#38 A Beauty Industry Veteran Goes Rogue

I’m Josh Muccio and from Gimlet Media, this is The Pitch, where real entrepreneurs pitch to real investors. 

Tina: Hi, I’m Tina. Nice to meet you.

Michael: Hi, I’m Michael. How are you?

Nicole: Hi Tina, Nicole. Nice to meet you.

Tina Hedges is here today raising 750 thousand dollars for her organic cosmetics startup LOLI. A company she thinks could change the face of beauty.

The beauty industry is enormous. It’s worth more than 400 billion dollars, and a growing chunk of those sales are going toward natural products, the kind of thing Tina is making. But she says a lot of those other cosmetics aren’t as pure as they claim.

Today she hopes that her product - along with her years of industry experience - will turn the investors’ heads.

Here’s who she needs to convince:

Jillian: I’m Jillian Manus

Jillian is a partner at Structure Capital and an angel investor on the side.

Charles: I’m Charles Hudson

Charles is with Precursor Ventures where he invests in early stage startups. 

Nicole: I’m Nicole Verkent

Nicole runs a software company and in her spare time she’s an angel investor.

Michael: I’m Michael Hyatt

Michael built and sold two Canadian companies and now he invests for himself.

Alright, on with the pitch. 

Tina: So, thank you for having me. My name is Tina Hedges. I'm the founder of Loli Beauty. Loli stands for Living Organic Loving Ingredients My story begins in Jamaica, West Indies, which is where I was born. I remember an early memory of my mom when I was four years old, taking three leaves from three different trees, when I was bit by a bee, rubbing them together and putting them on my bee bite. And all of a sudden it went away. Flash forward. I grow up, I go into the beauty industry. I work for companies like L’oreal and Estee Lauder I was very proud of what I did. I built many big successful franchises for these companies. 

Tina spent years traveling the world, bringing new and interesting ingredients back to the company labs. Where she’d help them develop ‘innovative’ products. 

But she says her work started to affect her in an unexpected way.

Tina: During that time, I started going through some health crisis, and realized I was really young - I was in my mid-30s - and I went through early menopause. And I started thinking about it and trying to figure out why. And I started thinking about all the things that I had been putting on my skin and on my hair. And I went, I started just for myself going back to blending my own beauty products. And what I’m doing right now is I am stirring up beauty to make a conscious change. It’s equal parts ethical, effective and empowering. And I can tell you what Loli is all about, if you’d like.

Jillian: Please do.

Tina: Okay. So Loli, we are superfood organic approach to customizing your own personal skincare products or haircare products or body products. So what does that mean? We use food grade, which has not been done before in the beauty industry, organic ingredients. We blend them into bases and I call them your white t-shirts. They are maximized, they’re effective.

Nicole: What are they? Face creams?

Tina: They're everything from face treatments - so oils for your face or hair, balms, salves, waters. So hydrosol, toners, every treatment for face, body and hair. And then we have a raw collection which you can add in to blend up and personalize as you wish. So it's very modular. 

Nicole: Like a smoothie!

Tina: It’s exactly...

Jillian: Like Powerboost?

Tina: I say we are a food approach to customizing your own skin and hair body products. I really see us as a food company reinventing beauty. And I can tell you we’re making huge changes in the beauty industry. I actually have a box for each of you. So I’m happy to pass it out.

Michael: Yeah, let’s have a look.

Nicole: Yeah, let's see them.

Tina hands out boxes filled with LOLI products to each of the investors. They start pulling out tiny glass bottles and jars, dishes for mixing things, stirring sticks … it’s kind of like a little chemistry set. 

Nicole: So I have a little bowl with some stir sticks. I have a chia carrot brûlée which is a... 

Tina: Right so let me... Let me explain. In your box you have something called a base. The base, we have different bases. That’s your white t-shirt, as I said. So your chia carrot brûlée or your plum elixir is a base. You can use that as you want. So the chia carrot brûlée is a moisturizer… 

Nicole: But what am I doing? Is it my own facial? 

Tina: No. These are your skincare products. You do not... It’s not necessarily just for a treatment, like a ritual. It’s your every day treatment products. 

Nicole: what's inside of it? Plum seed, seed oil.

Tina: It's all edible. It's four oils. Edible. And if you see the graph on the label, we're the only beauty company to show you every ingredient and what level it's in in the product. It's 100% transparent.

The investors start tinkering with the product, which consists of all-organic bases - think oils and balms - and then other ingredients you can mix in. Michael has pulled out a bottle of plum oil … and he’s trying to figure out exactly what to do with it.

Michael: So I do use moisturizer and I have for years. So instead of doing that, what I'm going to do is take this little bottle here, and it has a squeezy like a medicine thing on it, and I'm going to put it into my little white dish you've given me, and then I mix it in with this other water you've given me?

Tina: I'm going to tell you exactly what you do. You could just use it directly on your skin. On your beard, it's a fabulous beard oil.

Michael: So I just literally just drop it on my hands, rub it together and put it in my face?

Tina: Do it right now.

Nicole: Let’s see it in your beard. 

Tina: It smells like marzipan. 

Nicole: Put it on your beard!

Jillian: Is that the plum?

Michael: I don’t know.

Tina: It is the plum. So it is... It doesn’t have to be it doesn’t have to be complicated. 

Tina’s tried her best to get the investors clued in to her product, but it’s been a bit of a struggle. So they move on to more familiar territory: the numbers.

Michael: talk to us about the business here. So this looks like a very expensive product. Am I wrong?

Tina: Um, no. We’re actually accessible luxury. Our price points are for the bases between 38 and 78 dollars, So we price like a market price in terms of if you went to a gourmet food store and you were choosing between an olive oil and this one is virgin and cold pressed, you...

Nicole: Okay. So I have a budget Bobbi Brown moisturizer. That's what I use. Where does this replace that? And how much more will it cost me?

Tina: Right. So for example, our chia carrot brûlée, which is in your box which is a moisturizer for face, lips and body, is $68 for 2.6 ounces which is 1.6 ounces usually more than what you're getting for your Bobby Brown, which is usually about one ounce to 1.5 ounces. So it's a good amount of product. 

Nicole: Is it more or cheaper?

Tina: It’s more product at $68. So you’re probably paying about $48 or between 38 and $48.

Nicole: So it's almost the same, it's about the same price is what you're saying?

Tina: Same price, but it's higher quality ingredients. It's multipurpose.

Nicole: So you’re saying, at the same price, you don’t have to buy that moisturizer anymore, but it’s going to be natural and...

Tina: It’s not only natural, it’s food grade 

Michael: Okay. So where are you now with the product? Are you only direct to consumer? Are you in stores? What's your strategy?

Tina: We are vertical direct to consumer. We just launched a week and a half ago, so it's now live. I raised money, my first round, in March of 2017.

Nicole: So how much have you raised to date?

Tina: I raised a million.

Nicole: How much are you burning a month? And how much are you raising now?

Tina: I’m burning... The burn is between 35 and 50 a month based on inventory, you know, the last couple of months have been heavy in our inventory load and startup costs. I’m raising right now 750 safe note, 7 million val cap 

Michael: So what do you think you’re going to be... How much are you going to sell this year?

Tina: On a very low estimate, we think we can do half a million. 

Michael: So let’s say $100. Let’s say you sell $100 of product. What does it take you, cost you to make that?

Tina: So my gross margins are over 90%.

Michael: So it costs you $10?

Tina: Even less. 

Tina: we’re doing everything ourselves. So because of my years in the industry, I am sourcing all the ingredients, we’re sourcing all our own packaging, we own all our own formulas. So we just use a manufacturer to actually produce the product, batch and fill, but other than that we own the entire process.

Michael: Those are fabulous gross margins for the industry. Unheard of.

Tina: I know. And if I told you... Do you want to even be shocked? 

Michael: Sure.

Tina: Do you know how many pieces? I’m filling like 800 to 1000 pieces with those gross margins. That’s crazy.

Nicole: Crazy low. Crazy low.

After a rocky start, things sound like they’re back on track. Tina knows the beauty industry inside and out, and LOLI's numbers are solid. If the conversation keeps moving forward, things are looking good for Tina. 

Nicole: What do you... Sorry, I hate to go backwards What can you do about the smell? 

Tina: So you can, if you want to add...

Nicole: And I know people like the smell. But I don’t.

Tina: I... Just because we... I think smell is a very personal thing. And again, that’s the beauty of Loli, it’s very modular. So if you want to have a lavender or a ylang ylang or a jasmine.

Nicole: Can I buy one with no smell?

Tina: We do not rarify our ingredients. So we don't process them to take away a smell, because that means we're heating them and extracting some of the nutrients.

Nicole: Interesting. Is there one that’s closer to less scent?

Tina: We have elixirs that have more of a fruit scent versus a nut scent. But in natural products, I mean again, I take a food approach. I don’t want, I mean, that’s what the beauty industry does. They’ll take your argan oil and they’ll process it, take out any scent, and then throw in a fragrance.

Nicole: Got it.

Tina: None of that is good for you.

Nicole: Yeah. No, for sure.

Tina: So I’m sure if I custom blended for you, I would find the perfect scent for you or Jillian.

Nicole: Just something a little bit more moderate.

Charles: Neutral.

Nicole: That’s right.

Jillian: I don’t want anything to fight with my primary scent. 

It’s clear Tina still has some work to do to get the investors on board. But luckily, there’s a new trend in the beauty market, one that Tina says her product is poised to capitalize on.

Tina: three out of four women in the US are saying they prefer to buy natural beauty products because they’re better for them.

Nicole: People say that. It's just how many are doing it? 

Tina: Well, the numbers are growing. I mean, two years ago when I started to put together the business plan and think about Loli and I started talking to a lot of investors, they were like, women think that they want natural organic or clean and green beauty, but at the end of the day they want their 90% less lines and wrinkles. I have a different opinion about that I don't remember what I looked like yesterday. I just know how I feel today. And if I put something on that makes me feel better today, I will continue to use it. And if I continue to use it, it doesn't matter what I put on. The other thing is 60% of US millennials are already buying food grade ingredients to blend their own beauty products at home, because they feel it's better for them. 

Jillian: So there are a lot of people who are in this space, the beauty industry. There are a lot of people who are getting into the organic space. I worry that this might be just a little bit... It’s a little niche I find that potentially the blending, there’s just so many different pieces to this. 

Tina: everyone is jumping on to the clean and green bandwagon. Very few brands are addressing it with all of the things that we’re doing. So the personalization piece, which can be simplified, it can be as simple or complicated as you want. You can mix in a bowl and actually mix from scratch or mix up your own mask, or you could just drop a few drops of lavender into your plum elixir, shake, and then you never have to mix again. So it’s up to you how complicated you would like that personalization piece. Second of all, the marketplace keeps growing. By 2024, organic and natural skincare, worldwide, is upwards of they’re forecasting about $24 billion. Right now, in the US, it’s almost 4 billion. And I don’t think that’s going away. 

Jillian: Okay. I still don't get the marketing strategy around this. I don't see how this is so different. I do in terms of the back story on it and the formulation of the products, I do. But once again, it's very difficult to convey that. You can do it at the counter when you're blending, but that's very high touch. I just don’t understand how you’re gonna have that.

Tina: So I think that that’s about marketing and creating a brand purpose, and then having that message be picked up. We’re already being written up by every single trend publication, beauty magazine, fashion magazine. We’re getting a lot of…

Jillian: So what’s to stop anyone else from just doing exactly what you’re doing?

Tina: I will answer that the way one of our investors answered it to me, when he was thinking about his investment. It’s very complicated to do what I’m doing, all the elements. And it’s a perfect storm. It’s taken me, I didn’t just create this three months ago, it’s taken me two years to get where we are.

Nicole: Well, no but you're using all your years in the beauty industry and all those learnings, right? That's the kind of thing that you can't find in a founder that doesn't have the same kind of experience.

Tina: And my connections. And my ability to fast track. And also we have some secret sauce. To be fair, I'm not going to stand up here and tell you I have every answer figured out. Because I think when you have a startup, you learn, and you tweak and you're nimble and you're mobile.

It’s decision time.

First up, Nicole. 

Nicole: I mean, I'm not into this space. I mean, I spend my weekends on a farm. I don't really know anything about beauty. I'm just kind of grabbing the fastest thing. So I just have to preface all that by saying that. But I agree that this is a thing, and I think you’re going to piggyback off of it, and I think you’re the right person to do it, and... I just can’t see myself using it, and that’s why I have a hard time personally. I mean, I think if there was an unscented one that was in a travel size that was something where there was one step, you would get me. You would sell me as a customer. And usually I like to be sold as a customer before an investor. I'd want to say, oh, this is a real problem. But to me, now, there's like, I need the product to, I think for me have almost no scent. And something that's so quick. Like, I don't want a dish. I don't want tools. I just want something that goes in my bag and comes around with me. So when those things happen, I'd love, email me, let me know, I'd love to try it, play around with it. I'd have to come in as a customer first, though. 

Nicole is out. It’s on to Jillian. 

Jillian: You are absolutely the real deal. You're the top authority in this. You know what you're doing. I would bet on you if you could show me a way that you're going to be able to get ahead of this pack. That's my thing. And by the way, and also I just don't use any of this. I have so basic. I'm like you, I don't have time to put anything on. I have one makeup cream that goes on and La Prairie at night. One cream. No nothing. I just don't have time to blend. And so I'm not your consumer. Everybody is coming out with an organic makeup. And even though you know it’s not organic, the perception of the consumer is one that it’s all natural. And there’s so many all natural products out there, that I’m worried that this cannot rise to the top without some really interesting marketing angle which I’m not seeing I'm just concerned. 

Jillian is passing. Next up, Charles. 

Charles: So I think some pitches work because the longer the founder talks the more confidence I have that they’ve figured things out, and the more confidence I have that their expertise is becoming apparent to me. And I would say your pitch follows that arc. In the beginning I was like, this sounds interesting but I’m not seeing... It’s not coming out to me sort of how you’re leveraging all the things you learned in the past, and by the midpoint I’m like, she’s an expert. She is at the forefront of a movement. And we just spent a bunch of time internally looking at cosmetics. And to Jillian’s point, the thing that was surprising to me, is that there’s basically, this is not like a software or marketplace winner take all market. These categories just end up with a bunch of winners. Which is why I think you keep seeing whether it’s nail polish or make up, you keep seeing new companies born on Instagram, born on social media, rocketing to huge sales volumes in a fairly short period of time. Well, why is that different? Oh, they had the right spokesperson, they had the right branding, they hit the right nerve, they really spoke to this customer. So I don’t know that you’ll build the global domination brand in this space. But maybe nobody will. Maybe there will be eight or ten that are credible.

Nicole: And that market's big enough. There's definitely room for a bunch of them.

Charles: And so I want to say yes more than I want to say no. But cosmetics is a new category for me. And so I'm going to pass for now. But I actually believe if we spent some more time together, you could get me to a yes. And I try to pay attention to momentum of my own feelings in a pitch. And the longer you talked, the more I believed what you were saying. So I'm going to pass for now, but I would like to spend more time with you to see if I could get to a yes.

Tina: Fantastic. Thank you.

Charles is out, for now. Here’s Michael.

Michael: Um. I like you a lot. I think you're very smart. And I think you live and die by this. I mean, this is you. This brand, Loli, this is you. And I think you've done a terrific job putting this together. I didn't even know this category exists. For sure. I'm a little dumb on this stuff. I think Charles is dead on. It may not be a winner here, but if you become one of the top eight, you may have a phenomenally successful business, and even a venture backable business. So I feel that I’m not your investor. I’m going to pass because I haven’t fallen in love with this, and I don’t think I can help you. But in saying that, I think you should raise more money, and get the right investors, and I think you’re going to do really well. 

Tina: Thank you. Thank you. Nice to meet you all. 

Jillian: Thank you so much.

With passes from all the investors, Tina leaves the room. But the investors go one more round.

Nicole: Like, I'm the girl that is wading through an airport, go to the duty free and buy the travel kit for makeup. I just think it’s too complicated. There’s like five jars.

Michael: I don’t like the smell. Charles, did you like the smell?

Charles: I didn’t find the smell offensive.

Michael: I didn’t like it. I didn’t love it. I wouldn’t spend $100 on it.

Jillian: No. 

Jillian: Also in all sincerity...I'm also not a makeup, I don't spend time in a beauty cap, that's just not my thing. 

Nicole: No, me neither.

Jillian: All of my makeup is like Maybelline and Loreal and so this is probably not me. I’m probably putting terrible things on my face and into my body. But I don’t know... It’s also complicated. But I realize for the same reason, spas are so big. And everybody is loving these spa experiences which I abhor down to my soul.

Nicole: You're like, can I have my cellphone in here? I just want to email from the spa. You're that person, aren't you?

Jillian: I am. I abhor pedicures, manicures. I get them done, but I'm like, let's go, let's go, let's go.

Nicole: I’m the same.

Jillian: So I think that, but because there’s such a big spa movement.

Nicole: Or the Goop movement. These are big movements. She's right.

Michael: This is a tough category. This is hard. There's a lot... I mean, this is a very crowded space.

Nicole: But she’s a business person, right? Like she’s not... She’s going to be good.

Jillian: I see it in Wholefoods and I look the make-up. No, no, but that’s the thing...

Nicole: She's going to be good, I think.

Jillian: She knows what she's doing. Like, she knows what she's doing. I just... I don't know if that's enough to break through. 

Despite her expertise, Tina didn’t have the right formula for the investors. The chemistry just wasn’t there. After the break, we hear Tina’s thoughts on what happened in the room.

[BREAK]

Welcome back! After 3 months had passed, I caught up with Tina to see how things were going. 

Tina: So, we've been very busy. We have been actually completing our our raise which is really exciting. So we should be closing next week. 

Josh: No way!

Tina: Yeah, super super excited and actually since we came out and did The Pitch, we increased the round because there was such market interest. So... 

Josh: You were doing 750,000. So, what did you end up deciding to raise? 

Tina: We're doing 1.5. 

Josh: Oh Wow. You doubled it.

Tina: Yep.

Josh: And you've got it all committed just waiting for wires to come through? Like how close is it to being done? 

Tina: We are we are in the, the term sheets approved. The lead has signed off. We just are doing the final paperwork and it should all be executed and money in the bank next week. 

Josh: That's awesome! Congratulations Tina. That's huge.

Tina: I know. Thank you.

Josh: kind of switching gears a little bit. So then like, in the room, that's your first pitch to these four investors in the room. how do you think it went? 

Tina: You know, it's interesting. I am pretty instinctual, and I can read a room very quickly, and when I walked in my first impression was a visceral impression, but more of the ilk of "Oh, this is going to be a tough crowd because they don't really understand beauty or understand this brand." Like, that was a visceral reaction I had. I could tell from the body language, I could tell. And in reflection on the pitch and what did I do that went well, what did I do that I could have done better, I realized I was too anxious to share the product with them and usually in my one-on-one pitches I control the product experience much more. 

Josh: Mhmm.

Tina: And in this instance, which is really unusual, I don't know why I did that. Maybe it was nerves. Maybe it was because you know it was just a very different setup standing in front of a microphone and pitching versus like at a table 

Josh: Sure.

Tina: so they dove in without really understanding what the product was or about. And then it was a watershed effect, right? 

Josh: yeah what do you think for people like on a broader level, founders that are struggling pitching a product that the typical VC is just not going to understand and like they see a thing that it feels like the whole world doesn't see. But like they see it. They know it. They believe it. They know it beyond a shadow of a doubt to be true. But like, people don't believe them, and investors just don't understand it. Like is there anything you can do about that? 

Tina: Um, wow. I mean I think if I could come up with a solution and bottle it I'd be a kajillionaire. Right? Because I think more often than not that's the case. True innovation. You know, I say this all the time and I think Steve Jobs helped sort of raise the awareness to this. But true innovation never tests well. Consumers can only tell you what they know, not what they don't know, and I think investors are the same. Right? They tend to keep investing in the same types of businesses. 

Josh: Oh yeah. They are pattern matching for things that happened a couple of years back. I mean, most of them you can't.

Tina: Right!

Josh: I mean you– it's hard to predict the future for anybody, right? 

Tina: Right. Well, but you know I think that's one of my talents. I think that, and I've been paid lots of money along the way by big corporations to do exactly that-make the invisible, visible. True innovation, you know it's-there are very few people who can hold space for the future and in a way it's trust. I think it goes down to trust. Which is, I can't see what you can see but I trust you, and therefore I'm going to come along on this journey. versus, I don't trust you. You need to prove to me, and until I get comfortable that there's no question mark then I'm not going to come along on the journey. And 

Josh: Right.

Tina: Then that means you're just going to keep investing in things that are the same. 

For VC deals to work out, you have to have the right alchemy. The product has to be a good fit, the numbers have to look good, there’s gotta be a real market for the company to tap into … essentially, the stars have to align. And for Tina, things just never fell into place with the investors on the show. There were other VCs out there that made a much better match for LOLI. And it sounds like she found them. Organically.

Our show is produced by me, Josh Muccio, Molly Donahue and Kareem Maddox. We are edited by Blythe Terrell.

We are mixed by Enoch Kim. Original music composed by The Muse Maker. Our Theme Music is by Breakmaster Cylinder.

Lisa Muccio planned the recording of this pitch.

We discovered LOLI because of an introduction from Galina Ozgur at Grand Central Tech. If you’re a startup founder hoping to pitch on our show, you can apply at thepitch.show/apply

And as a reminder, no offer to invest is being made to or solicited from the listening audience on today’s show.

All right -- you’ve been listening to The Pitch from Gimlet Media. We’ll be back with a brand new episode, next Wednesday.