A major problem in the fashion industry is that it is very difficult for a new designer to “break the code” that enables a distribution capability, so as a result we have few brands dominating the retail landscape and a couture business that while garnering headlines actually generates very little in the way of actual revenue.
Fashion Stake looks to change that by operating a marketplace where consumers can make a financial investment in designers but instead of equity or cash flow in return they get credits that are used for future purchases.
The site, led by Harvard Business School alumnus Daniel Gulati, will put designers and companies together with consumers on two levels, financially and critically. Financially, an investment in a designer will return the ability to apply credits toward purchasing that designer’s garments.
I’m all for alternative investment markets, believing that opening up these opportunities is a democratizing pursuit and the potential for investment returns, however slim the chances are, is better than the current scheme most people apply where their money is essentially eaten alive by inflation. However, my first thought upon reading about Fashion Stake was that it can’t possibly be legal… it doesn’t matter what you call the quid-pro-quo for an investment, whether equity or credits it is still an investment regulated by securities acts and the SEC (I wrote about this last week).
(Cross-posted @ Venture Chronicles)
[...] The second problem may lie in the murmurings which question the legality of running such a company. Jeff Nolan, the author of Enterprise Irregulars, says: [...]
Let’s not judge Mr. Gulani too early. What he is doing is absolutely transformational and is bound to be copied by other businesses where talent or artistic gift is concerned. This is definitely a new business model and with such big social networking sites like twitter and facebook, he will surely succeed.