Inside Sugar Cosmetics's off-trend strategies

March 2020. Sugar Cosmetics was on the verge of closing its Series C fundraising round from Elevation Capital. The contours of the deal including the valuation and capital structure were principally agreed upon.

Then came the pandemic lockdowns. Sugar’s business, which was largely offline, was disrupted. Elevation still agreed to invest, but with the change in market dynamics and the risk exposure increasing exponentially, a valuation of close to $100 million suddenly seemed steep. 

A key question raised at the time was the scalability of the company’s offline business. Valuing Sugar on the basis of the future performance of its retail presence didn’t make sense at the time. Moreover, for an extended period, non-essential products were not allowed to be sold even online. 

This scenario may sound crazy in today’s time when founders are raising funds at billion-dollar valuations over Zoom calls. But when the first wave of the virus hit India last year, the ecosystem was in a phase of cutting back. Walking out of deals, layoffs, cutbacks--these were common in the months following the lockdown last year.

Will Sugar be able to deliver its projected revenue target given the new market dynamics? How will consumer demand shape up? Was sourcing of products under control? These were all open-ended questions at the time. Some still are.

And while for many young founders the pandemic was the first jolt to their businesses, Sugar’s Vineeta Singh and Kaushik Mukherjee were familiar with what uncertainty looked like. They had founded Fab Bag, a monthly makeup and beauty subscription platform for women in 2012. In 2015, the duo pivoted their business to a brand making cosmetics for Indian skin tones, and named it Sugar. And for most part of their entrepreneurial journey, cash reserves were slim.  

So, when Singh and Mukherjee were asked to either accept Elevation’s revised terms or pass the offer, they chose the latter. More importantly, they stuck to their guns about their offline approach. (Singh declined to comment on the contours of her negotiations with Elevation Capital.)

Fast-forward to February 2021. Sugar announced an investment by Elevation Capital at a valuation of about $100 million. A lot had changed in that one year in terms of the company’s growth levers. 

For instance, before the pandemic set in last year, online sales for Sugar were minimal. By the end of 2020, online sales accounted for over 60% of its overall revenue.

Singh’s aim is to more than double Sugar’s sales, which was Rs 130 crore ($17.5 million) in fiscal year 2020-21.