Investment in beauty: the advance of corporate venture capital in the cosmetics world

Perfumer H, the British fragrance house crafted from reusable materials using hand-blown refillable packaging, was the company of choice for Fable Investments, the investment vehicle for Natura & Co., will make its debut in the world of corporate venturing this past May.

“Perfumer H is our first investment and it is important because it sets the tone for Fable Investments. The investments we will make will be remarkably diverse. We are not going to invest solely in niche fragrances or skin care. We want to have diversity of founders and sectors. Perfumer H is a great example of what we look for in our investments in terms of a focus on natural ingredients, sustainability, impeccable aesthetics, and attention to detail. Despite still being a very small company, it has never compromised its essence. That was one of the main reasons why we invested in it”, says Thomas Buisson, director of Fable Investments to AméricaEconomía.

In this way, the fourth largest beauty group in the world has followed the path of other companies in the cosmetics industry that have opted for corporate venture capital funds or CVC (for its acronym in English) as an alternative to invest in startups or ventures and other cutting-edge technologies that are in their early stages of development.

“Unlike the acquisitions that Natura has made in recent years, with Fable Investments we are making minority investments and, therefore, we are not seeking any type of control. We are what the industry describes as a corporate venture fund and we are fully funded by Natura. It is a kind of capital reserve of the group. We are not taking over the management of these companies and they are not part of Natura & Co. They are an investment and they are going to be somewhat integrated”, says Thomas Buisson, who was general manager in Europe of Aesop, an Australian high-end natural cosmetics brand in which Natura made a majority investment and ended up acquiring it in its entirety in 2016 .

Another company that has already taken its first steps in the world of corporate ventures is the Peruvian multi-latina Belcorp, which in 2018 created its CVC Belcorp Ventures with a view to learning the new beauty care trends, in response to the rapid and imminent advance of the market. To date, the Belcorp Ventures portfolio is made up of investments in Kopari, Phlur, Proven and Dr. Roebucks, companies related to natural ingredients, e-commerce and artificial intelligence (AI).

Like companies in other industries, beauty and wellness companies have created CVC funds as an alternative to expand their ecosystem in key strategic areas while accessing new technologies and functionalities to benefit their business models . In addition, companies investing via CVC have the advantage of doing so without having to invest millions of dollars in developing their own solutions or making a complete acquisition.

In this sense, Peter Ulrich, principal EY Parthenon, in his article "Why this could be the best time to create a corporate venture capital fund?", highlights that this investment vehicle helps companies to take advantage of future growth opportunities, not only during the current period of disruption, but also beyond what will be the post-pandemic world. “When executed well, CVC funds can become a powerful complement to other tools such as internal R&D activities, partnerships, joint ventures, and startup M&A to accelerate digital transformation,” he says.

According to Javier Salinas, director of Emprende UP, the Center for Entrepreneurship and Innovation at Universidad del Pacífico, in the beauty and wellness industry there are new things to learn related not only to products, but also to the business model .

“Companies such as Natura, Belcorp or Yanbal have understood that the digitization process not only has to do with recruiting people for sales, but also with how to digitize inventories, pay them without having to go to the offices, have an app private so that they are connected. The needs are on and companies cannot provide everything. They have understood that innovation is in the market, in the entrepreneurs and it is better to take something that already works instead of developing it from scratch. This is already a normal practice of large companies”, he says.

For Debbie Jaffe, managing director of Endeavor Peru, an organization that supports high-impact ventures, investment opportunities and collaboration between corporations and startups transcend beauty or wellness ventures.

“We have spoken with corporations and start-ups and we see that they are not only interested in beauty innovations, but in other sectors or industries that are around or parallel to it, which are arousing more interest from companies. There are startups that work with natural colors in food and paint, but they have their application in the world of beauty and also in synthetic biology,” she says. “The corporate venture also serves to co-create a technology. For example, a large beauty company may find a startup that develops a smart gel that is applied in other industries. They can contract or finance their research so that there is an application in the beauty industry”.

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This year, Fable Investments will make one more investment this year, according to director Thomas Buisson.

This is the case of BOLD, L'Oreal's private equity fund that in 2019 acquired a stake in Carbios, a company that develops biotechnological processes for recycling PET plastics, a plastic polymer obtained from ethylene and the paraxylene. As a result of this investment, the global beauty giant announced the production of the first fully recycled plastic container for cosmetics with Carbios enzymatic recycling technology. The packaging will be ready in 2025 and will be marketed under the Biotherm brand, which will be the first of the group to market a product with this technology, the advantage of which is that it allows all types of PET plastic to be processed and recycled infinitely, as an alternative to mechanical recycling.

In this regard, Thomas Buisson of Fable Investment affirms that CVCs allow us to find these white spaces in the same beauty and care industry, but also areas where there could be some level of complementarity. “We are not restricted. We are looking for hair care, device, wellness and nutrition companies. It's really a broad interpretation of this industry. This is also because currently all these areas are blurring into one. Today you cannot talk about beauty without talking about well-being, we are not in the years in which beauty consisted of retouched images of impeccable models”, she says.

Beyond beauty

Although beauty companies seek to invest in companies in the same field and also in other complementary ones, ventures arise that at first glance would have no relation to the business model of the world of cosmetics, but that have been breaking into other industries .

This is the case of fintechs, the most recent disruption in the financial industry that is becoming a great ally for the cosmetics industry. For the moment, the most recent and visible collaboration occurs in direct sales companies that had to speed up their e-commerce channels and for this they allied with payment platforms, but this could go even further.

And it is that direct sales cosmetics companies usually grant credits to their saleswomen or beauty consultants who, for the most part, do not qualify to access a loan in traditional banking due to lack of credit history.

“These beauty companies are constantly looking at payment platform startups, credits and digital wallets for their business, because they have a huge sales force. I know of companies that are working with various fintechs to manage loans for their collaborators and are evaluating investing in them”, says Javier Salinas.

For the specialist from the Universidad del Pacífico, many of the cosmetics companies have not yet found an effective solution to manage all that data from their consultants themselves. “This information is extremely rich due to the large community that they have as vendors. They are outsourcing it, but they want to invest in the short term in a startup that takes care of this. They are looking at that possibility, but nothing has materialized yet," he says.

“Beauty companies that have a large sales force are fintechs. The same happens with companies like Cabify or Uber that give loans to drivers because they have years of knowledge about their ability to work and generate income. If I am a bank or a financial institution and I know that a seller usually has an income of X amount, I can decide to grant her a loan because she has the ability to pay it. The same beauty companies also have their payment platforms and they have a tremendous infrastructure and a link to both sides of a marketplace, both the people who buy and those who sell their products and can easily ally with fintechs”, says Debbie Jaffe .

For the Endeavor executive, although the trend of embracing open innovation has great potential for corporations, they must analyze the right moment and whether the CVC is the right vehicle to solve a need or whether they should look at other ecosystems in the world to do it.

“Many have to look outside the region, in Asia, Europe or North America because that is where pure science is. If they want to develop sunscreens, they should go to the markets where they develop the best sunscreen products. Traditional companies are challenged to take the time to see which screen of open innovation options is the best fit, but they shouldn't do it either because everyone else is doing it,” he says.

For now, Thomas Buisson, from Fable Investment, assures that they have been talking with confounders of ventures in Latin America and also with Latin American founders in the United States. “There is incredible dynamism right now on the continent, whether it is in the north, in the south or in the middle, and it is important because the roots of the group are in this region. In fact, some of the investments that will be announced shortly are from companies led by founders from Latin America”, he concludes.