Here's why investment firms are betting big on beauty and wellness brands

When the founders of New York-based personal care company Billie were looking for investors in 2018, Female Founders Fund (FFF) was one of the early-stage venture capital funds (VC) that got in during their first seed round. “In the case of Billie, we had been actively looking at the space of women’s shave, particularly after the success of Dollar Shave Club, and hadn’t found anything that was both creating a brand aligned with the younger consumer, as well true product innovation,” confirms Anu Duggal, founding partner, FFF, which has invested in brands like TINTED, Winkylux and RadSwan. The beauty and wellness space has become a popular playground for many venture capital and private equity firms worldwide. 

In India, beauty and wellness brands raised upwards of $100 million in funding in 2019, with brands like Nykaa and MyGlamm bringing in the chunk of it. But smaller brands, like Mamaearth and Pulp have been a part of it too. Why are funds flocking to companies in the wellness and beauty space? Experts say that it is because brands are getting great at using the newest technologies (like artificial intelligence and machine learning) to sell and market their products, as well as increase brand presence. “Today, there are so many young and independent beauty brands in India that are pushing the limits of innovation in business models, branding and products, each appealing to a different, but growing set of Indian consumers," says Trisha Gupta, program manager, Anthill Ventures. The idea is to get involved early, and build sustainable, high growth brands that are financially sound and enjoy an extremely loyal customer base. "This becomes a better investment proposition for us in terms of returns as well as exit options,” she says. 

“The beauty and wellness sector is growing rapidly, with high margins. The advent of the online channel including e-commerce marketplaces has created several new brands in the space,” says Puncham Mukim, managing director, Everstone Capital. Their venture capital arm has invested in brands like Arata, The Mom's Co and WOW Skin Science. If investing in technology may mean making bets for the future, investing in a consumer brand means doing it for the present. Plus, personal care brands are able to create a deep connection with their audience, which can help brand visibility through constant engagement. “Brands have to stay honest, relatable and sustainable to appeal to a newer audience. We see the highest levels of social media engagement and content consumption with gen Zs, allowing for direct-to-consumer (D2C) models with strong online marketing strategies to perform best with this group,” says Gupta. When the brand becomes a must-have, it can be acquired by a larger group (as most beauty brands are owned by 10 major conglomerates). Billie, for example, two years after their seed round, were acquired by Procter and Gamble in 2020, serving as the best possible outcome for Duggal and the Female Founders Fund. 

When it comes to investing, those making the decision are taking a many-pronged approach. The first thing that they look for is the business plan and the team. Having a solid understanding of a clearly defined market is key—the marketing, the product USPs, the pricing, and everything else is then built to appeal to this market. “Having a founding team that has purpose, passion and relatability is hugely important. We also look for the right timing—understanding the market scenario and underlying trends to determine when to roll out product lines or brands,” says Gupta. Anthill Ventures, which works with start-ups to scale up, helped skincare brand PULP to get funding. In their case, the brands' “bold, fun approach to branding, packaging, product formulations and marketing,” was a huge draw. For early stage VCs like Female Founders Fund, having a founder that meets the moment is key. “We often invest pre-launch so our investment is really in the founders and the product. We ask, ‘Why is the founder uniquely positioned to solve a particular problem or address an opportunity based on their prior experience or skillset'? We will then look at the brand, the social presence and the product to assess how to it compares to the competition and what positions it to be successful," says Duggal. “Given that consumer businesses need more art than science, founders are at the centre of the thesis. What we're looking at is the brand they have created, their vision for the next 7-10 years, and their ability to execute. Numbers and projections are an outcome of the founders execution skills and the product suite,” confirms Mukim.

The return on investment can be high. “What we love about investing in the beauty business is the multiples. Large beauty conglomerates are willing to pay the kind of multiples that software brands would get, for fast-growing brands,” says Duggal. “The industry is high margin, high recurrence and high multiple which leads to healthy exit opportunities.”

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