Venturing into a new age of beauty

The Indian beauty industry is living up to the phrase ‘sky’s the limit.’ Product innovations, consumer demand, advanced technology and new sales funnels have opened up a plethora of opportunities for beauty startups. Dreaming big requires courage, but achieving big requires money. And, that is where venture capitalists come into the picture. Kanishka ramchandani analyses the changing scenario of the beauty sector and the economic impact of funding on the growth of beauty brands.

Fifteen years ago, when I first started working in the beauty sector, there was one fact that constantly cropped up in my conversations with industry experts. The beauty industry is highly unorganised, they said. It was true and this fact affected the entire supply chain within the professional segment. There was lack of standardisation in education, lack of uniformity in salon setup, lack of proper hygiene and sanitation standards and a thriving grey market.

The advent of Foreign Direct Investments (FDI), introduction of economic reforms and surge in consumer demand led to opening up of newer vistas for the industry. The professional beauty industry moved towards becoming an organised sector at a steady pace. Today, the scenario is quite different. Sourcing channels for salon products are formalised; there is an integrated distribution network; corporate entities started taking an interest and investing in salons; and the beauty sector is now recognised as an industry.

The pandemic and the subsequent lockdowns saw a surge of interest in personal care and grooming by the end consumer. This segment, which was growing rapidly before the pandemic, got a shot in the arm because of it. Online shopping and virtual tutorials became the order of the day. This has led to an unprecedented rise in homegrown beauty brands, which are getting backed by venture capital investment firms in a bid to make the most of this trend. Today, many D2C beauty brands are making headlines with their VC partners as they are driving innovative product development and marketing campaigns. With the recent successful IPO of Nykaa, beauty entrepreneurs are more confident than ever about their success. In this feature, we explore the changing face of beauty in the foreground of funding.

EXPLORING THE BEAUTY AVENUE

Jiva’s In its pre-series A funding round, Renee Cosmetics, a brand founded by Aashka Goradia Goble, Ashutosh Valani and Priyank Shah, raised $1.5 million. The funding was led by Equanimity Ventures, 9Unicorns and Titan Capital. With its crueltyfree makeup range, Renee C osmetics is a digital first brand.

Speaking about w hy VC is important for the growth of a brand, Ashutosh Valani, Co-founder, Renee Cosmetics, says, “Venture capital is important because there comes a time in business where growth is your priority. You may have to give up on the profitability of the company where growth is your primary driver. You need a lot of money for faster growth where you see an opportunity, which has presented itself today, and as a business, you raise some capital for VCs. As a promoter, VCs come as partners and not as liability to the company, which makes it easier from the point of view of the founders and promoters who run the company and operate it freely.”

Pilgrim, a beauty and personal care tartup, raised close to Rs 13 crore in Series funding. The round was supported by ireside Ventures, Rukum Capital and the ounding teams of Boat, NoBroker, and the ounder-CEO of Bewakoof.com. Anurag edia, Founder, Pilgrim (Heavenly Secrets), omments, “A lot depends on who you are taking the investment fro m. We we re clear that we wanted to receive ca pital from afund that can support the process f scale up, has a deep understanding of onsumer brands and could offer the right uidance. Fireside Ventures was the ideal hoice since they specialise in consumer rands and D2C businesses. They have een helpful in all aspects of business be it rganisation building, brand building and ven R&D.”

STRUCTURE AND SUPPORT

Seeking funds for a beauty brand requires a lot of groundwork. Our experts shared their experience of it with us. Kedia listed out:

“Typically when any VC is evaluating a deal, they look at the following:

• The team behind the brand

• What does the brand stand for? Is the brand strongly differentiated from other brands in the same market?

• The kind of space the brand is operating in (e.g. Pilgrim operates in the beauty D2C market)

• The vision of the company

• Scale of the business including unit economics and growth rate

We had a strong pitch on each of the above points before we approached any investors.”

“What investors want to see is how your business is doing and how the promoters understand the market, and how big the market is. If you have all your numbers in place, this becomes an easier task,” adds Valani.

He also explains why VC funding is critical for brands that are looking for exponential growth. “What we support is the data, experience and understanding of markets. However, there are many other points, which we as promoters may not be able to procure, but VCs can because they work with a lot of start-ups. They have a better vision of the market and they can help promoters exchange information and organise it better by filling in the loopholes.”

DOING YOUR HOMEWORK RIGHT

There are certain parameters that rands need to fulfil before they can pproach VCs for funding. Kedia xplains, “Different investors have ifferent criteria to evaluate companies nd different domains in which they nvest. One should identify, which nvestors invest in the domain in which he brand operates. Investors also invest t different scales (seed/ Series A/ B tc), so it is important to do some ground ork before approaching the investors. t helps to get introduced to the funds sing a common connection. Only if a ommon connection is not available, hould one resort to cold calling.”

Valani says, “Different VCs have ifferent styles of working. Some want to ome in at an early stage, as they have aith in the promoters and market. The usiness may not be weak and they take arly risks. And there are certain VCs that end to come in after the business has roven itself, have some numbers and hown some growth. They have different erspectives on business. Their way of nvestments and what a company does nd doesn’t do matters to them.”

Thus it is clear from our experts’ opinion hat while approaching a VC, t is important to do your homework nd identify the right VC for your rand and market. Aligning your vision ith their requirements will help in uilding a viable pitch and garnering heir support.

OPERATIONALLY SPEAKING

Once funding is secured, what does that mean for the brand? Valani clarifies, “Most of the VCs don’t like to control the operations of a brand. They have a holistic approach and perspective on how they should be run. Most of the VCs try to see how the promoters are doing. Majority don’t go into the day-to-day operations because they have funded the company trusting the founders know how they work and not to take over the business. Hence you won’t see a lot of VCs interrupting in the day-to-day business.”

Drawing on his own experience, Kedia expounds, “Depending upon the investor that’s coming onboard, their control and interest in the business will vary. Both our investors, Fireside Ventures as well as Rukam Capital give us guidance from time-to-time. However, they are not involved in day-to-day decision making.”

With capital coming in a critical juncture, beauty brands such as Renee Cosmetics and Pilgrim are able to channel them into different operations.

The promoters of Pilgrim were specifically interested in VC to boost their R&D. “We raised around Rs 12.8 crore in the last round and we are utilising the investment primarily on R&D. We have strong R&D partnerships across the globe and also have an R&D team inhouse, which we are strengthening further. We are also using the funds for capability and organisation building. Currently, we have a 35 member team. Our last but equally important focus is consumer outreach and brand building,” said Kedia.

Valani elaborates, “We have raised approximately $1.5 million, which we are utilising to quickly scale up the business to expand the range of products and invest in marketing. Offline focus will also be there. In order for customers to associate with the products, it is important that they are available both online and offline.”

THE BIG PICTURE

In the Indian beauty industry, Nykaa’s IPO announcement came as a big splash. As a beauty and wellness omnichannel, led by a woman, Nykaa’s IPO has broken every rule in the book, making its founder Falguni Nayar one of India’s wealthiest self-made woman entrepreneurs with $7 billion net worth. The Rs 5,351 crore IPO f FSN E-Commerce Ventures, Nykaa’s arent company, was subscribed over 2 times. The proceeds from the IPO will e utilised for expansion of retail stores nd establishing of new warehouses as ell as retiring debt. Even before the IPO as announced, Nykaa was in the news ue to investments made by Bollywood elebrities Katrina Kaif and Alia Bhatt.

Nykaa shares experienced a drop as t revealed a 96 per cent fall in profit for he quarter ending September to Rs 12 illion as opposed to Rs 270 million in the ame period last year. When we reached ut to the representatives of Nykaa, hey refused to comment on this. As per report in LiveMint, Nykaa might be in ews yet again as the one month lock-in eriod for anchor investors will expire nd the company might experience high olatility in the market.

In another development on the beauty e-retail front, Purplle.com has raised $65 million in funding from Premji Invest. Earlier the company had received a $75-million funding from Kedaara Capital, Sequoia Capital India and Blume Ventures. Purplle intends to utilise the funds to develop augmented reality-enabled technology, data science, Beauty Intelligence Suite and new customer acquisition.

As per a statement issued by the company, since its launch in 2012, Purplle has built a community-led platform and has seen its gross merchandising value (GMV) growing by 6X in the last three years, to a current run rate of Rs 1,200 crore. Purplle plans to deliver 6-8X growth in the next five years. As a Nykaa’s competitor, Purplle is under scrutiny now with regards to its next move.

THE PROFESSIONAL GAME

While the success of D2C beauty brands and e-commerce platforms has put beauty on the radar, it is yet to be seen how the professional beauty industry will benefit from it. Corporatisation of the sector is underway, and there has been considerable growth in the last decade. As the industry struggles to overcome the impact of the lockdown, optimism is in the air. However, VCs are not everyone’s cup of tea. As entrepreneurs are required to hand over equity in exchange of funds, not all business owners are comfortable with this idea. Some are quite content with organic growth and prefer to keep control of their business in their hands. In the service sector, especially in the professional beauty segment, business is riven by passion, talent and customer onnect. Whether salon owners can lindly follow the venture capital trend r will be required to create a new riterion for themselves, only time will tell.