While some industry insiders consider the market for beauty deals closed, Stride Consumer Partners partner Steven Berg contends standout brands still stand a chance.

“I don’t think the market’s ever closed for a great company raising money for big opportunities,” he says. “There’s never a bad time if you’ve got your fundamentals and you’ve got an amazing product and brand story.”

Berg runs consumer-focused private equity firm Stride’s beauty and personal care business with operating partner Nicole Fourgoux, who spent 24 years at L’Oréal, including as IT Cosmetics president and president of M&A at L’Oréal Luxe. Stride’s portfolio, which spans food and beverage and active lifestyle as well as beauty, houses the beauty brands Odele, Skinfix and Patrick Ta. It closed a $420 million fund in April 2022 and writes checks from $15 million to $100 million.

Fourgoux joined the firm in 2021 after she’d gotten to know the team at Castanea Partners, a predecessor firm where Berg was managing partner. Castanea Partners sold Urban Decay to L’Oréal in 2012 for an estimated $300 million to $400 million.

“I’d seen how the team is building the business. It was very strategic, it was very much long-term-minded,” says Fourgoux. “It was building forever brands that could go on become billion-dollar brands.”

Beauty Independent spoke to Fourgoux and Berg about the impact of artificial intelligence on beauty brands, the lure of longevity, why haircare is hot, and whether all investors need their own Substacks.

What’s Stride’s process for evaluating brands for potential investments?

Berg: We spend a lot of time listening to the story, what’s in the materials presented and what didn’t make it in, but is still important. If you do this long enough, you get a sense of what questions to ask to unearth, what are you trying to do here? If someone’s making an assumption, we might help them reprioritize.

Then, together, we say, “What is that plan that’s going to get us there? Let’s sit down together and circle those areas where we think we could be helpful if you want us.” That’s part of holding ourselves accountable for being able to give real help. That is a dialogue that’s very important to us before the partnership is sealed.

**Tell us about the state of beauty M&A. **

Berg: When we talk about cyclic highs and lows, you’re not talking about the A-plus opportunities. When the market is hot, that’s where a B-plus opportunity could get an A-plus valuation. When the market cools off, it’s those B-plus opportunities that feel it most. The forgiveness is much greater in a high market.

The basics never go out of style: Do you have a really differentiated product? Do you have a true brand story that you are building the hard way or is this just performance marketing? Have you proven the economic model or is this revenue at all costs?

Right now, there’s a lot more scrutiny, a lot less forgiveness. At the same time, if the company looks like it’s being built the right way, has a real distinguished brand, distinguish product, has the proof points, knowledgeable investors recognize that.

Fourgoux: Big acquisitions this year seem to have unblocked the bottleneck. I think it will create a more continuous flow. There’s more confidence that deals are getting done. Strategics are no longer sitting structurally on the sidelines due to their own concerns, but actually are looking towards acquisitions helping them drive top-line growth.

I do believe that’s something that has changed over the past three years. The funnel has become tighter, especially in the beginning. The earlier stages have started to be scrutinized more because the performance marketing opportunities are not there anymore. There were a lot of brands that had phenomenal results based on great knowledge of performance marketing, but sometimes at the expense of keeping their brand message tight. That’s changing now.

Brands are going back to the roots of crafting their brand message, making sure that all of their marketing revolves around that, that there’s something at the root that creates organic consumer excitement that then is amplified with paid media and not the other way around.

Berg: There are no more shortcuts. You can’t just skip over the strategy part and go optimize your affiliate model and see the revenue follow, at least not economically.

Stride Consumer Partners invested in premium color cosmetics brand Patrick Ta in 2022.

**Where is beauty distinct and similar to the other verticals Stride invests in? **

Berg: We selected our verticals for several reasons, among them was the belief that what we learn in one is applicable in the other. Everything that Nicole just outlined in terms of how you build a brand, that’s true across every single one of the sectors that we invest in. With new marketing channels, beauty tends to be the tip of the spear. TikTok Shop is a recent example, but it’s been true for a long time.

Part of the evidence that we believe there’s cross learnings is every single employee of Stride sits in on every investment committee meeting and votes on every investment. Nicole votes on the food and beverage deals. Our partners Paul [Kenny] and Tom [First] who are focused on food and beverage vote on the beauty deals.

Fourgoux: You know how fast beauty is moving. If you are six months ahead of seeing something coming, it can help brands to start prepare for it and not learn the hard way in terms of spending allocations.

What trends are you excited about?

Fourgoux: Consumers are changing dramatically, becoming much more discerning when it comes to the authenticity of a brand, value and performance. Then, we are seeing the retail channel shift. TikTok Shop is one dramatic disruption. I think we’re just at the beginning of that. It’s discovery and immediate conversion.

Last, but not least, technology is changing super fast. AI has so many applications in beauty both on the front end—marketing, personalization—and backend, the product development. AI-powered personalization will help overcome many consumer issues. In skincare or haircare, consumers complain that they have been shopping for years trying to find a solution for their particular situation. AI can help facilitate personalized products. Let’s call it AI-facilitated better product performance.

AI can also help on the backend [to improve] ingredient screening and predictability of the performance of certain formulations before you actually put it into testing. I think it’s most applicable in the skincare and haircare space.

Another big one that’s overlapping is the haircare evolution. I’m looking at haircare as following the trajectory of skincare in the sense of the consumer becoming much more sophisticated in a short period of time. Consumers are starting to think about their hair less so at this dead thing, but about hair health, and how can I achieve my results more holistically?

They are educating themselves better in terms of performance, ingredients, regimens. I predict that haircare will follow this multi-year, if not double digit, then very high single-digit growth trajectory that we have seen in skincare.

When we’re thinking about wellness trends, something that we have struggled with is it’s hard to predict which of those will scale. It was a very broad field, many of them niche, and some just didn’t gain traction. Thinking about wellness meets beauty that can scale, I’m thinking about longevity.

[Longevity is] bringing it all together now where we’re starting to think about skin most obviously, but our whole body, how everything functions, more holistically. How can you improve your health from the inside so it will articulate itself in beauty on the outside? It’s already starting in skincare, but it will make its way into haircare and other categories in beauty.

Longevity is an amorphous term. How can brands help demystify it for consumers?

Fourgoux: Implementing how something functions from the inside out and having permission to not have to deliver immediate results.

That’s not easy to sell to consumers.

Fourgoux: No, it’s not. You have to be able to prove that you are addressing, let’s say with skin functionally, something at a deeper level, as deep as you’re allowed to. Some of this discussion will move to the intersection of dermatology and over-the-counter. If you are able to prove and measure that you’re impacting fundamentals within skin, that over time creates an environment where skin will look younger or maintain its look for longer time.

Just like the Oura Ring, we will start to measure what’s going on in our skin in a similar way where we start to track functionality. You might not necessarily see something or feel different, but it’s telling you that certain things are working better.

I believe that the technology and the sophistication of the consumer is there now that, when you’re telling them I’m activating these type of functions or protecting these type of functions within your skin and I can prove that, even if it’s not necessarily on day one going to smooth your wrinkles, that’s how we’re going to start thinking about skincare. The technology, the desire of consumers and the capacity to communicate those things are all being met.

Stride Consumer Partners’ operating partner Nicole Fourgoux and partner Steven Berg

How are your portfolio brands thinking about AI and GEO?

Fourgoux: It reminds me exactly of what happened when SEO first became important, it’s the same mechanism in a different platform. What are those keywords? How can you play a role with them? How do you associate it and then produce the right content and test and learn?

The fact that we went through SEO is helping us predict how we best get there. We are having those conversations right now. We are in the process of affirming each brand’s point of view on what section exactly they want to own in this space, and how they produce the right amount of content and start testing and learning.

**How are you speaking with your portfolio brands about economic uncertainty? **

Berg: Tariffs contributing to gross margin issues is different from tariffs contributing to consumer uncertainty. If we’re talking about the consumer uncertainty and where are we in the economic cycle, we definitely talk about it. You’d be crazy not to because it affects different strategies. You can’t be reactive to every piece of data that comes in.

We’ve chosen to invest in part alongside founders and partner with their brands because we think they are passion brands. Among the definitions of a passion brand is it’s that brand, that product, that you give up last. A true testament was when we went through the pandemic, our investments did pretty darn well. We’ve selected these brands because they have an amazing market share opportunity that will overwhelm whether the economy is up 2% or down 2%.

Frankly, sometimes in those moments of economic dislocation, it’s a good time to play offense when others are playing defense. It’s a good time to come out with new product innovations because there’s shelf space available because the product development arms of the larger incumbents have retrenched, and marketing is not as expensive as it is when the economy is really hot. So, it will affect various tactical things, but you also want to have a steady hand on the tiller as you’re going through those periods and look for opportunities.

Are you looking to raise a second fund?

Fourgoux: We will. Timing is still to be determined.

Do all investors need their own Substacks?

Berg: I’ve been doing this 25 years. Jaime [Maser] is our first real PR person we’ve engaged, so that gives you an indication of how we spend our time. I don’t know, maybe we get too excited about working with these companies and finding the next great ones to opine on broader things.

Fourgoux: I’ve been actually thinking about this a lot as I see the emergence of all these voices. It’s only valuable if it adds a perspective that nobody else is providing. Then, it could be interesting, but frankly it’s a lot of work.

I see these Substacks popping up and I’m debating, how much is this adding to everything else I’m already reading? Do I really learn something new? Especially now that ChatGPT doing the job for you, is it just a regurgitation of information that is out there? Is it truly a unique point of view that adds to the conversation? The moment we decide there is a unique conversation to be had and we want to spend our time this way, we might, but we haven’t even started talking about it.

*This interview has been edited slightly for brevity and clarity. *