For Alli Webb of DryBar, maturing as an entrepreneur came down to an argument over a fragrance called Sparkling Ginger. 

If you think that sounds ridiculous, Janet Gurwitch, co-founder of Laura Mercier Cosmetics, and Webb, co-founder of DryBar, would certainly understand. But when the two discussed their relationship--Gurwitch is now an investor in DryBar--at Houston's inaugural Circular Summit earlier this month, both agreed it was a debate over this seemingly minor matter that represented a turning point in their relationship.

DryBar, which was founded in 2010, carved out a reputation as a place for women to get their hair blown out quickly and relatively cheaply. Within three years, the company had seven locations, all funded with angel money. But DryBar had competitors on its heels and was being approached by cosmetics giants about developing a line of hair and beauty products. In short: DryBar needed money, preferably a lot of it.

DryBar hired an investment banking firm and headed out on the road. "We would sit in a conference room with a bunch of men in suits who were like, 'What are you doing? Blowouts?'" recalled Webb. "Men typically don't get it at first, and my brother [and co-founder Michael] and I didn't want to just take a check. We wanted to find a partner."

Then Webb and Michael were introduced to private equity firm Castanea Partners, where Gurwitch is a partner. Gurwitch not only understood the opportunity DryBar represented, but had successfully launched a cosmetics company. "All the guys at Castanea were amazing, but Janet and I really connected," says Webb.

Gurwitch believed DryBar was a good investment--she raved about the opportunity, the branding, and the speed at which it was growing. But it would also be the first deal she presented to her private equity partners. Gurwitch was the only woman among them. "Six of the 11 [partners] have very little hair," she said. "They're going to tell me it's a low barrier to entry." 

So Gurwitch practiced her pitch for DryBar, trying to come up with the formulation that would give her the most credibility. In the end, she said to her partners, "If I told you, 25 years ago, that there was a little coffee shop in Seattle, you would have passed on that investment. I'm about to tell you about something else. Don't pass."

It worked. Castanea put $16 million into the company in that round of financing. And, said Webb, Gurwitch turned out to be invaluable as an investor. For the first 18 months, the two were focused on getting a product line off the ground. Gurwitch talked Webb through the pros and cons of custom development and introduced her to some of the best labs in the country. "At that point we were pretty small and people weren't going to talk to me," without an introduction, said Webb. Gurwitch also facilitated an introduction with the CEO of Sephora.

But when it came time to choose a scent for the new product line--and this will give you an idea of how involved Gurwitch was--the two could not agree. "Alli chooses a fragrance that is not the one I've chosen," recalled Gurwitch at the Circular Summit. "I love the one I've chosen."

"I'm very particular about scents. Like a lot of people, a lot of scents give me headaches," said Webb. "It was going to have my name on it. I was going to use it." And the scent Gurwitch liked -- Sparkling Ginger -- did nothing for Webb.

"I had to at some point get my sea legs as an entrepreneur," said Webb, who added that the dispute over Sparkling Ginger was the first real argument in which she prevailed over Gurwitch. "I had to come into my own and know that what I had to say was good and mattered."

Gurwitch still clearly harbors a fondness for Sparkling Ginger. But she learned that her role as an investor doesn't necessarily allow her to dictate the details. "I had to say to myself, it's not your company, it's hers."

Fear of investment.

Gurwitch and Webb also discussed what, for many entrepreneurs, is a hugely difficult dilemma: Whether to sell equity with the goal of growing more quickly, or whether to hang on to company ownership and perhaps grow more slowly.

Gurwitch explained that when she was building the cosmetics company Laura Mercier, private equity was not nearly as prevalent as it is now. Instead, three years after she started the company, Neiman Marcus became an investor, insisting on a 51 percent stake. "That worked fine, but in the end I never thought the family that owned Neiman Marcus would sell," said Gurwitch. "But they did sell, and then I had to sell."

Webb says she has plenty of entrepreneurial friends who fear a similar, or worse, outcome. And she understands where they're coming from. "Every time you go to raise money and get diluted again, it's so painful," said Webb. "But we have a lot of competitors. We had to grow and grow fast, and there was no way to do it without giving up equity." DryBar now has 58 locations; the new product line already accounts for nearly a quarter of the company's revenues.

Gurwitch pointed out that private equity has come a long way since she started Laura Mercier. "Alli gave up a big percentage, but she's going to do phenomenal," Gurwitch said. "And we can't sell without her agreeing to it."

Published on: Apr 22, 2016