Nearing Closure Of Its Second Fund, True Beauty Ventures Talks De-risking Investments In A Challenging Market

Gearing up to close its second fund by the end of June, True Beauty Ventures has faced many of the challenging capital conditions that have bedeviled beauty brands fundraising recently, including the ripple effects of higher interest rates and the shrinking appetite for consumer investing. 

Nonetheless, buoyed by continued consumer demand for beauty and wellness and its strength in the sectors, the emerging growth beauty and wellness investment firm has secured $70 million in commitments for its second fund so far. It’s aiming to raise $75 million.

Completed in June 2021, True Beauty Ventures raised $42 million for its first fund. The firm exited 3-year-old biotechnology-driven haircare brand K18 to Unilever Prestige last year and has Crown Affair, Dieux, Vacation, Caliray, Moon Juice, Maude, Youthforia and The 7 Virtues in its portfolio. Going forward, True Beauty Ventures is zeroing in on brands in the fragrance, clinical skincare, scalp care and hair health areas. 

True Beauty Ventures’ second fundraise has been trickier than its first fundraise. “Sitting here today with a couple months to go and our fund target in sight, I think we both feel so proud of what we’ve accomplished in this environment,” says Cristina Nuñez, co-founder and partner at True Beauty Ventures. “We’ve done a lot to prove that our strategy is a good one and are thrilled we were able to return money to our investors. A lot of emerging fund managers that have been around for four years can’t say that.”

With interest rates practically zero in 2020 and 2021, Rich Gersten, co-founder and managing partner at True Beauty Ventures, says, “Investors sitting on cash found better returns in funds than sitting on the cash. Fast forward to 2023 and 2024, interest rates are high, and investors are sitting on less cash given the lack of exits such that fund investing is out of favor, not to mention consumer funds are even more out of favor than other sectors. Who would have thought a global pandemic would have been a better fundraising market than now? But it was.”

With the second fundraise, True Beauty Ventures tried to double the amount of limited partners involved, prolonging the fundraising process. The first fundraise took a year, and the second fundraise has taken almost two years. For the second fundraise, Nuñez says the firm met with hundreds of sizable institutional investors that typically work with one to two new emerging growth funds a year. Striving for a larger share of institutional investors forced True Beauty Ventures to undergo a more rigorous diligence process. 

True Beauty Ventures grew its pool of institutional investors from approximately 20% in its first raise to 40% in its second raise, including J.P. Morgan Asset Management and Bank of America. The remaining 60% of its second raise consists of investments from family offices, founders, vendors, suppliers, manufacturers, beauty executives and more individuals tied to the beauty industry. 

Going through the process of raising the second fund, Nuñez has a deeper appreciation for the fundraising efforts of smaller businesses. “You almost have to be absolutely perfect to be able to raise money right now,” she says. “We understand what it’s like to fundraise and to be told ‘no’ many times and have doors slammed in your face. We appreciate how difficult it is to run your business while also fundraising because we’re actively doing it.”

Former colleagues at consumer-focused private equity firms L Catterton and Tengram Capital Partners, Gersten and Nuñez launched True Beauty Ventures in 2020 to solve a problem they detected in the beauty market: a dearth of funds nurturing brands in their early stages. “It was a problem that was readily apparent to me when I was at Tengram,” says Gersten. “I’d meet founders of brands that went on to trade for hundreds of millions of dollars, but when I first identified them as interesting, they were too small for my fund.” 

With the goal of taking stakes in the buzziest emerging brands, True Beauty Ventures has a stage-agnostic approach to investing that sets it apart from venture capital firms that have stricter mandates. While its investments have ranged from seed to series C to date, the majority of its checks are written in series A or bridge to series A rounds. 

It usually makes minority investments of $1 million to $3 million in brands at the outset and will double or triple its investment in subsequent rounds if brands have achieved or surpassed goals. K18 and Caliray have received multiple investment tranches from True Beauty Ventures.

True Beauty Ventures has been busy since opening its doors for business. It’s enlarged its portfolio to 16 beauty brands across makeup, skincare, haircare, sun care, body care, fragrance and wellness, with average age of the brand at first investment landing at five years old. To date, brands have been in True Beauty Ventures’ portfolio for an average of two and half years. 

Unilever’s Acquisition Of Premium Haircare Brand K18

  • Biotech haircare brand K18 was True Beauty Ventures’ first investment in August 2020 and the first brand in its portfolio to exit when Unilever Prestige scooped it up in 2023.
  • Terms of the deal weren’t disclosed, but investors peg the value of the transaction somewhere between $500 million and $600 million.

The firm has five employees and partnered with Beauty Independent to launch Bridge Mentorship, a six month program that coaches emerging brands on fundraising. Since January 2022, twelve brands have graduated from the program.

Gersten argues that there’s many benefits to investing early in a brand that later-stage investors tend to avoid. “Not only are you getting in with less competition, you’re de-risking it with your sector specialization and your ability to help them by avoiding mistakes,” he says. “You’re earning a better return than you would’ve coming in at a later stage because you came in with more attractive terms. A lot of people would think it’s riskier than what we did in the past, but I actually think it’s just a better risk-adjusted return.”

To be considered for True Beauty Ventures’ portfolio, brands must generate roughly $2 million in net revenue and have an attractive gross margin of at least 70% or more. Brands have to strike retail partnerships with Sephora or Ulta Beauty prior to receiving investment, another key factor in de-risking the fund.

Gersten points to True Beauty Ventures’ experience with makeup brand Iris&Romeo as an example of how essential omnichannel expansion is to the fund’s investment strategy. Having established contact with Iris&Romeo in the summer of 2020, Gersten and Nuñez joined the brand’s cap table only after it had pinned down Sephora distribution in 2023. Gersten says the brand had contacted True Beauty Ventures twice in three years hoping to gain investment. 

Gersten says, “I don’t know how many other investors—two times over three years—still get picked to be the lead investor when there’s others on the cap table from earlier rounds, but because we deliver so much more than just capital and because we built a great relationship for three years with the founder, we were able to wait.”

Fostering strong relationships with founders is a fundamental component of True Beauty Ventures’ value proposition. It generally spends about a year getting to know founders to gauge how they respond to critiques and hit milestones in their businesses in advance of making an investment commitment. Post-investment, it prefers to take a hands-on approach with its portfolio brands that’s more typical of later-stage funds. Nuñez says True Beauty Ventures frequently steps into a mentorship role with its brands.

“They seem to prioritize helping their portfolio companies above all else and are always quick to give thoughtful and reliable advice,” says Dakota Green, founding partner of sun care brand Vacation, which joined True Beauty Ventures’ portfolio in 2022. “Whenever I have an urgent question or need to work through something, they always find the time to help. As a growing company, that’s an incredibly valuable asset.”

A longstanding founder relationship brought K18 to True Beauty Ventures. Britta Cox and Suveen Sahib met Gersten in 2017 while they were running their hair products company Aquis. They resumed discussions with him after True Beauty Ventures launched as they were seeking investment for bond-building brand K18. Quickly recognizing the brand’s uniqueness, True Beauty Ventures joined K18’s series B extension round.

Key Success Factors

Build Brand Recognition

Like a beauty brand, True Beauty Ventures invests in a variety of brand awareness activities. Gersten and Nuñez spend a good deal of their time frequenting industry conferences and being available to the press. “Our extensive network, which spans founders, industry executives, retailers, suppliers, press and other investors is a major asset for us and our portfolio brands, and like any asset, it requires continuous investment and maintenance,” says Gersten.

Start Early

True Beauty Ventures aims to identify promising brands early in their life cycle and build authentic relationships with the founding team. “Unlike others chasing beauty because it’s suddenly considered hot, we are truly passionate about beauty and wellness—have always been and always will be,” says Nuñez. “So, finding and getting to know brands early on, long before we can invest in them, is not a chore for us, it’s a perk.”

Be Honest

While True Beauty Ventures has to pass on most opportunities that come their way, Gersten and Nuñez try to treat founders with respect and dignity. Nuñez says, “We know firsthand what it feels like to hear ‘no’ after ‘no,’ so we try our best to always bring some value in our feedback, even when we turn down an opportunity.”

Maintain Focus

While True Beauty Ventures is always looking to sharpen and refine its investment thesis, the core thesis for the firm has remained exactly the same: focus on highly differentiated brands that have a clear path to scale via specialty retail, invest in them early and keep investing as they rapidly scale. Gersten says, “We have been in this market for a very long time and have deep familiarity with and have the data on the brands that have been the winners. Our thesis is grounded in this analysis, and it is as true today as it was in 2020.”

Give Back

Doing something for the community is part of True Beauty Ventures’ ethos and a reason why it participates in the Ulta MUSE Accelerate program and sponsors Beauty Independent Bridge Mentorship, for example. Gersten says, “We want to have a positive impact on our industry, not only by efficiently deploying capital, but by sharing our knowledge, learnings and insights with those who need it most, particularly female and BIPOC founders who are underrepresented and underinvested by the venture capital community.”

“We knew that science-backed and high-tech haircare had a huge opportunity to disrupt the category because most brands in the space at the time were not really focused on it, with the exception of a few, and those few like Olaplex and Living Proof went on to trade for big values,” says Nuñez. “The pattern recognition that we have that comes from deep sector expertise helped us recognize the potential of K18 very early on.”

True Beauty Ventures invested $4 million over three rounds in K18 prior to its exit. The haircare brand raised a total of $45 million before its sale to Unilever Prestige and was forecast to register between $100 million and $125 million in sales in 2023. 

While financial details of the transaction weren’t released, consensus among investment professionals is that K18 would’ve had to trade at an enterprise value in excess of $500 million for it to have been suitable for a large strategic like Unilever Prestige. The most common estimate is in the range of $600 million, which would represent a substantial win for a brand that was less than five years old at the time of the deal.

Gersten and Nuñez are more confident than ever that True Beauty Ventures’ mission will generate value for brands and investors alike well into the future. As for the short term, Nuñez isn’t blind to the obstacles early-stage brands are contending with in the current market.  

“Fierce competition at retail, high customer acquisition costs online and a tougher fundraising market means that those brands who are fortunate enough to raise capital need to be very discerning with their money,” she says. “Fueling growth without running out of gas will be a challenge many early-stage brands will face in this environment.”

To achieve scale when funding is tight, True Beauty Ventures advises brands to preserve cash by dialing back on their direct-to-consumer businesses in favor of wholesale growth. Nuñez notes brands that balance growth with profitability and cash management have a better chance of avoiding the struggles once fast-growing VC-backed beauty brands have dealt with. Faced with intense competition and rising costs, Beauty Bakerie, Lilah B. and Vapour Beauty are in a growing group of VC-backed beauty brands that have shuttered within the last two years. 

“We do not and have never believed in growth at all costs,” she says. “We want our portfolio to focus on distribution and SKU productivity, that is with a limited number of SKUs and with an anchor retailer at launch, which requires less investment and fewer resources.”