How A Beauty Startup-Focused VC Invests From Her New $42M Fund

True Beauty Ventures, a firm focused on investing in beauty and wellness startups, announced its $42 million new fund last month and said it had already made six investments. The news interested me, because beauty-focused funds like this aren’t common at all in the world of venture capital. 

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It’s also co-led by a Latina, Cristina Nuñez. Women like Nuñez who come from underrepresented backgrounds and manage their own funds are few and far between in VC. According to the organization VC Include, only 1 percent of asset managers in U.S. capital markets are of diverse backgrounds or are women.

True Beauty intends to have a portfolio of 10 to 12 brands with this fund and has already invested in six companies, including hair care brand Crown Affair and CBD brand Feals. 

The firm began investing while still raising the fund, which Nuñez said helped build momentum, and they ended up closing in excess of $42 million after going out to raise $30 million. Check sizes are expected to be between $1 million and $5 million, with $1 million and $3 million being the “sweet spot” for the first check. 

Behind the fund are Nuñez and Rich Gersten, who have known each other for more than a decade. Nuñez’s background is as an investor and beauty operator. She previously worked at beauty brands including Laura Geller Beauty and Clark’s Botanicals. Gersten’s background, meanwhile, is as an institutional investor specializing in personal care and beauty. 

Nuñez and Gersten know the beauty industry, so the majority of their investments will likely be in that space. But they’ve also spent the past year studying wellness and how it’s converged with beauty, so some investments will be in the wellness category as well.

I spoke with Nuñez to learn more about the fund, her investing strategy, and where the world of beauty—which seemingly produces a new brand every day—is headed.

This interview has been edited for length and clarity.

How True Beauty Ventures got started

“When we combed the landscape we looked at…a major white space in terms of not only folks that were willing to write smaller check sizes to support indie brands in the sector,” Nuñez said. “There really wasn’t anybody that was writing $1 million to $5 million in an equity check sizes. And there certainly wasn’t anybody who had a unique specialization and a background in beauty. 

So the two of us coming together with that beauty investing and beauty operating experience—plus just the network that we had built within beauty over many years—we identified that white space and said, ‘Let’s go out there and do something that really no one has ever done,’ which is build an institutional fund based solely on beauty and wellness with kind of a combined 30 years of experience.”

On a blended PE/VC approach 

“We’re interesting in that we’re a little bit of a hybrid between private equity and venture capital,” said Nuñez. “Private equity because my partner and I have traditional private equity backgrounds, having been at firms like L Catterton, North Castle … So we have that kind of traditional private equity training. But then of course, investing in emerging growth brands and indie brands, we’re playing on the venture capital block.” 

Doing due diligence

“We take a very thorough, detailed diligence process, which again comes out of our private equity backgrounds, but also comes out of the depth of the experience that we have in beauty, in particular,” Nuñez said. “All that cumulative knowledge and network, we apply to really evaluating the brands and holding those investment criteria.” 

Placing bets and writing checks

“A lot of VC funds will kind of sprinkle smaller size checks and have a much larger portfolio, hoping that they’ll have X returns off of a few that maybe are 10 times plus,” said Nuñez.

“With our strategy, we’re looking to deploy more capital in a more concentrated portfolio because of that sector specialization, because we know we can hopefully pick the winners in this sector more so than, let’s say, a generalist fund can do because of our experience in the industry. 

Once we pick those winners, we want to invest more in them, we want to have a deeper partnership with them and we want to spend more time helping them grow and identify opportunities to accelerate the growth. 

And so therefore our portfolio is going to be a bit more concentrated than maybe traditional VC. We’re looking at it a little bit more from a risk-adjusted returns perspective in the way that private equity would, but we’re investing in early stage brands — hopefully these will have nice strong returns.”

Evaluating founders and brands

“We look at the founder and we look at their credibility in this space and their ability to have a really authentic story for why they started the brand,” said Nuñez.

“And because ultimately we’re viewing ourselves more as strategic partners to these founders, we really dig into their level of interest in having somebody involved in their not day-to-day operations, but we do like to be involved in helping them think through major strategic decisions, like distribution and product assortment and thinking through kind of how the business evolves. Because of my operating background, I definitely like to help, and I think the founders appreciate that.

And then we dig into, ‘Why is this brand differentiated?’ That could be for a multitude of reasons. It could be because of the product category that they’re in and they may be a category disruptor. 

Then related to the consumer, what is it about the brand that’s having that consumer come back and driving those re-purchase rates? And beauty’s such an emotional industry, so there’s sometimes a connection that a person has to a brand that goes even beyond the product itself, so really understanding what that sentiment is like. 

And then of course, for us we’re not ‘growth at all costs’ investors. We really focus on profitability and we focus on having disciplined operators that know how to grow their businesses profitably and have a viable business model there. We spend a lot of time digging into the product margins and understanding the cost of goods and understanding if those product margins can support expansion into wholesale.”

Distribution considerations

“We may look at a brand that may be pure play direct to consumer at the moment — because it’s much easier to launch a brand on direct to consumer than it is to launch in retail right away, so a lot of brands do start DTC — but what is their plan to expand distribution in a way that’s more omni-channel? Do they have a key anchor retail partner that they’re planning to launch with that can support their growth and one where they could be kind of equal partners together? We’re big believers in having productive distribution,” said Nuñez.

“When we see a brand that’s proliferated across multiple retailers and they don’t have that productivity, it’s really unattractive for us. We’d rather see fewer but better and stronger retail partnerships.”

On ‘knowing it when you see it’

“With indie brands, sometimes we try to put a science to it all in terms of reviewing the business fundamentals and having a criteria list that we rank and everything. But sometimes there’s so much more art than science. And having now seen, since we launched, over 500 brands in this sector, sometimes you just know it when you see it and  that there’s something about the founder. There’s something about the product that is just unique and different, and it just makes us lean in,” said Nuñez.

On the ‘rise of the ethical consumer’

“One of the biggest trends — and it’s not really a trend, it’s actually a movement now — is the rise of the ethical consumer. The consumer maybe a few years ago was driven by the search for natural and clean ingredients, then that kind of moved to sustainability,” said Nuñez.

“What are your sourcing practices? What materials is your packaging made from and how is this good for the planet? 

Then that evolved into even more transparency from brands around. ‘What’s the composition of your team? And are you inclusive in your marketing messages?’ And, really kind of expanding more to a cultural responsibility that brands have and consumers really voting with their dollars and supporting the brands that have that transparency…I think that kind of movement around transparency is so important for our industry.”

Science and personalization  

“What we’re seeing a lot today is the consumer demanding more from a science perspective,” said Nuñez. “And, again, speaking from a beauty industry perspective, we swung the pendulum in one direction as it relates to natural and clean, but now the consumer is all about, ‘OK, those are table stakes, right?’

So now, what are you adding to the product formulas? How are you using science, personalization and data to really augment the efficacy of the products? That’s something that we’re spending a lot of time on: brands that are focused on the science.

It’s less about ‘what ingredients are you free from?’ And more about ‘what ingredients are you putting in?’ That’s happening in haircare and it’s happening in skincare. It’s happening in a lot of the beauty categories.”

On sexual wellness drawing VC attention 

“We’ve done two investments in wellness, and one of them is in the sexual wellness space. And I love to see this category really evolve. The brand that we invested in, which is called Maude, has been a pioneer in redefining sexual wellness as truly self care. It’s not just about the sex, it’s about the mental health piece to it,” said Nuñez.

“And that’s so cool to see, to be able to have conversations around topics like these, that often cases are taboo. I think COVID accelerated a lot of these conversations around sexual health and mental health stress, etc. We’re spending time really identifying what are those new categories to continue to push the frontier of self-care as we know it.”

On catering to consumers

“Consumers really want to shop how they want to shop. They want convenience. They want curation. They want to be able to shop high and low as it relates to beauty. So these partnerships are really cool because it gives indie brands an opportunity to more points of distribution, of course, to sell to, and the ability to kind of have more exposure to consumers,” said Nuñez.

On specializing in beauty investment

“You really need someone who does this, day in and day out,” said Nuñez.

“Beauty is our business and that’s all we do. So we study it, we learn from it, we identify its flows, the nuances and we know the right players. For us, I think that just gives us such a big opportunity to be better partners for our founders.”

Illustration: Li-Anne Dias