If you dream about owning your own successful beauty brand, then there's a good chance you’ve seen the dizzying funding statistics: Global venture capital to women-founded brands dropped to somewhere between 2 and 3 percent of all funding in 2020 according to data from Crunchbase, a slight tumble from an already discouraging 2.8 percent in 2019. Luckily, its early 2021 numbers show that Black and female-founded investment is increasing, but it's still too soon to get excited. So who's getting the biggest piece of the pie? "Still overwhelmingly white, male, Ivy League-educated and based in Silicon Valley," according to a 2019 study from RateMyInvestor and DiversityVC, reported by Crunchbase News. There's some other good news for 2021: In all its turbulence, the past year has also ushered in a new era of inclusion and a crop of esteemed venture capitals, from Silicon Valley to New York City, are actively working to change the statistics — especially in beauty.
"The great thing about the beauty industry is that there are some great success stories — particularly for companies led by women," says Anu Duggal, founding partner at Female Founders Fund, which has invested in brands like Winky Lux, Billie, and RadSwan. "Investors are waking up to the fact that there is a real monetary opportunity in this category, which is exciting."
What's more, despite the pandemic, the experts we spoke to don't see beauty taking a hit in funding. "There continues to be an enormous amount of interest in beauty from the investment community. I don't see that changing anytime soon," says Ben Bennett, CEO and founder of The Center, a brand incubator and accelerator that's invested in brands like Kosas and Ellis Brooklyn and has Naturium, Make, and Phlur in its portfolio. "There are many types of investors, from early-stage angels to VC firms looking to invest in emerging brands, so I would say it's a great time to seek funding if you are ready for it."
To get started, there are plenty of great books on understanding the world of venture capital, as well as many that offer personal stories from beauty industry leaders like Ouai's Jen Atkin and It Cosmetics’ Jamie Kern Lima. But breaking into beauty in 2021 is unique, so we tapped eight VC leaders — the ones that backed Glossier, Mented Cosmetics, Violet Grey, and more — for their best advice, whether you already have a profitable business or just a great idea.
Timing Is Everything
Taking on venture capital funding is a huge step, so it's important to first consider your timing within the marketplace, as well as the stage of your brand or vision. Luckily, there's fertile ground despite pandemic-related drops: The U.S. prestige beauty industry generated $16.1 billion in 2020, according to The NPD Group, but an understanding of how you fit into this changing marketplace is key. Currently, our experts point to increased interest in investment for skin care, wellness, and clean beauty, with big advantages for shade-inclusive, sustainability-focused, and direct-to-consumer brands — but those categories are not the be-all end-all.
"Any time you can show strong growth is a good time to raise funding," says Monique Woodard, founding partner at Cake Ventures and investor in Mented Cosmetics. "2020 and 2021 have been exceptionally kind to companies that can show strong traction and a vision toward rapidly building a big business in a large market." In terms of what she sees getting attention in 2021? "I believe the long tail of makeup will remain strong, but right now, skin is in."
But the Best Time to Seek Funding Differs for Everyone
When to go after funding in the lifecycle of your brand, however, is not as easy to dissect — and each VC has a different preferred entry point. "We like to see companies when they have a unique insight or advantage in the category in which they're building," says Caitlin Strandberg, a principal at Lerer Hippeau, an early-stage venture capital fund where she's led investments in brands like Topicals, Cure Hydration, Parade, Otherland, CAMP, and Studs. She prefers to consider founders with a strong and thoughtful plan to explore its product or market fit, or brands that have already launched and can show strong metrics. "Occasionally, we'll invest in companies that are pre-product and pre-launch, and that usually comes down to our conviction on the founder and their insight into the space," she adds.
Nicole Quinn, a partner at Lightspeed, which has Haus Laboratories and The Honest Company in its portfolio, prefers shepherding a brand from very early on. "I believe there is real value in raising seed and Series A capital so you can grow faster and also have a true partner and expert on your board to help you with strategy, hiring, partnerships, and perspective going forward," she says. "After that we have seen companies become profitable and not need to raise [money later on], which is great to see and certainly possible given the high margins we often see in beauty."
On the flip side, many experts encourage founders to hold off as long as possible before accepting funding. "I recommend founders do their best to bootstrap their business for as long as they can," says Bennett. "When it's time to look for funding, being able to show consistent and healthy revenue month over month will put you in the most advantageous position."
Let your goals as a business owner guide you, instructs Nisha Dua, managing partner and co-founder of BBG Ventures, which features Lola and Mented in its portfolio. "Do you want to focus on steady growth, profitability, and retaining ownership of your business, or are you focused on high growth out of the gate, need significant capital to supercharge a technology or business model innovation, and are ok with giving up ownership of your business in your first (and potential subsequent) round(s) of fundraising?" she asks. "It's OK to bootstrap!"
Master Your Founder's Story
A driving force behind many investments today, the founder and their story is what most of our experts look at first — so telling your story effectively is key. "Most all investors task themselves to be very founder-led in their investment decisions," says Nicole Johnson, partner at Forerunner Ventures, an early-stage VC firm that counts Glossier, Nécessaire, and Dollar Shave Club in its portfolio. She notes that a founder's ability to attract customers, talent, partners, investors, press, and industry attention is make-or-break.
"Many investors look for founders that they themselves would want to work for," says Strandberg. "As an investor, you're looking to see if the founder is compelling and coachable." For Bennett, it comes down to business sense: "There are thousands of enthusiastic and creative brand founders in our space, but to be successful, you have to be focused on the business above all else," he says. "I tend to be drawn to founders that have a clear and smart plan for growth."
Perfect Your Pitch Deck
The pitch deck is where a founder can focus their mission. "The best pitches tell a story — and almost every successful pitch is accompanied by a deck, in my experience," says Johnson. "The pitch is a story, the deck is its book, and the best pitches — and the accompanying voice-over — read just like one, cover-to-cover."
Building a good pitch takes time and focus. "Start your story with your introduction to yourself and your unique insight," Johnson says. "Dive into the chapters taking your audience through where you've been and where you're going, and, assuming the pitch is to investors, always wrap it up with 'the ask' — what are you looking to raise, and what key initiatives and future milestones will funding support."
Currently, our experts point to increased interest in investment for skin care, wellness, and clean beauty, with big advantages for shade-inclusive, sustainability-focused, and direct-to-consumer brands
Pitches should offer your clear and organized vision, adds Woodward: "A successful pitch gets me excited about the founder's vision for the future and confidence in her ability to execute in the near term." Always be honest and upfront in your pitch, Quinn adds. "All going well, the VC will be joining you as your true partner for the next 10+ years so start as you mean to go on with trust being number one," she says. Yes, beauty is booming, but so is the competition, so the pitch is where you stand out.
"Beauty is a very crowded category so it's important for founders to really understand their market and communicate their competitive advantage and differentiation," notes Strandberg.
According to Dua, it’s important to answer one big question: Why? "[The best pitch] gets to the heart of why this product, why now, and why this team?" she says. "Don't pitch the conservative model of what you think you can do today — pitch the big vision. We want to know how what you're bringing to the market is transformational."
Find Your Way In (Despite COVID-19)
"There's no more bumping into one another serendipitously — or intentionally — at an industry mixer, so warm introductions and cold emails are ever-important," says Johnson about the change ushered in by the COVID-19 pandemic. A warm introduction by mutual acquaintances beats a cold email, but the latter still packs value. "I've learned to not underestimate the value of a great, cold email that's brief, well-tailored to its recipient, and doesn't over-burden them with information or requests."
Scoring an introduction isn’t as hard as you might think. "Start with founders," says Duggal. "There are so many great founders out there to connect with, both in terms of learning, but also to connect with VCs that they like and recommend."
Bennett also suggests casting a wide net: "I recommend that brand founders make an effort to connect with investors, industry leaders, and successful entrepreneurs they admire," he says. "Reach out through LinkedIn or via email and don't be afraid to ask someone for an introduction. I've found the beauty industry is typically very supportive of young brands, but you have to do the work to make the connections. A strong concept, revenue traction, and a clear plan will do a lot for you, but relationships can open many doors."
As far as flubs go, taking a meeting before you're ready ranks high on the list for our experts. "Know your numbers and the difference between ARR [annual recurring revenue], MRR [monthly recurring revenue], and GMV [gross merchandise volume]," Woodward says. "And have a clear idea of the key metrics that you should know: AOV [average order value], LTV [lifetime value], month-over-month growth, profit vs revenue, etc." Bennett adds: "Be realistic. I find that many young founders don't truly know or understand how to grow their businesses."
Consider Other Options
"VC is not the right path for many beauty brands, nor the end-all, be-all," reminds Johnson. She explains that most early-stage VCs are looking for huge returns, up to 20 times the investment, which means differing goals might cause a bad fit if funding is taken under the wrong circumstances. "It's hugely important that founders make sure their expectations are well-aligned with any financial backers they partner up with, whether that's venture capitalists, angels, friends/family, debt providers, or other types."
For some, an incubator or accelerator makes a lot more sense. "Accelerators can be an advantage to beauty and wellness entrepreneurs in a way to provide a space that harnesses 'learning by doing approach,' which more than often yields higher end results," says Jaé Joseph, the co-founder of The Black Apothecary Office, a new concept model accelerator in the beauty and wellness space. "Specifically, with Black and Latinx creators in this space, it increases their chances of success through its visibility, programs, and access to resources and relationships."
Take The Ups With The Downs
No matter what place you're in, it's important to manage your expectations. "Overnight success is a fairytale," says Bennett. "Find a mentor or advisor that you trust. Ask successful entrepreneurs to tell you all of the challenges they experienced in building their brands. Never stop asking questions and being curious."
Finding the right VC, if that’s your path, takes time — especially if you don’t fall into the demographic we mentioned in the introduction above. "Know that there are investors out there who want to see female founders, and you in particular, succeed," Woodward says. "Seek out those investors (of any gender) who understand the business you're building, show that they can respect you as a partner, and want to be an active passenger on this rollercoaster. Yes, only 2.2 percent of venture capital funding went to women founders last year (and even less to Black women), but that doesn't have to be your personal story. You don't have to get every investor to believe in you — you just need the right few."
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