Why Glossier's Era Of Unicorn Hype May Be Over, Ramifications For Venture Capital and The Beauty Industry
The cat unicorn.
getty
Glossier has regressed from cult status to cautionary tale, and now its valuation has come back to Earth. At its peak, the millennial beauty brand had a valuation of nearly $2B with a cap table that included top-tier venture capital funds such as Sequoia, Thrive, Index, and Forerunner which poured $266M into the company. Now, it's raising more capital at a depressed valuation 'south of a billion dollars.' It's a signal of broader changes in the beauty landscape.
Puck reported on Wednesday that multiple people with knowledge of the situation and access to its latest deck said that Glossier aims to raise $100M and potentially sell significant secondary shares from existing investors, which would give a new investor substantial minority ownership. The company aims to bring in investors and board members with a better understanding of the beauty industry. Last year, Glossier hired bankers to explore a potential sale. While there was a brief flirtation with LVMH, nothing materialized.
Multiple sources, including Business of Fashion and WWD, have noted Glossier's ongoing struggles with profitability. In 2022, the company laid off over 80 employees (about one-third of staff), citing the need to refocus on core operations and streamline its path forward. In 2023 and 2024, it pivoted further from DTC and leaned more into wholesale partnerships with Sephora, SpaceNK and Mecca, a move often driven by the need to stabilize cash flow and reduce CAC (customer acquisition costs).
Glossier's sky-high valuation — $1.8B in 2021 — was less about current revenue and more about the belief it could scale like a tech platform. The company often referred to itself as a 'technology company' in press and investor conversations. It invested in building an internal tech team early on, signaling ambitions beyond product development, and its investors had tech-level expectations for scale, data, and margins.
There were quiet attempts to build more platform-like features, such as a Glossier app and talk of evolving the site into a more social, shoppable experience though these never fully scaled.
Glossier and the beauty industry broadly have been impacted by Gen Z's different expectations of brands. Gen Z consumers expect more transparency, inclusivity, and they like to discover TikTok-native brands. Their spending habits are shifting amid recession concerns and there's been an increase in dupe culture. Finally there's been a noticeable increase in the impact of creators and decentralized trendsetting vs. centralized brand narratives. Individual content creators, influencers, and even everyday users on platforms like TikTok and Instagram are now the ones driving trends in real time, not brands. When a TikTok creator with 50k followers posts a rave about a $7 dupe, it sells out overnight. These trends are organic, unpredictable, and often happen outside brand control. The 'decentralized' part means that no single authority (like a brand or media outlet) is dictating what's cool anymore.
TikTok Beauty Influencers
TikTok
Beauty brands aren't really tech companies – perhaps that's why tech companies that operate in the beauty vertical (such as Perfect Corp which went public) define themselves as beauty tech whereas beauty brands can't make that distinction. Even if a beauty brand sells products online and engages in digital marketing, that doesn't make it a tech company and tech VCs are not the right fit for beauty brands.
First, beauty brands simply cost less to operate than typical software companies. There are fewer high-cost software engineers and there are decades of manufacturing services and infrastructure investment making prototyping inexpensive compared to tech companies. Second, alongside unicorn status of a beauty brand comes a continued expectation of rapid growth, which is largely unsustainable for consumer businesses. It has taken P&G 183 years to build 22 billion-dollar brands and it does not have a deca-corn ($10B+) brand, which does exist in the tech world. Effectively, there is a natural ceiling for scale in DTC. Finally, the more money raised, the higher the 'floor' is for a successful exit. If you raise $100M from investors, you need to exit for $100M just to pay back the investors. The same exit, having raised only $50M, would leave some profits on the table, even in the event of a down round. As the floor increases, alignment between shareholders begins to separate. A down round becomes financially equivalent to a shutdown to all but a few shareholders since most will receive zero returns. Effectively, the teams become incentivized to 'go big or go home' regardless of the probability of success or if the company/category can handle that level of growth or scale.
VCs and acquirers have learned many lessons via Dollar Shave Club, Glossier, Charlotte Tilbury, Oddity Tech, K18, and Deciem. Most importantly, they learned that you cannot just throw money at a beauty brand and expect it to scale in a sustainable way.
Although Forerunner got lucky with Dollar Shave's $1B exit to Unilever, that was a mirage. Unilever isn't jumping to acquire another VC darling that isn't profitable. Unilever's acquisition of Dollar Shave Club is widely considered a failure, with Unilever eventually selling it to Nexus Capital Management. The acquisition struggled to meet expectations, with Unilever citing declining performance and a fiercely competitive market. Beyond its viral video, the reality was that Dollar Shave didn't have anything proprietary (it outsourced its razor from Dorco), wasn't profitable and had a high CAC with high churn, and had no point of difference (any brand can offer a subscription and many did via DTC and/or Amazon).
K18 developed a unique peptide, K18Peptide™, designed to repair hair damage at a molecular level. This biotechnology-driven approach set K18 apart in the haircare market, offering scientifically backed solutions that resonated with both professionals and consumers.
Since its launch in 2020, K18 experienced significant growth, achieving $300 million in sales in 2023, with projections of $410 million for 2024. Additionally, it successfully penetrated professional salons and secured retail partnerships, including distribution through Sephora. This established distribution network provided a broad customer base.
These factors collectively made K18 an appealing acquisition for Unilever, facilitating the brand's swift integration into Unilever's portfolio. Although its acquisition happened fast, it wasn't a unicorn and its valuation was 6X its sales.
K18 promotional image
k18
Oddity Tech (ODD), an Israel-based DTC cosmetics and self-care products company, went public in a Nasdaq offering and its shares jumped in its trading debut on the NASDAQ Stock Market on Wednesday, July 19, 2023. It started trading at $49.10, well above its initial public offering price of $35 a share, according to FactSet. The opening price confers upon the company a market capitalization of roughly $2.8 billion. As of the publication of this article, it's trading at $40.8.
Unlike most tech or consumer IPOs, Oddity is profitable, with net income of $38.3 million and revenue of $399.76M million in the twelve months ending March 31, 2023. Revenue is also growing fast, surging 46% in 2022 to top $320 million with most sales coming from Il Makiage, Oddity's flagship makeup brand. Il Makiage was the fastest-growing global beauty DTC platform from 2020 through 2022, per Women's Wear Daily. Its moat is a full-stack innovation play (AI shade matching, proprietary formulas, proprietary biotech ingredients, and proprietary hyperspectral facial imaging technology).
Glossier used the language, logic, and structure of tech startups to grow fast and raise money—but didn't always build the defensible tech or IP that companies like Oddity Tech or K18 have. Additional capital could give it a reset and a rebirth or just give it a longer runway.
However for its VC investors, the buck stops at an exit. Valuation increases are short-term wins, but the only metric that counts is cash returned, invariably from a sale or IPO. When the market appears less interested in purchasing unicorn companies and the bar for attractive exits keeps rising, as it has been in the last year, most shareholders will not find the outcome they were hoping for. Thus, the unicorn exit becomes a mirage.
Despite recent fallouts of hyped VC-backed beauty and consumer DTC brands, DTC sales are continuing to grow. According to eMarketer's forecasts, e-commerce sales will grow by 8.8% in 2024, reaching a total of $6.3 trillion globally. Smart beauty and consumer brands usually have a moat to forge ahead:
Let's canonize consumer brands that should be celebrated for becoming profitable and achieving successful exits. In order to do that, we need to refocus on important metrics such as a customer's lifetime value instead of getting seduced by fluffy hype. To put things in perspective, we must think about what revenue numbers mean with respect to the amount of money raised by a company. Operating efficiency matters. Is it smart to be impressed with companies that grow at a loss while only hoping their lifetime value of customers eventually offsets customer acquisition costs? Let's give credit to the camels that can weather droughts and recessions—not the unicorn mirages that raised too much venture capital too fast at inflated valuations.
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