K-Fashion Startups: Why VC Investment is Soaring in 2024

Translation result [For more detailed company information on the startups mentioned in this article, see the UnicornFactory big-data platform ‘ Data Lab‘.]

Venture capitalists are increasingly courting South Korea’s fashion brands. Thanks to the global K-pop wave, many labels start with an advantage abroad, and their fast growth makes investment returns more likely. After K‑beauty, K‑fashion looks set to be the next hot area for investors.

According to VC industry insiders on the 29th, fashion-tech startup Cover Summon recently raised a Series A round of 5 billion KRW (about $3.75M) from InterVest, JS Corporation, BigMove Ventures, Mark420 and others. Early this year, 210 Company, the operator of ‘210 Edit’ and ‘Hyperlit’, also closed a Series A with Wadiz Partners.

More fashion brands are preparing for IPOs. AU Brands, which runs ‘Rockfish Weatherwear,’ set its public offering price at the top of its target range — 16,000 KRW (about $12.00) — after demand forecasting with institutional investors. Its market capitalization after listing is expected to be about 226.6 billion KRW (about $169.95M). The operator of the fashion brand ‘City Breeze,’ Eastend, and the label behind ‘Mark Mercredi’ (Mardi), PisPis Studio, are also preparing IPOs.

Fashion brands were long overlooked by VCs because they focused on the domestic market and exits were hard to time. That has started to change. Many brands now launch with global ambitions, ride the Korean Wave from day one, aggressively target overseas markets and post rapid growth — and investors have noticed.

For example, Mardi brought on actress Kim Go-eun and singer Ahn Yujin (IVE) as models, while City Breeze tapped actress Chae Soo-bin and singer Miyeon ((G)I-DLE) to boost recognition. As a result, PisPis Studio’s sales jumped from about 900 million KRW (about $675,000) in 2020 to about 68.6 billion KRW (about $51.45M) in 2023 — an increase of more than 80 times. Last year, its sales reached roughly 150 billion KRW (about $112.50M), with overseas sales accounting for around 50 billion KRW (about $37.50M). Eastend posted about 50 billion KRW (about $37.50M) in sales last year, a 66% increase from 30.1 billion KRW (about $22.58M) the year before.

Kim Yoo-sik, executive director at InterVest, which invested in Cover Summon, said, \”Unlike traditional fashion companies that operate department-store outlets, fashion-brand startups diversify distribution through online channels, pop-up stores and social media, which lets them keep relatively higher margins. Considering that traditional listed fashion firms trade at a price-to-earnings ratio (P/E) of about 10x, fashion-brand startups can command higher valuations.\”

Analysts say fashion brands check both of VCs’ core boxes: revenue growth and overseas expansion. Kim added, \”VCs have already seen returns from K‑beauty after heavy investments in companies like APR and Chosun Beauty. K‑fashion is attractive because it targets Millennial and Gen Z consumers and distributes online, making global expansion easier and boosting investment appeal.\”

[MoneyToday startup media platform UnicornFactory]