When Michelle Cordeiro Grant launched her lingerie brand Lively in 2016 after having worked at Victoria’s Secret, she knew she could spend years going to every factory in Asia trying to find the right partner that could produce what she wanted and how she wanted it, and still not end up negotiating a good deal. But a solution presented itself when she met Yossi Nasser, the CEO of 70-year-old lingerie manufacturer Gelmart International, which became both her main manufacturer and her first investor.

A manufacturer serving as a DTC brand’s investor is rare, but the partnership model has legs. Young brands save on manufacturing, notably one of the most difficult steps to navigate for one, as manufacturers get to take a stake in the fast-growing direct-to-consumer world while diversifying their revenue.

“It allows us to be so strategic,” Cordeiro Grant said. “Building the brand and manufacturing the product are both huge tasks, and it can be impossible to do both well. Working with them lets us have a really flexible inventory since they’re so responsive. We’ve never had to do a single markdown. Not once have our clothes had to go on sale.”

Because Gelmart has a stake in Lively, Lively gets more control over the production process and more attention from the manufacturer.

Cordeiro Grant said that because of Lively’s relationship with Gelmart, which has been an investor in every funding round since the brand’s launch, she also doesn’t have to worry as much about competing for the manufacturer’s attention with the other brands it produces for. (Gelmart is one of Walmart’s largest manufacturing partners.) This means the sampling process is easier, products can be tweaked faster and production takes place at the speed normally reserved for larger and more established brands. Young brands that can only afford smaller product runs of 1,000 units often have less priority than established brands that can order 100,000 units, for example.

In 2016, Gelmart built a factory just for Lively, and the Lively team now works out of one of Gelmart’s offices in New York. Lively was acquired by lingerie company Wacoal for $85 million in July, though this has not affected Lively’s relationship with Gelmart, said Cordeiro Grant. Lively is currently the only brand that Gelmart has taken a stake in.

“The precedent we set with Gelmart is that we still act as a separate company and operate as if we were a client,” she said. “We have our own ‘in-house’ design team, even though, really, we’re just down the hall. We design everything ourselves and send it over to them, just like normal. The difference is they’re right there in the same office, and they’re so responsive and active in the whole process. I can go straight from a marketing meeting to a fitting in the same building.”

The rise of manufacturers acting as investors has coincided with other ways manufacturers are looking to diversify how they make money. Last year, a company called Italic began selling brandless products made at the same factories it produces luxury goods.

Melanie Travis, founder of swimwear brand Andie, another brand that struck an equity deal with its manufacturer, said that partnership means that she can spend less time worrying about the minutiae of manufacturing and dedicate more of her efforts toward brand building.

“Our product was $125 at first, but I really wanted to get it to $75,” Travis said. “Our first few runs were made in small boutique manufacturers, but it was just a transaction. They had no skin in the game. Now that we have this closer relationship with our manufacturer, we get a better product and we get better prices, which I can then pass on to the consumer. We get higher quality assurance, too.”

Travis did not disclose the name of her manufacturer but did say the deal made with the company is a mix of cash and equity. 

So if it’s such an obvious benefit for both parties, why don’t more brands do it? The simple answer is that finding the right partner, both for the brand and the manufacturer, is not easy. Cordeiro Grant referred to the chance meeting between her and Nasser, at a time when she was looking for a manufacturer and he was looking for a DTC brand to invest in, was “like winning the lotto.”

Cordeiro Grant said she spoke to Travis about this concept prior to Andie’s own deal with a manufacturer-investor. As more brands see the value, the setup could easily catch on. 

“I always tell people: If you’re looking for an investor, look at your own supply chain,” Cordeiro Grant said.