Early-Stage Beauty Investors On How They Pick Winning Brands

The earlier stage a business, the riskier it is for investors to pour money into it, but those that do it right can realize tremendous upside.

“There’s an opportunity for brands to come in and steal market share [and] to develop these great relationships with consumers between brand and consumer,” says Cori Aleardi, founding partner at Elevate Beauty, private equity firm L’Catterton’s vehicle for early-stage beauty and wellness brands. “So, giving earlier stage businesses real hands-on thought partnership and help we believe will have a demonstrable impact on their likelihood to succeed.”

Before the direct-to-consumer bust, investors were jumping into beauty in the hopes of spinning early-stage success into highly lucrative outcomes. Now, many have departed for trendier pastures (artificial intelligence, for example), leaving the remainder largely focused consumer packaged goods specialists. Beauty Independent chatted with three—Anthony Choe, founder and managing partner of Provenance, and Julianne Kur, principal at Alliance Consumer Growth, along with Aleardi—for an In Conversation webinar to pick their brains about how they determine which beauty brands are good investments.

The Appeal of Beauty 

Established in 2011, Alliance Consumer Growth’s portfolio contains the beauty assets InnBeauty Project, Harry’s, Superordinary, Nudestix and Half Magic, and it’s previous beauty investments include Tata Harper, Ouai, Pacifica and Milk Makeup. Around for roughly a year, Elevate Beauty has backed DIBS Beauty, Eighth Day, Irene Forte Skincare and Vyrao. Makeup by Mario represents 7-year-old Provenance’s only current dalliance in beauty. 

The firms are drawn to beauty brands for their high margins, emotional resonance, repeat purchases, strategic exit possibilities and ability to achieve profitability with lower capital expenditures than brands outside of the category. “Our thesis is CPG strategics don’t invest in R&D in their pipeline,” said Kur. “So, that’s a big reason why everybody who invests in this space has a role in this ecosystem.” 

In addition, she pointed out that the power of major specialty retailers like Sephora and Ulta Beauty to champion brands is unique in beauty. In other consumers categories, investors are hunting for brands with presences in multiple channels. Kur said, “Many of the most successful independent beauty brands that have been built over the past five to 10 years have done so initially via a very deep, probably exclusive relationship with a Sephora or with an Ulta.” 

Attractive Brand Attributes 

Provenance leverages data to create in-depth demographic and psychographic profiles to scale its portfolio brands. It typically invests between $15 million to $40 million when brands hit approximately $20 million in yearly revenue and have enough data for Provenance to conduct analyses. 

As it vets beauty investments, Choe disclosed that Provenance is interested in brands that play in all four major categories as well as in nail, men’s grooming and sexual wellness. It prefers brands that take a narrow and deep distribution, particularly early on. Makeup by Mario has been in Sephora since its launch in 2020. Choe said it plans to eventually expand to Ulta Beauty. 

Alliance Consumer Growth typically writes checks in the $20 million range, but will invest lower amounts for brands that have proven they can gain traction in a distribution channel. Kur mentioned that InnBeauty Project, Milk Makeup and Ouai were carried at select Sephora doors when the firm invested in them, although had plenty of room left to grow at the chain. 

“We were able to see what productivity looked like at those doors and understand that it was better than other brands in our portfolio or brands we’d seen elsewhere and take from that,” she said. “It was about understanding how the Sephora consumer was reacting to the brand and talking to Sephora directly to understand their vision for it.”

Elevate Beauty’s typically writes checks of $5 million to $10 million. It hasn’t invested pre-revenue, zeroes in on evidence of product-market fit and is comfortable with brands with a single distribution channel. DIBS Beauty was strictly in direct-to-consumer distribution when Elevate Beauty invested in 2023. The brand has since launched at Ulta. 

Brand Evaluations 

During the webinar, Choe, Aleardi and Kur participated in an exercise in which they assessed, ranked and estimated valuations for hypothetical brands nicknamed “Gorgeous Gem,” “Incredible Ingredient” and “Famous Founder.” Incredible Ingredient is described to have a diversified distribution network across DTC, Amazon and wholesale, and it sells proprietary formulas.

Famous Founder is attached to a B-level celebrity and entrepreneur. It relies on Amazon and DTC distribution and sells clean non-proprietary formulas. Gorgeous Gem has ultra-clean non-proprietary formulas housed in exquisite packaging and is the brainchild of a passionate founder. A year post-launch, the fictitious brands generated $1 million in revenues, $650,000 in gross margin and $250,000 in earnings before interest, taxes, depreciation and amortization (EBITDA).

Choe valued Incredible Ingredient at $5 million to $7 million, Famous Founder at $4 million to $5 million and Gorgeous Gem at $3 million to $4 million. Speaking of Incredible Ingredient, he said, “If he or she has built a 50,000 person following…on the credibility of the product alone and there’s this kind of balanced distribution, I’d say they’re onto something.”

Aleardi valued Famous Founder at $8 million to $9 million, Incredible Ingredient at $7 million and Gorgeous Gem at $5 million. Discussing Famous Founder, she explained, “In today’s day and age, acquiring consumers is one of the hardest things for brands to do, and they need some kind of a consumer acquisition hack. In an ideal world, a B-list celebrity that has other B-list celebrity friends who are going to kind of work on their behalf and create this sort of environment of brand buzz. You can’t pay for that as a small brand.”

Kur provided valuations of $4 million to $5 million across the three brands, ranking Incredible Ingredient first, Gorgeous Gem second and Famous Founder third. Referencing Incredible Ingredient, she said, “We can probably still improve the packaging and go for a big launch with a Sephora or an Ulta or whichever is the right channel. I love the credibility and the formula ownership. Any of these businesses is going to need to own their formulas in the future.”