Rhode to a Billion: What Silicon Valley Startups Can Learn from Rhode’s $1B Exit to e.l.f

e.l.f. Beauty Chairman and CEO Tarang Amin and rhode Founder Hailey Bieber

Introduction

In May 2025, Oakland-based e.l.f. Beauty announced its $1 billion acquisition of Rhode, the influencer-led skincare brand founded by Hailey Bieber. The deal included $800 million in cash and stock, plus an additional $200 million in earn-out payments tied to Rhode’s post-acquisition performance. This transaction is e.l.f.’s largest acquisition to date and a defining moment for the influencer-driven beauty sector. At first glance, the deal looks like a routine consolidation play in a maturing market, but Rhode’s leap from startup to billion-dollar exit in just under three years illustrates how early, strategic legal decisions can define a brand’s trajectory, and safeguard its growth, in the face of litigation that might otherwise have derailed it.

This article showcases Rhode’s rapid rise, the trademark dispute that nearly jeopardized its growth, and the key legal lessons that shaped its path to a billion-dollar acquisition. Far from being just another corporate headline, the Rhode–e.l.f. deal underscores that the earliest legal decisions a startup makes can be the very factors that determine its resilience in litigation and its appeal to investors and acquirers.

Rhode’s Background

Founded in 2022, Rhode entered the hypercompetitive skincare and makeup market with a clean, minimalist aesthetic and a tightly focused product line anchored by high-performance “hero” products, most notably the viral Peptide Lip Treatment. Leveraging authenticity on social media, founder-driven branding, and a direct-to-consumer strategy, in less than three years, Rhode scaled at an extraordinary pace, generating $212 million in net sales by 2024 all while assembling a 3.7 million digital community that reinforced its market credibility.

While not the most glamorous aspect of the company’s early story, its disciplined legal groundwork was pivotal to that success. Rhode was incorporated in Delaware in 2021 as a standard limited liability C-corporation to more seamlessly consolidate all its IP within a single entity, and to establish a structure that met investor expectations for simplified capital-raising. This legal foundation—often overlooked by influencer-led startups who want to hit the ground running by focusing exclusively on marketing and product drops—helped the company secure venture funding, scale operations in a legally predictable way, and build credibility with major retailers as it expanded from a purely digital presence into brick-and-mortar distribution. Still, while a startup may believe it has set itself up for success by putting the right legal structures in place, it must remain attentive and cognizant of legal risks that can surface as the company gains visibility.

Rhode’s Litigation Journey

Rhode’s experience proves the point. In June 2022, shortly after launch, the company was sued in the Southern District of New York by Rhode-NYC, LLC, an established New York-based fashion label that had long operated under the “Rhode” name. The plaintiffs claimed trademark infringement and unfair competition, advancing a reverse-confusion theory—arguing that a well-funded junior user (Bieber’s Rhode) would overshadow the goodwill of the senior user (Rhode-NYC) and confuse consumers.

The court denied the plaintiffs’ motion for a preliminary injunction, finding insufficient evidence of actual consumer confusion or direct market overlap, and concluded that Bieber’s brand could continue operating. The dispute ultimately settled through a coexistence agreement, enabling each business to use the “Rhode” name in its own product channels. Meanwhile, Bieber’s Rhode continued to face routine IP enforcement challenges typical of high-growth consumer brands—chiefly, protecting its trademarks in global markets and policing online counterfeits. While Rhode may have taken requisite steps, its experience shows that even a well-prepared startup cannot assume early precautions will shield it entirely from legal disputes.

Lessons to Learn 

The Rhode–e.l.f. transaction offers an instructive case study in how legal decisions made at a startup’s inception can determine its resilience in litigation and its attractiveness as an acquisition target. For lawyers advising early-stage companies, the deal highlights several core legal lessons.

Early Entity Formation and IP Clearance

First, Rhode’s experience illustrates that entity formation and IP clearance are not procedural box-checking but serious, strategic legal priorities. By incorporating in Delaware as an LLC rather than a patchwork of state-level entities, from early on, Rhode aligned itself with investor expectations, simplified capital-raising, and ensured that it had a single, centralized legal home for ownership of trademarks and other IP assets rather than a fragmented or inconsistent record across multiple jurisdictions. As a result, this decision streamlined later diligence and avoided the complications that often arise with multiple entities, disputed ownership of IP, or incomplete assignment records.

Equally significant was Rhode’s early pursuit of trademark rights. The company’s attempt to acquire the “Rhode” mark from the senior user, and its subsequent filing of trademark applications, established solid, unequivocal evidence of good-faith adoption and constructive nationwide priority under the Lanham Act. This strategy proved especially important in potential reverse confusion context, where a larger and later entrant’s use of a mark risks overwhelming the goodwill of a smaller senior user. This may lead consumers to believe the senior brand is affiliated with the junior one. While Rhode perhaps could have minimized exposure further by securing assignments or coexistence terms before launch, by acting quickly to file and defend its applications, it preserved its brand identity and ultimately positioned itself as an attractive acquisition target. All things considered, the company’s proactive legal steps gave it leverage both in litigation and in later negotiations with e.l.f.

For startup counsel, the lesson is clear: conduct comprehensive clearance searches before launch, document negotiations and good-faith efforts to acquire all relevant IP (not only to protect your assets, but to create a clear evidentiary record that will withstand future litigation or diligence), and file all applications promptly to secure priority. Compared to the potential costs of injunctions, re-branding, or weakened acquisition valuations, such considerations are relatively inexpensive, highly efficient, and absolutely critical.

Litigation Risk Management and Governance Discipline

Second, it does not require much imagination to recognize that litigation can be destabilizing in any M&A process, especially when it raises questions about a company’s right to use its own brand. Rhode’s ability to resolve the dispute with Rhode-NYC through a settlement and coexistence agreement, and thereby convince investors that the issue was controlled, rested in part on having clean governance and disciplined legal processes.

Consolidated strategy approvals, consistent documentation of IP assignments, and timely reporting to investors all contribute to a showing that a company is well-governed and litigation-ready; something Rhode could not have demonstrated absent early investment in professional legal counsel. Because startups often neglect to formalize IP ownership and reporting protocols, deficiencies in protection surface at the worst possible moment, leading to costly delays, price adjustments, and buyer skepticism.

Transaction Design: Earn-Outs and Regulatory Compliance

Third, Rhode’s acquisition highlights legal tools available to lawyers and CEOs alike for bridging valuation gaps and managing regulatory hurdles. As demonstrated in the acquisition language, the $200 million earn-out tied a substantial portion of the purchase price to Rhode’s post-closing performance—an increasingly common mechanism in acquisitions of fast-growing but relatively young brands. From a legal standpoint, earn-out provisions require precise drafting. Counsel must negotiate objective and measurable performance metrics, specify reporting obligations and audit rights, and provide clear procedures for dispute resolution to avoid post-closing litigation. Lawyers must also consider how changes in distribution channels, product launches, or marketing strategies might affect the target’s ability to achieve earn-out milestones. While a company may feel it is more advantageous to move quickly and address these concerns later, failing to negotiate and document these provisions up front can invite prolonged disputes, reduce deal value, and slow growth.

IP Due Diligence as a Cornerstone of M&A

Fourth, Rhode’s acquisition reinforces that IP due diligence is often the linchpin of valuation in consumer-brand acquisitions. In many ways, before they could commence integration planning and finalize pricing, e.l.f. needed to confirm that Rhode’s rights to its marks were secure, and that pending or potential disputes would not impair its ability to exploit the brand globally. Startups (or even mid-size or large companies, for that matter) seeking to maximize exit value, then, should continually and proactively work with counsel to maintain a thorough IP portfolio—covering domestic and key international markets, with well-documented chains of title, clear assignments from all founders, employees, and contractors, and evidence of consistent enforcement against infringers or counterfeiters. Gaps in these areas can lead to price adjustments, indemnification demands, delayed closings, or, even worse, loss of exclusivity and the need to rebrand entirely at a late stage of negotiations. As such, startups should budget for ongoing IP enforcement as a growth-stage priority, rather than a discretionary luxury, because a brand-driven business without well-defended IP will raise significant red flags in diligence.

Contractual Protections for Key Talent

Finally, Rhode’s transaction illustrates challenges in protecting the acquirer’s investment in founder-driven brands. Notably, the language of Rhode’s acquisition included a non-compete for Hailey Bieber; however, California’s public-policy restrictions on non-competes limits enforceability. As such, counsel for both sides needed to structure retention through other legal mechanisms, such as equity-based incentives and ongoing governance roles, to align Bieber’s incentives with Rhode’s continued success.Those advising or participating in similar transactions should consider state-specific limitations on restrictive covenants and design alternative legal structures—such as retention bonuses, milestone-based vesting, and service-based equity—that achieve comparable protections without running afoul of enforceability constraints.

Conclusion

Rhode’s story highlights that legal risk management is not just a defensive exercise; it can be a growth driver and a catalyst for scalable, acquisition-ready expansion. By prioritizing early and ongoing IP protection, sound entity formation, and clean governance with robust contractual protections for key talent, young brands can avoid potential litigation and present themselves as reliable acquisition targets. For investors and counsel in Silicon Valley and beyond, the e.l.f.–Rhode transaction is a reminder that billion-dollar exits in consumer brands still hinge on the fundamentals: protect your IP early, anticipate regulatory review in advance of scale, and design deals that align founder incentives with buyer expectations.

*The views expressed in this article do not represent the views of Santa Clara University.