Alternatives Black-Owned Beauty Brands Are Looking To As VC And Grant Funding Dwindles

As tough as the venture capital contraction is for startups generally, it’s far tougher for Black-founded startups. Data from financial resource Crunchbase shows that VC funding for Black-founded startups in the United States totaled $705 million last year, marking the first time since 2016 it failed to reach $1 billion and a 71% drop compared to a 37% drop in VC funding overall from the prior year.

On top of the VC funding crunch, grant programs Black founders tend to rely on for financial infusions are in flux. Last week, an appeals court suspended VC firm Fearless Fund’s grant program for Black women entrepreneurs.

To understand how Black beauty brand founders are maneuvering in the face of growing capital obstacles, for the latest edition of our ongoing series posing questions relevant to indie beauty, we asked 16 of them the following questions: With VC becoming more challenging and the future of grants in question, are you seeking out alternative funding? If so, what does it look like?

Camille Bell Co-founder, Pound Cake Cosmetics

I've always known that obtaining VC funding has been historically challenging for Black founders, so from the start of our entrepreneurial journey at Pound Cake, we've had to be "creative" when it came to obtaining funding for our business.

This started with me emptying my 401k and having a successful Indiegogo crowdfund campaign years ago. I actually worked a full-time job up until January of 2023, which would surprise some folks.

Today, with VC funding still being abysmal for Black founders, we've had to win pitch competitions, more recently to the tune of $1 million, and now that we're in need of more funding to fuel our growth in retail, we're working with vendors like Settle and Manufactured to handle inventory payments, while simultaneously pitching to angel investors for smaller check sizes.

Those smaller check sizes will help aid with our monthly marketing efforts to continue fueling our growth in the most sustainable and profitable way. Luckily, we've been able to obtain $15,000 in grants so far this year. However, those are at random, and you cannot control the amount. My partner and I have always had to be scrappy, so in a sense this intense pressure right now is nothing new to us.

Jamika Martin Founder, Rosen Skincare

VC has been increasingly difficult in this market. We have looked at alternative options like lines of credit, flexible vendor payment terms and even early payment platforms like C2FO for our retail partners.

Kerry Abner Founder, Manhattan Grey

I am seeking alternative funding sources like small business loans, friends and family fundraising and lines of business credit under my LLC.

Niambi Cacchioli Founder, Pholk Beauty

I've worked with a new fintech startup called Katapulte for purchase order financing. Katapulte is an online lending platform uniquely designed for CPG companies launching into mass retailers. It connects small businesses to CDFI bank lenders through proprietary loan origination software and prepares small businesses for the lending process.

Through this process, Katapulte increases a small business's odds of approval for a loan. Its goal is to raise supplier diversity across mass retailers by helping more small businesses fund their purchase orders.

In general, I've also turned to pre-orders for launching new products to help manage the manufacturing costs.

Yve-Car Momperousse Co-founder, Kreyòl Essence

Unfortunately, this is not new, so we have always had to be creative at Kreyòl Essence. We maintain lines of credit with our banking partners to manage cash flow and have a laser focus on profitability to operate.

Its also important to have retail partners like Ulta Beauty who understand the challenges facing indie brands and can structure healthy payment terms to ensure a brands viability.

Anne Beal Founder and Physician, AbsoluteJOI

When I started AbsoluteJOI, I read that beauty business experts estimated it costs about $1.5 million to effectively launch a beauty brand. At the time, that number seemed high, but as I’ve learned more about this industry, I do not think it is way off.

I raise this because, even at the height of “Black-targeting” grant programs and promises for more VC backing, it was not really enough capital to effectively impact the number of emerging brands for the increasingly diverse customer base in North America. Recent articles in some of the trade newsletters have highlighted the challenges with raising capital experienced by Black women entrepreneurs. We’ve always had to be creative.

And while many of the grants and programs available target Black women founders, brands founded by Native women, Latinas and others also experience many of the same challenges when raising capital, and they too need to be creative to effectively grow their businesses.

We have always had to be nimble when it comes to raising capital for AbsoluteJOI. Being a physician and former pharmaceutical executive, I am blessed to be in a position to self-fund and provide bootstrap capital for AbsoluteJOI, but I’ve also tapped into other sources of funds including crowdsourcing, debt and pre-launch sales in addition to grants and other investments.

I’ve also thought critically about our business model and took to heart one piece of advice I received, which is, “You can either grow profitably or you can grow quickly. You can’t do both."

The classic startup model of spending to grow our business with an emphasis on top-line performance, but not profitability is not an option in a capital constrained setting. So, we have taken a very measured approach to profitable growth over rapid growth.

This means thinking critically about everything, from sourcing to marketing to partnerships and distribution channels, with a view that every investment in the business must pay for itself in some fashion, and there is very little room for cost centers over profit centers in our business.

Nimotalai Ganiyu Founder, Ganiyu

I am actually pivoting our business model because of the lack of funding for Black women in the VC space. Friends and family has made up the majority of our support system as well as past bosses, mentors, etc.

Ganíyù currently has a B2C business model, but, as I begin to think of innovative ways to grow the company, B2B has become more beneficial for us.

Ciara Imani May Founder, Rebundle

The fundraising market is as bad as everyone says, and it's even worse for consumer brands. At this stage, we're looking at ways to get off the VC hamster wheel and looking more closely at revenue-based financing, lines of credit and debt. These terms allow brands like Rebundle to capitalize on the business with no additional dilution and diversify the type of funding available.

Brianna Arps Founder, Moodeaux

Grants have long been our first source of outside capital. And while opportunities may seem less than plentiful, on our end, we still maintain a healthy tracker full of new leads week over week, month over month.

My best advice for anyone exploring this particular funding route is to ensure your application materials are as competitive as possible. This includes working with your peers, mentors, advisors, etc., to fill in "gaps" or unanswered questions, which will ultimately help increase your organization's chances. From there and moving forward, be sure to keep a detailed database of winning responses to make the process more turnkey.

The same applies for those interested in attracting/securing VC dollars, except additional time and effort may be required given the current landscape. Another avenue, especially for consumer brands, is through companies that provide debt/revenue-based financing. This option allows a business to secure a loan at a fixed percentage depending on its health against future revenue versus dealing with equity dilution.

Gina Woods Co-Founder, Donna’s Recipe

When I came to vegan influencer Tabitha Brown with the idea of launching a vegan, clean ingredient haircare brand with her, I was determined to successfully bootstrap this venture as I have with my other businesses during my 15-year entrepreneurial journey, which allowed me to build multimillion-dollar brands from meager beginnings.

Bootstrapping demands a high level of creativity and a keen appreciation for every cent.  Every dollar counts when you're bootstrapped, and that's the beauty of building a business this way…to be thoughtful of every dollar.

However, bootstrapping presents its own set of challenges. In 2022, Donna's Recipe made its retail debut with the launch of a new collection available at every Ulta Beauty location nationwide and Target shortly after. The surge in demand prompted the need for additional capital.

To bypass the traditional bank loans or venture capital route, I explored alternative funding methods such as trade credit. By negotiating favorable terms with suppliers, we optimized cash flow which enabled the business to reinvest and flourish.

Building strong relationships with suppliers and retail partners is crucial for integrity and reliability in business dealings. Crafting favorable terms emerged as a viable alternative to external funding for Donna's Recipe.

Reshona Jessamy Founder, Novara Beauty

At Novara, we are open to exploring various avenues for fundraising. We have engaged in discussions with several venture capital firms, who have expressed interest, but have indicated the need to see sales in the eight-figure range before committing to investment. Given the current economic landscape, we have strategically relied on the support of friends and family to fuel our growth.

We are fortunate to have successfully rallied our personal network, allowing us to maintain momentum and continue developing our brand. Looking ahead, we are focused on aggressively achieving our sales goals to not only meet but exceed the expectations of potential investors. This will position us well for successfully closing future fundraising rounds, ensuring that Novara remains at the forefront of the skincare industry.

The U.S. Court of Appeals' most recent ruling suspending the issuance of grants by the Fearless Fund has also led to the formation of the current funding climate. As assistant attorney general for the state of Connecticut, I handle discrimination cases daily. However, I think the appeals court got it wrong in its decision because the fund does not discriminate based on race, it simply seeks to address funding disparity for businesses owned by women of color and historically marginalized groups.

It is also important to note that the plaintiffs in the lawsuit did not plead that they tried to apply for the grant and were rejected. The history behind creating such funds was to bridge the gap in the funding disparity and we are essentially reverting backwards. This will have a long-term, chilling effect on Black-owned businesses.

April Showers Founder, Afro Unicorn

I've always sought out traditional funding and been a firm believer in building relationships. Speaking of which, it has been critical to cultivate a direct connection with my banker and general manager. By doing so, Afro Unicorn is always top-of-mind whenever rates lower or new programs come to the fore.

Despite current challenges such as those faced by the Fearless Fund, we remain steadfast in our commitment to empowering Black founders. We are excited to launch our grant program during Black Business Month in August, awarding three businesses to champion other entrepreneurs and help them thrive.

Jamila Powell Founder, Naturally Drenched

With the future of grants coming into question, I am indeed exploring alternative funding sources for my clean beauty hair care brand, Naturally Drenched. While I continue to self-fund and reinvest the profits made from the business, I'm also working a full-time job to support these efforts.

Additionally, I am looking into crowdfunding as a promising opportunity. Crowdfunding not only serves as a way to raise funds, but also provides a unique marketing platform to introduce our products to a wider audience, including both supporters and new potential customers. This approach allows us to engage directly with our community and build a loyal customer base while securing the necessary resources to grow the business.

Gilah Elul Co-founder, Muri Lelu

It’s definitely a challenging time for indie brands to tap into funding, especially all-female founded ones like ours. Roughly only 2% of VC funding today goes towards women-owned businesses. And brands owned by Black women or WOC?

The recent U.S. Appeals Court ruling against the Fearless Fund suspending their Strivers Grant shows just how much harder it is to get access to capital right now and potentially to come.

For us, this is where the importance of nurturing community comes in. While we haven't yet sought VC funding or grants, friends and family who follow our brand's growth have approached us for investment. For us, it's been a huge vote of confidence and a gentle reminder that the path to funding doesn't have to necessarily be traditional.

Nyakio Grieco Co-Founder, Thirteen Lune and Founder, Relevant Skin

Getting creative and resourceful with funding has long been something Black founders have experienced and, unfortunately, this time is no exception.

We are looking at various funding sources while also standing in solidarity with organizations like the Fearless Fund and other resources that work tirelessly to create more equity in allocating venture capital to underserved and underrepresented communities.

Kim Lewis Co-Founder and CEO, CurlMix and 4C Only

Venture capital has given us phenomenal partners and has benefited us tremendously, but we've also been proactive in diversifying our funding sources. We have successfully launched two crowdfunding campaigns, which provided us with financial support and helped us build a strong community around our product. Additionally, we've utilized angel investors who believe in our vision and have been instrumental in our growth.

As the venture capital landscape becomes more challenging and the future of grants is uncertain, we are continually exploring alternative funding sources. We have successfully been granted funds by foundations but they were through private networking and community initiatives.

Our goal is to ensure a balanced and sustainable approach to funding that aligns with our long-term objectives.

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