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Finance Your Beauty Brand

Contact Author Ada Polla, Alchimie Forever
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You’ve crafted your brand story, developed your formulation and defined who will help you manufacture it. Now, how do you finance your project? In business school, I learned about the various types of financing:

Savings.

If you have any, pour them into your project. No explanation needed.

The three Fs—family, friends and fools.

This is really just the two Fs, of course. If you need capital to launch your brand, the first place to go to is within your own network. Reaching out to your friends, former colleagues and family members is the first step. Being able to show them a business plan and that you have invested some of your own money in the project will help make your pitch easier.

Angel investors.

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These affluent individuals invest in startups and new businesses in exchange for convertible debt or equity. If you are lucky, you have an angel investor or two in your circle of friends. If not, perhaps a friend of a friend knows a business angel. There are also various networks and groups of angel investors that you can reach out to, including Hub Angels (Boston) and Golden Seeds (New York).

Family offices.

This refers to a family controlled investment group. The family has accumulated wealth, usually through a business of their own, and is now interested in investing in various ventures, often in the same industry in which they made their money.

Venture capital.

Firms or funds provide this type of financing to small, early-stage companies deemed to have high growth potential. VCs typically have a shorter-term outlook, expect high growth rates and a quick return.

Debt.

One should not forget debt as a form of funding. If you don’t yet have a banker (not a bank), get one. A good relationship with your banker will go a long way toward helping fund your business. Loans and lines of credit may not be as sexy-sounding as angel investors, but these are powerful financing tools.

Financing: My Experience

I run a growing, family-owned, bootstrapped brand, Alchimie Forever. Our financing derives from savings, friends and family, and debt. While we have never officially searched for outside capital, I have spoken to entrepreneurs, investment bankers, people in private equity, family offices and angel investors. Here are some of the lessons I learned during these conversations.

It’s all about who you know.

Grow your financing network before you need outside financing. I have met investment bankers, private equity leaders, angel investors and more through the industry: at conferences, through other entrepreneurs and through friends of friends. Like with all relationships, maintain them, take care of them, spend time on them. They will serve you well when the time comes for fundraising.

Take your banker to lunch, and never surprise her.

Make sure you have a relationship with your banker. Not with a 1-800 bank toll-free number or a bank teller. An actual person who knows you, your account, your history. My banking relationship has been essential to my business. I chose to work with a smaller regional bank—Eaglebank in Washington, DC—specifically because I thought my relationship would be more personal, and my (small) business more important to them. I also learned early on that bankers hate surprises, good or bad. My banker knows my business, and in particular is aware of any challenges as they arise. Honesty is the best policy!

It’s like a marriage.

When choosing an investor or strategic partner, chemistry is key. There will be good times and there will be less good times, so make sure the relationship you are in is one based on trust, shared values and mutual respect. An investor will do significant due diligence before investing in a business. A business should always do the same. If it doesn’t feel right, it probably isn’t.

Spend the money on the right initiatives.

Are you fixing cash flow problems? Is the additional capital going to go toward growing the business? Do you need to fund a one-time national rollout with a new retail partner? The use of the capital is key. Typically, paying employees or funding inventory is not the best use of investment money, as these are ongoing operational needs that will not go away.

Figure out where you stand on growth versus profitability.

I have yet to find a consensus on the debate between growth and profitability. Some will argue that growth is the only thing that matters. More, more, more, faster, faster, faster. Growth is a sign of traction in the marketplace, is sexy and typically leads to interest from outside investors and, ultimately, success. Right?

Some will argue that a positive bottom line is more important. Positive cash flow is a sign of a sustainable business, and is healthy. What most will agree on, however, is that growth for growth’s sake is not interesting. Not all growth is created equal, and investors will look for quality growth.

Your gut is usually right.

Don’t underestimate your gut feeling. Whether it be in terms of timing (only you will know when the time is right to seek outside capital or a strategic partner), or in terms of figuring out who the right partner is.

Finally, DROOM.

One of my favorite acronyms is DROOM, which was coined by Marla Malcolm Beck, CEO of Bluemercury: don’t run out of money!

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Ada Polla (ada@alchimie-forever.com) is the co-creator of the Swiss antioxidant skin care line, Alchimie Forever, which launched in the U.S. in 2004. Her strategic focus and implementation have yielded double-digit annual revenue growth for the company. Polla holds an MBA from Georgetown University, majored in art history and political science at Harvard University, and graduated magna cum laude with a Bachelor of Arts degree in 1999. She is also a Global Cosmetic Industry editorial advisor.