As go-to investors for early-stage indie beauty brands, Rich Gersten and Cristina Nuñez — the co-founders of True Beauty Ventures — have been asked one question probably 10,000 times before: What do they look for in a brand when deciding whether or not to invest?
Make that 10,001: During a recent Zoom call with the duo, I posed the query yet again. “[There are] many things, considering we say no to 99 of 100 we look at — there’s plenty of reasons to say no,” says Gersten, who also serves as TBV’s managing partner.
He and Nuñez (who also serves as general partner), founded their business in 2020 with the mission of growing emerging brands by providing not just capital, but also strategic partnership and sector expertise. In the five years since, True Beauty Ventures’ portfolio has become a Who’s Who of indie beauty superstars. Its 20 brand partners span skin care, hair care, fragrance, color cosmetics and wellness: Ami Colé, BeautyStat, Caliray, Cay Skin, Crown Affair, Dieux, Evolve Together, Feals, Iris & Romeo, K18, Kinship, Maude, Moon Juice, Sofie Pavitt Face, The 7 Virtues, The Maker, Vacation, Youthforia, Jupiter and one which has yet to be announced.
On its surface, TBV’s secret sauce is fairly straightforward: “We’re very relationship-driven. We’re not the type of investors who get a pitch deck and [are] like, ‘Oh, that looks good. I’m going to invest in one call and we’re in.’ We build relationships over a year-plus,” explains Nuñez. There’s also plenty of nuance that goes into their decisions. They do their homework and take time to feel out whether a brand fits.
“What I love about is industry is how fucking fast things change. It’s kind of crazy,” says Gersten. And given current economic and geopolitical uncertainties, they feel optimistic about the beauty space. “I don’t think anything’s recession-proof, but I think beauty is probably one of — if not the most — resilient categories within consumer [product investing],” says Nuñez. “Beauty has this ability to provide little pleasures for people and escape from the realities of their life, so I don’t think people are going to stop these habits. They may change between buying super premium luxury, and they may decide to buy more affordable products, but in totality, I don’t think that beauty is going to suffer during a potential recession.”
In such a fickle and overcrowded market, the pair are guided by certain key factors when investing. “It’s not rocket science, but it’s not for the faint of heart, either. It’s an incredibly competitive, intensely saturated space,” says Gersten. Ahead, the two minds behind True Beauty Ventures share what they look for in a brand — including the importance of founders, which stats matter most and what can make for an “immediate no.”
It Starts With a Vibe Check
Nuñez: “Sometimes you meet someone over Zoom or in person and the energy clicks; you can immediately tell that this person is committed. They have a clear superpower that they’re the lifeblood, DNA of the brand and can carry that vision forward. They may not be the best operator, and that’s okay because you could always augment that down the road with experienced team members. But they have to be the visionary.
“Conversely, if [we] don’t click with them, it’s likely a no. They don’t really say the right things, they don’t know their business, they can’t articulate the ‘Why is this brand inevitable?’ You just don’t mesh. There’s no other way to say it.
“Our type of founders are very active reaching out to us, asking for advice — we love it because that means they’re going to be a good partner to us.”
Proof of Concept Matters
Gersten: “We believe very strongly in the power of productivity of your distribution. If we see a small brand that’s opened up 52 retailers in 22 countries and has nothing to show for it, that’s a turnoff. Or conversely, if it’s got 50 products in its assortment and is doing $2 million in sales… we prefer to see two or three products and then lining up with an anchor retailer like Sephora, those things start to click.
“We also pull in various data sources. We track EMV [earned media value] data very carefully; we have access to other sell-through data. We have very frequent touch-bases with the merchant teams at Sephora, Ulta and Target. The role of the merchant is very similar to the role of the investor. You’re trying to identify a brand that they think has the potential to scale and they make money.”
Nuñez: “There has to be some existing momentum already. In rare cases, we have invested pre-revenue. Typically, we want to see that there is traction, proof of concept and momentum.
“That can be a little frustrating for small brands to hear because they’re like, well, in order for me to get momentum, I need your capital. It’s difficult, I fully get it.”
Photo: Courtesy of Sofie Pavitt Face
A Strong Founder Is a Valuable Asset
Nuñez: “Those brands that can break through and create that momentum on a very bootstrapped basis that have the ability to really create demand, like Charlotte [Palermino of Dieux] and Sofie [Pavitt of Sofie Pavitt Face]… are valuable.
“They all dabble in [paid media] for sure, but when we first invested, it was all organic. It was all [the founders] and their community and their authenticity, their credibility and obviously great product. They were able to get that momentum going without an investor. That’s kind of an immediate ‘yes’ for us.”
Gersten: “Charlotte being a trained esthetician, and Sofie [being one] as well — I just love that. I think it allows brands to engage with consumers in a deeper way.”
Nuñez: “It’s really helpful, obviously on social — and there are shades of nuance in how consumers are discovering and engaging with brands. Obviously TikTok is huge, but you’re kind of seeing a return to more authentic community building, word-of-mouth advocacy; what better way to unlock that than a founder going into those communities, being with them?
None of this is novel. But I think people are questioning [what they see on social media] and are looking to founders to make sure that this is not just a bunch of BS marketing or influencer endorsements. I do think that’s where the professional founder — whether it’s an esthetician or a derm or a makeup artist — can really win because they’re practicing their craft.”
Gersten: “Post-iOS 14, when it got much more expensive to acquire customers through paid digital marketing, one of the things we started looking for is a founder that can create demand organically. It’s so expensive to acquire customers; if one of the founders’ superpowers is that ability to create organic demand, that’s really a competitive advantage in this marketplace.”
Profitability and Gross Margins Are Key
Nuñez: “As we get to know a brand… we dig into the financial performance, we talk a lot about having a sustainable and profitable business model.
“We talk a lot about gross margin, and we look at it across our entire portfolio — you can optimize your gross margin. There’s no better way to create profitability and give you the fuel to then invest into marketing and a team that are going to drive your business. It’s so critical.
“It’s also really critical at exit; potential acquirers are going to really look at gross margin. So if we’re looking at a business and the gross margin is abysmal, that would be an immediate ‘no.’ It’s too much work to fix that at the stage that we’re investing in. We don’t want to have to correct those types of mistakes.”
Marketing and Brand Voice Can Be Differentiators
Gersten: “The world doesn’t need any more new brands. They do not. Just to be clear. There’s very few brands and products out there in the market that have proprietary anything. At the end of the day, it’s marketing great product that a consumer gets attached to and feels that they need.
“Evolve Together, we think, makes the best ‘clean,’ best-smelling deodorant in the market. That’s why they’re doing well. They have a great mission and a great founder story, but at the end of the day, they have [great products]. Can someone else knock it off? Anybody can knock off anything. But can they deliver it with the exact same experience and aesthetic packaging and fragrance and all that stuff? Probably not. If you’re just looking to invest in stuff that no one else can replicate or knock off, you’re in the wrong industry.”
Photo: Courtesy of Evolve Together
But the Products Themselves Matter, Too
Nuñez: “In this industry you can fall victim to the trap of newness, newness, newness, launches for the sake of newness. Retailers love it, but brands that aren’t launching true innovation can actually suffer from just putting out ‘me too’ products that actually don’t need to exist. We recognize that; but we also recognize that it’s a necessary evil sometimes for retailers that you need to launch stuff to make them happy.
Not every single thing you launch is going to be groundbreaking, new to market, never been seen before, innovative technology. But — this is going to sound so cheesy — the brands that move people and have an immediate benefit and an impact [stand out.] At the end of the day, you need to be able to solve a pain point or a problem or something that’s missing for the consumer. So both of those things have to be true. People are focused on efficacy, on products that are delivering both an aesthetic and a therapeutic benefit.”
Photo: Courtesy of Sofie Pavitt Face
Ultimately, It’s About a Gut Feeling
Gersten: “Because of the stage we’re investing in, it always will come down to: Does your gut tell you this makes sense or not? And for us as sector-specialized investors, in my case for almost 30 years, the pattern recognition is a very important aspect of what reinforces the strength and conviction in the gut.”
Nuñez: “The whole package has to be there, which is why our hurdle is so high for investing, because it can’t just be one or the other. Frankly, I would rather a brand launch less and have a more focused innovation strategy because to me then they’re truly perfecting what they’re launching, those hero products, from the results to the experience, the packaging, the branding, the messaging, the content around it, it’s perfect. And I think that can drive more sustainable growth. What that means, though, is that it requires a ton of freaking patience from both the founder and the investor.
“I think it’s so important, just like we always tell founders, to continuously improve. That’s what we do as investors: Always look back and postmortem everything and focus on that continued improvement so that we can be better at spotting these winners early and then doing what we do, which is add value along the way as a partner, as the brand grows.”
Source: Fashionista.com
