This article has been revised and corrected from the original version.

In a bid to address the funding disparity faced by Black entrepreneurs in the beauty and wellness industry, Los Angeles-based BrainTrust Founders Studio LLC announced the BrainTrust Fund, a planned $25 million venture fund focused on early-stage companies with at least one Black-identifying founder at the helm.

The fund closed its first investment round in the fourth quarter of last year. After the collapse of Silicon Valley Bank and First Republic Bank interrupted fundraising across the venture capital sector earlier this year, BrainTrust is now raising the remainder of the fund.

To be eligible for investment, companies must be members of the BrainTrust Founders Studio network and demonstrate traction with at least $1 million in revenue from a market-tested product. According to BrainTrust, the fund is anchored by investment platform WestRiver Group and is comprised of a diverse investor community, with 77% of investors identifying as women and 76% as Black, Indigenous and people of color, or what some call BIPOC.

“It’s no mistake that 77% of our limited partners happen to be women who make the beauty and wellness market, because we control and influence 85% of household spending,” Braintrust chief investment officer and general partner Lisa Stone said. “When we walk in the drugstore, we make that market.”

Amid inflation and uncertain market conditions, the beauty and wellness industry remains resilient. According to market research company Circana Inc., U.S. mass market beauty and product sales hit $30 billion last year, up 4% from 2021. Consumers are prioritizing low-ticket indulgences such as makeup and skin care, and influencers on TikTok and Instagram sharing beauty routine content have spurred product sales. 

Black Americans comprise a passionate portion of the beauty consumer population. According to a report from McKinsey & Company Inc., Black consumers spent $6.6 billion in the space— accounting for 11.1% of the total U.S. beauty market.

However, according to the same report, equity within the beauty space faces major friction. Black representation in brand ownership and corporate ranks for top beauty houses and retailers hovers in single-digit percentages. 

The Braintrust Fund hopes to close that gap and has already invested in four companies, including Listener Brands Inc., the parent company of hair care brands CurlMix and 4COnly. With plans to make 10 to 15 additional investments from this funding round, Braintrust gives Black-identifying founders the seed money to create from the Black-spender perspective.

Born from community

Since its inception in the fall of 2021, the BrainTrust Founders Studio, which is headquartered in downtown Los Angeles, has become the largest platform dedicated to Black founders in the beauty and wellness space. Over 120 members have collectively sold more than $100 million worth of products in the space. 

Co-founded by Stone and Kendra Bracken-Ferguson, BrainTrust provides resources for underrepresented entrepreneurs with mentorship, educational modules, and now, access to capital. The studio operates at different levels, and members can opt into the group aligning with their startup’s growth stage.

According to the general partners, of the first 26 founders invited onto the platform, seven have already cleared $1 million or more in revenue. 

This success rate outpaces the national average of 4.2% of women-owned ventures clearing the same revenue benchmark. 

“It is such a special time to be doing this, to be able as women to come together as allies and to say that we want to be represented,” Bracken-Ferguson said. “In what has been an area where women have not been present.”

Despite an influx of capital earmarked for diverse founders following an increased national conversation around racial inequity in 2020, financing for Black businesses has experienced a significant drop this year.

According to Crunchbase Inc. 2023 Diversity Spotlight data, there was a 45% decline in capital invested in Black businesses amidst adverse market conditions this year. This follows a record year for funding to Black founders, as the five quarters preceding the first quarter of this year ranged between $850 million and $1.2 billion invested. 

In an uncertain market, venture dollars pull back, and the return to conservative bets means a retraction of funding for underrepresented entrepreneurs. After venture capital funds committed to diversify portfolios in 2020, founders in the space view the industry’s walk-back regarding Black business investments as proof that the initiatives were merely PR campaigns.

“I would put it in the category of predatory investing,” Thirteen Lune Inc. founder and BrainTrust member Nyakio Grieco said. Thirteen Lune is an online beauty product retailer. “When it was a good look for you, you wanted to show up. But when the market softens, which it historically always does, why are you the first to pull out of what could be the most lucrative choice of the future of your business?”

Grieco, a beauty industry veteran, founded her first company, Nyakio Beauty, in 2002; it was based on her family’s Kenyan beauty routines. Now running an e-commerce platform primarily selling brands created by Black founders, Grieco mentors the next wave of innovators combining culture with selfcare in the space. 

For Black entrepreneurs, inclusive beauty’s business potential and significance for consumers can often get lost in translation when speaking to venture capitalists who do not buy into the space.

“It’s very frustrating,” BrainTrust member Ezinne Iroanya said. She is the founder of Sknmuse LLC, whose products are sold on Thirteen Lune. “I know people like to say we don’t see color. That’s not true,” Iroanya said. “I’ve been in pitch competitions; I’ve been in front of VCs when I’ve had much more traction than other companies that I see in a portfolio, and they keep moving the ballpark, or they say when you hit this come back.”

The L.A. exception

As local entities, Braintrust Fund, as well as Thirteen Lune and Sknmuse, are prime examples of the trend of venture money flowing to BIPOC founders. 

According to PledgeLA, a collective of L.A. tech companies and venture capital firms hosted by the Annenberg Foundation and the Mayor’s Office, 29% of Los Angeles venture investments went to companies with women, Black and Latino founders in 2021. Compared to national venture funding data for the same year from Deloitte & Touche, the nationwide average for diverse founding teams was between 1% and 18%.

Founded in 2018, PledgeLA seeks to hold companies accountable for diversity initiatives, and it tracks investment patterns to ensure transparency. The organization publishes annual reports aggregating diversity trends for venture firms based in one of the fastest-growing funding landscapes. 

On June 7, the organization announced the launch of the “50 in 5” initiative at the Social Innovation Summit. The initiative has an ambitious regional venture capital goal: 50% of all Los Angeles venture capital dollars will go to founding teams with women, Black and Latino founders by 2028. 

As a VC ecosystem that outperforms the national average for capital distribution to BIPOC founders, PledgeLA board member and M13 Ventures Management LLC partner Anna Barber hopes this initiative can inspire more civic-private partnerships to act.

“We feel we have an obligation to lead and show the country, lead as in as an example of what does it look like to have the most egalitarian and forward-thinking tech ecosystem,” Barber said.

PledgeLA launched its own capital fund entitled Founders Fund in 2020, investing in Black and Latino entrepreneurs in early-stage development. The organization also has plans to launch a second direct investment fund in conjunction with the 50 in 5 initiative, designed to give underrepresented founders their first institutional capital.

The collective plans to release its yearly venture capital report by the end of the summer. According to Calvin Selth, a program manager at the Annenberg Foundation, preliminary numbers from L.A.-based VC trends reflect the nationwide dip in funding for unrepresented founders. With this data available to the public, the organization hopes to provide financial runway for what can be a short attention span on diversity politics.

“That is our message here,” Selth said. “L.A., don’t lose your lead on this. There’s an opportunity here to show, like many other ecosystems, that this is not only possible, but that we have good numbers we should retain.”