Forbes India 15th Anniversary Special

Betting on beauty: What's driving sudden investor interest in the business

The beauty and personal care space saw $264 million in funding in the seven months to July 2021 compared to $106 million in all of 2020. While the returns are higher, awareness among investors about the attractive category is increasing too

Varsha Meghani
Infographics By Kapil Kashyap
Published: Jul 28, 2021 02:04:40 PM IST
Updated: Jul 29, 2021 11:09:16 AM IST

The beauty and personal care market is attractive: Gross margins tend to be high at 65 to 70 percent, unit economics are good, and products need regular replenishmentImage: Shutterstock

When she’s not busy readying for the launch of her prêt line of clothing, Shivani Kher spends her time scrolling through Instagram for the latest beauty tutorials. “I love makeup,” gushes the 27-year-old over phone from Faridabad in Haryana. She usually buys her supplies from Nykaa and says she spends about Rs 5,000 to Rs 6,000 on average per month on beauty products.  

Meanwhile, in Mumbai’s Dombivli, an eastern suburb, once Kirti Shah, 34, wraps up her hectic morning—she’s up at 5 am, cooks lunch, readies her kids for online school and bids goodbye to her husband who recently started work from office—she settles down with a cup of tea, and her phone. She checks out beauty tutorials on YouTube and enjoys scrolling through beauty e-tailer Purplle’s website even if she doesn’t intend to buy anything. “Mazaa aata hai… mann halka ho jaata hai (It’s fun… it lightens my mind),” she says. She does this two to three times a day whenever she gets a breather, she confesses. “Customers like her usually visit our website or app 10 times over 30 days before actually placing an order. The average basket size is about Rs 900,” says Manish Taneja, co-founder and CEO of Purplle that lists about 500 brands on its marketplace.  

“Girls in Tier III cities know if Kylie Kardashian has launched a new beauty product just as well as someone in a metro. They’re on top of the latest trends. That’s the power of social media,” says Darpan Sanghavi, co-founder and CEO of direct-to-consumer (D2C) beauty brand MyGlamm. Taneja concurs: “Every city, small or large, has a Tier I, II and III type of customer. In Mumbai, for example, you have people living in slums; wealthy people live in non-metros too. Customers today, especially the middle bracket Tier II type of customers, [like Shah] are more aware. For example, they’ll diligently follow a CTSM (cleanse, tone, serum and moisturise] skincare routine in the morning and at night. It might just be a Rs 200 serum that they buy, but they stick to a routine. Social media has brought about that awareness.” 

Awareness among investors is also increasing. The beauty and personal care space (BPC) has been on a tear since the start of this year. A total of $264 million in funding has flowed into startups just in the seven months to July 2021, compared to $106 million in the whole of 2020. A total of 18 deals have been struck in the year so far compared to 23 in 2020.  

Mega deals like the Wipro Ventures and Amazon-led $71 million Series C round in MyGlamm in July 2021, ChrysCapital’s $50 million investment in Wow Skin Science and the Sequoia Capital India-led $45 million fundraise in beauty marketplace Purplle, both in March 2021, are the largest fund raises in the space since 2018. 

 “Towards the end of last year, we had 30 to 40 VCs approach us with offer letters,” says Pritesh Asher, co-founder and CEO of Juicy Chemistry, a D2C brand that sources “certified organic ingredients” from across the world to make its skincare products. They finally chose to go with Verlinvest, the Belgium-based backer of popular consumer brands like Oatly. It’s is also an investor in Purplle.   

So what is driving this sudden investor interest in the space?

The category is attractive: Gross margins tend to be high at 65 to 70 percent, unit economics are good, and products need regular replenishment. The market, which is expected to hit $25 billion by 2025, up from $14 billion now, according to RedSeer, remains hugely underpenetrated. Indians, for example, use one-eighth of the beauty products Koreans use and a fraction of what women in Vietnam use, says Vineeta Singh, co-founder and CEO of Sugar Cosmetics

“The recovery was largely festival-led. Customers kept thinking that things would improve the following month,” says Vineeta Singh of Sugar Cosmetics, which posted revenues of Rs 100 crore in FY20

Plus the returns on investment are high.  

Take the case of Wow Skin Science. ChrysCapital’s $50 million investment for a minority stake valued the seven-year-old omnichannel retailer at around $150 to $180 million (Rs 1,000 to Rs 1,300 crore). That translates to a revenue multiple of 10 to 15 times, as per industry analysts. 

“This is a 30 to 40 percent Ebitda business. If you have a topline of Rs 2,000 crore, your Ebitda would be around Rs 600 crore. At 30 times Ebitda, that translates into Rs18,000 to Rs 20,000 crore in market cap. That’s as good as Unilever or Godrej,” says Taneja. If one were to apply the 10x to 15x revenue multiple—used in the case of Wow Skin Science and assuming it is the industry norm—that too would translate to a Rs 20,000 crore valuation.  

There’s also a clear path to exit. Like a buyout by a legacy player keen to connect with millennials and Gen Z-ers, as was the case with Beardo. The men’s grooming startup that sells beard oils, waxes and soaps for men’s facial hair was founded in Ahmedabad in 2015 by Ashutosh Valani and Priyanka Shah. Two years later, FMCG major Marico acquired a 45 percent stake in the company. In 2020, it completed the acquisition by picking up the remaining 55 percent. The deal size was not disclosed, but during that that time, Beardo’s sales shot up from Rs 22.7 crore in FY18 to Rs 78.5 crore in FY20.  

If Nykaa’s upcoming initial public offering is successful, that will mean another tried-and-tested route to exit. The nine-year-old beauty e-tailer with an omnichannel presence filed documents with the Securities and Exchange Board of India earlier this week; the red herring prospectus will follow. The company, which logs 55 million monthly visits on its website, lists over 1,200 brands and fulfils 1.5 million orders a month; it plans to raise $500 million to $700 million at a valuation of $4 billion to $5 billion. 


“Among the tech companies looking at listings [PayTM, Flipkart, PolicyBazaar, Grofers or the already-listed Zomato], Nykaa is the only profitable startup,” says a person familiar with the company’s plans. The company posted its first annual net profit of Rs 2.3 crore on revenues of Rs 1,164 crore in FY19. Revenues surged 60 percent to Rs 1,860 crore in FY20, while profit before tax was Rs 94 crore. “Also, unlike these companies [mentioned above], Nykaa is a promoter-driven business. The promoters hold 51 percent of the company, so their interests are aligned with those of retail investors,” he says. 


The category has weathered the Covid-19 storm well. In the initial months of the first lockdown in March 2020, demand dropped, supply chains got disrupted and business plummeted. But by September 2020, most companies regained their footing. “The recovery was largely festival-led. Customers kept thinking that things would improve the following month,” says Singh of Sugar Cosmetics, which posted revenues of Rs 100 crore in FY20.

Historically, lipstick purchases have remained buoyant during recessions. A relatively cheap, feel-good product, sales didn’t even dip during the second World War. “It’s what we call the lipstick index,” says Singh, referring to a term coined by Leonard Lauder of Estee fame during the 2001 recession to describe how lipstick sales increase during trying times. But with mask-wearing made compulsory, has the lipstick index finally fallen? “Not really. Lipstick has fallen from being the number one category pre-Covid to now being number two after skincare products. The 5-8 percent displacement from lipstick sales has been made up by skincare,” says Singh.  

The focus on skincare, and wellness in general, since the onset of the pandemic is a natural shift and one that is here to stay, believes Manvitha Janagam, investment professional at Verlinvest. “Ever since the pandemic, consumers are becoming more aware of their health and wellness, including their skin health. They are not shying from paying extra dimes for a cleaner product and invest extra time in catering to their holistic wellness routines.”  

Covid-19 has also further accelerated the shift to online buying, especially in Tier II and beyond cities. Ecommerce penetration, improved logistics and the proliferation of social media have enabled D2C beauty brands to grow at a fraction of the time and cost than was previously possible. “There’s a reason why we didn’t see so many FMCG brands being born in the ’80s, ’90s and ’2000s,” says Taneja of Purplle

"Girls in Tier III cities know if Kylie Kardashian has launched a new beauty product just as well as someone in a metro. They’re on top of the latest trends. That’s the power of social media,” says Darpan Sanghavi, co-founder and CEO of direct-to-consumer (D2C) beauty brand MyGlamm

“Brands can spend less on marketing and distribution and more on product. This turns the whole FMCG model on its head,” says Sanghavi of MyGlamm,​ which acquired POPxo, an online community startup for women, in August 2020. “This gives us access to 88 million women in India. It’s changed the game for us,” he says. Based on the feedback from this community of women, MyGlamm can develop products and go-to-market in 45 days to three months, adds Sanghavi. They also develop educational content that they push out to buyers and potential customers. Others like Purplle have developed a large “vernacular influencer network” to drive customer education and similar draw on the data to develop products, says Janagam.  

Currently, only 6 to 7 percent of the sales of India’s $14 billion beauty and personal care market are online, according to RedSeer. There’s plenty of headroom for growth. Many brands, including Kolkata-based Dot and Key, are developing smaller SKUs (stock-keeping units) at lower price points to target customers in Tier II and III cities. YouTube has educated customers while Instagram has made the discovery of brands easier across India; it’s now about reaching those customers who are happy to buy online even though beauty has traditionally been a category that people want to sample in person. “A large part of the shift to online is here to stay even after Covid. Replenishment buying, in particular, will continue online,” says Singh.  

Even so, this doesn’t explain why investors are pouring money into beauty now? The factors that make the category attractive held true earlier too.  

“There’s a funding boom in the D2C space right now, not just in India but globally too, and cosmetics is a very big category within that. No VC wants to miss out on the upside,” says Anand Lunia, founding partner at India Quotient, one of the early investors in Sugar Cosmetics. In February, the Mumbai-based venture capital firm partially exited the startup when it completed $21 million Series C fundraise, booking a 49x return. 

“It’s true that the factors that are driving interest now held true earlier too,” he concedes when prodded, “which makes me believe that if we had more women VCs, we would have discovered this space much earlier.” 

Now that the spotlight is on the BPC segment, startups are finding novel ways to differentiate themselves. 

“For us, the product is our hero” says Singh. Sugar imports high-quality precision machinery to make its cosmetics and that itself is a barrier to entry, she says. Others like Dot and Key are carving out a niche by “addressing customers’ unfilled needs” in overlooked areas, says Suyash Saraf, who co-founded the brand with wife Anisha Agarwal after she couldn’t find a product that combatted the effect of chlorine in swimming pools on the skin. The product portfolio includes underarm creams and lip plumping masks. 

Clean beauty and sustainability are important checkboxes for increasingly conscious customers. “Customers today want products that are good for them and good for the environment,” says Asher of Juicy Chemistry. The impetus to set up the company came when a salesperson at a mall was trying to sell an organic, all-natural skin care product to his wife; when he read the list of ingredients, he was surprised to find mentions of ingredients that were used as raw materials in his family’s petroleum products manufacturing unit. “We decided to develop a truly organic skincare line. All our ingredients, formulations and packaging is certified by COSMOS, a global authority in the cosmetics industry,” he says. Similarly, Mamaearth, which raised $27 million led by Europe-based Sofina Ventures in July 2020, has struck a chord with customers looking for toxin-free products rooted in ayurveda. 

Personalisation is another area of differentiation. Bare Anatomy, for instance, founded in 2018, develops personalised hair and skincare products based on customers’ responses to a quiz on their website. Celebrity endorsements are another big draw to stand out from the crowd, says Lunia. MyGlamm, for example, recently roped in actor Shraddha Kapoor, while Sara Ali Khan is the face of Purplle.  

Finally, content remains a key moat. “After years of patiently creating content that is both educational in nature and entertaining, we’re able to draw in 300 million views per month on app, Instagram handle and YouTube channel, and 40 million unique visitors. Without any ad spends,” says Sugar’s Singh. As brands try to outdo one and other, for investors and customers at least, things are looking pretty.