly aware of its long-term causes. This, along with
the digital world begun the trend for slow and sustainable fashion. It is
starting to become mainstream as the market not only consists of brands but
also thrift store pages on various social media apps that do not burn a hole in
the pocket. One such brand is Levi’s, who are committed to sustainable denim
 production. One of their primary focuses is also to reduce water usage as the
process to create the fabric i.e., denim is quite water intensive. They have
launched multiple sustainability campaigns in the past including the “ Buy
better, wear longer” campaign whose motive was to encourage consumers to
be more intentional when it comes to choosing their apparels. Although the
idea are many opportunities in the long-term there are some challenges

 Limited target market- Although there is growing awareness amongst

people regarding the importance of sustainable fashion and the long-term
repercussions of fast fashion brands providing clothes at cheap prices, there
still exists a gap in the mindset of people. Converting fully to sustainable
fashion brands is a lifestyle change, like for example; turning vegan. Having
said that, not everyone can adapt to it. Therefore, the target market for the
product will not be very broad. One way to overcome this hurdle would be to
approach websites that consumers use to purchase apparels frequently. Such
as Myntra and AJIO, so that the product gets a good amount of exposure,
traction and make the brand well known so as to attract brand loyalty. If
needed, certain number of discounts can also be provided for products that
are on these mediums. The prices can then be pulled up after the brand has
managed to create a good customer base. Levi’s, being a sustainable brand,
applied the same strategy and made their products available on several online
shopping websites and offline stores rather than just keep them limited to a
website of their own.
 Cost and Availability of resources- The resources and technology that are
needed to create circular fashion are neither very economical nor easily
available. In such cases, the company can network with individuals in the
industry who can provide access to resources and technology that is close to
what a circular fashion model needs. When it comes to the cost of resources,
not much can be done with regards to that as that is essentially what
environment friendly fashion comes at. However, for starters, second hand
vintage items can be used wherever necessary.
 Brand Building- Sustainable fashion brands are not very easily noticed by a
variety of consumers. As mentioned earlier in order to be widely recognised,
the brand can put up their products for sale on multiple online shopping
websites. In addition to that, they can create a referral system by means of
which the consumers who have already purchased their products can refer the
brand and its products in their social circle and avail discount points on their
next purchase. Through this, a niche set of consumer base would be created.

3. Since the company is in the first phase of commercialisation stage, a

convertible note would be ideal as the valuation of the company has not been
determined yet. A convertible note can be described as a loan that is extended
to companies that are in their early-stage, which are convertible to equity after
the achievement of certain milestones within a specified time period. This
motivates the start-up to be on their toes and align their objectives effectively
so as to avoid losing equity. The milestones in this particular case to protect
my investment against losses would be-
  Milestone 1- The two broad categories which would determine the value of
this product would be number of mediums product is launched in and
customers per medium/portal. Given that there has already been a positive
response towards the product during its launch sale in niche markets the first
milestone would test its potential from a futuristic approach. Upon examining
these categories, the correct product-market fit can be finalised. The
parameters would be-
 No. of mediums/channels the product is launched in (online websites/ in-
store locations/exhibitions, etc) – minimum 2
 Customers per medium/portal- minimum 250

 Milestone 2- After the product has achieved a substantial amount of

recognition and been commercialised, the next milestone would be focused on
expanding the market.
 No. of mediums/channels the product is launched in- minimum 3
 Customers per medium/portal- minimum 250

 Milestone 3- This milestone would be centred around consistency. As this

would seek to evaluate whether the previous customers have repurchased and
whether the portals and mediums that the start-up is engaged with has
continued business with them or pulled back
 No. of mediums/channels the product is launched in- minimum 5
 Customers per medium/portal- minimum 250

 Milestone 4- Once the product has maintained a loyal customer base and
gained presence in the market in terms of competitors, the focus would be on
extending their areas of products and launching various campaigns and
widening their technology.
 No. of mediums/channels the product is launched in- minimum 6
 Customers per medium/portal- minimum 300
Note- The approx. time given to hit the 4th milestone is 5 years
Initial Customers Total customers Convertible
Investment added in 5 years note conversion
per milestone rate (%)
(optimally)
50,00,000 500 <500 23%
50,00,000 750 1250-501 17%-22.5%
50,00,000 1250 2500-1251 11%-16.2
50,00,000 1800 4300-2501 6%-10.5%

The total no. of customers has been taken as a milestone. The initial investment
made in the company is 50,00,000 and the time period is 5 years. The conversion
rates are rangebound for each milestone. For the first milestone, if the company
takes 5 years to reach it then the conversion rate would be 23%. In case of the second
milestone, if the company takes 5 years to reach there, the conversion rate would be
17% and so on and so forth for the other milestones.
 4. For a sustainable fashion brand, the customer acquisition cost would mainly
come out of ads across digital platforms and banners which would promote
buying from the brand. A primary cost that the company may face would be
printing flyers for exhibitions, promotional discounts, etc

Customer acquisition cost= Marketing expense in a specified

period/ No. of customers acquired in that period

Total marketing expense in order to achieve milestone 1= Rs 800000

No. of customers acquired till milestone 1= Rs 500
Customer acquisition cost= 1600

Customer lifetime value is the value of the customer to the company.

Customer lifetime value for an apparel brand would be
Customer Lifetime value= lifetime value*profit margin
Lifetime value= average value of sale*number of
transactions*retention time period
Suppose average sale for the company is Rs 2000 and an average customer
shops with them three times per year for a period of 1 year.
Lifetime value = 2000*3*1= 6000
Suppose the profit margin for the brand is 20% after having calculated the
marketing and administrative expenses, overheads, COGS, etc.
Customer lifetime value for 1st year= 6000*20%= 1200

CAC and CLV for 5 years

Average No. of times Time CAC Total Net
value of a customer period of CLV profit on
customer’s will customer customer
purchase purchase purchase
(cumulative)
Rs 1200 1 1 1600 1200 -400
Rs 1200 2 2 0 2400 800
Rs 1200 3 3 0 3600 2000
Rs 1200 4 4 0 4800 3200
Rs 1200 5 5 0 6000 4400

The company incurs an acquisition cost of Rs 1600 per customer and earns Rs 1200
per customer to reach milestone 1. As presented above, the company stops making
losses from the second year. This is indicative of the fact that the company needs to
keep the customer loyal for a minimum of 2 years for them to make some profit on it.