eThesis - Kauppakorkeakoulun sähköiset gradut

The intention of this study is to describe and explain how internationally focused, Finnish entrepreneurial fashion companies are financed. Fashion industry has been recognized as a viable industry in Finland, but it seems that these businesses suffer from lack of financing. Thus, many of the firms fail to expand to international markets, which is crucial for their future survival. The objective of this study is to understand how these fashion companies are financed from start-up until today, and whether the stated funding gap that inhibits their future growth is justified. Also the patterns of financing observed in the empirical part of the study are compared to the patterns prescribed by theory in order to find out possible anomalies that might be characteristics for this particular industry.

The subject of this study is relevant, since academic research on small business financing is a relatively more recent topic of investigation and there is limited information available on small enterprises and particularly on capital markets providing funding for them. Also understanding how particular sectors are funded and whether such sectors suffer or gain from unique funding arrangements, such as unique information asymmetries, will enhance our comprehension on small business and entrepreneurial finance. This study will also provide guidance for potential financiers, policymakers and entrepreneurs forming new ventures.

The study is conducted as a qualitative case study by interviewing the founders and the owners of three growing entrepreneurial fashion companies. To form a more complete view on the topic, also eleven different financiers were interviewed in order to find out their perceptions of the potential and riskiness of the industry.

As evidenced in this study, all the case companies preferred equity based finance in their current life cycle, which was influenced by the nature of the business, growth ambitions of the entrepreneurs and the need for external competencies. Thus, other factors than the cost of capital or loss of control affected the firms' financial decision making. Secondly, even though the studied fashion companies did not seem to have unique funding arrangements as such, it might be that these companies are relatively opaque in the eyes of financiers, which may affect their prospects in acquiring appropriate finance. But rather than a finance gap, the reason behind is a cultural gap between the entrepreneurs and the finance providers. The implication is that the gap may be narrowed by improving the business abilities of the fashion companies and educating financiers on creative businesses.