Unlocking the Potential of Beauty and Personal Care Brands With Manica Blain

0:00The focus today for me as an investor is the question is always is this a lower lasting. The environment today, I would say it's pretty different from when I first entered early stage consumer investing. I think that the focus now is on sustainable growth and profitability. But I would say consumer isn't going anywhere. Great brands are built every day. You know, there's brands that are built. There's consumer products, businesses to invest in. A long lasting consumer brand isn't built overnight. The cost of customer acquisition, it was quite a bit cheaper a decade ago. I may be a minority, but I don't actually care to see that they got to like 2 million or 3 million within the first year or two years.

0:37Like, to be honest, that's always kind of scared me when I've seen that level of like quick growth really, really, really early on. And I think what you're realizing, what you're seeing today is that not all the growth is sustainable, right? But it's just to those like loyalty has become really important to me. And that is to me a marker of a brand with long lasting abilities. Hello, I'm your host, Mike Gallup, and this is The Consumer VC, where we discuss the intersection of venture capital and consumer innovation. This show is brought to you by Propeller Industries, the leading strategic finance and accounting partner for venture stage companies.

1:06If you're enjoying this show, please subscribe on YouTube or Spotify or Apple, wherever you listen to this content. That would be tremendous. Also, if you're really loving this show, I highly recommend checking out the email newsletter at theconsumervc.com. I share all the latest fundraisers in the world of consumer. And also, you'll be the first to know when a new episode drops. All content and episodes are for informational and entertainment purposes only and does not investment advice. Thank you, Luke Vernon, for the introduction to our guest today, Manica Blaine. Manica is a founder of Top Knot Ventures.

1:41She's an advisor, investor, board member to early stage consumer brands. Previously, she co-founded Campfire Capital, whose notable investments were leading the$5 million Series A for FIGS in 2016 and for being a meaningful investor in both of Cotopaxi Series A and Series B rounds. Even though I just mentioned two apparel companies, we primarily focus this conversation on Manica investing in beauty and personal care companies and why now is a really interesting time. And also the past couple of years have also been really interesting times to invest in beauty and personal care and why that's one of her main focuses today.

2:23Without further ado, here's Manica.

2:30Manica, thanks so much again for coming on the podcast. I know we've been wanting to do this for some time, and now we finally got the opportunity, and it's so great to reconnect. How are you? I'm good. I'm good. Likewise, I'm really happy to be here. You've been in consumer your entire career. I believe it started with you reaching out to Lululemon, just saying, hey, I'm here. Sure. I'm here and you being so amazed by that business. And of course, I'd imagine that you've seen from the investment lens, consumer as an investable category kind of have its ups and downs over the past few years. Can you describe the pulse of investing in emerging consumer brands today from an investment lens?

3:16Yeah, it's a good question. And I actually started my career in investment banking. Um, it wasn't new and I, and I've actually never worked for Lou Levin. This is a little known fact. I, I reached out to them looking for a job. They didn't actually eventually ever hire, they never hired me, but eventually I collaborated with some other former executive to start a fund. So that's the Lou Levin chapter. But, um, no, the environment today, like I would say it's pretty different from when I first entered early stage consumer investing, which would have been in the 2014, 2015, 2016 era. I would say today the climate is, I think there's still a lot of appetite, but it's certainly, the tone has come down a bit in terms of all the excitement and what you thought a consumer brand could achieve and the time it could achieve.

4:08I think that those expectations have changed. I think that the focus now is on sustainable growth and profitability much sooner than it was, call it a decade ago. But I would say, consumer isn't going anywhere. Great brands are built. Every day, there's brands that are built, there's consumer products, businesses to invest in. I would say investors are just become, they've become, I would say, much more discerning than they ever have been before, at least since I've been in the early stage space for about the last decade. So since you've been in the early stage space in the last decade, let's talk about your own kind of expectations for consumer brands when you were starting out versus now.

4:53Have they changed? I know that right now there's certainly, you certainly hear like an outcry, you got to get profitable. And, you know, let's see about how you can actually grow sustainably, as you just pointed out. Or think about even organic growth versus, you know, paid growth. or when you're doing paid, is it actually sustainable and are you getting the actual return on your ad spend? But how have you seen, how have your expectations on the investment side maybe changed or have they been kind of the exact same in some ways because you always have been in consumer? I mean, I think what I've always known is that a long lasting consumer brand isn't built overnight.

5:39I think I've always known that. I've always seen that. I think the difference between the climate that we find ourselves in today versus the climate that you may have been in a decade ago is that the cost of customer acquisition was quite a bit cheaper a decade ago and even a few years ago. Um, and so I think the focus today for me as an investor is the question is always, is this a long lasting brand? Right. And I'm not, I may be a minority, but I, I don't actually care to see that they got to like 2 million or 3 million within, within the first year or two years. Like, to be honest, that's always kind of scared me when I've seen that level of like quick growth really, really, really early on.

6:22Cause to me, it's been like, okay, so you've just acquired all your customers, right? Like it hasn't so much. No, but seriously, I mean, that's that's the reality. Right. I've always, to be honest, the brands I'm most attracted to are the brands where it's taken a little while for them to build their base and to figure out their unit economics and to figure out product market fit. And once they figured that out, they've been putting the fuel in the tank to really grow and gas up that growth like that to me has always made a lot more sense. and I think what you're what you're realizing what you're seeing today is that not all the growth is is is sustainable right and so when you when you grow at a really really quick clip early on because you're putting a lot of cash into the acquisition machine a the economics just don't work today we all know that but it's just there's like loyalty has become really important to me right and and that that is to me a marker of a brand with you know, long lasting abilities.

7:21What's typically your entry point for brands, not even like on the investment side, maybe, but even just in terms of engaging conversations, or even when you're thinking of yourself, could this be, you know, a long lasting brand? Is there something really here? I love engaging early as an investor, I personally like coming in when a brand is already doing at least somewhere between half a million to a million dollars in sales, at least, you know I'm not um I my strategy isn't to you know in that like pre-launch pre-revenue like that's that's not where I get the most because I do like to see a bit of traction I like to understand who their consumer is I like to see them know who their customer is as well um so I'm not I'm not as early as as pre-revenue pre-launch like I do like to see um traction I guess the difference between maybe how I look at things and how another investor might look at it.

8:14And I have a lot of friends that have their own funds and that, and that, and that invest in the early stage. And a lot of them will be very explicit and be like within year one, I want to see a million dollars in sales. And I'm like, cool, you do you. Um, but I'm actually, I'm actually most attracted to the brands where I call them sleepers. I don't know if that's a good, a good way to define them or not, but I'm most attracted to brands sometimes where they merge, it takes them a little while. They're really, um, they're, they're iterating on their products. Sometimes they're iterating on who their consumer actually is and then they find it and then they grow.

8:50I think that to me that I get really excited about businesses like that. Do you, do you happen to have any examples when it comes to, you know, brands that maybe took a while to figure out, um, whether it's their positioning, whether it's who, who their kind of target market is, but you thought there was kind of something that come to mind. Yeah. I have two that I can talk about. They're both in my portfolio and they both come to mind. Um, one is a business called Sahajin. It's an Ayurvedic beauty brand. Um, Lisa Mattam is a former pharma exec and she started the business at the end of 2015. And, um, back when people probably couldn't even pronounce or spell the word Ayurveda.

9:29And, and it's, it's a market that she was really, really early and probably too early to be honest. And, um, and she grew and it was small and it was the first couple of years and it always grew, but it was, it was small. It in 2020 where I think it was an editor of Oprah magazine or someone within that Oprah or whatever. And they called one of her core products, her brightening mask, like her favorite thing to do during the pandemic. And then all of a sudden, like God bless Oprah and that whole brand, but the business just like, it just, it's sort of all of a sudden it, it was on the scene. And, um, and it's an interesting one because she was actually a part of Sephora's first Accelerate program back in 2016.

10:13Right. Yeah. The very first Sephora Accelerate. And, um, and so she cultivated that relationship with Sephora over time as well. And, you know, as any beauty brand, aspiring brand, you know, she'd probably been trying to get into a brand or retailer like that. Um, but that door didn't actually open for her until very recently. She launched Sephora.ca here in Canada about six weeks ago. And it's just been, it's been for me the definition of what a successful launch looks like within a retailer like that. Multiple sellouts within the first 10 days sold out of every single one of her 10 or seven SKUs.

10:52And it's interesting because when Sephora all of a sudden sold out on their site, she saw a surge of new customer growth on her own site, on like sahajan.com. and that told me and her that this is interesting that the demand for the products that i'm creating whether it be the ingredients you know moringa like all of amla like all of these ingredients that her products have like it the market for it is clear the demand is there for it now and it wasn't there maybe a decade ago you know she was clearly too early back in 2015 2016 2017 but through that period of time as she built her brand i think two things happened a the market developed the demand, you know, that, that, that has happened.

11:36If you look at the market today, I can name 15 different Ayurvedic beauty brands that exist in the market, you know, all great brands, but she was kind of there from the beginning. She was one of the first, right. And I think the other thing is that in that time, she had the ability to really build her consumer base and she's developed really, really powerful and loyal community. Um, I led around for her last summer and um it was totally oversubscribed we were in and out of the market in four weeks and one of the biggest like i would say interest points as the investors drilled in was just how valuable and recurring her loyal customer base was like i think like 15 to 20 percent of her of her lifetime values net sales came from customers that had purchased 10 times or more you know i i don't know about you but i can't think of too many brands where i've like gone online i've shopped like 10 times or more like and as you drink as you start to drill into that ultra vip customer i mean this isn't just somebody ordering 10 11 times like there's people ordering 22 times 32 times i'm like what are they eating the products it was it was wild

12:46um so i think you know that's an example for me of a brand that took a little while to really find its footy and i think i think it's the next touch i think it's like the tacha of ayurvedic beauty um it's it's a great it's a great product and um and she and she's having her moment now you know what i mean like that that's an example another example would be everest which uh launched at the end of 2020 beginning of 2020 21 it's a hair care concentrates brand and they initially launched with uh you know more of their messaging around sustainability and the fact that you know in your shampoo in your shower probably 90 of it is water and you think about shipping that all over the world and the carbon emissions and that footprint and just the environmental sustainability angle was something they really, really led with.

13:30And I think they realized very quickly, you know, in the first year or so in that they needed to lead with performance, you know, and then they reformulated their product, their, you know, their conditioning product. They, um, and they, in the last like six months, they've experienced explosive growth. I don't know if I'm allowed to say this something they probably hopefully don't kill me but i don't think they will but but they've had they've year to date i know i know this and i know this business very well but year to date their sales are up like eight to nine times over the same period last year like i'm honestly mike i'm looking at these numbers and i'm like is this 2017 like the more they spend on digital spend their cap comes down i'm like what is this 2017 like i don't understand it's real it's real playback like this is wild um like how is your cat coming down i don't understand but it's it's the fact that they've they've found their groove it took them a while to find um the right messaging they did have to they did have to iterate on the product right that happened at the end of 2022 um and now you know i would say from about november 2023 to now they've unlocked explosive growth and that's that's that's so cool to see as an investor and as somebody that's been following, I mean, I only invested at the beginning of 2023, but I've been following this brand since they launched.

14:51Like I remember like DMing them, like I was right in there, you know? And so it's so cool to see as someone, you know, that's, so those, I'm attracted to opportunities like that. Now, another investor might say to you, you know, the opposite of that, where I like to see quick traction. I like to see out of the gates. This was, you know, like she blew up on TikTok and - Viral, yeah. in that viral. My experience, I've always felt this way, especially when it comes to celebrity, TikTok, influencer, all of those things scare me a lot because I think you're quick to rise and you can be quick to fall.

15:29You know, we live in this like terrible cancel culture world today. And like, it's just like, if your brand is so like becomes notorious and almost like fake, Like that really actually scares me. Like I want to see more longevity. I also with celebrity led brands, you also, I mean, as you pointed out, you certainly have risk as well when it comes to, you could have risk, right? When it's someone kind of a face of the brand, right? We've also seen risk as well when it's a founder, maybe the face of the brand. And maybe it wasn't a celebrity before, but the brand very much is part of their DNA. What do you think?

16:19Does that also maybe scare you in the same way? Or do you like to see the founder maybe a bit more behind the scenes of the brand? How do you think about that kind of relationship, I would say, with an individual and the brand itself? Yeah, it's such a good question because in a way, I think a big piece of brand will come down to the founder, especially in the early stage, right? And not just in terms of consumer focus, but it's you're building your team. You're building like it's so founder led, right? So I understand the inclination for founders, rightfully so, to be more front and center. I do just feel that the brand and the products and everything else need to stand on on their own right so um yeah I mean it's interesting if you drill into like Everest is a great example like I think maybe I've only ever seen like one or two ads of Jamie and Jess you know but it's it's before and afters of the hair you know this is what your hair looks like before Everest is like Like, you know, like same, same with Sahajan, like Lisa's, you know, you, she leads very much with her product.

17:28Um, and she certainly has a pharmaceutical background and that comes out in, in her. Um, and she's very authentic. I mean, her family is from Kerala, which is like the epicenter of Ayurveda in India, right? It's, it's that region of India where, um, you know, a lot of, a lot of Ayurveda retreats happen, all that kind of stuff. So I don't know, it's, it is a good question. And I think, I think there is always a bit of risk in, in too much of that though. Yeah. I think it makes sense in terms of like, you know, especially when you're kind of getting the brand off the ground. Like I love looking, looking at, you know, the about pages and kind of like the story of the brand.

18:00Right. And that I feel like that has to have, yeah, you have to be, you know, a storyteller, even if you're not, you know, in a video or anything like that, like there has to be a really, really kind of compelling story, in my opinion, in terms of why you exist. and typically that you know involves you know the founder right it's going to involve like like a person i mean because you know that's also i think how we make connections too right um in terms of like connecting with the brand in the early on um but i can also understand as you kind of go up and you and you and you move on up why um why as well that also might be something that you have to be careful with as well and also manage um uh so that that makes a lot of sense yeah like i'm trying to think have I ever invested in a brand where the name of the founder was like in the like I'm like I don't think I ever have like I'm trying to like I'm like I'm sort of saying them out loud in my head right now and yeah I I worry about stuff like that but then again listen I mean I think in beauty as well like especially on some of the things that are like dermatologists back like Dr.

19:04Barb Sturm and Dr. Dennis Gross and like I think there's sometimes like you need to right like lean on on the founder in a big way for a brand. But yeah, hopefully that answers your question. Yeah, I know it does. How do you think, seems like now in the world of consumer, seems like beauty and personal care are just everyone wants to invest in beauty and personal care. I've talked to, I know we've kind of spoke about this a little bit before, but it seems like investors that maybe typically traditionally would be investing in food and beverage brands also have you know evolved in terms of their thesis to maybe include beauty and personal care i'd love to kind of hear here first of all why you why beauty and personal care is interesting to you in the world of consumer what what is interesting about about those types of brands how they operate, and even breaking down maybe some of the economics of the business.

20:05And two, if you've seen this shift, and if so, why you've seen this shift? Yeah, it's a great question. So first of all, I'm biased because of the 10 investments that my own vehicle has made, like direct investments that I've made in the last 12 to 18 months. Six of them have been in beauty. So I don't know if you're going to get a biased answer here. So maybe I'll just answer from my perspective, like what's attracted me to beauty. Look, I think the first thing, and just to be super honest, I only did my first beauty deal in 2021. At the beginning of 2021, I led the seed for Iris and Romeo when I was a venture partner of another firm.

20:46And that was my first foray into beauty. I'd done no beauty before then. And so I'm relatively new too. So I'll caveat with A, I'm biased and I'm on that train of recent interest in beauty. And B, I've only been in that category for a few years, admittedly. But from my perspective as an investor, I've been really attracted to the economics of the underlying business. I've been really attracted to, so when I say that, I mean margins are quite a bit higher. You know, we talked about this with food, like food hurts, right? For the most part, you know, it's so I've been really attracted to the overall like business model in terms of margins.

21:27I've been really attracted to the loyalty that you'll find within personal care and beauty. So that's been a really, that's been a point of interest. I would also say as an investor, many of us, especially within consumer, not me, but I know many of my consumer investor friends, sometimes they're still sitting on things that they've invested in from like 2015, 2016. And they're like, maybe it'll sell one day. I don't know. like maybe there's a buyer may like, you know, it's, it's like investors, I think are becoming increasingly focused as they should be on their exit. And the beauty and personal care industry happens to be one where they're just so happy to be a lot more acquirers, um, than the food and beverage space as, as an example, just, you know, as, as a comparable.

22:15Um, and so with a larger set of potential acquirers, um, so when you say requires, excuse me, what do you mean active acquirers, they're actually going out and actually are interested in terms of acquiring versus the actual number of them. Their business model is to add to their portfolio and add business. That's what they do. They're a large concomerate. They're a utiliever. They're pretty, they're poos. They're, you know, you name it. They're looking to acquire brands, right? And you don't, the other interesting aspect of the exit dynamic that I've seen anyway, is that you don't need to be too large for that to happen, right?

22:58So in terms of scale, the scale that you need to get to, in my opinion, that I've seen is anywhere between 50 and 100 million. You're already in a bit of a sweet spot. I was speaking to another investor the other day that just led the deal for a business that was just announced today. And she was telling me in the scope of her research, she was like, and it was her first beauty deal too. And she was like, I was amazed to see how many acquisitions happen between 20 and$40 million of sales. And you don't really hear about it on Beauty Independent or Business Fashion or Glossy or like, you know, any of these publications because they're so small.

23:35But exits do happen. And, you know, so that was interesting to me because there just isn't as much public data on that. But through the course of her research, she had shared that with me and I found that really fascinating. So yeah, I would say the exit dynamics are certainly a reason why. I think a typical consumer investor may have not seen the returns they would have liked to see in apparel or food and beverage or some of these other consumer categories. However, the dynamic is such that there just are a lot more options for exit from an acquisition standpoint in beauty and personal care. how do you think about the overall trajectory of a beauty personal care brand because as you say like the exit maybe is happening earlier than you would expect uh sometimes um still of course from the investor standpoint you want to have like an outside return right um how how should a founder or um or what you've seen in terms of um to get to maybe for example like 40 million, let's say, or 50 million revenue, that trajectory in terms of fundraising, what does that typically look like from your mind?

24:52And are those kind of discussions that you have with founders in terms of what you, before you invest in terms of when they actually should next fundraise or if they even want to continue fundraising? Yeah. I mean, I think the decision to fundraise and when to do it is so company specific and brand specific. And it depends on, you know, all sorts of other things in terms of where they've gotten to like, yeah, like, like Sahajan, for instance, is a great example. She completely bootstrapped, you know, from 2015 into last summer, right? 2023. Yeah, eight years, right? Which is incredible. She built a profitable business from day one.

25:31And fine, maybe she didn't have like zero to a million in the first year. Right. But she very like intentionally, very carefully, you know, grew the business and, and didn't need to. And when I convinced her to raise capital and, and she went on the journey. Yeah. Like, I mean, I think she's, she's in a great spot. She'll, she'll do a series a suit and that might be her last round. And that's because she's built just a really profitable business. And that's great. But it depends on your structure. It depends on your margins. It depends on, you know, for sure profitability, when you've gotten there, how you've gotten there.

26:10It depends on how much of your business is D2C versus retail as well. I think in her case, like she's only, she's been in retail since, you know, for the last several years in Credo and Detox Market and some smaller accounts. Sephora is her first big account. But fortunately, she has a really sizable D2C business, right? Which if you can nail down the economics, especially with loyalty and repeats and stuff like that, like it's, it's pretty like it's, it's like that piece of it can be, if you have that piece of it in your business model, even as you go into retail, um, that, that might cushion some of the cash requirements or working capital and inventory and all those, those other things.

26:52So in her case, um, her trajectories looked like bootstrap for eight years, you know, sort of pre-series A round, and then a series A, and I think she might be done, right? So in her case, she will have probably at the end of the day, I'm guessing, I hope she doesn't mind speaking so publicly about her brand. I should have checked her there before. But in her case, I could see by the end of the day, her raising less than 10 million for sure and achieving a nine-figure exit. This episode is brought to you by Propeller Industries. If you run a high-growth business and you're focused on profitability, extending your runway, and improving your operational efficiency, you probably need a finance and accounting whiz that will grow with you.

27:46Well, instead of hiring someone full-time, what would be cost-effective is working with Propeller Industries. Propeller Industries is a leading strategic finance and accounting partner for venture stage companies and has partnered with over 1 ,000 startups and high-growth businesses across consumer products, consumer tech, and enterprise. Some of the brands that they've worked with are Liquid Death, Olipop, Hems, Farmer's Dog, Away, MoviePass, and Giphy. Propeller also provides specialized support for fundraising and M &A with transaction advisory services. Propeller's TA team of former investment bankers and investors can step in on more of a project basis when pursuing full-scale financing and M &A.

28:24There's a link to Propeller Industries in the show notes if you want to learn more information. How also do you think about, well, I guess when we talked a little earlier, we talked about sleepy categories and or sleepy kind of companies that are kind of slow to kind of get the ball rolling or the revenue to come in the first couple of years, maybe because they're a bit early to the category. How do you, within beauty and personal care, how do you think about today, maybe what are some of the sleepy categories or categories that you think are potentially overlooked? I really, it's interesting as I look at my beauty portfolio in specific, the one underlying theme, I would say, maybe just with one exception.

29:11But for the most part, I've been really attracted to brands that have gone after women in their power years. That's a category that I feel has often been overlooked. You know, women that are 40 plus happen to have the capital to spend, happen to be extremely loyal when they find something. You know, so it's interesting that I think, I don't think it's the case anymore. I think people have clued in in the last probably year or two in particular. But when I started my journey in beauty as an investor, I was certainly seeing that there was more white space in that category of demographic, regardless of category, whether it's color cosmetics or skincare.

29:57I definitely think that continues to be a little bit of an overlooked overall category. But I think that there have been a number of entrants as well. So I think that's lessening more and more. Because you have so much experience investing in companies that start off D2C and e-commerce, does that have to be a must have for you? Or can they start in retail wholesale? I know from like, I imagine like a data perspective, it's obviously D2C, you just have so much information when it comes to customers and loyalty and are able to kind of put it in cohorts and what have you. But do you also consider companies that maybe start out wholesale?