The Red Tree are delighted to be event partners for Beauty and Money London. Europe’s first Beauty & Money Summit is part of a series of three Beauty investment events organised by Kisaco Research. They take place in Los Angeles, London and New York with an aim to connect independent beauty brands to financial and strategic investors. The Summit in Europe is taking place on the 28 June 2018, following two successful events in LA in April 2018 and New York, September 2017.
Stirling Murray, Managing Director of The Red Tree, gives his thoughts on 6 golden rules for brands seeking investment:
Many of the brand owners we see and work with are seeking investment or at least they think they need to be.
They are usually at different stages of the brands lifecycle – concept stage, or with a year or two’s trading under their belt, or more established and seeking to take advantage of international opportunities – and will want the investment to serve different purposes.
What is clear from our many discussions is that there needs to be clarity on the founders thinking to stand any chance of securing funds. So to help we’ve identified 6 golden rules that need to be in p
1.Diamond-sharp clarity on why the brand exists.
This may seem obvious but we have met brand owners who after an hour of meeting are still unable to explain the reason why their brand exists. Their thinking is muddled and they are unable to articulate quickly and sharply what their brand does. Our thinking is that if they can’t explain the brand quickly then there is zero chance of an investor, let alone a consumer, buying into their concept or product offer.
Answers to questions like ‘why are you doing this?’, ‘what are you doing?’ and ‘how will your brand do this?’ should be clear, concise and make sound commercial sense. It’s not just investors who will demand this clarity – so too will buyers.
Every moment spent honing and refining your brand statement will pay dividends at every stage.
2.Timing is everything
If you are at concept stage you are naturally at a weaker point in negotiations then if your brand has a 1 or 2 year track record. Understand it is going to cost the business far more in equity for an investor to take an immense risk in an unproven brand. There are no comfort levels at such an early stage. Although there maybe a convincing business plan the only thing an investor can buy into at this point is the brand’s management team.
Can you self-fund the during the early years? can you reduce costs and make the money you have stretch further? Have you presented the brand concept to retailers? Nothing will pique an investors interest more – making your case for funding stronger – than knowing that the response to a retailer meeting has been positive.
Getting into bed with an investor too early will cost the business far more than if you allow time for your brand to prove itself. Equally if your business is established and you are planning and looking ahead you will know when investment is needed. Don’t leave this to the last minute otherwise you will become desperate and your position in negotiation severely weakened.
3.Valuation of the business.
Investment comes at a price. The stronger the business the less the price. Be realistic in what you are prepared to give away in return for incoming cash.
Do not make crazy valuations on an unproven business. It exposes the business owner as lacking any sense of business acumen. We have all seen enough of Dragons Den where a business that hasn’t even recorded a sale seeks a large investment for 5% of the business. Crazy valuations are laughed at on TV and the same will happen with your business.
Be tough on negotiating the price you are prepared to pay but keep realism top of mind.
4.Know how the money will be spent
If you are seeking investment and know how much then you should also know exactly how the funds will be spent. In conversation with brands we have found that is not always so. Often no planning has been put into place which means the target investment figure is just a wish. A random number pulled out of thin air.
What will you spend funds on, in what order and over what period of time? Everything takes longer than you expect so plan how investment will be spent over at least a 2 year period. Plan carefully and diligently making sure that a contingency fund is kept to one side. The unexpected will always happen.
We once saw an investment plan where the brand founder had carefully planned how to allocate the investment she hoped to receive. Her plan included paying her 50% of the incoming funds as her salary. I imagine she is still looking for someone to invest!!!
5.The business plan
So much advice is available on how to make business plans work. I just have 3 words to offer – short, sharp and to the point.
6.You are the Wikipedia of your brand
Know everything there is to know about your competitors – their retail pricing, their hero products, their ingredients and claims, their means of communication and how they use social platforms. What do they do well and not so well? Where and how are their products sold and how do they drive retail? What’s their training strategy, how do they handle e-commerce?
Understand where and how your target market shop and where they reside for information. Know your product offer inside out and what products you want to develop next and why.
What trends are influencing why consumers want your brand?
Learn by going into retail stores. Speak to staff. Ask what’s hot and what’s not and why. Seek out their opinions on the power of training. Where would your brand fit? How much space will it need?
Regularly visit online retailers. Which brands stand out, which brands underwhelm? How will your brand get noticed?
So many questions. Become the world class expert on your business. No one else can do that for you.
To find out more about Europe’s first Beauty & Money Summit, visit www.beautyandmoneysummiteu.com for more details.
The Red Tree is the UK’s leading international beauty brand consultancy and a powerhouse of ideas, insight and inspiration. For an informal discussion on how we might help you, please contact us.
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RaceFit™ assessment is beneficial to any brand at any stage of their journey. If you are: - A start up looking for direction and guidance - An established brand seeking an overall ‘health check’ - A brand in crisis urgently seeking direction on priorities - An international brand looking to expand into the UK market - A brand ready to take their ‘next step’ looking for guidance in preparation for growth, international expansion or expanding distribution then RaceFit™ is for you!
What if I am unsure of how to answer a question?
You should answer honestly and instinctively. Very often your initial response will be the most accurate. If you don’t understand a question, or are having difficulty knowing how to answer questions please do get in touch.Contact Us
I am based outside of the UK, can I complete RaceFit™?
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Any company entering The Beauty Accelerator™ competition must be based and registered in the UK.
The scheme by which investment into the winning brand will be made is the Seed Enterprise Investment Scheme (SEIS). You must be eligible for SEIS to enter The Beauty Accelerator but you do not need to be registered for SEIS. You can be in the process of applying for SEIS and receiving Advanced Assurance from HMRC, which is free of charge to obtain and certifies to investors that the criteria necessary to qualify for SEIS have been met by the company at the time of the application. You do however need to be SEIS registered at the point of investment.Click here For further information about SEIS
As is the case with all equity investments, the winning brand must be willing to provide equity stakes for both SFC Capital and The Red Tree. In addition, the winning brand might be required to pay a monthly fee for the duration of the 12 month period of assistance from The Red Tree. The size of the equity stakes for both SFC Capital and The Red Tree are unknown at this stage and will be based on the valuation of the business at the time of investment. The value of the monthly fee to The Red Tree will be determined by the scope of work required by The Red Tree and will be agreed in consultation with the winning brand. The equity stake, monthly fee and scope of work will be discussed in further detail with short listed brands during the interview stage.
Brands that applied for The Beauty Accelerator™ 2022 can apply for The Beauty Accelerator™ 2024.
Applicant brands should ideally have proof of concept – the business should ideally be in operation with at least one product currently retailing on the market, an existing website in operation and a number of months of trading.
Under exceptional circumstances, brands that are at concept stage will be considered.
There should be a team in place or a willingness to take on a co-founder at an early stage.
A business plan must be in place and submitted as part of your application to demonstrate the revenue that can be delivered.
The business should not be valued at more than £1,000,000.
All R&D should be completed as funds invested will only be used for marketing and commercial activity.
If you are short listed, you must be available to attend the virtual shortlist interview. It is likely that short listed brands will be required to attend more than one virtual interview.
If you are a Finalist, you must be able to attend The Beauty Accelerator™ Final, either virtually or in-person.
You cannot apply for or already be in the process of applying for another accelerator or incubator during the period December 2023 to December 2024.
If you are selected as a finalist, and if you go on to win The Beauty Accelerator™, you must agree to exposure of you and your brand through The Red Tree’s, SFC Capital’s and Freeths online and social channels and a possible marketing campaign.
Confirmation of the winning brand is subject to SEIS eligibility confirmation, agreement on equity stake and The Red Tree fee, and completion of due diligence.
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