← The Barefaced Podcast
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- [00:27]
Lily Twelve Tree
Hello and welcome back to the Bare Face Podcast, a beauty business podcast hosted by me. My name is Lily twelve Tree and I am your beauty analyst and data science student. So today we're talking all things funding, in particular VC funding, because it's felt like to me at least that every other day I swear I see a post by the beauty independent or business of fashion or cosmetic business that is announcing that a beauty brand has closed a funding round and I really wanted to figure out why. There has been this extreme search and for this topic I knew I had to speak to people that had done this before because it's all well and good, me theorizing as to what raising capital looks like, feels like and how it impacts your business, but I actually wanted to talk to people that had done this. So firstly I spoke to Ava Chandler Matthews and Beck Jeffrid, the founders of Ultraviolet, who are an Aussie skincare brand that are reimagining sunscreen and their Brand closed a 15 million dollar funding round at the start of last year. Then I was also able to chat with Tara Petter, CEO and co founder of NuFace, the number one microcurrent device in all of the US and the brand has never raised a dollar of funding, although they had considered it at numerous points in the brand's journey. I wanted to chat to Tara to give us a more well rounded understanding of the pros and cons of fundraising to build out this sort of 360 picture of what fundraising in beauty looks like. So before I actually break down what this episode is going to be, I I just want to catch you up to speed and give you a rapid fire understanding of what is VC and how it works. So VC stands for venture capital and VC funding is a form of private equity financing which is provided by firms or funds to early stage and emerging companies in exchange for an equity stake in that company. And how it actually works is that venture capital is all about what they refer to as the innovation economy. So it finds businesses, young businesses AKA startups with really high growth potential. So how a VC firm actually works is they gather a bunch of money from a bunch of rich people and then they put that into businesses that they believe is going to have high growth. But because it's a high risk, high reward to diversify that risk, they usually invest in several different businesses. So you might see like XVC firm has backed this brand that money is actually from usually not always a whole heap of other different people that has been dispersed into a whole different bunch of brands. But when it is kind of in the media as this one firm is backing this one brand. It seems more like a one to one relationship, which it's not quite. Who are these rich people? They're typically really large institutions such as pension funds, financial firms, insurance companies, and even university endowments. But they, they don't have to be these mega businesses either. They're also often startup founders that have exited for a huge payday and are looking to grow their money passively and they've now got the, the leeway to take bigger risks. And VC funding really took off during the tech boom. And it was essentially born in Silicon Valley through the now very infamous firm Sequoia Capital, because essentially you had these people all in the Bay Area with these big crazy ideas that had some level of product validation, but it was so out there and again, so high risk that they couldn't get any money from a bank. So what they needed to grow was more money and more money than they could scrape together from family or friends. So finding rich people to finance their projects was the necessary next step. So when Sequoia Capital opened down the street from Stanford, it was kind of a match made in heaven. And VCs were really born there in the early 90s. The way that most of these firms work is by diversifying the risk. So they invest in heaps of different businesses, but the ones that make the media are the ones that blow up. So they usually actually have way, way more failed investments than they do have successes. But the idea is, is that when you hit a jackpot, you hit a jackpot and that win is so significant and huge that it outweighs all of the smaller misses. But then what happened is by the mid 2010s, the design and setup of VC funding had been proven successful so many times over that there became this almost fear of missing out. And the Financial Times described this in a really great YouTube video that is totally worth a watch and I'll link on substack. There were so many people wanting to invest in tech companies that there were too many investors chasing too few, many deals, bidding too high, and overpricing businesses, which created a tech bubble which eventually burst. So investors starting to look elsewhere and they started to look at cpg, consumer packaged goods, which is where beauty enters the picture. So for anyone that has read Melissa Meltzer's book Glossy on the story of glossier, then you would know that a huge reason that the brand had incredibly, incredibly painful growing pains was through the founder Emily Weiss's obsession with becoming a tech company. Glossier was so early in being a fast growth CPG company that it honestly makes a lot of sense why she felt that she needed to expand into tech and build into tech. There's definitely a think piece here on beauty being seen as illegitimate. But anyway, one way that Emily's chasing of becoming a tech company manifested was in raising copious, copious amounts of venture capital. And there's way more details on that in episode five of this podcast called the Glossier Effect. But with the tech obsession aside, Glossier was one of the businesses that really proved how VC investment could enable CPG businesses to grow at the pace of tech companies. And there was a huge flow on effect from Glossier's success. So that brings us up to speed on where we are in the present day. Like I mentioned, funding announcements pop up on my social feeds, I swear, every other day. And on one hand this is great, right? More money going into female powered businesses, but also female focused businesses. And with more money, that means a lot more cash going towards R and D and propelling the industry forwards, you would hope. But on the other hand, there's become this huge fantasization, fantasization of extremely fast growth. The same way that we attach a different amount of impressiveness to people that achieve something young, we now do this a very similar thing with businesses where it's like X amount of revenue is cool, but what's way cooler is X amount of revenue in your first, second or third year of business. Like there's this real obsession with fast growth. So today I wanted to do an episode on why so many beauty brands are raising money. What are the pros and what are the cons of doing so as well? Like what are the benefits outside having cash to spend? And then on a personal level, what do founders have to sacrifice? I wanted to bring some color to these headlines that feel inescapable because other than seeing the huge dollar amount, I didn't really understand how that came to be, what that meant, what that looked like. And so one more thing before we get stuck in is that what this episode's not going to touch on, and so this episode's not going to be on the mechanics of raising money. I won't touch on frameworks or methods or the difference between successful or unsuccessful entrepreneurs. I feel like there's a lot of that type of content that's already been done by the wealth of podcasts that speak to the experience of being a founder or the experience of being an entrepreneur. So I also won't go much into the distribution of funding dollars between marginalized groups. If you're unaware, in 2022 in the UK only 9% of all female founders received deals, which equated to about 2% of total investment dollars. It's even worse in Australia with 0 of all venture capital going to 100% female founded and led businesses. These stats don't even touch on the intersectionality of this issue, with 0.02% of total funding in the UK going to black female entrepreneurs. I don't want to ignore this huge hurdle that many female and black founders experience, but my first ever episode of this podcast was titled the Black Beauty Problem and I went very in depth into the disproportional opportunities. That would be a great pre listen to this episode because I've tried not to repeat myself, but instead this episode is going to be a deep dive into the rise of beauty investing. And as always, if there are any facts, figures or references that tickle your fancy or you want to revisit them after this episode head to the substack which is linked in the show notes for a full breakdown of everything we discuss. I build out all of these episodes with accompanying graphs and visual aids to tell these stories a bit better because it not only helps me understand them and then hopefully through that makes me better at telling them, but the way I like to consume podcasts is first the entertaining element when you first listen and you kind of get lost in the soar story. But then second to that is them being a business or an educational resource. So I'm hoping that the substack can kind of feed into that. But without further ado, let's get stuck into it. Okay, part one why do VCs and beauty brands love each other so much? So let's first try and understand why do beauty brands in particular need cash to get off the ground? So when you think about brands raising money, if you're like me, I know I always think of tech businesses, and again for good reason, because historically those have been the businesses to raise the most money. But in beauty, it's quite a different business model. So people love investing in tech companies because in theory, once they've built the product, they can have an infinite number of users that grow over time. Of course there is infrastructure that is needed to scale and allow more users to use it, and you need to keep innovating to maintain growth. But generally speaking, overheads in tech startups are low, so they're perceived to have high growth potential for that reason. But consumer packaged goods CPG is almost the opposite to this, the physical nature of the product makes things a lot trickier. CPG businesses need to create the product just as a tech company would, but they then need to manufacture the product, store the product, ship the product, manage returns, et cetera, et cetera. So when you're starting a brand, you have the obvious one off costs like buying a domain and trademarking your name and setting up a website. But way more significantly is the cost of inventory and operations. When you're creating a product, you have a minimum order quantity and MOQ which is required by your manufacturer. And if you can't meet that, then your product cannot exist. And the inventory management and all the complications of a physical goods business that makes things costlier. It costs more to run a CPG business. And for a long time this turned investors away. This is the same reason that for so long in beauty in particular, it was your estee lauders and L'Oreal that dominated the industry because the barriers to entry were so high. This isn't even talking about like having connections, knowing people in the room, you know, prior experience or anything like that. This is just the physical cost of the good, which we all know in beauty is only half the battle. Actually selling it and marketing it is equally as important. But estee Lauder and L'Oreal again, they started early enough and they are now old enough that they have enough money and resources to start new businesses with a lot less difficulty. But more on that later. So then what happened was this all started to change during the direct to consumer boom or the D2C boom, where consumers became open to the idea of buying directly from a brand online. Previously, to start a brand you needed the cost of inventory and operations. But you also then like we said, needed the connections to get into retail and get in front of your customers. Not to mention that of course then those retailers took a cut of your profits which increase the amount of units you needed to sell to have the cash to invest in developing new ones. And marketing and all things like that. And Data C rose as we all know, in alignment with the rise of organic social. And consumers became open to this idea of buying products directly from a business also online, rather than needing to go into a retailer. And this drastically reduced the barriers to entry for creating a product business, which in turn gave these young businesses far more potential potential to grow. And that's where VCs came in. Because suddenly you had CPG businesses that have margins that are way more comparable to tech companies and therefore crazy growth opportunity. What is special about consumer goods over tech businesses is the lower customer acquisition cost CAC or CAC is the cost of acquiring a customer a measure of how much it cost you to acquire an actual paying customer. Now, in beauty and fashion, it' gotten a lot more crowded and cutting through the noise has gotten more difficult. But you're more likely to try a new moisturizer in the next three months than you are a new tech platform, right? In tech businesses, there's a lot more of a balance between freemium, which is a free version of the product, to get around the challenge of people not wanting to pay for something that they've never used before or don't understand. Beauty doesn't have that so much. There's definitely sampling which which I'm working on an episode about, which will either be the next episode or the episode after that. Something we'll revisit a lot today in this conversation. But it's this balance between, okay, people know how to use beauty products, therefore there's lower risk in investing in a beauty brand. But with lower risk means lower reward. Because in the tech businesses, if you are able, like again, just think ChatGPT, if you are able to introduce a never before seen product and it goes crazy and people love it and it has the ability to acquire paying customers, then the growth potential is so much bigger. But because of that hurdle, because of that hurdle in educating the customer on something that they've never ever used before, there's a lot more risk. But also we're not talking about the growth in VC for CPG businesses in general, we're talking about the growth for beauty brands. So why are VCs so infatuated with beauty? Kelly Dill, who is a partner at Imaginary Ventures, a venture capital firm, investing and consumer businesses who have invested in a shit ton of beauty brands like Cosis, Westman, Atelier, Army, Colet, Glossier, Bread, Necessaire, Half Magic, but also other brands like Skims, Stripe, Mejuri, Everlane and Reformation. Imaginary Ventures are one of those VC firms that if you're interested in beauty, I'm sure you've heard before. But Kelly went on the Limited Supply podcast and explained the type of businesses that are perfect for VC investment. Take a listen.
- [16:19]
Kelly Dill
We're really brand junkies and I think it is not enough to have a great product and it's not enough to have a great idea. You have to have some competitive advantage of getting in front of bracket millions of people in a way that other people can't. Right Again, I think you can not do that and create a great Business. I just don't know if that is a venture business. Right. Like in venture really it's like how do you turn $1 into 10 quickly? And that isn't to say we aren't long term investors and actually we are. Right. Like we understand that like great brands are built brick by brick, but I still think you need some sort of competitive advantage and like a go to market in today's age.
- [17:11]
Lily Twelve Tree
You could have told me that that sound bite was describing beauty businesses instead of venture capital and I would have believed you. On brand and world building is so beauty aligned. Beauty is all about selling an emotion, a lifestyle, a connection. And that is something that VCs love. And then of course on top of that is that beauty notoriously has very high margins. Like a lot of the brands I listed off in imaginary ventures portfolio are lifestyle brands where you can sell a consumer in theory, just about anything with your brand name on it. A dream if you're an Investor, right, that VCs love beauty brands is that a major dream and goal of a venture capital backed brand is to one day be acquired, to one day be bought out and everyone gets a major payday. That's of course incredibly rare. But in the beauty industry there are very, very established big key conglomerates that are always on the prowl for new brands to acquire. It is one of the few industries with established buyers. They are always looking. But of course Beauty M and A beauty mergers and acquisitions has been really quiet for the last 12ish months, with beauty giants like Estee Lauder, Coty, Shiseido, L'Oreal all reporting disappointing earnings leading to stock plummets. I spoke about this back in the episode on luxury beauty and there's a whole bunch of graphs on the substack post for that episode, but I'm just going to read off a few of them now. So from January 31, 2024 to January 31, 2025, L'Oreal's stock value was down 27.6%, Estee Lauder was down 40.4% and Coty was down 44.1%. And what this means in the conversation of today's episode is that VC checkbooks have been snapped shut. And maybe my favorite article last year it was by the Beauty Independent titled Meh and Awkward Beauty M&A in 2024. Fantastic title. And they built out a bit of a spreadsheet of noteworthy beauty mergers and acquisitions from December 2023 to July 2024, which I'll of course include up on substack and so basically, in short, it's pumping in December. There's Dr. Dennis Gross, Shiseido K18 with Unilever, and then into the new year with Dr. Barbara Sturm and Puke and DS and Durga with Manzanita Capital. And then there's some movement in Jan, it starts to slow and there's not a lot to April, and then it pretty much stops for the rest of the year other than summer Fridays in July when D2C first took off and investing in CPG really became a thing, Fashion startups did get a lot of attention in the beginning as there were a handful of them that had a lot of success. Brands like Everlane and Reformation became almost household names in the US to any woman that was interested in fashion. But then you also had brands like Outdoor Voices that received huge accolades but then weren't quite able to keep up with the growth expectations of their VC partners. But Nick Brand, who is the co founder of Imaginary Ventures, the VC firm that Kelly Dill is a partner at, he took early stakes in Reformation, Everlane and Outdoor Voices. And he told Rachel Strugatz for the Business of Fashion that the newness cadence around fashion forces the need to discount product, making your margin a bit more challenging. And I thought this was so interesting because I worked very, very briefly in a fashion retailer and merchandising wasn't something I'd had a lot of exposure to, even in beauty. But merchandising in fashion is wild. Picking the right products at the right time, ordering the right quantities in the right sizes is an art pretending to be a science. So from memory, as a retailer, when you buy products from a brand, the goal is to sell through all of that in three months. And you do that obviously four times a year. But longer you hold the product, less it is worth and more you have to discount it. And the cycle of doing that continuously is hugely unsustainable. It's wild then. Beauty on the other hand, requires far less guesswork because brands have fewer SKUs and customers are far more loyal. Rachel also writes in that Business of fashion piece that VCs do well with investments that are truly disruptive innovations that could change the way the entire industry works. In the same vein, that first gen generation of direct to consumer brands forced all fashion businesses to pay more attention to the online channel. With beauty, there's an understanding that is needed of the market and trend culture. I mean I work as a beauty analyst. That's my entire role is measuring market demand versus market supply to calculate market opportunity. But the lifespan of a product in beauty, particularly obviously when you get it right. When you think of the innovation curve, it's not even the innovators or the early adopters, but there's that mass majority that love the product so much that when you add the loyalty element with beauty, they're buying it time and time again. Other than maybe a white T shirt, when are you doing that with fashion? If you love a fashion brand, it's that constant pressure to innovate rather than a beauty brand. They can have that same level of growth purely by making something fantastic once and you coming back time and time again. So this paints a picture of why beauty brands need Money and Love VCs and why VCS Love Beauty brands back. But why so many? Why this influx? I asked Tara Petterson, CEO and co founder of New Face, for her opinion on on this. Tara believes there are a few factors that are driving this trend, but one of which is that private equity and venture capital sees beauty as an attractive high margin industry. So there's been more funding available and she's hit the nail on the head with this because the reason that there are so many beauty brands fundraising is because so many firms are offering. When I spoke to Beck Jeffrid and Ava Chandler Matthews, founders of Ultraviolet, Beck mentioned that they had had countless inquiries for years before they ever considered raising money, which I found really interesting because when I think of a company trying to fundraise, I'd always thought of it as hearing a hundred no's before you finally get that yes. I think in the case of Glossier, I think there was a stat that was something like 60 no's before Emily finally got a yes or something like that rather than the opposite, rather than the VC coming straight to you. Before we look at what this means for the future of fundraising for beauty brands, I want to take a second to look at both the pros and cons of beauty brands raising capital. When I asked Tara my questions about New Face and how you're even able to build a brand known for innovative tech while still being self funded, an actually unbelievable feat. I wanted to know whether she thought that this could be replicated in the current climate because the space has gotten so much more competitive and crowded, Tara said absolutely. Someone starting today could replicate New Face's success, but it requires a clear differentiation, a strong brand story and financial discipline. The beauty space is more competitive than ever and while funding can accelerate growth, it's not the only path to success. New brands need to be hyper focused on their unique value proposition and ensuring that they're building a loyal customer base before scaling leveraging digital channels. Cultivating a strong community and reinvesting profits strategically can help brands grow sustainably without relying relying on external capital. Also measure everything to ensure you are spending in the right areas. This right here is arguably the most important thing to know about NuFace. Because this year 2025, the brand turns 20. Any beauty addict would know the brand name, but it took them a second to get to that level of brand awareness. Especially given the huge education piece that was needed for NuFace. Launching a microcurrent device in 2005, it would have been pretty alien for most people, so it took them a second to get there. Although New Face did explore the idea of fundraising at different points in their journey, they ultimately decided that remaining private gave them the control and flexibility needed to grow the brand in a way that aligned with their long term vision. I think there's something really cool here about being able to see a brand direction play out over time like this. Every brand ever has a long term vision and is always talking about inventions, investment and intentional growth and so on and so forth. But to have such an example of that really paying off with hindsight is so cool. And how sticking to their guns, remaining private, choosing the struggle of slow growth rather than choosing the struggle of fast growth really worked out for them. It really paid off for them. But for me, as someone who sits very far outside of the world of fundraising, I also think most people do. I imagine 90% of founders trying to raise capital wouldn't have done so before, but to me I really wanted to understand why a founder personally would want to raise money. I completely get it from the investor's point of view. Get your money to work for you, high risk, high reward. But the founder benefits were less obvious to me. I just see these founders that have put their necks on the line, they risk it all, they leave their stable jobs and they go through all of that to turn around and hire yourself a boss. The pros towards raising money money for a while were a lot less obvious to me. Which brings me to the benefits of raising capital. Because raising money or not starting a business, starting a brand, you're going to be working 60 hour weeks. And I imagine that this is a much more exciting when you have the cash to spend, when you have the cash to have that type of growth. And something I really hadn't considered was how the pros and cons can change over time. And that was something I learned from Ava and Beck at Ultraviolet, who had been bootstrapped since launch. They started the company exclusively with their own money. They didn't even consider raising a seed round purely because they didn't need to. They were able to pull together the funds they needed to launch the brand on their own. They found out the dollar amount they needed to meet MOQ numbers and then worked backwards. They didn't want to further complicate an already complicated process of starting a business by setting out to do something that neither of them had experience in raising capital. I just assumed that people that are raising money wouldn't have done so before. And it was the job of the V to figure out whether the brand investment was worthwhile. But when ultraviolet raised their 15 million, they didn't need the money from Aria Growth Partners, their VC firm. They were running smoothly and growing considerably. But they knew that they could always find a way to spend the money if they had it. Not needing the money, though, gave them the ability to be picky and run a process of finding the right partner that could help the business beyond just injecting it with cash. And Aria were very knowledgeable of the US US market. They hadn't raised the money. With expanding into the US in mind, it actually happened the other way around. So along with being an SBF brand, so needing to reformulate all of their products to meet FDA regulations, Beck was explaining that you can't launch into the market the size of the US when you're as established as Ultraviolet is without significant spending. They explained that shipping to the US is expensive. They wanted to have a team on the ground to do it properly. And all of that comes with a huge price tag, obviously. So once they had the money, and also with the additional heads around the table from that funding round that were experts in the US market, they decided to go into the US and at the time of recording Ultraviolet just yesterday has launched into 592 Sephora stores nationally. That is insane. Another thing that I thought was really cool that Beck pointed out that having that money allowed them as a business and as founders to think so much bigger than they ever had before. And with without that investment from Aria, they never would have even considered or thought about going into the us and even that shift in perspective from being small and lean to suddenly being able to think big and spend big is undoubtedly the reason that founders go the VC route. They go the funding route because it enables you to do the high growth, crazy things like launching in the US right? But I thought this was such an interesting insight into a business that weren't Pitching themselves or selling an idea or a concept for a brand. Like so many of the other stories I've heard and read in the media, they were instead intentionally profitable from very, very early on. And how that was the thing that was enabling their growth rather than outside funding. Because without any understanding of VCs or the fundraising business and how high growth brands aren't expected to be profitable for several years, I would have just thought that being profitable early and reinvesting in the business was how businesses are designed and like meant to work. But this is so unheard of for such a young brand. When you're really, really obsessed with beauty the way I know I am, but Also from my DMs, a lot of you are also. Is it? You can really start to just feel who is behind these, these younger indie brands. Because all brands have to do everything to some level. But I feel like you can look at a brand and see their founders in it. Like whether they're visual and design obsessed or they're really interested in trend culture and social media communities, or in the case of Ultraviolet, the brand feels so product and formulation obsessed to me. And the way that you can so obviously link that back to Beck's almost decade in product development and then also all of Ava's experience in marketing and brand development, I think that's just really worth pointing out because it's made me think so much about founding teams and how you can have all the investment cash in the world. And that is what all these headlines are comprised of, right? It's the dollar amount, it's the dollar figure, but that doesn't really mean all that much without all of those years of hands on learning. And I asked them if they were launch, would they still go the self funded route and they were unsure because the times are so different, making it so much harder to get cut through without the budgets. And they said that no, they still would have liked to be self funded, but they think that they would have needed to scrape together a bit more money. And I think this is such a valuable case study for a strong business first and VC funding second, which is really valuable because I just feel like that amount of context is, is left out a lot of the time. And maybe we need to do a second version of this episode where we speak to founders that did get that seed investment and were chasing fast growth from day one because it just feels like a completely different business model to me. And again, that's something that I'm really hoping we can do more of on this podcast. Is Give more context to beauty businesses. Because even before setting out to do this, I had just put brands that did have VC funding behind them kind of in one bucket. And if I thought about it a lot, I'd probably look at it again. Obviously the different growth stages, like whether that that was through an early stage incubator or whether that was through seed round or series A. And I knew what those terms meant, but I didn't understand how that impacted the business mechanics. And another thing I would love to chat to someone about and be really candid about is like as a founder, how does that impact your salary? How much are you taking home? Like how you can't pitch an investment firm x amount of money and then be like oh yeah, 10% of that is just like my consulting fee. 10% of that is my take home. Because I always look at Emily Weiss in particular because again, glossier is still valued at heaps but a lot less than it used to be. And she's wearing a Cartier Crash which is like a $300,000 watch that I just, I'm so fascinated by how the money is sliced and diced and where it goes. I know an earlier stage founder who I've spoken to. They have to take on additional jobs as their salary so that the business's money can go straight back into the business. And that's something I've thought about a lot with monetizing bareface is like how much of that money is bareface and how much is mine? And where I've landed is just dead. 50, 50. 50% is reinvesting into bigger picture projects that I really really want to do in the second half of this year. But it took me a second to get there and I really want to know particularly for physical product businesses because I made a TikTok last night about juice skin so I re received an EDM for them which was fantastic. It broke down. Probably have to speak to this at some point in another context because it's too good a content not to re reference. But they broke down the cost of their products. Everything from, from shipping costs and shopify fees and all the things like that. And their markup was three times the price. And like that didn't include marketing spend, that didn't include again the founder paying themselves and the founder Charlotte Palomino who I mutuals with on TikTok who is which is so cool because I think she's fantastic. She commented saying that the profit is usually around 10% and that is wild to me. But the lifestyle element here the lifestyle element of the funding I think is so interesting because again, I just wouldn't want to hire myself a boss. And it sounds like in the cases of some of these businesses they have truly got a partnership. And there's also other nuances here about like what percentage of the business are you giving away or giving away selling? Because if it's 25%, that's a drastically different executive team situation than it is if you're selling 50%, like obviously a majority stake. But I find all of this fascinating. Part 3 what's next for beauty funding? Given that it's saturated and there's been all this movement that we've just discussed, where are we headed? So for starters, it's really worth mentioning that a lot of these big businesses and conglomerates that were always the ones that were being targeted by these VCs as the potential buyers, they've invested in starting their own incubators. What is an incubator? So there is a difference between a VC and an incubator. An incubator sometimes comes with some level of funding, but in most cases it's a lot less than what a VC can offer because to my understanding, it's less often a firm that's going and getting a bunch of money from a bunch of rich people. It's instead one business that is having their own in house incubator or it could be other incubators will get sponsorships from, whether that be the government or bigger businesses in the way of like investing in the future. Right. So incubators are more resource rich than cash rich and help brands with getting access to resources, networks and validating ideas and really getting a company from like 0 to 20. While VCs are focused on companies that are off the ground and they're kind of getting a company from 20 to 50, for example, and they're doing that, as we said, extremely quickly. And incubator is focused on a lot earlier phase of the brand cycle. And the reason there's a lot less incubators than there are VCs is because as you get further along this kind of we continue that imaginary scale from 0 to 20 being the incubator. When you get up to 20 to 50, you've kind of weeded out a lot of the bad ideas really. And further you get along that scale, more and more resistance there is to growth. So there are less and less brands at that stage. So that's why, you know, getting to a series B or C or D is always going to be a lot more money because There's a lot more proof in the pudding. There's a lot more proof that that business is working and they're likely doing bigger and bigger things, so they want more and more money. But then the trade off is by incubating those ideas and suppose that they do grow, the incubator has direct access to early investment and in the case of L'Oreal or Estee, it makes more financial sense for them to have a go at 10 early ideas and for one of them to succeed than to pay multi millions for the buzzy brands in five to 10 years time. And in house incubators are something we're going to see a lot more of because another benefit for businesses of that size, it's branding and positioning that they're testing. It can often be identical products and formulations repackaged, repriced, with new distribution strategies being the only difference. Not to mention that also in this case it means that they can justify the expensive of owning a formula outright. Something that smaller brands can only dream of. Because that's what we spoke about last week in the case of MCO Beauty is that so few brands actually own their formulas because it's hugely expensive. And again, these big businesses that are incubating brands, they get to supercharge part of a lot of the growing pains and difficulties of being a small business. They already have the retail connections, they already have the manufacturing facilities, they already have the in house design teams, further strengthening their ability to test and incubate new brand concept. But something else we're seeing is we're seeing a lot more VC firms in general, but also enter the beauty space. Like even Kim Kardashian. She launched Sky Partners. So despite a lot of reports that the firm was facing fundraising challenges in late Jan. 2025, so what? Two months ago it was announced that they took a minority stake in one one one Skin, which is super interesting. Kim was the managing partner, which is kind of wild, but her role shifted to senior operating advisor, which sounds like a bunch of fluff to me. But this is kind of just a great case in point for how decentralized venture capital has become. Because the decades VC has been a very elite form of investing. It was considered quite closed off and only for those that have huge amounts of cash that they are able to afford to lose. Because of course that is the worst case scenario is that the money that you give to these brands and businesses to grow you might never see again. And then in the last few years there has been a widening of the industry which is really cool if you're on the brand side. But as an investor, as a vc, it presents its own set of challenges because what's happened in the tech sector again is that there are more VCs with more money, so much so that there are more VCs than there are businesses that are looking for venture capital. So investors are chasing too few deals, they're going to bid too high and overprice these deals and create a bubble. And that's what we've seen with a tech downturn. So there's a likelihood with the number of beauty investments that we're seeing that something like this could happen to beauty. Also, where, when and how, I genuinely don't have a clue. We talk a lot on both this podcast, but also in the industry in general about how saturated beauty has become, but we never extend that to how there's quite literally only so many beauty products that someone would buy. Yes, that number is way higher than it was 10 or even five years ago. And I do believe there's a sweet sweet spot where more brands means more choice and it means that beauty can be more personalized, which is fantastic. But there's also only so many moisturizers that Sephora is going to stock. There's only so many that are going to be stocked at Chemist Warehouse. I did a substack analysis on that last week, which is kind of a really cool report. So give that a read. But this is the reason that we're seeing so many beauty brands or beauty retailers expand into wellness and health. That line is becoming so blurred out of a necessity because each category has to reach a tipping point at some point. Surely Mecca, for example, are launching their new flagship along with an apothecary and 15 new wellness brands. I've cited that before, but I just think that's so interesting. And in that same vein, what I think this is demonstrating is how product innovation, product, product, product is the real investment. Because think back again to the Ultraviolet example that that is a product driven brand. All the marketing in the world doesn't really matter if your product sucks. And the best way to future proof yourself is to innovate. Sure, you might have an MCO beauty or someone that will rock up and try and copy, but there were several comments on TikToks I made promoting that episode of people complaining that MCO duped the packaging better than they duped the formula. But then again, maybe I am a hopeless romantic when it comes to to beauty. But there's two other things to consider. So firstly, we now have higher interest rates than five years ago, particularly in the US where all of this, not all of this VC money is coming from, but majority of the VC money is coming from. Which means that investors are a lot more skeptical about handing their money over to venture capitalists because they can get solid returns with a lot less risk in an avenue of other ways. But the second thing to consider is how on a beauty scale, M and A markets have largely been closed and then on a tech size scale, so is the IPO market. With all of this in mind, I would suspect that maybe 3ish years ago was the sweet spot for raising a seed round. I would imagine that the door isn't shut on beauty just yet for VCs, but I would imagine that they're looking more and more at series A type rounds where the risk is smaller and therefore so is the reward. But getting brands off the ground in this current climate, with this level of saturation, with these big incubators that are able to do it a lot more affordably because they can skip past a lot of the manufacturing, operating and networking costs of starting a brand, I feel like we're going to see a return to bootstrapping. I can't for the life of me put a timestamp on it, but I remember so, so vividly a time where referring to yourself as bootstrapped was the ultimate flex. It, it was very. Look how far I've gotten purely by the own grit of my teeth. And there's this whole 180 that we've done now where VC Cash now feels like that's the stamp of approval and that's the way to legitimize yourself as a brand. But I feel like we're going to see more and more cases like Ultraviolet where younger brands that are able to be super savvy and make themselves really profitable from earlier on, when the media is full of stories like Glossier and I recognize that I'm a part of that. But when we're told to look at brands of that size and that's put on such a pedestal that when we think about slow growth, I think we're envisioning a decade at the farmer's market and they're not the only two options, they're just the two extremes. And I think we've pushed ourselves to chase the glossiers a bit and I think we're now going to shift to chase the Ultraviolets at these VC companies. It's their jobs to find those brands. That's why Ava and Beck were having inbound inquiries about about being able to invest in their business. And I'm sure Tara Nuface has been the same. It'll become so much harder to get a beauty brand from 0 to 20, but when you're able to get it to 20, that's when the cash will come knocking. I think we're going to see a lot more of this reversal of power that once you're the founder at Stage 20, the VC will come to you. Because of course again there's now more VCs rather than before. People are always telling you stories of hearing 100 no's and having to find people to have a meeting and like approaching them in the hallway. I think the future of beauty VC will be that flick of that switch. It will be that 180 and reversal of power and that brings us to the end of today's episode. I honestly ramble for so long I can't tell If I've got 20 minutes of content here or an hour, but I do know that whatever makes the cut will be good ish because I only want to do a really good episode once a fortnight rather than a shitty one every week, even if it's terrible for streams and show growth. But pretty, pretty please, if you enjoyed today's episode, follow the Bareface podcast wherever you get your podcast and share it with a friend or on LinkedIn or on your Instagram stories. It may seem trivial, but truly that is how the show goes. I also really want to thank Ava and Bec from Ultraviolet and Tara from New Face for chatting to me for this episode, because without them it truly wouldn't have been possible. I don't think I would have felt comfortable enough just sharing my observations on the industry and my reading. Having that intel was really, really necessary for creating this episode. So if you want to revisit any of the stats or points that they made or I made from the episode. The whole thing has been broken down on substack so you don't have to re scroll or google or find any of the links and references. But other than that, I will see you in a fortnight. Have a lovely Easter and chat soon. This episode was recorded on Ghana country. I acknowledge the traditional custodians of this land and pay my respects to elders past and present.