April 2015

Funding Naadam Cashmere: One Step Closer to Achieving a Vision

Alternative forms of financing such as A/R factoring are flexible enough to focus on a company’s future potential and growth, as well as its history. Leigh Lones, CEO of Bibby Financial Services, recounts how Bibby crossed paths with Naadam Cashmere and why the factor took a chance on financing a unique and socially conscious business.

Leigh Lones, CEO, Bibby Financial Services

Leigh Lones,
Bibby Financial Services

As an alternative lender, we are often fortunate enough to make a financial difference for startups and smaller businesses that come to us with a mission of bringing about change within their respective industry. One company that particularly resonates with me is a company started by two college roommates who set out to create a luxury cashmere product of unmatched quality, while preserving the traditional nomadic herding lifestyle of the Mongolian people.

Naadam Cashmere had that right combination of unique vision and product demand to pull it off, but needed a financial partner that understood the industry and supported the vision. A top concern for small and early-stage companies is cash-flow, and Naadam experienced the pinch many apparel companies feel as they go through the grueling process of attempting to move their product from a website to store shelves.

A Responsible Business Model

Co-owners Matt Scanlan and Diederik Rijsemus hatched the idea for Naadam a few years ago when they met as freshman roommates at Dickinson College in Pennsylvania. Their passion for apparel and some of the world’s less-known cultures gave them an idea to fill a void in the industry. The two sought to build a company with a business model that not only made money, but also gave back by aligning its bottom line with social impact.

Scanlan and Rijsemus started the company with inspiration from the Mongolian people and their inherent value systems built around generosity, respect and honesty. Those values were the catalyst for the company’s mission to create a sustainable business that would ultimately help preserve the nomadic lifestyle. Nomadic herders in Mongolia provide some of the finest cashmere available, yet they face threats associated with increasingly volatile climate changes. Once-lush pastures are transitioning into desert-like conditions, forcing many traditional nomadic herders to abandon the lifestyle in search of a more stable livelihood.

Naadam sources cashmere directly from these herders, ensuring their product is of the highest and purest quality. They then create social impact by circulating a percentage of all profits to the base of the supply chain by investing in livestock insurance programs for herders. Herders can feel secure knowing that if anything should happen to their goats, they are protected and will have funds to support themselves and their families. By using this method of long-term sustainability, Naadam helps preserve the culture of traditional nomadic herding, while also introducing to the market a cashmere product with unmatched purity and quality.

Financing the Future

Naadam and companies like it represent a tangible shift in consumer demand. Today’s consumer is willing to pay more for a product that offers an element of philanthropy, sustainability or exceeding quality. At the same time, the current generation of business owners faces unique obstacles when seeking to obtain a source of funding. Specialty and alternative lending are excellent options that allow companies flexible access to cash, facilitating growth. There is a great sense of pride in helping smaller companies and startups fund their unique vision and achieve success.

Traditional forms of financing place value on the analysis of a company’s track record over a minimum two to three-year period and usually require proof of profitability. Alternative forms of financing, such as accounts receivable factoring, have the flexibility to focus not on where a company has been, but where that company is today and its potential for future growth. Flexible financing options swing the door wide open for companies like Naadam that may not be established, but have a growth-oriented vision and demand for their product. Knowing that financing options are available to early-stage companies helps to foster a culture of innovation. The age-old adage ‘dare to dream’ comes to fruition for companies when they can receive funding based on the worth of their invoices without plunging themselves into debt in the first few years.

Cyclical Struggles; An Introduction

Due to the cyclical nature of its inventory, Naadam experienced lapses in cash-flow and difficulty following up with customers to pay invoices. It needed a funding solution that would facilitate growth and take into account the seasonal nature of the apparel industry, unlike traditional lines of credit.

Bibby Financial Services first met Naadam at an apparel trade show in New York. Scanlan and Rijsemus were showcasing their luxury knitwear when they were introduced to Bibby Financial Services Business Development Associate Zlatko Hrbacek, who spoke to them about funding options that could complement the highly cyclical nature of the apparel industry. Most companies have a few periods of the year in which there are dips in cash-flow, as they market to stores in the hopes of getting their lines placed. Naadam also faced the unique hurdle of working with a product reliant on the harvesting season of the Mongolian herders, and more likely to be in demand during the colder months.

The Right Solution

It became apparent during the conversation that while there was a consumer demand for the company’s luxury knitwear, a jump to supplying products to consumers on a larger scale would only come from the right type of cash influx. Naadam’s top priority became obtaining the right type of financing. A traditional line of credit or loan could end up limiting its long-term growth potential. The company’s goal was to triple distribution within two years.

As a specialty lender, our team has the advantage of being more flexible when making funding decisions. We felt that this highly ambitious goal was attainable due to the fact that Naadam Cashmere produces a high-quality, high-demand product.

In July and August of 2014, our team worked closely with Naadam to decide which type of funding solution would ultimately put the company in the best position for long-term growth. Naadam worked tirelessly in those months to get orders from boutiques and stores across the U.S. After this series of orders shipped, Bibby Financial Services used those invoices to try to devise a tailored funding solution that would best fit Naadam’s needs.

Non-Recourse Factoring Facility

Several potential obstacles were ironed out along the way. First, Naadam was an early-stage company with not much of a track record of selling to businesses. As an alternative lender, we were able to overlook that fact and instead focus on the dynamic vision and drive of the two co-owners, as well as the fact that their product was in high demand. Second, apparel companies with high-end luxury products generally work with niche retailers and small boutiques. Those boutiques are at a higher risk of having cash-flow issues because they are usually small and have a higher price tag, which draws a smaller demographic. Due to this fact, our team also put a credit insurance policy in place to help minimize the risk of non-payment due to a customer closing its doors. Lastly, the Bibby Financial Services team assessed the product itself. Not only was it sourced overseas, but Naadam also insists on sourcing only from traditional nomadic herders in Mongolia. Because of this, the quality of Naadam’s product exceeds many products on the market today, and our team believed consumers would recognize that. The sustainability factor of Naadam’s business model also resonated with our team.

After considering those elements and working through the logistics of funding, Bibby Financial Services provided Naadam with a non-recourse factoring facility in September of 2014, two months after the initial conversation. With this cash-flow boost, Naadam is one step closer to achieving its vision. Scanlan and Rijsemus used the funding to finance their first full season, and debuted both men’s and women’s collections during New York Fashion Week in February. There is no doubt that Naadam will continue the growth that is so engrained in the brand’s culture.

Leigh Lones is CEO, Bibby Financial Services, Americas.

Choosing Bibby as a Partner

By Matthew Scanlan, CEO and co-founder of Naadam Cashmere

We started Naadam with a simple business model: to source a rare, fine material and repatriate it back to the people we originally bought the material from. That being said, the fashion industry is cash-flow dominated. There are two periods during the year where you’re making a lot of money, and two periods where, theoretically, there is a dip.
We never experience that dip because we work with Bibby Financial Services. We use Bibby as a way of ensuring payment, and in turn, fund life insurance policies for the herds of goats in Mongolia that provide our material.

As a small brand, we need to ensure the stores we work with pay us. Cash-flow is important in any business, and we wanted a financial partner that had our back. Bibby Financial Services was right there with us the entire time. One of the reasons we ended up working with them was a sense of closeness; they “held our hand” when we needed it held; this was the first time we did anything like this.

Nobody was as willing to work with a new company, and they took a bet on us just like the stores took a bet during our first season. We are excited to see those bets paying off.