Welcome to the Executive Focus Group, a Glossy+ member-exclusive series driven by monthly focus groups with subject matter experts. The bi-weekly series offers actionable takeaways for business leaders navigating the rapidly evolving beauty and fashion industries.
This month, Glossy brought together a group of investors in the consumer brand space. The investors represent a wide variety of brands in fashion, beauty, skin care, wellness, tech, food and groceries. They spoke about the state of the investment landscape, including why brands are having a hard time securing money and what constitutes good growth for brands right now.
Below is a recap of the segments of the discussion related to the relationship between investors and brands after the initial investment is made, what constitutes “good growth” in an investor’s eyes and advice for founders looking to secure funding.
Focus group members:
Mollye Santulli, senior associate with the venture capital firm Springdale Ventures. Springdale traditionally invests in food and beverage brands, but has recently expanded into beauty and wellness, investing early in skin-care brands like Tone and hair-care brands like Jupiter.
Pano Anthos, the founder of venture capital firm XRC Ventures. XRC invests in a variety of brands across fashion, like Caraa and Recurate, and beauty, like Naked Sundays and Solawave. XRC also invests in tech companies.
What is your relationship like with brands after you’ve initially invested with them?
Santulli: “It depends on the brand. We do sit on the board for many of the brands we invest in, and for others, we are board observers. But even if we’re not on the board, we try to be helpful when we can, like connecting them with Amazon agencies in our network. We make sure if, for example, they’re launching in Target, we connect them with other founders we work with who have experience selling in Target. As they scale, if it makes sense for us to stay on the board, we definitely will, depending on the dynamics of the round. But meeting new founders and then supporting them as they grow and scale is one of the best parts of the job.”
Anthos: “In the consumer brand space, we’re on the board until the very end. Our model is a little different, almost more like private equity even though we’re venture. But we do often sit on the board and stick with the brand beyond the initial investment.”
What do you like to see from your brands long-term, in terms of growth? Rapid scaling? Sustainable profitability?
Anthos: “Well, you don’t want to not see growth. But also, you don’t want lots of bloodletting, lots of losses. I don’t want to see an over-reliance on marketing spend to acquire customers. There are a lot of things we’re looking for, but those are things we’re definitely not looking for. We don’t want to see startups that are inattentive to their financial operations. Startups have to understand that they need to prove they can build into a big business, and that requires profitability and not accepting losses in the name of growth.”
Santulli: “What is ‘good growth’? We’re asked it a lot, and there isn’t a perfect answer. One thing we like to see from a founder is that they understand what the levers for growth really are. We want to make sure they can still grow and use the leverage they have, even without fundraising and venture money. We spend a ton of time talking about contribution margin by channel. What does your margin look like across Amazon, TikTok Shop and DTC? Not every founder is a finance person, and that’s OK. Hopefully, they’ve hired someone who is. But they need to understand what they’re spending money on and what levers they’re pulling. That’s very important.”
What’s the toughest challenge in the fundraising market right now for brands?
Anthos: “Cash flow is a ubiquitous problem. Not all retailers are created equal, and it can be tough for brands to handle the relationship with retailers. We had a brand that was in Target, and we pulled it from the shelves. [Target] was pushing the price point too low. Now, this brand is selling in Ulta at full price, and it’s blown up, selling in all doors. Sometimes a no is a yes. Being judicious and not just saying yes to the first retailer that comes along [can make a difference]. Also, [you need] to understand that retail is different than DTC. You’re more abstracted from the customer, there’s less information, and it’s harder to tell what’s happening. Retailers don’t always offer up all the data you need. But you can’t survive without retail.”
Santulli: “It’s a forever challenge: the inability to see through the distributor to retail and the inability to understand how much a retail relationship really costs. That’s something that talking to other founders can really help with. We’ve seen many times how expensive it is to execute through retail. It’s hard to predict the cost of selling with a retailer and hard to predict the speed. We encourage our founders not to say yes to every retail opportunity. It’s exciting when you get interest from a retailer, but be responsible with your cash.”
Any advice for founders who are looking to raise their first round of funding?
Santulli: “Things start earlier than you expect. It takes a long time. Investors are slower than they say. We spend a lot of time meeting brands early on and building relationships over time. It’s hard. Everyone is busy. So, try to meet investors early. It doesn’t always have to be by email. I go to a lot of events here in Chicago, and I like meeting founders there. Start early and make a human connection.”
Anthos: “I have a slightly different take. Be judicious with the investors you meet. Investors love to meet people, but we’re careful with investing. That frustrates founders. Sometimes, they think every conversation will lead to investment, but it usually doesn’t. Only talk to investors you’re certain are interested. And do your homework! Sometimes a food brand calls me and says they want investment, but we haven’t invested in a food brand in years.”
