During a year when hardly anyone wore makeup, apart from the occasional Zoom, one might think beauty start-ups would add to the list of the pandemic’s business casualties. But the numbers tell a different story.
According to a report sent to clients by CB Insights, investors were champing at the bit to back innovative beauty newcomers. In 2020, funding exceeded $2 billion — an all-time high in this space — and 2021 is already on track to go bigger. Investors have channeled more than $1.1 billion since January, far eclipsing the $238 million pulled in this time last year.
“Over the last year, consumers have turned to categories like skin care as a way to practice self-care,” the firm said in its report. “Makeup, which was already falling out of favor before COVID-19, took an even bigger hit as more people stayed at home and mask-wearing became the norm.”
Since 2015, Unilever Ventures, Circle Up and 500 Startups have been the top three investors in beauty and personal care. Unilever alone has backed more than a dozen beauty start-ups, including six last year, half of which — BYBI, PurePlay Skin Sciences and True Botanicals — are in skin care.
While investors are throwing their lot in with a variety of start-ups focused on different areas, the ones generating the most excitement across the major players are focused on clean beauty, skin health and others fashioned as direct-to-consumer businesses.
The report singled out Glossier, as a direct-to-consumer unicorn that started with skin care and expanded into body and fragrance, calling it a “bellwether for a brand with a strong community and loyal following.” Others include Teadora and True Botanicals, which tout clean formulations through unique, effective ingredients like botanicals; Tula Skincare and Gallinee for their probiotics, and Topicals and Episencial, as clean, over-the-counter solutions for skin conditions that typically lead to dermatological treatment.
Other areas drawing attention are business-to-business booking and on-demand salon tools, such as appointment management, hair portfolios and payment features. Platforms like Unicorn Zenoti and StyleSeat have shown strength in recent fundraising, with the former pulling in $160 million and the latter breaking $42 million.
“Top investors are funding companies that help salons and spas run more efficient businesses and connect with customers digitally,” the firm continued. “Business-to-business booking and on-demand platforms account for 12 percent and 11 percent of deals, respectively.”
As for what’s next, CB Insights analysts predict a few shifts.
Mere messaging around clean ingredients, which has been all the rage, won’t suffice on its own anymore. There’s momentum to back up claims of efficacy with evidence, like clinical trials or recommendations from health experts. Sustainability efforts are also expected to become more important, from formulations to packaging.
Certain niches to keep an eye on, according to the firm, will include men’s grooming — beyond just shaving, that is — as well as a comeback in the world of cosmetics.
Investors are still showing interest in makeup start-ups, it noted, and with “companies like L’Oréal predicting a return to social functions and occasions as the pandemic subsides, this category could see a lift in the next few months.”