In the past year, according to incomplete statistics, there have been nearly 80 investment and financing transactions in the global beauty industry that have attracted market attention. However, Statista data shows that from 2019 to 2022, the average transaction amount for mergers and acquisitions in the beauty industry dropped from $247 million in 2019 to $107 million in 2022. This indicates that investment and financing in the global beauty industry have become more cautious.
But Odile Roujol, the founder of Fab Ventures, stated that the cooling down of investment and financing is not necessarily a bad thing. “Investors who once dreamed of making billions of dollars have paused their investments in consumer brands, but for investors like me who have rich experience in the beauty industry, opportunities still exist.”
Odile, who was formerly the CEO of Lancôme and has also held executive positions in Fortune 500 companies, understands both the beauty industry and corporate strategy. In 2019, she established Fab Ventures, a venture capital company specializing in investing in beauty and cosmetics startups. The main investment targets are early-stage startups with annual revenues below $3 million, with a goal to accompany them for 5-10 years and help them succeed in order to gain favor from beauty giants or investment companies.
One of the recent successful cases of Fab Ventures is K18, a biotech hair care brand that was acquired by Unilever last month. K18 is one of the emerging brands in Fab Ventures’ portfolio. The brand was only established three years ago, but its annual sales have exceeded $300 million, making it one of the fastest-growing new brands in the United States in recent years.
So, what criteria does Fab Ventures use to select promising beauty startup brands? As the world’s largest beauty market, what trends are emerging in the investment and financing of beauty market in the United States? The following is a transcript of an interview between CHAILEEDO’s US Beauty Tour and Odile.
CHAILEEDO: You previously worked at L’Oréal Group. What experience did that job inspire you when establishing Fab?
Odile Roujol: I previously served as the CEO of Lancôme, a brand under the L’Oréal Group, and held positions within internationally renowned brands such as YSL Beauty and Chanel. Later on, I worked as the Chief Strategic Data Officer at Orange, a well-known telecommunications company in France.
During my time at L’Oréal, I gained a profound understanding that the key elements for brand success, whether in creating a brand or a company, are product quality, consistency between product claims and actual efficacy, and maintaining customer satisfaction. Additionally, I realized that customer experience and product repurchase rate are the cornerstones of a brand’s sustainable development. These valuable experiences played a decisive role when I founded my own company.
As an example, let’s take YINA, a skincare brand focused on traditional Oriental wellness concepts, which was invested in by Fab Ventures. I was initially drawn to YINA due to its incorporation of the wisdom of the 24 solar terms of traditional Chinese culture and the genuine dedication of its two founders. After conducting a thorough evaluation of the founders’ capabilities and brand vision, I decided to invest. This experience further reinforced my belief in the importance of brand consistency and product excellence.
CHAILEEDO: As an investment company focusing on beauty and cosmetics startups, can you share the experience about the current beauty investment market in the United States? In your opinion, what are the investment and financing trends in the beauty industry?
Odile Roujol: Compared to 2021, the current beauty investment market in the United States is cooling down. Due to high interest rates, many investors who once harbored dreams of making billions of dollars have paused their investments in consumer brands. In my opinion, the current investment and financing in the U.S. beauty industry mainly focus on seed funding and angel investments. Although the investment landscape has changed, with fewer investors targeting consumer brands, early-stage startups still have the potential to secure funding. Moreover, some direct-to-consumer (D2C) brands with unique advantages are increasingly favored by investors.
I predict that in 2024, the beauty market will shift its focus towards longevity including some supplements. However, unlike in the past, consumers will lean towards seeking solutions for anti-aging without increasing their daily skincare routines. This may make ingestible beauty products that simplify skincare regimens more attractive for investment.
CHAILEEDO: What aspects do you value the most when selecting promising beauty startups? Can you share a recent successful investment and financing case from your company?
Odile Roujol: As investor like me, the key to investing lies in selecting the right founders, brands, and products. Firstly, the brands we invest in must excel in a particular field and actively engage with consumers through brand activities.
Additionally, I have specific requirements for the character of the company’s founders. They are the leaders responsible for brand expansion. Supporting and guiding them is crucial. An excellent founder needs to have a clear vision, a collaborative spirit, an open mindset, and trustworthy qualities. Since the relationship between entrepreneurs and investors can last 7 to 10 years, it is almost like a lifelong partnership. Therefore, maintaining sufficient trust and compatibility between both parties is the foundation for sustaining the partnership.
During conversations with founders, I assess their ability to retain and execute feedback. If they remember previous discussions and make progress several months later, it is a positive signal. However, if they show no progress or disregard the provided advice, it raises concerns about their commitment and the stability of the relationship between investors and founders. It is undesirable if founders only focus on obtaining investment while ignoring the opinions of investors.
One recent successful investment case for our company is the investment in the haircare brand K18, which has become one of the hottest beauty brands in the United States (Note: The brand was acquired by Unilever last month).
Additionally, we have invested in the beauty video shopping platform Trendio, which customizes exclusive videos for users based on their preferences and characteristics, leading them to make successful purchases. We are highly interested in the rapid development of video apps in China, and Trendio aims to replicate the success of Chinese video apps in the United States.
CHAILEEDO: Currently, what are the trends in social media platforms, streaming services, and short video apps in the United States?
Odile Roujol: Currently, the market for platforms like YouTube and TikTok (international version of Douyin) in the United States is approaching saturation. These platforms are highly competitive for small and medium-sized beauty brands, and maintaining a team to manage them can be costly. Therefore, these platforms may be more suitable for resource-rich major brands.
Regarding the sales prospects of beauty brands on TikTok, I believe that beauty products on TikTok indeed perform well in terms of sales. However, their long-term growth and sustainability still require observation, and we need to continue monitoring their development over the nextfew years.
In terms of marketing platforms, Facebook and Instagram have become increasingly expensive for beauty brands. Compared to five years ago, their reach has become smaller, and the costs have risen. Over the past three years, customer acquisition costs have significantly increased, which is unfavorable for brands.
Some brands have considered exploring live streaming as an alternative growth curve. However, changing the consumption habits of American consumers, who are accustomed to using social media platforms like Instagram or Facebook, may present challenges. Nevertheless, we believe that these habits will change over time, and new solutions like streaming media will become more prevalent and integrated into the existing industry ecosystem.
Although live streaming is not as popular in the United States as it is in China, there have been some interesting developments in the past three years. Some argue that streaming media solutions should adapt to the existing ecosystem and collaborate with well-known brands and retailers such as Walmart, GUCCI, Lancôme, CVS, rather than developing independent platforms.
CHAILEEDO: How are beauty brands performing in both online and offline channels in the United States?
Odile Roujol: In the United States, different online channels play different roles for beauty brands. For example, Instagram and TikTok have shown excellent performance in brand promotion, while Amazon primarily serves as an e-commerce platform for product sales.
The distribution of offline sales channels in the United States is similar to that in China, including supermarkets, brand’s offline stores, as well as beauty retailers like Ulta Beauty and Sephora. Physical stores remain an important channel for selling beauty products.
In the United States, although well-known chain retailers like Sephora and Ulta Beauty are growing rapidly, brands entering these large beauty retailers do not have access to detailed customer information. For example, based on my previous experience with an international brand, when the brand entered Sephora, I couldn’t obtain customer information, which resulted in me having no understanding of my customers. I was conducting marketing activities blindly, which was detrimental for the brand.
On the other hand, some new types of retailers such as Detox Market and Thirteen Lune have shown different characteristics. These retailers have transparent data and have gradually attracted investors’ attention. For example, Thirteen Lune, a beauty retailer in which we invested, provides a platform for independent brands. I have high expectations for this business model because these retailers share data with brands, are willing to collaborate on strategies, and provide valuable customer demand information. This allows brands to cater to the needs of consumers from different backgrounds, which is challenging to achieve through partnerships with large retailers.
Supermarkets like Walmart and CVS have also become exploration targets for certain brands. In the United States, when brands are targeting Walmart or CVS, they mainly focus on the target group of mothers. This group often purchases household necessities for their families. For example, Bubble, a brand targeting teenage acne, has positioned itself in Walmart supermarkets. When moms see the Bubble product, they associate it with the needs of their teenagers going through puberty and make the purchase.
Overall, the beauty industry in the United States is transitioning towards D2C (direct-to-consumer) brands and collaborations with smaller retailers that are more data-driven. Collaborations involving single-brand stores and supermarkets are often more challenging and less favored by many brands.
CHAILEEDO: You mentioned that Fab is committed to helping founders achieve success within seven to ten years. What strategies, channels, or methods do you use to assist brands? Which brands that you have invested in are currently performing well?
Odile Roujol: Fab Ventures is committed to helping founders achieve success within 7 to 10 years. During this period, we need to ensure that the brand has strong product profitability, repurchase rates, and word-of-mouth reputation. The ultimate goal is to make the brand have the potential to be acquired by large companies. Profitability is of utmost importance, as negative performance can hinder potential acquisitions and impact the brand’s development.
Additionally, Fab Ventures provides guidance to brands. Some brands also present their future development plans to us, and Fab evaluates them to determine if they have the capability to enter the next stage of their plans. For example, some brands may consult with us on whether they can enter large-scale retailers. If we feel that the brand is not yet ready, we advise them to gain experience with smaller retailers first before expanding to large-scale retailers.
We are not only dedicated to finding and nurturing promising brands but also to building a supportive and success-sharing family. Our investment portfolio includes 25 outstanding companies, and they share strategies or marketing activities for brand success among each other, creating a good collaborative environment. This spirit of sharing and cooperation enhances the connections between brands and fosters a collective and collaborative mindset.
In addition to K18 and Bubble mentioned earlier, Luum Lash is also one of the star brands under Fab Ventures. Luum Lash, an innovative eyelash implantation company, has gained widespread recognition from consumers due to its innovative technology and time-saving, reliable solutions. This company has a promising future and is an important investment for us.
CHAILEEDO: In your opinion, what are the characteristics of emerging brands in the United States (established less than five years ago) and emerging brands in China? What are the underlying reasons for these characteristics?
Odile Roujol: A few years ago, investors were chasing after brands that gained popularity through influencers on Instagram or TikTok. However, after these years of changes, especially the challenges brought by the pandemic, they gradually realized that some influencer-driven brands were not sustainable. As a result, consumers have become more rational, and the ingredient-oriented group has led beauty brands to showcase their “scientific” labels.
Compared to China, beauty startups in the United States have their own unique characteristics. They excel in shaping a “professional” image, leveraging endorsements from professional hairstylists and dermatologists. With strong marketing strategies and expertise, beauty startups in the United States successfully earn consumers’ trust. In China, emerging beauty brands benefit from a well-developed retail channel and logistics industry, as well as support from various platforms.
Furthermore, there has been a change in the way companies acquire customers, with a greater focus on cost-effectiveness. Rather than spending enormous marketing expenses to attract new customers, they prioritize customer experience and retention. Unlike in the past, the current investment strategy places more emphasis on establishing strong and long-lasting customer relationships. The entire industry is returning to a healthy foundation, and optimizing the customer experience has become the new norm in the industry.
CHAILEEDO: In your opinion, what are the characteristics of emerging beauty brands (established less than 5 years) in both the United States and China? What are the reasons behind these characteristics?
Odile Roujol: Emerging beauty brands in both China and the United States share some common characteristics while also displaying noticeable differences. Firstly, both Chinese and American brands place a strong emphasis on sustainability, circular economy practices, and clean beauty. However, Chinese brands are often underestimated by others, and many foreign consumers may perceive Chinese brands as potentially causing environmental pollution. In reality, I have found that Chinese brands are at the forefront of sustainable development and circular economy practices, achieving goals that foreign brands may take longer to accomplish in just a few years.
Another similarity is that both Chinese and American brands prioritize community building. However, a notable difference is that American communities are more inclusive due to the country’s cosmopolitan nature, with diverse skin tones, hairstyles, and racial backgrounds. This multicultural aspect holds significant value, and the American beauty industry focuses more on embracing this diversity.
One interesting aspect is that in the United States, when individuals achieve success, they often utilize their wealth and resources to support and help other small brands grow, rather than starting their second or third company themselves. This reflects a collaborative mindset and a willingness to uplift others within the entrepreneurial ecosystem. In China, the approach is different, with individuals dedicating their lives to building and developing their own companies, with a focus on personal success and company growth.
The fundamental reasons behind these characteristics in both countries stem from cultural, economic, and social factors. In the United States, the emphasis on diversity and inclusivity stems from the country’s multicultural nature and the value placed on equal representation. The collaborative mindset supporting small brands may derive from a sense of community and a desire to foster a thriving entrepreneurial environment. In China, the focus on personal success and dedication to one’s own company may be influenced by cultural values such as the emphasis on hard work and individual achievements.
CHAILEEDO: How do you view the current trend of efficacy-focused products in the Chinese cosmetics market? From a global perspective, is it a sustainable trend?
Odile Roujol: I have also noticed the trend of efficacy-focused skincare in the Chinese cosmetics market. Under this trend, I believe there will be more methods and devices available for consumers to assess the efficacy of products in the future. The emphasis on efficacy may drive the development of applications and devices used in offline stores or at home to help consumers accurately evaluate product effectiveness.
I believe that currently, American consumers lack education about sunscreen products. Some brands claim to protect the ocean (fish and coral), but their sunscreen products are tested on fish or coral. Additionally, the U.S. Food and Drug Administration (FDA) cannot regulate all companies, and it is unknown whether new products from small companies/startups have undergone rigorous testing compared to those companies that invest heavily in research and development. Therefore, educating consumers is a crucial focus that the industry needs to address.
However, consumers need more comprehensive education. While consumers now know to look at ingredient lists and understand product efficacy, I believe consumers also have the right to know how the efficacy of a product is evaluated, rather than solely relying on the brand’s claims on social media or product pages. But I think this education process may be relatively slow.
