58 - Rich Gersten, True Beauty Ventures

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This is a podcast episode titled, 58 - Rich Gersten, True Beauty Ventures. The summary for this episode is: <p>In Episode 58 of Earned, Conor sits down with beauty investor Rich Gersten, co-founder and Managing Partner of beauty-focused growth fund (and newly announced Tribe Dynamics partner) True Beauty Ventures. To start the episode, Rich walks us through his career trajectory, unpacking his transition from private equity to venture capital, before explaining how he wound up investing exclusively in beauty brands. We then learn why he founded True Beauty Ventures at the end of 2019 to provide capital and guidance to smaller beauty businesses. Next, Rich shines a light on the qualities that distinguish a successful investor, emphasizing that the investment business is all about pattern recognition, so specialization is key. We also hear which characteristics of effective brand founders make Rich keen to invest, before learning about the metrics and KPIs that he values most. To close the show, Rich shares the knowledge he gained from investments that didn’t turn out as expected, and how those takeaways have informed True Beauty Ventures’ brand mentorship program.</p>
Why Rich Gersten Started True Beauty Ventures
06:03 MIN
The Qualities That Distinguish a Successful Investor
06:10 MIN
Characteristics of Effective Brand Founders
01:42 MIN
The KPIs That Matter Most to Beauty Investors
03:51 MIN
Why Earned Media Value is Important to Investors
06:49 MIN
Rich's Learnings From Investments That Didn't Succeed
03:52 MIN

Speaker 1: Explore the minds and marketing strategies behind today's winning brands and businesses, tap into the power of the creator economy with Earned by CreatorIQ. Here's Conor Begley.

Conor Begley: So, hi everyone, welcome to Earned, today I've got Rich Gersten on the show. Welcome to the show, Rich.

Rich Gersten: Thanks, Conor. Pleasure to be here.

Conor Begley: Yeah. It's funny I was reflecting on kind of how we got connected. I don't know if you remember this night, but it was Sean Westfall that took us out for far too many oysters one night, I think it was in New York.

Rich Gersten: It was Downtown with Colin and Matt and DevaCurl, right?

Conor Begley: Yes. Colin, Matt, DevaCurl. Yeah, it was a long time ago.

Rich Gersten: Very long time ago, but let's not date ourselves.

Conor Begley: Well, so for those that don't know Rich, Rich is a mainstay in the beauty industry, as well as an investor doing it for over 25 years across a few different groups. And more recently has been investing out of his True Beauty Ventures fund, which is really specifically focused on kind of up and coming direct to consumer and fast growing beauty brands, right? Smaller checks, smaller brands, but I think you've... part of the reason that we are talking is we decided to partner together to help you identify some of these brands and evaluate them using our data, and then hopefully for us to kind of help you invest in and accelerate more of these folks, because you've done a great job so far, K18, Kinship, you're on the board of Glow Recipe and invested there, Moon Juice, and then again in the past, obviously you've got NEST and Lime Crime and all those brands, DevaCurl, et cetera. So it's fun that it's come to this after oysters so many years ago.

Rich Gersten: It really is.

Conor Begley: So Rich, why don't you tell us a little bit about kind of this story, right? Because I think a lot of people that are going to be listening to this don't know what it's like to be an investor or how you get to that point. How do you get somebody that says," I trust you to invest tens of millions of dollars into this business." What's your story? Kind of how did you get here?

Rich Gersten: Yeah. I often get asked the question as a 56 year old, slightly overweight bald male, how I ended up as an expert investing in the beauty industry, and it was initially by accident, but has somewhat become intentional. Back in the early 2000s, it was in 2002 and I was a partner at North Castle Partners, we acquired a business called Avalon Natural Products, which had two brands, Avalon Organics, and Alba Botanica. Today those would be called clean brands, back then they were called natural and organic. Today they'd be sold in specialty beauty retail, back then they were sold in whole foods and health food stores. And so that industry obviously has changed over time. And two years later I acquired an interest in a prestigious skincare brand called DDF, and that was in 2004. It was probably somewhere in early 2006 that the founder of North Castle Partners, Chip Baird came to me and said," Rich, I think I'd like you to spend half of your time just focused on the beauty space. Benefits of focus are cumulative knowledge and network brand, if you can do that, it'll be better for us." And I looked at him, I think I might have told him to go F himself politely because it was not something I was interested in doing at the time, but he was the founder of the firm, and so I said," Yes, of course, I would do that." And in 2006 I attended my first Women's Wear Daily Beauty CEO Summit as a sponsor, I was the only private equity investor at the event. Fast forward that event, 15, 16 years, and now there's as many investors there as there are I think beauty executives. But back then in 2006, it was me flying solo with a couple of investment bankers who I will keep unnamed, but I'm still very close with. And the three of us kind of hung out with each other at this conference, not knowing who to talk to or what to do. And then at the end of 2006 I made another investment for North Castle on a brand called GloMinerals. And so in my last five years at North Castle we did three very successful beauty investments together. And then I left, and I went to Catterton. I was at Catterton for four years, wasn't as active in the beauty industry for me while I was at Catterton because Catterton was a much larger fund and North Castle was much smaller. And the beauty industry is very fragmented and the size of the check I had to write was much larger at Catterton than at North Castle. And so the kind of network and knowledge I had built over time started to become less relevant. I found myself trying to do things in different verticals, larger size, and ultimately after four years, amicably parted ways with my peers at Catterton and started up with a new firm that was being formed called Tengram Capital. And in the nine years I was at Tengram, we made eight investments in the beauty space. It was our most active and most successful vertical self mandated probably in the last seven years or so I was at Tengram, I just started exclusively focusing on beauty. I didn't want to do anything else, I didn't like doing anything else. I was good at it, I enjoyed continuing to build network in the space. And once I self mandated kind of a hundred percent of my time on beauty, I was meeting with every brand or founder in the space that would meet with me. And the interesting thing about that was I met some amazing brands and founders that were too small the day I met with them looking for less than 5 million of capital when my minimum was 15. And they would say," If it's not you, then who?" And I'd give them a big blank stare, just really I didn't know where to send them because it didn't really exist. There was no institutional market for smart money knowing the industry, willing to write checks less than$ 5 million, so I knew the white space was there because I had kind of been indirectly been living in it for several years. And when I decided at the end of 19, really early 2020 to launch True Beauty Ventures, that's the white space that I wanted to go after. And I asked a former colleague of mine, Cristina Nuñez, who worked with me both at Catterton and Tengram, and then in one of the Tengram beauty brands, Laura Geller in a portfolio company role. She came and joined me really in the end of the first quarter of 2020 to really launch and build True Beauty Ventures. So long- winded way of saying I did a couple of deals, started to enjoy it, got asked to do it more, doubled and tripled down on it, and I woke up one day with about 12 or 13 private equity investments in the space and a real desire to kind of exploit the unique subject matter expertise I built over the years. In that case it's about 20 years.

Conor Begley: Yeah. No, that makes a ton of sense. I mean I think that we in our early stages really focused on beauty as well, because like you said, there are network effects that occur because you specialize, you get better and it's just a good industry to be in. I think for us we're now in that kind of butterfly phase of kind of expanding across sectors. But again, it's just such a big chunk of the overall business and it's a great business to be in, very much more communal I've found than a lot of the verticals that we play in like fashion or fitness, inaudible-

Rich Gersten: Yeah, and the founders helping founders, executives helping other executives, I find especially in the world that you live in is that beauty tends to be on the leading edge of some of the things that are happening initially on Instagram, now on TikTok, it's just a category that lends itself so easily and well to those areas.

Conor Begley: Totally. If I were to say the kind of leading edge categories, it's beauty, gaming, fashion, entertainment frankly is actually really big as well. And those kind of lead the charge, right?

Rich Gersten: Well, entertainment seems to be converging with beauty, at least as it relates to the launching of brands.

Conor Begley: It's funny I was just talking with The Chernin Group, if you know them. And their big thing is we find really sticky media brands and then the goal is to help them kind of create products, right? And what's funny is I feel like beauty brands are kind of doing, they're creating their own media empires around the products themselves, you know what I mean?

Rich Gersten: Oh, yeah.

Conor Begley: It's fascinating.

Rich Gersten: Yeah. No, I tell all my brands that they have to think they're publishers. At the end of the day brands are publishers, they've got to create content, they got to repurpose content, they got to engage with an audience like a publisher, right? And brands are publishers at this point.

Conor Begley: Yeah. Robert Triefus, we interviewed him, he's a CMO of Gucci. And he's like, he goes to these publishers now and he's like," I'm a bigger publisher than all of you. Just so you know." inaudible Think about it from that lens, I now am a bigger publisher than Vogue. So how can we leverage me to help you and you to help me? So...

Rich Gersten: Yeah. Totally.

Conor Begley: So let's get into the kind of the details of investing, right? So again, I think people are still learning, there's going to be a lot of people that are new to this. What does a typical week look like for you? How do you spend your time? How much of it is on sourcing deals? How much of it is on kind of relationships with LPs, right, limited partners? What is their role? And what do you think makes a consistently successful investor over time, right? Because if you're not making people money, eventually they stop giving it to you, right? So you got to be able to turn it into more.

Rich Gersten: I don't know how people invest that don't specialize. I drank the Kool- Aid back in the late nineties when I became a consumer sector focused investor. So I drank that Kool- Aid on sector focus a while ago and obviously dialed that up on steroids a couple of years ago and really maybe eight or nine years ago by becoming a beauty sector focused investor. And the reason you do that is because it's easy to get duped and fooled in our business, right? And if you're trying to understand too many different types of industries and categories, in my opinion, tough to become proficient at any of them. And the investment business is ultimately about pattern recognition, right? You see the same thing over and over and over again, you begin to develop a view on what good looks like, tough for me to describe sometimes, but you know it when you see it, you know the mistakes that are often made and when you see them being made early, you just, life's too short, you go on and pass. And so I think part of being a good investor is the pattern recognition and the wins and learns you get from being an investor because not every investment works out. Even some that work out don't always go according to plan, and so you learn on the journey in terms of what went wrong and how to fix it. I wish I could tell you there was a typical day, week, month, year for me. Our business is so fascinating because we're in the business of finding investments and making them, and there's an execution process in making them. You're in the job of monitoring them or managing them, once you invest in them, you ultimately maybe have a job to exit them once you're ready for exit and oh, by the way, we're just kicking off our fundraise for our fund too, and so we also spend time fundraising.

Conor Begley: Yeah.

Rich Gersten: Bit of a perfect storm for me right now, but that's the beauty of this business is there's something new and exciting you're going to encounter every day, whether it's an issue or a problem or some good news from a brand or a founder who didn't want to take your call for a month has now decided she's ready to take your call and wants to raise money. We spend a lot of time building relationships, and maybe we'll get into it at some point on this podcast, but I am a private equity investor turned venture capital investor. We really call ourselves more emerging growth investors because I think there's many aspects of the VC model that are broken, especially as it relates to consumer brand investing, which generally scales capital inefficiently, whereas most VCs inaudible capital efficiency and that doesn't necessarily happen, and the growth expectations don't happen as rapidly overnight in our business, it takes a while to build a brand until you hit that point where you start to kick in. And so I think we're trying to reinvent it, but part of our reinvention is concentrated portfolio, working with fewer brands so that we can be available to our founders' portfolio management and being a good partner is a big part of what we do every week. We're up to 10 investments, before we start getting into that period of investing and I'm selling, we could get up to 15, 20 brands before we ultimately get into some of that equilibrium. And so we have to build our own capacity and thank God not all need as much as others, and some want more and some want less, so it's a portfolio of time as well. But the job is so fascinating because you're meeting amazing founders when you're trying to find brands, you're working with amazing founders once you invest with them, you're meeting really interesting people, even when you're fundraising. A lot of our investors in our fund are beauty founders and beauty executives. We have traditional institutional investors too, but I have a dream in our second fund of having some really well known beauty founders invest and create their own little advisory council for our founders, right?

Conor Begley: That would be cool. Yeah.

Rich Gersten: Because founders inaudible love to talk to successful founders, so I got a little convincing to do, but it makes sense, right? Because our brand and our space has become pretty well recognized, and I think founders understand what we bring to the table, but at the end of the day there's nothing boring about what we do, and every day is its own amazing adventure.

Conor Begley: Yeah, for sure. It's funny, you have kind of a mixture of inaudible, right? You have to convince these founders-

Rich Gersten: Always.

Conor Begley: Right? And then you have to talk to LPs and ultimately you're selling a financial product to them, right? And then separately you have to also help them actually operate the business and make sure that it's successful, which is, like you said, I think reducing scope and focusing in on a particular industry obviously increases your chances of success, right? Because somebody else trying to compete with you-

Rich Gersten: That's it, we have-

Conor Begley: Yeah, go ahead.

Rich Gersten: We have to have more winners, we need more winners than losers. The way you do that as an early stage investor is be proficient and expert, and it doesn't mean we're going to be right all the time, but I do believe we'll be right a lot more than we're wrong and we're counting on that. But when you think about at the end of the day what makes for a good investor and we post- mortem everything we do at True Beauty, if it's working well, if it's not working well, we always go back and post- mortem at the end of the day, especially in early stage investing when you're investing in fairly nascent brands, trust your gut. And that gut's both brand and founder, but it's mostly founder. If every time you encounter a founder and you hang up that call and say," I love that founder." And then the numbers may not look so good, probably you should still invest. And that's where we struggle, right? Because we're very analytical at the same time, but you got to trust your gut. You got to be skeptical because people are selling you too, and we know how hard it is to scale a brand in the space successfully. And then trust, but verify. Always trust, but verify as best as you can.

Conor Begley: For sure. So when you are looking at founders, obviously there's the gut element, but what are some of the characteristics, if you were to describe them that you've seen consistently, right? Because you've seen a lot of founders at this point, what would you say you've seen as kind of what are your patterns there that you're identifying on the founder side of things?

Rich Gersten: Yeah. I think we post- mortem that all the time, we've got 10 brands and more than 10 founders because some brands have more than one founder and I've had a lot in my past and others. I think for us what we have found and it's really Christina's word, superpowers, right? Everybody has a superpower and identifying what that is, is an important part of the dialogue that we'll undergo with founders, but founders who know what their superpowers are and then know how to surround themselves with those that have complimentary skills or superpowers usually is a good recipe. And then in order to scale, founders that can learn to delegate and trust others to do the jobs that they're hired to do, especially when they're in areas where they may have more experience or relevant skillset than the founder, that's how you scale a brand, right? And so for us it's knowing what you know, knowing what you don't. Now again, what does great founders do in beauty? Generally product, right? There's a reason they're founding a business, that's usually to solve a product need, and so we obviously spend a lot of time on product and founders are generally good developers. But in terms of what makes the business successful over time, it's really recognizing where you're deficient and where you're strong and having the trust and confidence to compliment your capabilities.

Conor Begley: Yeah. I remember getting advice at one point or reading advice on you really need to work on your weaknesses, right? Make those better, and then at some point my co- founder Jon was he's like," Why?" He's like," Why do you want to be good at this? This isn't what you like doing. Why don't you focus on the thing that you're top 1% in the world at?" Get really good at that and then let other people do the other stuff, right? It's-

Rich Gersten: A mutual friend of ours, Laura Slatkin once said to me, if I'm the smartest person in the room, meaning herself," If I'm the smartest person in the room, then I'm in the wrong room." And that's the goal, right? We're all smart at certain things, but we don't want to be... we want to surround ourselves with good smart people. Christina is amazing with our portfolio company, she has such relevant operating experience in small brands. That's exactly what our founders are looking for assistance on, right? And I don't get in the way when she's rolling there, she's better at it than me, and I do my thing.

Conor Begley: Yeah, totally. So you mentioned kind of trust.

Rich Gersten: That inaudible, Conor. I wake up now and I'm a founder, right?

Conor Begley: Yeah.

Rich Gersten: And Christina's a founder and that means I'm 7 by 24, I'm always on, I'm always stressed and like our founders in the beauty space, we're trying to do our day job of investing in helping, and we're raising capital to raise funds, just like when they're speaking to us, they're raising capital. They don't want to do that either, it's a necessary evil in terms of growing their business. And I find that now that we're sitting in the founder's seats, it actually gives us empathy genes that most investors probably don't have with their other founders, but we live and breathe that every day, it's ours, it's just like a founder starting their own brand, it's got quite a lot of similarities.

Conor Begley: Yeah. Have you seen a lot of people go from kind of operator to investor, right? Or founder to investor? It seems like a path, I know that, that's what Janet Gurwitch obviously kind of went that route with Olaplex, oh not with Olaplex, with Advent and inaudible-

Rich Gersten: Yeah.

Conor Begley: Yeah. Is that something you see pretty frequently?

Rich Gersten: You don't necessarily see them starting their own funds, but partnering with investors to leverage their skillsets. Although I think Jaime from Native Deodorant may have her own fund now. And I think Carisa Janes operates as an angel, has invested in some brands and she obviously was the founder of Hourglass, and so you definitely see it. I think again, part of what we're trying to build at True Beauty Ventures with this notion of also tapping into founders as investors of ours, is to try and get the best of both worlds, right? Give the founders the exposure they want and the access to other founders and still have skin in the game as an investor without having to manage a portfolio of investments as an individual.

Conor Begley: Yeah. No, that makes sense. So you mentioned earlier kind of trust, but verify, right, with regards to the investments. So what is verification for you? What are the KPIs that you look at that you think if I'm an up and coming direct to consumer brand or I'm an up and coming beauty brand and I'm trying to present myself to a company, what are the metrics that I should really be focused on making better?

Rich Gersten: Yep. And we're probably more focused on that than maybe some other investors. Just again, PE background brings good and bad with it, but we've launched in collaboration with Beauty Independent, a mentorship program. And that mentorship program is meant for three brands every six months to effectively get put through a mini diligence process by True Beauty Ventures to see how ready or to get them ready for when they would need the fund. And we do dissect the DTC segment as an example of those brands. And even if it's not a big part of the business or it's still relatively small, we'll often get asked," Well, why do these metrics matter to you?" And I'll always say," Your metrics tell me a lot of things about your business you may not be fully appreciating." Right? So when I look at your sources of traffic and revenue, how much of it is coming from organic and direct channels versus paid, right? Because if you're only reliant on paid to drive traffic and revenues, I would perceive you as having a brand health problem, or a brand awareness problem for sure. If people aren't searching you out organically, there's something wrong maybe with your brand. So sources of traffic and revenue tell us, inform us something, right? Then we go to your retention or your repeat rates, right? If your consumers are buying once and not repeating, maybe you have a problem with your product quality or your product experience, you may not realize it, but your data is maybe suggesting that. Now again, if something's too young and the inaudible and it's a limited SKU assortment, you may not get all the data you want, but those data points are very product reviews, very informing in terms of the quality of your product, we'll get to it or immediate value, social following is are you building a community and are they engaging with you? All those things help us understand the kind of health of your brand and the quality of your product overall, but the other things we'll look at, and again, we have the luxury of doing it as a beauty investor, if you're in retail channels, your retailers give you your retail sales every week generally. And so we can measure the health of your sell through because most investors value businesses off of sell in or the company's net revenues. But again, the health of the business is driven by the sell through and the replenishment. So we want to see what the sell through is, and is the retailer replenishing? And so those sell through statistics, we focus very heavily on. And then again, little things like your gross profit margin profile, because most brands are going to be unprofitable at a small scale, especially if they're investing in team and marketing, but one of the ways an investor gets comfortable that this thing can have a path to profitability is as the revenues grow is the gross profit flow through significant. And the great thing about beauty, it tends to be a higher margin category, but not every brand, especially new brands with less sophisticated founders understand what a typical margin profile should be for a different category, and they're all about high quality products delivering at a value. That equation sometimes says bad margin, right? Or if you're a direct to consumer only, and you don't have plans to go into wholesale, but then someday you decide you want to go into wholesale, you don't have enough margin to support that expansion. So there's lots of various financial and other metrics or KPIs that we'll look at, but we'll always look at.

Conor Begley: Yeah. And on the kind of obviously our focus is on the social media side of things, influencers, et cetera.

Rich Gersten: Yep.

Conor Begley: And that's a big part of our partnership is using that as an assessment mechanism. And they give you a look at the brands that you've invested in, whether it's K18, Glow Recipe, Kinship, some of the others, these brands are really killing it when it comes to social. What made you decide to focus on that as kind of a thesis, right? Why is that one of the pillars that you think is important for inaudible?

Rich Gersten: Yeah, it's a pillar, it's important, what I mean for us building an organic community is great, right? Because if you've gotten organic community built and that community is loyal and talking about your brand and buying your product and referring your brand to friends, that's how you drive some of those better metrics, right, at the end of the day.

Conor Begley: Mm-hmm.

Rich Gersten: And you and I go back a long time in the middle of the makeup boom, right? In the 2013, 14 timeframe when makeup was having all time moments and Instagram was becoming popular, you and I would spend a lot of time and you'd present earned media value growth is a leading indicator for revenue growth, which was a leading indicator for enterprise value growth and exit, right? And a lot of the make brands that were the top EMV brands in Tribe in those days all sold for big prices to strategic buyers primarily. And so there's always been an important correlation between earned media value, size growth, engagement, and ultimately revenue growth and success. And so I've been looking at your data for years trying to get lead generation, right? Which brands are starting to pop? And by the way, I would also look at NPD data to see which brands were selling through. So we started taking, okay, what's selling through? What's getting earned media value growth? Which brands have strong engagement? If it's the same one across all three, and they're still independently owned, I will make a call.

Conor Begley: Yeah. For sure. So I mean two of the brands I think in particular that you've been a part of in Glow Recipe and K18 have seen really explosive growth right, over the last call it few years. What is it that they did that worked so well from your perspective as a kind of an investor and board member?

Rich Gersten: Yeah. I mean listen, for us every investment starts with the founder, story, brand position, brand point of differentiation, brand aesthetic, right?

Conor Begley: Yeah.

Rich Gersten: Both of those brands inaudible one at a time, but if you look at Glow Recipe, Sarah and Christine's background, very successful founders, but classically trained L'Oreal executives, strong business acumen, created a brand that quite frankly today still nobody's knocked off. And I'm not sure I quite understand it, I'm not encouraging it, but the entire inspired by Korea, but not a K- beauty brand, incorporating the fruit forward piece or the fruit ingredient into the product story and the visual beauty of the packaging and the brand, but not forgetting that it's still skincare. And its tried and true ingredients and efficacy matters and incorporating science ingredients before and afters all into the story and this kind of fruit forward, clinically effective positioning with the inaudible visual packaging, it was very unusual, from a business perspective, and one of the things I love when I see brands, especially earlier stage brands is what we call productivity, right? So productivity for us is don't proliferate your distribution focus, don't proliferate your assortment, at least when you're a young brand, right? Focus, find your heroes, market the crap out of your heroes. And Glow Recipe was able to build a reasonably good scale brand on the backs of less than 10 SKUs and a Sephora partnership in North America. They have other accounts too, but the bulk of the business, and that's a pattern, by the way, you'll see in other brands that have traded for a lot of money over the last 24 months as well, and so we love that productivity story, we love the positioning, but at the time they were also close to a million Instagram followers, they're now at a million or north. They were always top 10 EMV, now they're top 1, 2, 3, usually. And so they've clicked on all those relevant metrics that we would love to see as an investor, and they just nailed it.

Conor Begley: Yeah.

Rich Gersten: And I don't even know if your data picks up TikTok, but they were way ahead of the TikTok game before everybody else. And part of their recent success and really rapid escalation and growth is their prowess on TikTok and the good fortune of having some viral moments.

Conor Begley: For sure. Yeah. TikTok is definitely a part of the tracking, I think we rolled it out, I don't know, six months ago, nine months ago, something like that.

Rich Gersten: Yeah.

Conor Begley: But I think with that being said, it's still something that you need inaudible because there's a lot of stuff that won't be... it'll be mentioned, but not tagged, right? So we still need to figure out exactly how to solve that problem. So-

Rich Gersten: And then take K18 is an example, right? I mean again, great founder, story. K18 had barely been launched when we invested in it. It was initially called Khairpep, they were rebranding it to K18, it was being tested in some salons in Australia. I met Suveen and Britta in the early days of 2020. I had known them for several years before that meeting in New York City where they presented Khairpep to me. And then eight months later after True Beauty Ventures was formed, it was our first investment that we'd subsequently followed on. But when we heard the K18 story and what it was, I'm like, if three quarters of what he is saying is true and only three quarters of what he says you can understand anyway, it's a big joke between Suveen and I, but if three quarters of what he says is true, this thing is unbelievable, right?

Conor Begley: Yeah.

Rich Gersten: The product efficacy, the product differentiation, the simplicity of the story, one SKU, four minute inaudible, fixes your damaged hair. I mean really? If that's true, that's amazing. And the reality is we tested the product. Not me, of course, it's one of the downsides of being bald. I mean but we tested the product with the team and the feedback was unbelievable. And everybody who tried the product, the feedback was unbelievable, but what they did really smart is they built these evangelists in the salon community globally, who became evangelical supporters of this brand, real authenticity created from the salon level, real brand ambassadors created at the stylist level, created that buzz and momentum for the brand, and I personally think it's the buzziest brand in the beauty industry right now. And we're very fortunate that it was our first investment and that we're part of the investor group. And there we've helped Suveen build and recruit an amazing team and founder knowing his superpowers, is all about the science and the innovation and hiring world class talent to surround himself with.

Conor Begley: Yeah. Well, I mean he brought on Michelle Miller, right, who came from Kosas and helped build out that program from a social perspective. And then just, I agree, kind of surrounding yourself with inaudible-

Rich Gersten: It's a team, it's a lot of the team, especially on the marketing side that have worked together before in different jobs prior to K18, they kind of put a little bit of the mini band back together again, it's a team that, again, when you're winning like that brand is, it's always more fun, but it's a team that enjoys, really legitimately enjoys being together and have worked together before. And they've got great, and we talked about TikTok, when they did the K18 Hair Flip Challenge, when they launched Sephora, I remember in the first week it was six, seven billion views that I thought it was a typo on my phone, I just couldn't understand how something could go that viral that fast.

Conor Begley: Yeah. I still inaudible-

Rich Gersten: If I check it right now it'd probably be probably 11 billion views, I still can't process it.

Conor Begley: Yeah. I still don't quite know what makes something go viral or not. I don't know who's cracked that formula, but it is nice when it happens, for sure.

Rich Gersten: Hey, listen, we always tell our brands, there's no silver bullet and I'm sure no one intentionally does something to try and go viral, it just happens. And you got to put... especially on TikTok, it's very different than Instagram. What works on Instagram doesn't work on TikTok and vice versa, you got to throw a lot of spaghetti on that wall in TikTok, not filtered, very genuine and authentic, and you'll never know what's going to hit.

Conor Begley: Yeah. I know when I talked to Toto, he's a SVP of marketing at Benefit. He's like," We expect 75% of our creative to fall flat, just to be a total flop." And you have to be comfortable with that, which is tough.

Rich Gersten: Yep. No, totally. It's counterintuitive sometimes, needs to be humorous, I mean there's a whole bunch of things that go into it.

Conor Begley: Yeah. So let's kind of flip that, right? So that's kind of the real stellar standouts. Obviously you've had investments that have not gone as well, right? Investments that have not gotten the... performed as you would've expected. When you look back on that and you do the same kind of pattern matching, the same kind of post-mortems, what are those patterns that you find? What's kind of the inverse?

Rich Gersten: I think it almost always goes to the team, right? Especially in my PE days. Earlier stage it's the number of team members, the quality and experience of the team will be less that's commensurate with the size of the business. In my old PE days, if you got the team part wrong, you were in trouble. You have to hire a great team and you've met Colin and many of his members of that DevaCurl team. I mean, DevaCurl was a successful, very successful investment for Tengram in a large part because of the authenticity and uniqueness of the brand and the product. But with a mediocre team, it would've probably been a mediocre investment, and with a great team, it becomes a great investment. So I think having the right people on the bus with you, that's why I always work with Elana, right? Elana's done it twice for me now. And I want to surround myself with lots of Elanas if ever possible, right? So I think I've learned in my PE days that the quality of the team matters. And I think founders are beginning to understand and appreciate that earlier on too. They don't necessarily have the budgets for it, but I think founders are realizing," I'm not good at running the day to day of my business, I know what I'm good at." Going to where we started the conversation and try and help me backfill, get some of this off my plate and get someone better at it. So the quality and experience of the team is always going to be in my opinion dispositive to the outcome of a traditional private equity investment, for sure. When we look at common mistakes that are made and where the pattern recognition generally kicks in, again, oftentimes it's that distribution or SKU proliferation, right? And ultimately why that matters is focus and resources, right? Small brands have limited resources, therefore they should focus their limited resources on things that are going to drive the best outcome. If you've got 22 countries and 13 different retailers with 35 products trying to bring out new products, is that an easier business or harder business to manage than someone who's in a Sephora exclusive with inaudible, with five SKUs.

Conor Begley: Yeah. Just more complex, so just a lot more going on.

Rich Gersten: Yeah. So try and keep it simple, focus on productivity. We talked about things like inadequate margins or other mistakes, not registering your trademark in China early, it cost you more in the long run, but there's just a lot of things we'll always see over and over again. It's part of the fun in their mentorship program is we're actually fixing mistakes that are either going to be made or have been made when it's still small and early and easier to fix. When you get to 22 countries and 42 products, it's hard to fix things. inaudible in particular, one of our mentees in our first cohort, we literally spent half the time in the mentorship program helping her sharpen her pencil on how to improve her gross margins and reduce her cost of goods because if she was going to launch and scale with what she had, she would never have had an interesting business. It wouldn't have made sense on an economic model perspective. And so that's the fun part of the mentorship program is it's so much easy to fix stuff. And even earlier stage investing, at Tengram I bought some fixer- uppers, I kind of made a living there fixing stuff up, but you got value for it, right? You get what you pay for it, but there's more risk and more work, and if you really get the team part wrong when you're trying to fix something up, you'll be dead, which puts a lot of pressure on the team piece. But there is tremendous pattern recognition in probably any consumer products investment, but when you specialize like I have, they get very specific in terms of the mistakes you're often seeing made.

Conor Begley: Absolutely. And for those just that don't know Elana, Elana's the CEO of ReVive Skincare. Previously CEO of Laura Geller. And where was she with you before that? What was the one before that one?

Rich Gersten: That was her first CEO, but she was also on the board of NEST and This Works, Cos Bar and Algenist with me, so she and I were very involved. It's where Christina who works with me now at True Beauty Ventures when she was at Tengram decided that she wanted to do a stint in an operating role and thought Elana could be a great mentor, so she went to work at Laura Geller for a year.

Conor Begley: Oh wow.

Rich Gersten: And one year became three years, and we sold her and the business in the process. But I think one of the reasons I love Christina and she's such a great partner for me, and she also got trained by Elana, which is some great training.

Conor Begley: Yeah. For sure. Well, let's do one more kind of one more business question and then we'll do one end of show question.

Rich Gersten: Yeah.

Conor Begley: So I asked the same question to Janet Gurwitch. So you've sat on the board of a lot of different companies for many years. I'd be curious, what do you consider the role of a good board member? And then how do you kind of operate as a board member? What does your kind of process look like?

Rich Gersten: Yeah, it's different a little bit as a PE investor, probably more as a VC investor, akin to what I'll say now, but as a PE investor, you're so involved in your businesses every day that oftentimes you don't get to a board meeting learning anything, you're already familiar with it. And you kind of try and facilitate the conversations of the Conors and other peoples of the world on your board that may not be as close to it and really try and get the right strategic topics brought to the forefront and have them discussed with the broader universe of perspectives and opinions. What I find now for me, because while we're very involved, it's not like being a majority owner, right? We'd probably get more information from a brand than any other VC fund in their right mind would ever ask for, but it's still not the same level of information that we would get as a majority owner. So for me, and on most of our investments we either have a board seat or an observer seat or both or two, one of each. And so we come to that board with a perspective of being a good sounding board, being able to share our perspectives, being able to share our learnings and observations, in my case over 20 years and really being able to access the network and experience that I have. And so there's very few challenges or issues or opportunities I haven't confronted at some point in my past, I can share those experiences and stories, I can connect people. One of my founders the other day was interviewing a candidate for a position and gave me three names to quickly back channel, and within 24 hours, I had feedback on all three people and she was like," You really do know everybody, I actually don't know how you do this." But that's ultimately, that's your role as a board member too, right? My network is available to you and we'll try and find the right solutions to the problems you have within the network are we'll try and find the right people who can exploit an opportunity you might see because we'll be able to get to them if we don't know them already, but I think it's just being smart, conversant, listening, responding when asked to, addressing an issue when you see it that maybe no one's thinking about. And I love board meetings because there's lots of different perspectives, and if the board's composed or comprised properly, there's a lot of complimentary perspectives as well.

Conor Begley: For sure. Well, let's get to the kind of fun end of show question. So if you could invest in one, so you talked about, they hit this, they hit this, they hit this, right? These are the three check marks. If you could get a piece of one private business that you don't have access to today, what would it be? And we'll assume it's going to be in the beauty space. What's the one thing you're like," I would love to inaudible-"

Rich Gersten: This is a really bad question for you to ask me because I don't want my competitors to necessarily reach out and cold call or oh, if they like it, maybe we should look at it. And I know your podcast is viewed by millions around the world, and so I was a little bit leery in giving you, but I will tell you. There are a couple of brands that we continue to be in dialogue with that if we could invite ourselves onto those cap tables, we eagerly await the invitation. I think of our mentorship program that we talked about, one of those founders in particular, Fiona from Youthforia, she's amazing, she was a great student, great listener and has amazing talent on TikTok and other things. It's a brand, one of the brands, we've got a laundry list of brands Conor, by the way, we're going to have Tribe start tracking that they're inaudible but they should. And Fiona and Youthforia are one of them. Michelle Ranavat out in LA, we've known Michelle for a long time, we love her brand. She was just in Glossy today launching 250 Sephora inaudible. So proud of her and what she's done, she's come a long way. Amy, at Tower 28, been talking to her for at least five years. She's the definition of capital efficient, by the way she's been able to scale her business with no outside or no meaningful capital, but I love Amy, and what she's doing. She's giving back to founders with her Clean Beauty Summer School, invited Christina to participate in that. So if Amy ever wants an investor, True Beauty Ventures is waiting for the invitation. And so those would be a handful. We love inaudible, it's small brand, and we talked to them about six months ago, they're really just starting out. It was too small for us, but as she starts to scale her brand, we stay close to her as well. So I don't want to give our whole list of people away, but there's some amazing brands, many I didn't mention. There's no shortage of great founders and great ideas in the beauty industry. It's our job to filter them out, and one of the ways we filter them out or in, as we say is through relationships. And so every one of those founders that I just mentioned, aren't just brands I've spotted in Tribe data, or walked into a store and noticed, those are founders that we're trying to cultivate relationships with, and hopefully those relationships all ultimately become investment opportunities.

Conor Begley: Yeah, for sure. Well, one on Amy, Amy is a rockstar, big fan of hers as well. I was also a part of that Summer School Program, it was cool. And then what was Michelle's brand? I can't remember it off the top of my head.

Rich Gersten: RANAVAT. It's her last name, it's inaudible brand, R- A- N- A- V- A- T. Ayurvedic inspired skincare and hair care, really authentic, great product, my team loves it. When my team loves the product, I love the brand.

Conor Begley: There you go. Well, I really appreciate you taking out the time today, Rich. I'm excited to partner with you and with True Beauty Ventures on this kind of investment side of things, and yeah let's keep inaudible.

Rich Gersten: Yeah. So for me to think back on the drinks Downtown, we won't get into the, my son's Facebook ending up on your Facebook account, we've had a lot-

Conor Begley: Oh, I forgot about that.

Rich Gersten: We've had a lot over the years, it goes back a long time. And for me personally this partnership is the culmination of a friendship and a relationship built over a long time. And I can speak for all of us at True Beauty Ventures saying, we're thrilled about the prospects of taking this inaudible.

Conor Begley: Absolutely. And I got to tell that story just for a minute, because I think it's inaudible, so Rich was trying to... I'm trying to remember the exact details. I was trying to show you something or you... something on... and long story short, you end up logging into Facebook on... or I log into my Facebook on your phone and then you posted a very thoughtful photo of a Christmas tree and the Christmas spirit and or the holiday spirit, and my wife goes," Wow, Conor, that was so nice that you posted there, it's really heartfelt." And I was like," I didn't post anything." And it took us a while of sleuthing to figure out that you were logged into my Facebook account actively inaudible.

Rich Gersten: inaudible my son playing basketball, showed up inaudible.

Conor Begley: Things kept showing up and I couldn't figure out what it was, and that it was your son. Yeah, that was the inaudible.

Rich Gersten: All good my friend. Thrilled to start this off and looking forward to a good future.

Conor Begley: Yeah. It's going to be awesome. All right, thanks, Rich, appreciate you taking the time.

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In Episode 58 of Earned, Conor sits down with beauty investor Rich Gersten, co-founder and Managing Partner of beauty-focused growth fund (and newly announced Tribe Dynamics partner) True Beauty Ventures. To start the episode, Rich walks us through his career trajectory, unpacking his transition from private equity to venture capital, before explaining how he wound up investing exclusively in beauty brands. We then learn why he founded True Beauty Ventures at the end of 2019 to provide capital and guidance to smaller beauty businesses. Next, Rich shines a light on the qualities that distinguish a successful investor, emphasizing that the investment business is all about pattern recognition, so specialization is key. We also hear which characteristics of effective brand founders make Rich keen to invest, before learning about the metrics and KPIs that he values most. To close the show, Rich shares the knowledge he gained from investments that didn’t turn out as expected, and how those takeaways have informed True Beauty Ventures’ brand mentorship program.