Venture Capital Activity Rising in the Beauty Industry

By Claire Schuchard, Michigan PEVC Analyst

An unlikely industry is beginning to capture the attention of numerous venture capitalists. More than ever before, investors are seeking opportunities in the beauty industry.

To provide some background, the beauty industry encompasses a wide variety of products and services, including cosmetics, skin and hair products, nail salons, fragrances, and much more. The beauty industry relies heavily on mainstream culture and evolving trends. At the current moment, the internet and e-commerce are shaping the beauty world in ways that have never been seen before. Especially with the rise of social media, demand for beauty products and access to them has increased drastically. Additionally, consumers shifting preferences to more natural and environmentally safe products have fostered the prosperity of many small businesses focused on organics.

Venture capitalists are taking notice of consumer preferences, and are beginning to spend more towards beauty companies. Towards the end of 2018, Pitchbook reported that “just over three-quarters of the way through 2018, US-based companies in the beauty industry have already raised a record amount of VC funding, coming in at a total of $812 million and counting.” Additionally, 2018 was a record-breaking year in the number of venture capital deals closed with beauty companies.

Upon examining specific companies, the appeal of this industry becomes apparent. To start with, Glossier, a millennial adored makeup provider focused on creating natural looks, raised over $100 million in revenue last year, according to the Morning Brew. Their CEO, Emily Weiss, has nurtured the company to success starting from Glossier’s humble beginnings as a blog. Using technology to effectively market and sell their products, Glossier has achieved unicorn status. Recently, Glossier received $100 million in Series D funding from Sequoia Capital and is currently valued at $1.2 billion, which is up $810 million from the previous year. Glossier is not alone in its success. Harry’s, a razor company, generated $112 million in 2018, and Scentbird, a fragrance subscription company, received $18.6 million in funding.

So what is so attractive to venture capitalists about these beauty startups?

1. Ability to dominate online social platforms for marketing and sales

• Beauty startups are taking advantage of online platforms, especially social media, to build their brand recognition and facilitate consumer purchases
• Instagram and Youtube have been utilized by these companies to directly market their products to their audience, and then allow customers to purchase products through these apps themselves
• More than 70% of millennials purchase beauty and fashion products through Instagram according to Emily Weiss, founder of Glossier
• This year alone, BBC reports that more than 1 million beauty videos are viewed on Youtube every single day

2. Product differentiation through personalized and natural products

• Companies like Mented Cosmetics and Fenty Beauty have found success by focusing on producing makeup made for all types of skin tones, something that many other beauty companies have struggled with in the past
• The upcoming generations are highly concerned about both environmentalism and quality of products, meaning they are opting to more natural and organic beauty options
• According to the marketing research company, NPD Group found that the clean beauty market grew by 10% last year, versus 3.8% for the mass beauty industry
• Goop, a seller of natural brands intended to enhance wellness, and True Botanicals, producer of organic skincare products, have both received millions in venture capital funding this past year

Clearly, the ability to capture the next generation’s preferences is allowing beauty startups to prosper, and venture capitalists are taking heed. Going forward, as our world becomes increasingly more digital, and consumers become more conscious of their preferences, the beauty industry is in a position to blossom, especially with the help of venture capital funding.