Deal Dive: It’s time for VCs to break up with fast fashion

Fast fashion is an industry ensnared in labor issues and copyright problems, and it has an immense environmental impact due to its wastewater and carbon emissions. It also happens to have the potential to make a lot of money, fast.

But despite all these issues, VCs won’t stop loving the sector.

On Wednesday, my colleague Manish Singh wrote a scoop about a potential Accel investment into Newme, a fast-fashion startup based in India. Newme is an app-based retailer that produces 500 new items a week with an average price tag of $10. This news comes just a week after the company closed a seed round.

Accel and Newme did not respond to requests for comment.

Newme looks very much like many other VC-backed fast-fashion startups like Shein, which has raised $4 billion, and Cider, an Andreessen Horowitz–backed startup valued at $1 billion. Cider says it’s on-demand inventory makes it a more ethical fast-fashion option. That’s up for debate, though.

Accel’s potential investment into Newme stood out to me for a few reasons, the largest of which is that I’m just not really sure why VCs back these companies.

Fast-fashion companies gained rapid popularity and large followings because of their ability to bring clothes from the runway to your local department store in record time. But the fact is that often, they can only churn out clothes so quickly by cutting corners. The only way to make this strategy work is by using cheap materials and cheap — and likely underpaid — labor, and in many cases, by copying designs.

This concept is nothing new. H&M, Zara and Primark have been around for a long time and are no strangers to controversy. H&M and Primark have been sued for greenwashingH&M had one lawsuit dismissed, but the other is ongoing, while Primark has been sued for allegedly ripping off designs from Vans. H&M has also been tied to potential labor violations.

And yet, VCs find no fault in funding the next breed of these companies. Rinse and repeat.

Shein has faced scrutiny for allegedly using forced labor to make its products, and it’s also been hit with lawsuits alleging copyright infringement for ripping off designs. Cider has also been accused of copying designs, not in court, but on social media and by designers.

Accusations like these hurt brands. And even the perception of labor and copyright malpractice can open a company up to a slew of legal battles that will be costly, regardless of whether they end up getting charged. In the worst case, if such allegations are proven true, they would result in VC money being parked in an unethical business, which isn’t really a great look. I’d love to know what LPs think if and when that happens.

Of course, there is also the environmental impact that these companies have. The fast-fashion industry generates more pollution than the aero and maritime industries combined each year. I’m not saying that every VC needs to exclusively invest in carbon credits and clean energy startups, but their money would be far better spent on startups that are not actively making the environment worse. In 2024, you could even argue that it’s tone deaf.

As environmental regulation continues to get stricter across the world, fast-fashion companies need to take a moment to reexamine their priorities. If they don’t get greener fast, they are setting themselves up to potentially being forced to change their sourcing and business practices. That would be costly and could be enough to cause a change in strategy.

Investing in these companies also bets against consumer trends. Sure, investing in the apparel and retail industry is always a bit of a gamble since it’s hard to predict where consumers will head next, but ethical consumption has been a growing movement for more than a decade. People want to know they are getting an ethically sourced and produced product, and their ranks are ballooning.

Fast fashion, of course, does make a lot of money in the short-term, so I get why VCs are swarming — that’s capitalism, baby! But in many ways, these companies seem to be more troublesome than they are worth. Plus, backing a company that isn’t 100% ethical sends a clear message about the beliefs a firm espouses.

VCs may not be able to stop the fast-fashion industry, but maybe it’s time they thought more about the consequences of funding it.