The U.S. economy may be slowing down. But the natural skin care market continues to grow at breakneck speed thanks to millennials and the growing popularity of natural and healthy ingredients.
Skin care companies are making out. Legacy companies are buying skin-nourishing brands from fast-charging startups instead of developing and growing their own products. In 2016-2017, L’Oréal bought two startups for $1.3 billion and $1.2 billion. Unilever bought three natural skin care brands – one for $1 billion, one for $500 million and another for an undisclosed amount. Estée Lauder bought Too Faced Cosmetics for $1.4 billion in 2016. And L’Occitane scooped up startup Elemis for $900 million this year.
The one I’m most familiar with? Procter & Gamble’s buyout of Boston-based First Aid Beauty (FAB) for $250 million. FAB was founded and is still headed (as a P&G division) by the most dynamic entrepreneur I know. Her name is Lilli Gordon. (Full disclosure: Lilli is my sister.)
So I’ve seen up close the fortunes bestowed on the founders and early investors of successful skin care startups. It’s pretty amazing. And now another skin care company – which is our recommendation this month – is off to an incredibly fast start. This company has made $1 million in just the past 12 months. The company says it’s on its way to making $5 million next year.
This team knows a thing or two about cultivating foreign brands for an American audience. And its members are bringing their hands-on experience to their current venture… with impressive results so far.
Aavrani is a luxury skin care brand inspired by India’s ancient beauty practices. It uses all-natural and high-quality ingredients such as honey, tea tree oil and shea nut. Its four products are an exfoliator, restoring serum, moisturizer and eye rejuvenator. They’re all nontoxic and have no side effects.
The company is getting rave reviews. Here’s a typical one commenting on Aavrani’s eye treatment: “Have found myself coming back to it over and over again after trying so many other brands! It’s so creamy and light and I’m actually noticing my dark circles fading.”
This one on the restoring serum is from a hooked customer: “I made a mistake in my address and now they’re sold out, and I have to go a couple weeks without using it. Seriously this is the first serum I’ve used that calms/evens out my skin without any burning or stinging.”
Here’s a “glowing” comment on Aavrani’s exfoliator: “This exfoliator only needs to be on the skin for 5 minutes! I love saving time and this is perfect for a quick exfoliation. Just from the first time I used it my skin was glowing.”
And a five-star review from a pleased customer on Aavrani’s moisturizer simply says “I have never loved a moisturizer this much.”
More products are on the way. The company is in the final stages of developing an oil-based cleanser, a face serum, lip balms and scrubs using traditional Indian ingredients like rice bran oil, saffron, kokum butter and Himalayan sea salt.
Down the road, the company plans to offer beauty products in hair care, body care and general personal care.
Customers have showered Aavrani with love and money. I don’t see how it could have gotten off to a stronger start. More than 80% of its $1 million in sales is organic… it has more than 500 five-star reviews… and the company is cash flow positive.
Such outstanding progress doesn’t happen without great leadership. So let’s start our four M’s (management, market, monetization and metrics) with what management is doing right.
Management Is Experiencing Déjà Vu
Aavrani co-founder Justin Silver looks like he’s been overindulging in the company’s restorative products.
The Wharton MBA alumnus looks 25. But he runs Aavrani like a wily veteran.
That’s because he’s done this before – for a cosmetics company called Tatcha. Tatcha specializes in traditional Japanese skin care.
Justin worked for Beechwood Capital, a major investor in Tatcha. He helped guide Tatcha’s financial, operational and supply chain activities. He analyzed direct-to-consumer performance and retail performance at Sephora (Aavrani is in discussions with Sephora to carry its products). Tatcha grew revenues by more than 500% in his time with the company and had a $500 million exit.
His co-founder is Rooshy Roy. Rooshy grew up using these kinds of products and based Aavrani’s offerings on her mother’s and grandmother’s beauty practices. She’s also worked for Goldman Sachs – a bank that recruits only the best.
Rooshy and Justin are a formidable pair. How else could they attract an all-star team of advisors that includes the founder of Gilt Groupe, the former chairman of LVMH, North America, and the CEO of Christian Lacroix? It’s a who’s who of the cosmetics industry.
But beauty is in the eye of the beholder. And what I appreciate most about Rooshy and Justin is that each put $100,000 of their own money into the company.
That kind of skin in the game indicates a high level of commitment. And that’s exactly what investors want their founders to have. It means a lot.
Market Growth: The More Upscale the Market, the Faster It Grows
The $18 billion U.S. skin care market is growing at 6% a year. Not bad.
The $8 billion “prestige” skin care market, a subset of the U.S. skin care market, is growing at a 9.4% clip. That’s pretty good. Aavrani operates in the $4 billion “clean” skin care market, a subset of the prestige skin care market. And that market segment is growing the fastest… at a 30% yearly rate.
If Aavrani takes just 1% of this market, that comes to $40 million. And if it just keeps up with market growth from that point – without stealing market share from competitors – its revenue will still grow to more than $114 million by year five. That’s the advantage of operating in a fast-growing market.
Metrics Trump Benchmarks
It’s nice to measure a startup based on actual metrics rather than benchmarks. And Aavrani has some excellent metrics. We could just look at the $1 million in revenue and more than 500 five-star customer reviews so far and stop there. That would be enough. But there’s more. Aavrani’s gross margin is a healthy 84%. And Aavrani’s repeat purchase rate of over 35% is more than double the industry standard. It’s very early, and these numbers will get either better or worse. Given the company’s execution to date, I’m betting on better.
Monetization Made Easy
It’s remarkable that this barely 1-year-old company has rendered the issue of monetization meaningless. When customers sing the praises of a product, they’re not only professing their love of it. They’re shouting loudly and clearly that they love the product at the price it’s offered. The company is cash flow positive. Enough said. Aavrani passes our “four M” test with flying colors.
How to Invest
Aavrani is raising up to $1.07 million on Republic. If you don’t already have a Republic account, you can sign up for one here. Once you verify your account and are logged in to Republic, visit the Aavrani deal page. Then click the blue “Invest in Aavrani” button. Enter the amount you want to invest, starting as low as $100, and proceed through the required steps. Be sure your investment is confirmed, then you’re good to go.
Risks
This opportunity, like all early-stage investments, is risky. Early-stage investments often fail. Aavrani might need to raise another round of funding in a year or two, if not sooner. If it executes well, this shouldn’t be a problem. But that’s a risk worth considering when investing in early-stage companies.
The investment you’re making is NOT liquid. Expect to hold your position for five to 10 years. An earlier exit is always possible but should not be expected. All that said, I believe Aavrani offers an attractive risk-reward ratio here.