💄 A Case For Venture Backed Beauty Brands: Glowing Skin Is Always In…vestable

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Included VC

20 min readSep 12, 2023

Year after year, beauty business insiders scream “The industry is saturated! We have everything we need!” So why is it that year after year, you see a new serum guaranteeing you the dewy skin of your youth popping up on your feed? Or how about the new Indian inspired hair oil your friend swears gave her the most luscious mane of her life? Of course, let’s not forget about the $500 Korean LED face mask that WILL solve all your problems.

As an avid Beauty consumer myself, (sometimes said consumption happens as a result of an intentional and well-researched process, whilst other times I am the victim of 1am targeted influencer ads.) I can’t ignore this ever-dynamic industry, and neither can the VC world. From consumer trends to industry shifts, let’s deep dive into the where, the why, and the how of investment areas that have piqued the interest of venture capitalists.

📊 An Overview Of The Beauty Industry

To get us started, here’s a market map of active VCs in the space which I’ve put together for you:

Please reach out to me on LinkedIn if your company is missing from this map (Raw Data Source: Pitchbook)

🔍 Let’s Get Into It…

As of 2023, the global Beauty market is set to be worth $571 billion, an 8% increase from 2022. Whilst year on year growth has been inconsistent, the industry has proven to always rebound from turbulent times and shows a consistently upward trajectory in this decade. By 2027, it is expected to be worth $663 billion.

Our bar graph below depicts the same drop in global revenue as many other industries saw in 2020 as a result of the Covid-19 pandemic. However, it also highlights an immediate upturn in 2021 as we rushed to glow up in anticipation of the return of our “outside lives” and thus our “outside faces” and a consistent year-on-year growth since.

These numbers may seem just as juicy as the Lancôme Juicy Tubes you begged your mum for if you’re a 90’s baby, so let’s break them down by segment…

Nearly $1 out of every $2 spent on beauty products is spent on personal care. (Oberlo, 2023) making this segment the highest revenue generator of the Beauty industry. However, the fastest growing segments are:

💄Cosmetics: CAGR of 6.85% (2022–2026)

🧴Skincare: CAGR of 5.19% (2022–2026)

These numbers explain why it doesn’t come as a surprise that investment in the Beauty space is disproportionately driven into these two segments.

Aside from these attractive upward trends, Skincare and Cosmetics are also where innovation and industry disruptors are likely to be found.

💸 Investments & Deals In Beauty — An Overview

Venture Capital has been an important catalyst of shifts in many industries. Not only do VCs infuse much needed funds into companies with the potential and the hunger to level up, but they can also provide invaluable expertise to founders when navigating complex and competitive markets. Since 2022 however, venture funding has dramatically slowed down.

It is noteworthy that Q1 funding was inflated by 2 big-name deals: OpenAI and Stripe. Without the latter, 2023 venture funding would have taken a higher hit, specifically 60% lower than in the same period last year. Not only is deal flow down, but there is less capital going around to play with across all industries as VC risk aversion goes higher in these uncertain economic and turbulent geo-political times.

Venture funding in Beauty mirrors the same downturn in recent times:

As of July 2023, Venture funding into Beauty is down more than 50% from last year, at $300 million so far. These numbers display challenging times, but history as well as the constant growth and innovation happening in the beauty industry can allow one to infer that the situation may not be as dire as this graph may suggest. As one of the largest consumer markets, Beauty remains a focus of global investments.

Besides, M&A has always been the more frequent form of deal making in this industry, whilst VC interest in Beauty is relatively new. It is also safe to state that the larger M&A deals are one of the key factors that have attracted venture capital interest in the space, as these deals have highlighted some beauty companies’ ability to generate significant returns. The following image illustrates examples of noteworthy Beauty acquisitions:

Raw Data Source: PR Newswire and Business Newswire

The industry has also been infused with a healthy dose of optimism by Oddity’s successful IPO in July 2023 (the tech company behind Il Makiage. Oddity’s funding round in 2022 was led by First Light Capital, at a whopping valuation of $1.5 billion), restoring faith in the fact that Beauty still retains its profitability potential. Moreover, as VCs continue to cut fewer and smaller cheques at this time, the power has somewhat shifted in favour of investors; VCs looking at the Beauty space know what they want:

Brand/product differentiation. Namely, is its’ existence justified?
Secure, understandable and justifiable margins (or is it just mirroring the large markups of similar brands?)
Founding team. VCs want to understand why and what drove founders into the competitive sea of Beauty.
Sales figures that translate a loyal customer base.

The following market trends, shifts, and growth drivers are where VCs are looking for companies that will fit their criteria highlighted above.

😎 Indie Beauty Brands

Smaller, niche companies claimed their space in the Beauty industry when legacy brands’ product offerings stopped aligning with the needs of their increasingly knowledgeable consumers. Whilst some of these companies are household names that disproportionately dominated the space for generations, consumers started moving away from their one-size-fits-all products that lacked innovation and personalisation.

Smaller companies are likely in need of startup capital and as explained by True Beauty Ventures Cristina Nuñez, “Where there’s a need for capital, there’s VC interest.”

Cristina Nuñez — Co-founder & General Partner at True Beauty Ventures, Source: Beauty Independent

Not only have indie brands become an important part of the Beauty space, but they’ve also driven long established companies to innovate in order to stay relevant and capture more consumer demographics.
The rise of important VC brands have also led to the creation of Beauty-centric VCs. L’Oreal created a VC arm, BOLD, in the hopes of incubating and funding high potential niche brands. FMCG giant Unilever also invests in Beauty startups through its investment arm Unilever Ventures.

📸 Celebrity Beauty Brands

This one is a bit of a sensitive topic for Beauty lovers. Instagram trolls and YouTube Beauty reviewers alike love to complain at the idea of yet another celebrity brand, which ironically drives even more anticipation and attention when they launch.

Celebrity brands and celebrity endorsed brands have always been revenue generators across all industries, profitability being another matter. In the case of Beauty, some noteworthy recent names are Rare Beauty by Selena Gomez, which generated over $70 million in sales from just one of the products they sell (the famous rare beauty blush of course, IYKYK that two dabs of this stuff could paint an entire wall of your house). There is also Rhode Beauty by Hailey Bieber, who has successfully created excitement and a hype factor behind her brand by using specific and effective marketing strategies; high impact campaigns broadcasted for a significant period to drive anticipation into launches, and only launching one product at a time, almost ensuring a loyal customer base as they’ll come back to try the next one. Rhode Beauty has doubled its 8-digit sales figure this year. Such brands have had a significant impact in driving market growth.

Looking back at our VC criteria though, it doesn’t really seem like celebrity brands could fulfil all of them. Nonetheless, many celeb founded companies are venture funded:

· Some other examples of VC funded celebrity brands are Taraji P Henson and Priyanka Chopra’s brands, both backed by Maesa Incubator, which in turn is owned by Bain Capital VC.
· Gwyneth Paltrow’s Goop — backed by Felix Capital

There are also several VCs indirectly backing Beauty brand-development companies and beauty startup incubators. An example of this is the seed funding round led by Forerunner Ventures and Initialized Capital, raising $11.2million for A-Frame brands which developed Naomi Osaka’s Beauty company (Kinlo) as well as John Legend’s (Loved01)

These examples accentuate the fact that the revenue generated by celebrity popularity has proven to be an attractive justification for VC interest. Taylor Swift’s Eras Tour has already generated close to $5 billion in consumer spending in the US. Just imagine the chaos when that woman launches a lip balm.

🌍 Good Old Globalisation

Globalisation has helped Beauty brands multiply their TAM figure (Total Addressable Market) as less significant geographical barriers mean an increase in their market reach.

It also dilutes market-induced investment risk. Operating in multiple regions means that country-specific economic, geopolitical and environmental turmoil won’t necessarily prove fatal for a brand when it has multiple revenue generating markets.

Increased purchasing power in emerging markets make Western brands more accessible to a wider, global demographic. This is highlighted by the Indian Beauty platform giant, Nykaa (now publicly traded), which has not only made many global brands available to the Indian consumer but has also attracted $94 million in VC funding over 17 rounds.

VC funding also expands its international reach alongside increased globalisation, as there is a wider array of deals, investors, and exit strategies to consider. Increased globalisation comes as great news for existing and aspiring beauty firms seeking capital as well as VCs seeking to look further away, as the opportunity pool expands, and limits aren’t so significant.

🔄 Shifts In ‘Clean Beauty’

Clean Beauty is a confusing and ever-changing landscape. One can only navigate it through research in order to avoid being misinformed by trendy buzzwords that might imply much more or less than they let on. While there is no universal definition on what exactly qualifies as “Clean Beauty”, this market is set to be worth $22 billion by 2024 (and that’s without counting a large chunk of brands in emerging markets).

Clean Beauty was influenced by the clean-living movement that appeared in Western markets in the 1990s. Think aluminum-free deodorant, increased awareness around “clean eating”, using natural ingredients in Beauty products (Burt’s bees’ beeswax lip balm emerged at this time). Of course, in many parts of the world Natural Beauty has always been the norm. For instance, Indians have always used their knowledge of Ayurveda to make their own beauty products, West Africans consider shea butter an important part of their beauty regimen, Moroccans with Argan oil, etc.

Ingredients

In the past few years, there has been an important divide in the Beauty community with one side arguing that natural and naturally derived ingredients are better for the skin. They also claim a holistic approach to beauty, stating that beauty, wellness and health are interconnected. While some impactful brands have emerged from this side of the aisle, it has also taken on the form of branding certain ingredients as “toxic”, using kitchen ingredients for DIY skincare (you do you but if you’re forgoing or worse, DIY-ing your SPF… we can’t be friends.)

The other side is more formulation focused, arguing that natural ingredients are volatile and unstable. They believe chemically developed ingredients are studied and tested, and thus entirely safe. Whilst this has scientific validity, it’s also important to note that cosmetic regulators in the US are somewhat stuck in the past making it very difficult for brands to innovate by fear of not getting approval to go to market. As a result, beauty markets in the west are decades behind South Korea, who have managed to create a hugely successful global K-beauty phenomenon through their innovative formulations.

Popular Korean Skincare Products By Sulwhasoo. Source: Sulwhasoo

Whichever side of the aisle you stand on, Clean Beauty is here to stay and most of us choose to take a more balanced approach — we just want effective and pleasant to use products that are good for us and not detrimental to the planet. The VC sphere has taken notice and funds such as Sugar Capital, Khosla ventures, True Beauty Ventures among many more have chosen to partake.

2. The Next Phase — Biotechnology

This space is undoubtedly where VCs interested in the Beauty market are looking at now and will continue to as we see new and exciting developments.

Biotech leverages Biology, DNA editing AI, GMOs and natural ingredients to create innovative formulations. In essence, Biotech creates lab-made alternatives to natural ingredients and helps stabilise natural ingredients. It also ensures quality, because natural ingredients are otherwise so susceptible to environmental changes. Best of both worlds? This author sure thinks so.

What I find particularly noteworthy though is what Biotech can do for Beauty to become truly sustainable in an innovative way, rather than just greenwash:

💥 Our resources are finite. Using biotechnology means consuming less resources to create ingredients, in turn reducing the environmental impact of Beauty.

💥 Packaging is where greenwashing often happens. One of the aims of Biotech Beauty is to create formulations that are more potent, thereby reducing consumption and thus packaging waste.

💥 In the last 3 years, we’ve seen multiple skincare and cosmetic brands come up with refillable packaging. However, many experts including VC backed beauty founder Charlotte Palermino have credibly explained how refillable packaging often has the same emissions as non-refillable packaging with smaller exoskeletons. Moreover, Palermino also explains how refillable packaging doesn’t incentivise consumers to buy a refill in numbers that are impactful enough to offset the emission caused by the product. Ordering refills can be tedious, and more often than not, consumers are buying a product that has refillable packaging just to try the product and won’t be repeat buyers.

💥 Recycling is a complex process. Some important R&D into Biotech looks at creating packaging that is simpler to recycle (smaller exoskeletons + less elements to the packaging) and thus more likely to be recycled. Beauty giant L’Oreal has gone a step further by partnering with Biotech companies to reformulate the way that their plastic packaging is made. We’ll be watching this space as others are sure to follow.

Biotech & Beauty look like a match made in heaven and VCs are blessing the union with their funding. L’Oreal’s Beauty VC arm BOLD has invested in Biotech company Debut. Nuñez at True Beauty Ventures also agrees, as proven by their investment in Biotech haircare brand Aquis. Amyris, a Biotechnology leader and parent company to Biossance, has also received significant VC funding, motivated by their lab made version of Squalene, an important ingredient across the beauty industry. This space is still new and dynamic and is heavily focused on Tech. That last word is head turning, wallet opening music to VCs ears and there is no doubt that there is space for smart startups to receive funding.

🛍 Online Shopping

As the most important medium of sales in the Beauty industry now, there are a number of players and trends influencing how consumers and brands transact.

1. Influencer Marketing

This has been one of the most essential channels for beauty brands to reach their customers, but also for Beauty buyers to find new products. YouTube, TikTok and Instagram are the largest influencer marketing channels. In 2023, the global influencer marketing market size hit a record $21.1 billion (Statista, 2023). Currently 93% of marketers across all sectors have leveraged influencer marketing in order to:

💥 Increase reach.

💥 Raise brand awareness.

💥 Increase sales conversions.

💥 For brand advocacy purposes.

In 2022, 8 out of 10 consumers made a purchase after it was recommended by an influencer (upfluence.com).

This proves the level of trust consumers have in their favourite influencers and the power that this industry holds.

Influencer marketing undoubtedly contributes significantly to the growth of the Beauty market. VCs have indirectly been investing in this growth by backing this creator economy. Examples include influencer-specific project marketing tool Moe Assist, which raised $1.4 million in a seed round and UTA.VC, a fund specifically created for the influencer economy.

As the Beauty market continues to grow in opportunities, VCs will be investing in startups that will be leveraging influencers in innovative ways to differentiate their strategies from the crowd.

2. The TikTok Generation— Gen Z

TikTok rapidly continues to become a significant platform not only for brands to advertise (with or without influencers) and sell their beauty products, VCs have also found it to be a great platform to find the next generation of Beauty founders and startups. Moreover, TikTok’s demographic is in majority made up of Gen Z users, who are trendsetters in the Beauty space. Therefore, TikTok makes it easier for VCs and Beauty experts advising VCs to identify Beauty consumer trends as they are just appearing as well as a particular trend’s longevity and consumer popularity factor. This then allows VCs to have a better understanding on whether a particular startup speaks to this huge consumer demographic. It also allows VCs to evaluate the crucial “timing” side of it all: is the pitching startup a trend pioneer, right on time, or too late?

Aesthetics are an important consideration for beauty businesses that rely on Gen Z and visual mediums such as TikTok. Founder Shai Eisenman managed to check both these boxes with her company Bubble. The brand caters to Gen Z through a product range that is affordable, teen and young adult concern-focused, and beautifully packaged.

Within the growing online shopping channels, current VCs investing in Beauty are particularly interested in the startups leveraging AI & AR as well as ( surprisingly, more on this below) those who have DTC models.

3. It’s all about personalisation.

We’re saying it again and louder for the people in the back: one-size-fits-all is over. A well-known example of the personalisation trend is Skin+Me, a company where clients can book a virtual skincare consultation to then receive a custom-made treatment delivered to their doorstep. Skin+me has raised £10 million in a Series B funding round led by Octopus Ventures. Companies using such personalized services are now habitually seen in the industry, but some have taken it further by leveraging AI & AR.

Within this saturated market, using AI & AR to personalise the client’s experience is a great way to differentiate, a key criterion to appeal to VCs. It also acts like an incentive for clients and adds an element of credibility and trust for customers unwilling to visit brick and mortar stores but want to ensure that the product suits their skin or hair.

Here’s some stats to show how AI & AR can be great revenue boosting tools:

Aveda’s introduction of a hair colour try on tool generated a 110% spike in time spent on their website.

Tarte Cosmetics’ makeup try-on tool increased sales by 200% shortly after it was introduced.
Source: frontrowgroup.com

Some examples that can help us understand where AI & AR in Beauty is headed:

Perfect Corp is a publicly traded company (previously raised $130 million) that is a leader in this space: they develop AI and AR solutions including 3D facial modelling to help Beauty brands with product try-ons, consultations, colour matches. Before Perfect Corp, companies that wanted to offer personalisation had to develop their own solution. Perfect Corp was undoubtedly an industry disruptor by identifying and offering this service.

👉🏾 Beauty Tech company Revieve: Specialises in collecting and analysing AI & AR data for Beauty companies. Such a company’s existence in itself accentuates the importance of AI & AR in the Beauty industry . Revieve is VC funded and has raised a total of $2 million.

👉🏾 Foundation is a particularly difficult product to buy online, as it is near impossible for a first time buyer of a brand to choose the right shade and tone online. For this reason, foundation customers have always preferred to physically visit a store and get matched to their correct shade by a sales assistant. While the previously mentioned Il Makiage (under the Oddity Tech umbrella) revolutionised the game by creating an elaborate quiz to match customers to a foundation that would suit them (it actually works!!!), makeup company Dcypher further disrupted the space by developing a proprietary AI tool to custom blend your perfectly matched foundations from the comfort of your home. Dcypher is backed by French VC firm Auréa Group.

4. D2C

For a time, it was uncertain whether the Direct-To-Consumer model would succeed within the online Beauty space. This is because it presented an important drawback to the customer experience: texture, colour and smell are all very important to Beauty customers and sampling these accurately is limiting online. Add to this the widely accepted idea that D2C is not VC backable due to its inherently inventory heavy model.

Beauty DTC leader Glossier has developed a cult following and is a great example of a success story in the field. The company is VC funded from the likes of Sequoia Capital, Index Capital, Forerunner Ventures and more. Its success lies in the strong brand story they’ve created which is largely attributable to its D2C model. By using the latter, Glossier was able to:

💫 Engage in direct and customised relationships and messaging with customers.

💫 Rely only on first party data to tailor make the customer experience.

💫 Create hype factor around the fact that you could only purchase the product from the makers, which added brand value.

Glossier has raised $266million to date, with the latest round led by Lone Pipe Capital raising $80 million in series E.

Other DTC Beauty companies that have turned VC heads are Dollar Shave Club and Beauty Pie. They both operate in a subscription-based model. The former has disrupted the men’s personal care space by elevating the way that men buy razors and has received over $270 million in venture funding. Beauty Pie is another VC funded success story, as they have allowed customers to bypass all intermediaries to directly purchase Luxury Beauty at discounted price created from the same labs that create Luxury Beauty brands. Beauty Pie’s last funding round raised $100m.

VCs will continue looking at startups that intelligently create a personalisation factor, offer subscriptions, and justify their D2C ground. Currently, D2C brands are growing particularly in the hair care, Fragrance, Feminine Care & Sexual Wellness segments of the Beauty industry.

🙌🏾 Actual Diversity, & Representation

This final section is an overview of transformative socio-demographic shifts that are changing the face of VC and the Beauty industry at large.

1. More women in VC

Beauty hasn’t always been seen as venture backable as it is inventory heavy, and thus doesn’t always quite fit or appeal to VCs. It’s a well-established norm that VCs prefer to invest in tech-enabled startups. However, other inventory heavy and not particularly “techy” segments of the consumer goods space include athleisure, shoes, glasses, and they’ve all received heavy VC interest and funding. Why not Beauty? Over the years, VCs have decided to forgo investments in beauty companies that ended up selling for hundreds of millions (e.g. Paula’s choice, Tarte cosmetics, and more). Why?

Beauty founders as well as customers are predominantly women, whereas Venture Capital has always been a male dominated industry. This translates to lack of alignment and lack of understanding and therefore lack of funding. VC’s didn’t invest in what they couldn’t understand or relate to and thus came very late to the game. Of course there are exceptions to the rule, for example Sequoia Capital’s early investment into Charlotte Tilbury. Entrepreneurs also want to pitch to investors that understand the value of their business. A 2022 pitchbook report shows that women make up 45% of VC workforce but only between 10 to 15% of investment partner roles are occupied by women. Thankfully, this is an increasing figure, as not only do we now see more women at partner level but also more female created funds. Women are more likely to invest in female founders and the beauty game, and it’s also more likely to see women heading Beauty focused VC funds. Better late than never.

2. Men want to glow too

I personally credit the pandemic for this. Men have finally come around to the idea that “soap” is not a skincare routine and that selfcare is great.

As a rapidly growing market segment, many brands now cater to and even exclusively to men. While we don’t have concrete data on men’s Beauty market as a whole, the men’s grooming market and personal care market is growing by a CAGR of 6.5% and 9.1% respectively (Grand View Research Report, 2022). Examples of men’s brands in this space that have gained traction and VC funding are illustrated below. As a growing Beauty consumer segment, no doubt VCs will be looking to find their next outlier in this space.

3. Diversity, Inclusivity & bridging the gap

a. People of colour & cultural diversity

The following is an excerpt sourced from a 2022 McKinsey report:

“ Black brands in the Beauty industry raise a median of $13 million in venture capital, substantially less than the $20 million that non-Black brands raise. Yet today, the median revenue of those Black brands is 89 times higher than what non-Black beauty brands return over the same period.”

· It’s only smart for VCs to follow the money. The same report estimates that the opportunity of addressing this racial inequity in the Beauty industry is worth $2.6 billion. There is no doubt that we will see more funds investing in black founded startups and startups who cater towards Black Beauty consumers.

· There are an increasing number of brands that center around their cultural heritage. Ranavat and Fable & Mane are great success stories in this space, along with Indian born company The Ayurveda Co who has recently raised $13 million in Series A funding led by 6th sense ventures.

· Beauty consumers are looking for brands that bridge the gap between innovative, R&D backed science and the natural ingredients used in their cultures. They also want representation in its truest form: brands that create and formulate for people who look like them, founders who understand, relate to and advocate for their needs.

· To me, representation is also seeing an entrepreneurial brown female founder, Deepica Mutyala, build a Beauty brand that challenges beauty standards and create products that I actually know will suit my skin tone. Her brand Live Tinted has raised $15 million to date, with the latest round raising $10 million in Series A, led by Monogram Capital Partners.

b. Inclusive beauty

The LGBTQIA+ community has always contributed to the beauty community. While the beauty industry still has lightyears to go before it becomes truly inclusive, there is irrefutable evidence that brands need to strive to become more inclusive to this community and their allies in order to gain their business, trust, and loyalty. The LGBTQIA+ community is rightfully claiming their space in Beauty as founders and as startups that cater to this community too. Whilst it is still slow, VCs are investing in inclusive brands:

Raw Data Sources: Malin&Goetz and About Face websites, Pitchbook

In spite of a global VC slump, the Beauty Industry stands the test of time. Important socio-demographic shifts are changing the investment landscape and thereby creating opportunities for previously overlooked founders. It’ll be interesting to see whether Biotech becomes the sustainable solution to Beauty waste, and to see how the next developments in AI transform the Beauty space.

🙋🏽‍♀️ I’d love to know your thoughts, please reach out to me in the comments with anything tech, sustainability, Beauty related, or connect with me on Linkedin.

Sources: Byrdie.com, Financial Times, Crunchbase, Pitchbook, PR Newswire, Editorialist.com, Vogue, The New York Times, Tech Crunch, Forbes, BeautyMatter, WWD, BOF