Over the past year, spending more time at home meant spending more time for self-care, and the increased consumer interest in beauty and wellness are being noticed by venture capital investors.
In the beauty and cosmetics industry, venture-backed start-ups including brands and marketplaces, have raised around US$ 1.9 billion in funding so far this year in more than 150 deals, which is approaching nearly US$ 2.1 billion that was raised by venture capital-backed beauty and cosmetics companies over 250 rounds in all of 2020.
There are a few reasons for the surge in investor interest in the beauty space. One, M&A activity in the sector has picked up, with beauty companies generating sizable returns. And two, the COVID-19 pandemic has caused more shoppers to buy beauty products online rather than in stores.
The venture capital firm, Lerer Hippeau, who has invested in skincare company Topicals and the wellness brand Cure Hydration has reportedly been quoted stating that a lot of money is being made in the category and there is much more funding, more M&A activity in the space and the investments are looking more like venture returns than ever before.
Historically, the beauty industry has not received much attention from traditional venture capital, which demands outsized returns over a faster period of time.
The traditional venture capitals, which did not have much background in beauty, had more of a “wait and see” approach to investing in the industry. Also, considering how male-dominant the venture capital industry is, it is believed that the beauty industry has not been well understood by many investors.
While the COVID-19 pandemic adversely affected colour cosmetics (eye shadow and blush) because people weren’t going out and socializing as much, many consumers turned to skincare, hair care and wellness brands.
Kim Kardashian’s KKW Beauty and Kylie Jenner’s Kylie Cosmetics, both digitally native beauty brands, were acquired by cosmetics giant Coty for majority and minority stakes, respectively, giving them billion-dollar price tags.
In the past year, hair care and skincare companies have been seeking most capital. However, considering that people are out and socialising now, one is to see how the colour cosmetics companies start reaching out for capital.