Colour Me Profitable
Tatler Hong Kong|June 2020
A gigantic market with high profit margins and an apparent immunity to the impact of global crises—it’s no wonder beauty start-ups are becoming increasingly attractive to investors
Melissa Twigg

When we think about billion-dollar ideas, we tend to picture social-media mavericks and innovative new forms of tech. We don’t think about lipstick. However, thanks to a plethora of female-led businesses shaking up the US$675 billion beauty industry, skincare and make-up firms have become the darlings of venture capitalism.

“Statistically, the start-up world is really male driven; that’s a fact,” says Pocket Sun, the co-founder of venture capital firm SoGal Ventures. “But slowly investors are starting to realise the very high price they’ve been paying for this bias. We work with female-led companies across all sectors, and there is a lot of money to be made in beauty. I’d suggest anyone deciding whether to invest in a beauty brand consider three things: whether they are offering a product people need and will continue to need, whether they connect with customers, and whether the product actually works.”

The women and companies that have rapidly become household names tick all three boxes. Pat McGrath Labs and Kylie Jenner’s Kylie Cosmetics were awarded billion-dollar-plus valuations by investors thanks to their unique formulations and clever brand marketing that targeted entirely new demographics. Drunk Elephant—which makes skincare products using only biocompatible ingredients—began as a small, home-run start-up and was sold for $845 million last year to Shiseido, which beat Estée Lauder in the very last round.

And with a narrow product range that is focused mostly on skincare and some colour cosmetics, Glossier is arguably the leader in the field. All about celebrating customers’ natural beauty, its tagline is: “Beauty products inspired by real life”—and it has worked. Glossier’s US$100 million funding round last year gave the start-up a US$1.2 billion valuation.

“The success of Glossier is not just products,” says Sun. “They defined a new way for a beauty company to rise and represented a new narrative in beauty. This is not reserved for major beauty brands but is for smaller ones too—beauty start-ups shouldn’t see customers as consumers but as something more intimate than that. It’s important to provide a product that helps create a collective life experience that accumulates goodwill from a whole community.”

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