Financing Growth in 2024

The grow-at-all-costs model is out of fashion for newer generation of young brands right now, as strategic priorities have shifted to building a profitable business and a sustainable growth model. This new approach requires a different type of financing strategy that recognizes the importance of working capital (sometimes in addition to equity) to get a business to the next level. We checked in with Andrew Barone of Rosenthal and Rosenthal to find out which financing options are popular among fast-growing brands. According to Andrew:

Equity Financing is Limited But Still Available for Brands with The Right Profile 

Raising capital today is undoubtedly more difficult than it was in the past, but there are a handful of equity firms that are consumer-focused and still putting capital to work. Equity dollars continue to favor unique products and business models over companies simply trying to replicate the success of a brand that recently had a successful exit. Investors are looking for brands that have proven product / market fit and often a well-developed wholesale distribution channel to finance the next round of growth.

Brands in Beauty and Food & Beverage Categories Have an Easier Time Raising Equity

The most money is funneling into sectors like beauty and food & beverage, likely because these categories continue to have high upside as industry conglomerates lack R&D and are still willing to pay a premium for newer brands in today’s market. Plus, with wholesale demand for products in these industries at an all-time high, retailers are competing to showcase the latest hot brands. 

Capital Intensive Brands Are Also Turning to Asset-Based Lending For Working Capital

Given that food & beverage and beauty companies are significantly more capital intensive to run and compete in today’s market, there is only so much equity allocated to these industries and as a result we are seeing more and more opportunities to provide working capital financing through asset based lending and factoring. There’s also a growing trend of brands aging out of revenue-based financing and graduating to asset-based financing facilities as their business models shift. Many have mentioned the struggle with inventory seasonality relative to strong sales months, which hinders their ability to borrow during their most pressing cash flow periods. With asset-based lending, lenders that are willing to lend on in-transit inventory can be particularly helpful when it comes to seasonal brand categories like swimwear or outerwear.

Purchase Order Financing is Popular Among Brands Needing Cash for Wholesale Expansion

Many younger brands that have historically paid for goods in advance and lack open credit terms often struggle with financing large wholesale programs when new orders (especially retailer-specific SKUs) can’t be fulfilled through stock inventory causing a cash crunch. There is an uptick in purchase order financing as brands look for solutions that can help provide funding to cover the cost of goods related to their orders until they can successfully negotiate credit terms with their suppliers. Brands transitioning away from stand-alone inventory financing facilities, and instead, opting for more traditional lending solutions to include borrowing against newly generated receivables. This is critical for businesses that are extending their cash conversion cycles with a wholesale model selling to retailers on 30, 60 or 90-day terms.