Venture capital—a type of private equity investing where investors fund startups in exchange for an ownership stake in the business—has long had a hand in determining the ever-changing tides of every industry (including beauty). With barely any blank space in sight, it can feel like new beauty brands are cropping up daily, backed by celebrities, estheticians or dermatologists, and in some cases, a combination of the two.
The expertise of venture capitalists can be the deciding factor between a brand's blockbuster success and imminent disappearance. And in the case of the three experts we tapped for a little forward-thinking, their personal experience in the industry (from internships to C-suite positions) plays a role in their present-day investing. For Kimmy Scotti, founder of Fig. 1 and partner at 8VC, entrepreneurship has always been an instinct. Her fashion jewelry line, Mimz New York, was sold at Bloomingdales and featured on Project Runway, all while she was in high school. Tracy Dubb credits her background in finance for her savviness as the co-founder of Isla Beauty and partner at Beliade, an early-stage investment firm. And Cristina Nuñez, co-founder and general partner at True Beauty Ventures, spent years leading brands like Clark's Botanicals and Laura Geller Beauty.
Ahead, they share insight into what makes a beauty brand investable and the trends they're investing in throughout 2023.
What They Look For in Beauty Brands
When evaluating brands, each of these women has a specific set of qualities they look for. Dubb always asks, "Does this brand or product need to exist?" She also looks for brands with "solid, defensible margins" as opposed to the astronomical markup custom of the beauty industry. This aligns with the ethos of her brand, Isla, which prioritizes price transparency and details every product's cost breakdown on its website. "Ironically, that strategy is probably at odds with what a lot of investors want to hear, but our goal was to establish trust with our customers to keep them wanting to support Isla," she shares.
Nuñez says she always assesses the founder first. "I almost always ask a brand founder to tell me their story," she notes. "I want to know what drove a founder to immerse themselves into beauty entrepreneurship. I want to know what motivates them to do the daunting task of brand building every single day."
Scotti looks for differentiation, best-in-class products, and a strong team. Of course, she also likes to analyze a brand's sales. "I like to look at the customer data to see if they are coming back to buy [a product] again and again," she says. "Our hope is to find a brand with growing momentum where we can lend our expertise to help them avoid mistakes versus having to course correct at such an early stage."
What They're Investing in This Year
Brands With a Strong Community
What's one of the tell-tale trademarks of an investable brand in 2023? "A loyal, excited customer base," according to Dubb. Scotti echoes these sentiments. Through building Fig. 1, she's learned that incredible products plus unmet needs equal strong repeat consumer behavior. "Consumers, women especially, are good at telling each other that they tried something and it's working for them."
Brands That Blur the Lines Between Health, Wellness, and Beauty
"I'm particularly excited about the continued blurring of beauty, health, and wellness," Nuñez says. One of her portfolio companies, maude, is a perfect example of a brand pioneering innovation across categories. Redefining sexual wellness, the brand creates products in the health and beauty space (ranging from devices to body washes). "It was one of the first sexual wellness brands launched by Sephora and drove significant search traffic online for terms like 'vibrator,'" Nuñez explains. "I get very excited when a brand pushes the boundaries of what a traditional view of beauty is by offering new product categories, scientific innovation, or disruptive points of view."
Brands That Incorporate Trends in a Thoughtful Way
Brands that find innovative, approachable ways to incorporate trends and science-backed ingredients are always attractive to investors. Scotti's brand, for example, tapped into the buzzy conversation surrounding "skin cycling" by releasing a special three-product set. "We love retinol and AHAs, so combining them into an easy-to-follow routine makes a lot of sense for our customers and us," she points out.
Brands That Leverage Biotechnology
Nuñez notes that the growing use of biotechnology (the practice of creating lab-made, sustainable alternatives to natural ingredients) in the beauty space has allowed brands to develop products that deliver better results while simultaneously improving brands' commitment to sustainability. "We are excited by the ways biosciences can accelerate, modernize, and innovate beauty products across categories, and we think we will see some major transformations on the horizon," she shares.