Fashion royalty: Donatella Versace gives career advice to the next generation of designers at London Fashion Week

It's understandable that the six finalists competing for the International Woolmark Prize during London Fashion week felt a mixture of nerves and apprehension before they presented their work to the esteemed judging panel. And when judge Donatella Versace said she knew how they felt, she really did mean it.

"I have a show on Friday and I'm really freaking out," she confided before the catwalk event that was the culmination of a global search for outstanding emerging talent. "I understand that the rule of fashion is to change, even as a successful designer – you do not want to be stuck in the same rut."

Following the rules of fashion has never come easily to Donatella Versace, nor to her older brother Gianni, who built up the empire that bears the family name before his untimely death in 1997. But of course Donatella had more than a helping hand in moulding Versace into an iconically glamorous label while her brother was alive thanks to her role as his "muse" and, more tangibly, her work supervising advertising campaigns shot by Richard Avedon and Bruce Weber and starring the biggest models of the Nineties. Versace also gave his little sister first an accessories line to design, then a children's line, Versace Young, before in 1994 she became the head designer of Versus, her very own brand aimed at younger fans of the main-line collections.

Purely judging by appearances, Versace comes across as something of a blond bombshell – a role she certainly seems happy to play up to. But she is by no means a bimbo – misjudge her at your peril, there is an immense talent underneath that façade. Immersed in music, culture and fashion, Versace has manoeuvred herself into a position from which she is able to quench her thirst for the new. "I'm always excited for young talent, I'm always looking for it," she says. And her track record speaks for itself. Having chaired London's Fashion Fringe initiative for two years, judging the Woolmark Prize is a continuation of a broader search.

"I already have some background," she says of the competing designers' work. "I could see a difference in them, could see that some have commercial points, other ones are totally trying to find something new, pushing forward and using wool in an amazing way."

Although her involvement in the project this time around came about through fellow judge and Vogue Italia editor-in-chief Franca Sozzani, Versace has been familiar with the prize for a lot longer than that. "More than 20 years ago, Gianni did something in Australia for Woolmark – he went there to do this show with clothes made only from merino wool. And it was very different from normal Versace, but for Gianni it was amazing." A special event was held to honour the Australian wool industry, but Woolmark, or as it was then known, the International Wool Secretariat competition, first entered fashion folklore long before that. In 1954, a 21-year-old Karl Lagerfeld won the award in the coat category and Yves Saint Laurent, then just 18, took home the dress-design award, both having impressed a judging panel that included Hubert de Givenchy and Pierre Balmain. A year later, Saint Laurent was installed at Dior and Lagerfeld was working for Pierre Balmain.

Back to the present, however, and alongside Versace, this year's judging committee included Franca Sozzani, Diane von Furstenberg, Tim Blanks and Victoria Beckham. "It's a wonderful initiative," Versace says. "It is designed to help the next generation of designers." Indeed, Christian Wijnants, the winner of the prize, was awarded a fund of $105,000 (£70,000) and a chance to gain international stockists' and industry attention for his merino-wool hand-dyed creations.

"I have worked with wool all my life as a designer," Versace says. "There's so much more to it than knitwear – it's an amazingly versatile material and can be used in so many different ways from chic to rustic. It can be so light now, you can drape wool, pleat it and create a cocktail dress, which is of course important to Versace."

As well as welcoming talented London graduates in to the ateliers of her labels, Versace has forged a close relationship with young designers from the capital. In 2009, she appointed Christopher Kane to head Versus, passing on the baton that had been handed to her by her brother. "From just one sketch of Christopher's while he was still at Central Saint Martins, I knew he was something special," she says fondly of the Scottish designer. "Somebody gave me the sketch and I was mesmerised. There were so many ideas. But he was so shy. He asked us [the label] for some mesh, a little mesh for his collection. So I called him and said yeah, of course I'll give you whatever mesh you want.

"That's how I started our conversation and he was so happy. The minute I met him I thought he had a very fresh way of looking at fashion. He's very feminine, but he is also cool – his is not an old-fashioned femininity."

Kane's spring/summer collection for Versus would be his last for the brand. In November, in the midst of speculation that Kane would be headhunted for the then-vacant position at Balenciaga, Versace suddenly revealed that Kane and Versus would be parting ways professionally, though it was underscored that the split was amicable. Indeed, when Kane showed his latest collection in London last week – a greatest hits of sorts – Versace was on the front row to support her protégé.

"I look for people with ability, of course," she says. "But I am also looking for people with a particular spirit that fits with Versace – a rock'n'roll rebelliousness, with lots of energy. They need to have their own vision. That is really the most important thing for any fashion designer – you need your own voice. When I find someone with potential, I always follow their careers closely, and see if I can help. Apart from anything I benefit personally from exchanges of ideas with young people. But more importantly, the next generation of designers is the future of fashion – so these people should be nurtured."

Instead of taking up its usual slot on the Milan schedule, Versace is planning to do something altogether new with Versus, having installed JW Anderson as the first of a series of guest designers creating limited-edition collections. Versace's new vision for the line sees it becoming a seasonless concept, with a strong focus on its digital offering.

"After the H&M collection [a series of collaborations with the high-street brand began in 2011] was very successful, we realised how much young people know the history of Versace. We thought young people who know fashion through the internet wouldn't know anything before 2000, but the reaction was inspiring."

It is fitting that the history of the brand is playing a part in pushing it forward; after all, Gianni Versace was a revolutionary in his time. Inevitably in the middle of the awards season a conversation with the head of one of the most glamorous, red-carpet-ready labels turns to the Oscars. "Red-carpet dressing came very naturally to Gianni," Versace says. "He was a very good friend of Jane Fonda, and she asked him to dress her for the Oscars. It was one of the first times that glamour was celebrated on the red carpet – at that time, Hollywood thought that being glamorous was not a good thing. You had to look intellectual and arrogant and that is totally wrong, in fact. Image is everything now."