Beauty Industry Startups Start To Turn Venture Investors’ Heads – Crunchbase News

More time at dwelling over the previous 12 months and a half means extra time for self-care, and enterprise capital traders are taking discover of the elevated shopper curiosity in magnificence and wellness.
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Venture-backed startups within the magnificence and cosmetics business, together with manufacturers and marketplaces, have raised round $1.9 billion in funding to this point this 12 months in additional than 150 offers, Crunchbase knowledge exhibits. That’s approaching the practically $2.1 billion raised by VC-backed magnificence and cosmetics firms over 250 rounds in all of 2020. Back in 2016, VC-backed firms within the magnificence and beauty business had raised lower than $780 million throughout 278 rounds of funding.

There are a number of causes for the surge in investor curiosity within the magnificence house. 
For one, M&A exercise within the sector has picked up, with magnificence firms producing sizable returns. At the identical time, the COVID-19 pandemic has triggered extra consumers to purchase magnificence merchandise on-line quite than in shops, boosting income for direct-to-consumer magnificence manufacturers, and rising their valuations.
“Some huge cash is being made within the class,” stated Caitlin Strandberg, a companion on the enterprise capital agency Lerer Hippeau who has invested in skincare firm Topicals and the wellness model Cure Hydration. “Companies with billion-dollar valuations. There’s far more funding, there’s far more M&A exercise within the house, the investments are trying extra like enterprise returns than ever earlier than.”
Beauty will not be an business that has traditionally acquired a lot consideration from conventional enterprise capital. As True Beauty Ventures co-founder Cristina Nuñez places it, conventional VC desires outsized returns over a quicker time period. Her agency focuses on investing in startups within the magnificence and wellness house.
Beauty, being a shopper packaged items class, is inventory-intensive and doesn’t fairly match the standard enterprise funding profile. So conventional VCs who didn’t have a background in magnificence had extra of a “wait and see” method to investing within the subject, normally searching for product-market match and different proof factors earlier than investing.
“I do suppose whenever you have a look at the tech return profile, that doesn’t actually exist in magnificence,” Nuñez stated. “There are only a few belongings which have traditionally scaled at that measurement and bought to strategics.”
Also, magnificence hasn’t been a class that’s properly understood by many traders, given how male-dominated the enterprise capital business is, in line with Strandberg. 
A rising market
But a confluence of things have made firms within the magnificence and cosmetics house to extra enticing to enterprise traders. 
Investors can now put cash into areas they’re extra acquainted with, corresponding to direct-to-consumer fashions, marketplaces and social commerce, in line with Nuñez. 
The class has additionally expanded past strictly haircare, skincare and shade cosmetics to incorporate wellness manufacturers, corresponding to sexual wellness. And because the barrier to entry has by no means been decrease—indie manufacturers can now launch on-line with a DTC mannequin as a substitute of counting on retail partnerships—new magnificence manufacturers are popping up seemingly each day, which implies extra firms searching for capital.
“Where there’s a necessity for capital, there’s VC curiosity, so there’s been large progress in indie manufacturers which are searching for capital,” Nuñez stated.
While the COVID-19 pandemic adversely affected shade cosmetics (suppose eyeshadow, blush and the like) as a result of folks weren’t going out and socializing as a lot, many shoppers turned to skincare, haircare and wellness manufacturers. 
And when retailers closed their doorways or restricted their hours due to the pandemic, consumers—even these of generations who usually didn’t purchase a lot on-line—turned to the web.
“It’s a class that’s moved on-line en masse, I’d say, and there’s extra fast buyer adoption than there was beforehand,” Strandberg stated.
M&A exercise has additionally had an impact on the eye on the wonder business, in line with Strandberg. After all, there’s extra incentive to put money into a sector if that sector is wanted by acquirers.
Kylie Jenner’s Kylie Cosmetics and Kim Kardashian’s KKW Beauty, each digitally native magnificence manufacturers, have been acquired by cosmetics big Coty for majority and minority stakes, respectively, giving them billion-dollar value tags. Estee Lauder additionally shelled out $1.7 billion for Korean magnificence Have & Be Co. in 2019 and $1.5 billion for Too Faced Cosmetics in 2016.
Venture-backed firms like Glossier have additionally raised at billion-dollar valuations, turning traders’ consideration towards magnificence. That consideration is mirrored in how a lot cash is being raised by the sector: The median sum of money raised by VC-backed firms within the magnificence and cosmetics classes hovered between $1 million and $1.4 million from 2016 to 2020, Crunchbase knowledge exhibits, however jumped to $3.2 million in 2021.
Just this week, the wonder firm Merit raised a $20 million Series A led by L Catterton with participation from Sonoma Brands and Marcy Venture Partners, the VC agency based by rapper and businessman Jay-Z and Roc Nation co-founder Jay Brown. The funding spherical is the biggest Series A raised by a VC-backed firm within the magnificence and cosmetics house to this point this 12 months, in line with Crunchbase knowledge. 
But magnificence investing remains to be totally different from conventional enterprise investing, in line with Nuñez. Those giant returns come in case you can decide the best winners—it helps in case you have magnificence experience for that—but it surely’s not a growth-at-all-costs business.
“It’s only a totally different mindset that conventional VC has had, and to play, and play efficiently, in magnificence, you could have that,” Nuñez stated.
For the previous 12 months and a half, skincare and haircare firms have been in search of probably the most capital, in line with Nuñez. But since extra persons are out and socializing now, she expects shade cosmetics firms to once more begin reaching out for capital.  
“When you have a look at the general business, shade cosmetics makes up the majority of the business, so it’ll be attention-grabbing to see how that ticks up once more,” she stated.

Illustration: Li-Anne Dias 

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