Why Cutting Horse Investor Is Passing on Prestige Skincare

Cutting Horse, a venture firm named after horses skilled at separating a single cow from a herd, applies a similar philosophy to beauty investing: it looks for brands that truly stand out. Vice President Jimmy Shen recently explained why prestige skincare no longer fits that criteria.

Shen noted that a flood of venture capital has flowed into prestige skincare, leaving many brands well-capitalized but chasing the same positioning, narrative, and retail doors — primarily Sephora. This homogeneity makes it extremely difficult for any single brand to differentiate itself.

Customer acquisition costs (CAC) remain elevated as brands compete not only with each other but with the marketing dollars of venture-backed competitors. Shen argued that in such a crowded space, CAC will never be efficient.

Looking ahead, Shen predicted a significant M&A bottleneck in the next few years. Many prestige skincare brands currently sitting in venture portfolios will seek exits, but strategic acquirers will lack the bandwidth, capital, or interest to absorb them all.

Shen also highlighted the challenge of valuation. When a brand launches into Ulta or Sephora, there are no proof points on velocities, forcing investors to rely on DTC performance and existing brand awareness. He noted that exit multiples in beauty can range from 4X to 5X revenue, making these businesses hard to price.