Everything You Never Knew You Wanted to Know About Debt by Cassie Rosenthal

Recent events in the banking sector—in particular, the dizzying, lightning-fast failure of Silicon Valley Bank (SVB)—has forced many beauty founders and business owners to take a long, hard look at their current financing and funding options to ensure that their finances are sound and in good order. Venture capital investment had already been cooling down in the months leading up to the SVB crisis. And because many of these smaller specialized institutional and regional banks cater directly to venture capital–backed companies and their portfolio companies, it’s likely we will continue to see more of a slowdown in venture-backed investing across the beauty space in the months to come.

Many founders are now beginning to look for alternative forms of financing to keep up with growth and expansion and re-evaluating venture term loans. Instead, they’re looking to open working-capital facilities with a lender, oftentimes in tandem or paired with equity or venture funding for more flexible liquidity. Although debt can sometimes seem like a dirty word, the popular alternative—raising equity—isn’t always as glamorous as it seems, especially when it involves chasing limited VC dollars, diluting ownership in your company, and operating at a loss. Founders and business owners in the beauty and cosmetics space shouldn’t feel pressured into pursuing VC funding, friends and family investments, or angel investors, at least without first understanding various debt options that might prove to be a better fit or complement to more dilutive options.