This story was originally featured in Glossy’s Luxury Briefing.
For last week’s Beauty Leaders Dinner held in Los Angeles, Glossy and Listrak gathered top executives from some of beauty’s most influential brands for an evening of discussion around current opportunities and challenges in the industry. At one point, all talk turned to fundraising — specifically, whether or not brands should go there if they don’t have to. Edited highlights from the conversation are below.
The challenge:
“We’ve been operating for 14 years through retention, organic growth. We have not raised any money and I did not come from a wealthy background. We’ve grown one product, one sale, one customer at a time. Through Ulta, Sephora and Anthropologue, we have great distribution and great sales. But the pressure to raise money is real – from the industry. The industry is growing fast, it’s moving, and in order to stay relevant and keep up with marketing demands, I’m always wondering how much [money] we need and how much is enough. … Today, 100% growth is nothing. You need 300% growth to keep up with the standard. But is that necessary?”
What the leaders said:
“But you’re self-sustaining, which is awesome. … You’re owning your own destiny.”
“It depends on the goals for the business and where you are in the life cycle of the brand. If you wanted to exit tomorrow and you wanted to supercharge something, maybe [fundraising] would be worth that. If your end goal is an exit with a certain dollar amount, multiples are less important than the dollar amount. You could walk away with $100 million in your pocket with a smaller sale, or you could walk away with $100 million with the messiest cap table on the planet.”
“It also depends on how long you want to be in business. I would not bow to any pressure from the outside. It’s your company, your equity, your life. I wouldn’t take any money if I didn’t have to because money comes with strings: expectations, deliverables, board meetings. And [investors] are lovely when things are going well, but things change — no matter what. Because they have a goal: a liquidity event. So you might end up making decisions that may not be best for the business but are best for that particular goal. It‘s your money and you are in control. If you don’t need it, keep it.”
“As a VC-backed business, we’re really envious that you’re self-sustaining right now. That is incredible. The one caveat is: How long do you want to be in it? If you want to exit the business in five years, you need to show that speedy growth and it’s hard to show that without capital.”
“And that exit isn’t guaranteed, either. It depends on so many more factors outside of growth: What does your pipeline look like? What retailers are you in? There are so many variables that go with that.”
“It’s easy to take that money and spend it in your P&L and lose it by growing your topline, but you’re hurting your value. You should be 15-25% EBITDA. It doesn’t really matter the size; as long as you can maintain that EBITDA number and continue to grow, that’s a healthy business.”
“And it depends who you’re selling to. There are a lot of legacy companies that will start talking to you at the $50 million-$80 million mark and some that won’t. So get clear on the vision of who you want to sell to and when you want to sell, and that will lead you in the right direction.”
“I’ve been with two brands that have reached $80 million with no investment. The brands that have found a sweet spot between what they want for their brand and what the customer wants from their brand are the brands that have been able to supercharge [their growth] to hit that level.”
“Also, if you have an $80 million business and that EBIDTA, just take money off the table. You don’t have to sell.”
