Like Consumers, Many Beauty Investors Love Dupes

As dupe brands continue to expand (see MCoBeauty’s and Timeless Skin Care’s recent Target launches and Dossier’s attempt to push beyond imitation), Sandra Nait-Amer, managing director at financial services firm Rothschild & Co, has noticed private equity investors considering whether they’re viable for acquisition.

“Some of these companies are already reaching an interesting scale with sales in excess of $100 [million] and creating a brand name for themselves based on the quality of their dupes and their agility in execution (supply chain, DTC sales and marketing playbook),” she writes in an email to Beauty Independent. “The TAM [total addressable market] is also attractive…Finally, there’s a number of case studies in fashion and color cosmetics which would suggest these dupe models can have some longevity, especially as they naturally evolve into being more than just dupes.”

While dupe brands are often reviled by beauty entrepreneurs, PE’s growing fondness for them, not to mention Australian company DBG Group’s move last month to take complete control over MCoBeauty in a deal valued at $1 billion, piqued our interest, and we wondered whether the sentiment is widely held. So, for the latest edition of our ongoing series posing questions relevant to indie beauty, we asked 13 investors, investment bankers and others the following: What do you think of dupe brands for investment purposes? What do you see for the future of these brands?

Dupes come in many forms, but serve a universal purpose, providing greater access to high-quality or high-end products at a lower cost. At their worst, dupes take the form of illegal counterfeits—luxury-branded goods that deceive consumers by misusing unauthorized trademarks. However, in a broader sense, the $100-billion billion fast-fashion industry thrives on replicating high-end styles for a fraction of the price.

Another common form of dupes includes private-label products found in grocery stores and generic drugs in medicine. In beauty, a successful dupe brand starts by offering near-identical alternatives to high-end products at a lower price. Over time, these brands can only sustain success if they establish their own distinct identity. A great example is E.l.f., which has evolved from being a budget-friendly alternative to a recognized leader in innovation and brand strength.

Beyond product replication, successful dupe brands often reimagine traditional business models. Beauty Pie, for instance, disrupts the industry with a membership-based approach to luxury beauty spending.

I believe dupes represent an exciting beauty category, even for early-stage investors. One standout startup in this space is Dupeshop Beauty, a science-backed search engine specializing in beauty dupes. Designed for skincare, haircare and makeup, it rigorously vets products for performance and quality against luxury alternatives with the expertise of a dedicated beauty team. Dupeshop has already built a large audience and partners with leading beauty retailers in the U.K.

Anna Whiteman Partner, Coefficient Capital

From a purely investing standpoint, it’s tricky to identify fundamental intrinsic value in dupe brands. While true that a handful of brands that started as dupes have scaled into sizable brands in their own right, their identity at the outset is inherently rooted in comparison over originality. With so many mass brands and retailers now capable of launching and aggressively marketing dupes overnight, consumer loyalty in this domain tends to be low and tied to price sensitivity over holistic value prop.

I do think dupe brands play an important role in keeping comparable brands honest, forcing them to think critically about their pricing structures, distribution choices and the overall experience they’re delivering to their consumers that does or does not make them susceptible to dupe culture. Nonetheless, a brand’s intrinsic value, which makes it more than just a sum of the parts, is its unique combination of product and identity, both of which contribute to consumer loyalty and durability over time.

Dupe brands have certainly proven that they can grow to impressive scale, but so long as they are rooted in comparison over true identity, their core value prop won’t resonate as strongly with consumers over the long term, making them more difficult to underwrite from an investment lens.

Tina Bou-Saba Investor

I love brands, and I continue to believe that the best brands across beauty categories will ultimately be acquired by strategics. This is a proven model for growth, and it's not going away.

However, I am also fascinated by the rise of beauty dupes. There is no question that these products are highly appealing, especially to younger and/or value-conscious consumers. Social media has made it incredibly easy for consumers to learn about great dupes for various viral, aspirational premium products.

These are not going anywhere. In fact, they are expanding as evidenced by Dossier's launch in Walmart not long ago and by MCoBeauty's recent Target launch. This is a big deal! These are retailers that have historically featured only national brands and/or their own private-label brands.

I believe that these sorts of beauty dupe brands can be compelling investments. Of course, the product quality, supply chain and go-to-market strategy must be well established and clearly "working" (i.e., making money).

There is no wiggle room in the model here. Margins are likely to be tight given the price point, so COGS really have to be locked in, same for the major expense line items—marketing, team, etc. It's all about scaling quickly and generating strong EBITDA, in my opinion.

PE investors will look at these businesses on an EBITDA basis, not on a multiple of topline, but that's fine. The point here is to make money. I don't think we can assume a terminal value for the "brand" the way that we would in a traditional strategic M&A transaction.

Instead, the model assumes healthy topline growth, perhaps some margin expansion and solid cash flows over a defined period of time. If the company ultimately ends up evolving into a "brand" of its own, that's even better and would likely represent upside to the valuation underwritten by the investor.

Divya Gugnani Founder, Concept to Co and 5 Sens

From an investment perspective, dupe brands present interesting opportunities:

Market Entry Advantage: These brands can rapidly enter markets with proven product concepts, reducing R&D risks and marketing costs to educate consumers.
Price-Value Proposition: During economic uncertainty, consumers often trade down to more affordable options while still seeking the prestige association of premium products.
Digital Discovery Ecosystem: The rise of platforms like Bradefy, which has reached over 1 million downloads, demonstrates the robust consumer demand for dupe discovery. These apps create a digital infrastructure that fuels dupe brand growth by connecting value-conscious consumers directly with alternatives to luxury products.
Social Media Momentum: Dupe brands thrive in the social media environment, where dupes are actively sought and shared by influencers and consumers.
Evolution Potential: The most successful dupe brands typically evolve beyond mere imitation. They build their own brand equity over time, expanding into original products once they've established customer trust.

However, I think the issue lies on the acquisition side. I believe that strategics are biased against dupe brands, and therefore I think exit options are limited for these brands.

As for their future, I see potential trajectories:

Brand Maturation: The strongest dupe brands will likely transition toward becoming legitimate competitors with their own innovation as E.l.f. Beauty has successfully done, moving beyond dupes to create their own identity.
Tech-Enabled Discovery: The success of platforms like Bradefy indicates we're just at the beginning of tech-enabled dupe discovery. This digital ecosystem could further accelerate dupe brand growth as consumers now have tools specifically designed to help them find alternatives to premium products.
Regulatory Challenges: As these brands grow, they may face increased legal scrutiny regarding intellectual property infringement, potentially forcing business model adjustments.

The investment potential ultimately depends on each brand's ability to transition from pure imitation to building sustainable brand equity and customer loyalty. Those that succeed in this evolution, like E.l.f., can deliver exceptional returns, while those that remain pure imitators face long-term viability challenges. The widespread adoption of dupe-finding technology like Brandefy suggests consumer interest in this segment remains strong and is becoming increasingly sophisticated.

Qasim Mohammad Director, Wittington Ventures

Dupe brands, while sometimes viewed with skepticism in the high-stakes world of beauty investments, present a compelling case for consideration. One need only look at the strategic playbook of E.l.f. Beauty to understand the disruptive potential.

E.l.f., far from being a mere "dupe" purveyor, masterfully engineered its ascent by redefining value within the beauty landscape. It harnessed a nimble supply chain sensibility, bypassing traditional retail markups to deliver compelling products at accessible price points. This approach democratized beauty, capturing a loyal following that values both quality and affordability.

Dupe brands that emulate this model—marrying impressive product quality with savvy business acumen—can indeed forge a sustainable moat. These brands resonate with consumers who are increasingly discerning, seeking value without compromising on performance.

Such brands are adept at cultivating "sticky" customer relationships, fostering brand loyalty through consistent value delivery. Furthermore, the inherent affordability of these offerings provides a degree of insulation against market cycles. During economic downturns, consumers often gravitate towards value-driven alternatives, positioning dupe brands for continued growth.

The future appears bright for well-executed dupe brands. These agile players, unencumbered by legacy systems and traditional marketing expenditures, are primed to capitalize on the evolving consumer landscape. For discerning investors, these brands represent a unique opportunity to tap into a resilient segment of the beauty market, offering the potential for sustained growth and attractive returns.

Andrew Ross Senior Advisor and Venture Partner, XRC Ventures

Dupes can be really attractive businesses. What they are absolutely not are brands. Many dupe-focused companies are high on their own supply, talking about "democratization" and believing that they have loyal consumers. Opportunism is not democratization. And sales do not translate to loyalty when consumers are compromising by buying a copy.

You can, for a time at least, build a very attractive P&L drafting off someone else's R&D and marketing investments. You might even be able to make that relatively sustainable if you are very good at identifying the next brand, product or trend to be "inspired by." These economics would be extremely attractive to private equity firms as EBITDA is artificially high because you are "borrowing" from someone else.

What is not clear is who is going to ultimately buy such a business and for how long those economics can be sustained. Companies will either miss trends and wither or have to pivot to the much harder and more expensive task of creating something original and building brand equity.

Investors should be really careful with their modeling assumptions, especially in an industry where the majority of value is in either the liquidity event assumption or the terminal value.

JAIME SCHMIDT Co-Founder, Color Capital

Dupe beauty brands present a highly attractive investment opportunity, thanks to their ability to rapidly enter the market. They are positioned to bypass much of the traditional R&D and proof of concept phases and can quickly leverage social media influencers to build momentum.

Increasing consumer demand for affordable alternatives to luxury products further enhances their appeal. All of this positions the brand for an early exit by a strategic buyer or private equity firm, attractive to investors looking for a speedy ROI.

However, there are risks to consider such as potential IP challenges and the need for long-term sustainability. An innovative product roadmap and marketing strategy will be crucial for differentiating the brand in the future.

HAYDEN WILLIAMS Partner, BrandProject

At BrandProject, we’re not interested in traditional dupe brands for investment purposes. While some have grown into large, profitable businesses, we think it’s especially difficult to systematically identify at the early stage—we often invest pre-launch—which dupe brands will be enduring successes.

It’s hard to build a trusted brand when you're perceived primarily as an imitator. Dupe brands often operate on thin margins, making it challenging to navigate the legal risks of replicating popular products. Also, the lack of proprietary formulations or unique IP makes it difficult to build a defensible moat.

What we are interested in are brands that I would describe as dupe-adjacent. Rather than replicating popular products, brands like The Ordinary, who we have a lot of respect for, build products around ingredients that work. Their approach has created a strong, consistent brand identity synonymous with transparency, efficacy and affordability, which aligns with what consumers are looking for today.

Claire Chang Founding Partner, IgniteXL Ventures

Though we are constantly looking for the latest and the greatest innovation in beauty, beauty dupe brands we believe can represent a compelling investment prospect, driven by shifting consumer preferences and market dynamics.

Here are some data points I was able to find on the web:

Growing Adoption: By the end of 2023, one-third of all makeup users were using dupes, indicating a significant market penetration.
Generational Shift: The adoption rate jumps to 50% for millennials and gen Z, who prioritize product efficacy over brand prestige.
Quality Perception: Seventy-four percent of U.S. beauty consumers believe dupes match luxury quality, eroding the traditional luxury brand advantage.

Based on these data points, dupe brands with compelling, value-driven brand stories and the ability to evolve into distinct entities over time present exciting investment opportunities. E.l.f. Cosmetics is a great example of transitioning from imitator to innovator, capturing significant market share and building loyal customer bases of their own.

Jamie Woodard Partner, Conteur Capital Partners

There appears to be a large TAM here. If you’re purely focused on generating a return, have at it.

Some of the best beauty investors see beyond returns and invest in a brand’s story or “reason for being.” Businesses based on attempting to duplicate existing products for a fraction of the price are devaluing existing brands that have worked hard to craft customer experience and efficacious products for consumers. To me, I won’t invest in businesses exploiting other founders’ ideas.

There are a lot of risks to dupes, which is why I am not a large fan of dupe culture. Dupe implies that the two products at hand are identical, but that is often not the case or else brands wouldn’t be able to slash prices and undercut the competition.

Usually, dupes are poor or lesser quality, which can be dangerous for consumers. Companies can include harmful chemicals or cut corners in the formulation process to create a similar look and feel at a lower price. This can lead to skin irritation, allergic reactions or even worse.

HENRY BARTON Head of Community and Venture Scout, Duel Tech and Ada Ventures

The dupe industry is democratizing beauty, making high-quality products more accessible to consumers who may otherwise feel priced out of an industry they love. In years gone by, the investment landscape has been wary of this world because of the preconception that dupes are bad.

However, the term “dupe” has evolved and so should investors' attitudes towards them. While it once carried connotations of cheap backstreet knockoffs, today’s consumers recognize that it refers to products that emulate luxury beauty items at a more affordable price point. With rising costs of living and the influence of social commerce, dupes allow for participation, relevance and the experience of premium beauty without the premium price tag.

MCoBeauty’s CMO Meridith Rojas summed it up perfectly in a recent Glossy podcast saying accessible, affordable luxury is something all consumers want. We are in this cultural zeitgeist where people don’t want to spend $1,000 on a full face of beauty, but don’t want to be left out. This is where the true power of dupes is found.

Brands like MCoBeauty and E.l.f. Beauty are leading the charge in this space, and their success comes down to four key factors:

Quality: Dupes today don’t mean lower standards. Brands like MCoBeauty and E.l.f. are delivering competitive formulations that rival their high-end counterparts.
Luxury Feel: From packaging to marketing to retail execution, these brands don’t feel like budget alternatives, they feel aspirational.
Community And Culture: The best dupe brands aren’t just selling products, they’re building engaged communities of advocates that celebrate beauty accessibility.
Innovation Beyond Dupes: The strongest players aren’t just mimicking luxury products, they’re investing in innovation that keeps them competitive on multiple fronts.

From an investment perspective, the dupe industry presents both opportunity and risk. While brands like MCoBeauty and E.l.f. are proving that affordable beauty can thrive at scale, the market will also see fleeting trend-driven brands that don’t have staying power. Investors should focus on brands excelling in the four areas above. Those are the ones poised for long-term success.

Drew Fallon Co-Founder and CEO, Iris Finance

Given that these dupe brands are generally competing on price, I don’t see how a PE investor could find this to be a viable target. These products are commoditized versions of commodities, seems like a race to the bottom though I'm sure worthwhile for Target and the likes.

I'm not sure it would be very valuable in anyone else's hands except the retailer, where it’s essentially a private-label line. It's likely we will continue to see dupe brands, but I can't imagine any serious private equity funds would start investing there aggressively.

CHRISTINA YU Investment Director, NextWorld

Creating dupes is definitely a viable and profitable business model, especially in the current environment where consumers are becoming more value-conscious in the face of inflation and economic uncertainty. However, financial profile and product development execution are just two of our many investment criteria.

In order for us to get excited about dupe brands, we would need to feel that they have created real brand equity outside of duping products such as a highly engaged customer community, strong repeat purchase and differentiated non-dupe products, just to name a few.

An additional thing to consider is the eventual exit for a dupe brand. M&A is the most typical exit path versus IPO in beauty. Would beauty strategics be excited to acquire a brand that might be “duping” products from their own brands and/or competitor brands? If not, then the buyer universe may be limited to financial buyers, which could have an impact on the overall competitiveness of the sale process.

If you have questions you want Beauty Independent to ask beauty investors, investment bankers and others, send them to editor@beautyindependent.com