The Comeback of Reason and Value Favored More by Capitalists

The year 2022 has frequently seen more than 100 million yuan (more than $15 million) in financing. The Beauty collection store HARMAY raised $200 million, the cosmetics ODM/OBM company BAWEI Corporation raised more than 100 million yuan (more than $15 million) and Mistine received more than $30 million in the financing. Some investors have publicly stated that Chinese beauty brands have ushered in another spring. So, which sector will capitalists choose to invest in this year? Are beauty brands still “capitalists’ favourites”?

Since last year, the continuation of the epidemic and geopolitical conflicts have led to a major crisis in China’s cosmetics industry, with rising raw material prices, logistics obstruction, factory shutdowns and epidemic closures… But even so, China’s capital markets remain enthusiastic because cities across China have stimulated consumption to fuel the economy and promote the recovery of China’s new consumer market by introducing policies and giving away consumption coupons.

China’s capital market has always maintained confidence in Chinese beauty companies because the market saw its strategy to cope with the epidemic and the strong recovery of China’s consumer market.

According to incomplete statistics, from January to April this year, there have been 36 public financing incidents by related enterprises in China’s cosmetics industry with the total financing amount exceeding $818 million. Among them, there are 19 financing projects at the level of 100 million yuan (more than $150 million), accounting for about 52.8%, which has exceeded half. Among them, the Chinese beauty new retail brand HARMAY raised a high amount of $200 million, becoming the most expensive beauty financing project in China’s cosmetics industry this year.

However, compared with the same period last year, the overall amount of financing in China’s cosmetics industry has declined slightly this year. According to the public information, from January to April 2021, China’s cosmetics industry completed a total of 37 financings, with 12 financing projects of 100 million yuan (more than $15 million). In contrast, although the total number of financing in China’s cosmetics industry from January to April this year was basically the same as that of the same period last year, the number of financing projects of 100 million yuan has increased, which reflects that the leading enterprises with great strength are still being contended by capitalists.

From the perspective of the brand, the investment in Chinese beauty brands is stuck in a dilemma. Unlike capitalists who bet on innovative beauty brands in 2021, the number of cosmetics brands that received financing from January to April this year fell sharply, with only 14 brands successfully financing, down 44% year-on-year. Cosmetics brands received a total financing amount of about $117 million, down 62% from the same period in 2021 and even less than the financing amount of $135 million in the same period in 2020. There are only 4 brand financing projects of 100 million yuan (more than $150 million).

At the same time, from January to April this year, there were 12 financing incidents for Chinese beauty operators and service providers, of which 7 companies raised more than 100 million yuan (more than $15 million), nearly surpassing the beauty brands. It can be seen that as more beauty brands enter online e-commerce, a number of excellent beauty operation service providers have emerged, who help beauty brands operate online stores. With the further growth of China’s scale of the internet, the demand for service providers in the beauty industry is also increasing.

So, back to brands, which one does capitalists value this year?

Among the above 14 beauty brands, Dewy Lab is particularly favoured by capitalists. In February this year, Dewy Lab announced the completion of tens of millions of dollars in financing, led by China Growth Capital and followed by Xiaohongshu, which is also the first cosmetics brand invested by Xiaohongshu, a Chinese social sharing platform. Public information shows that since the product was launched in January 2021, it has completed three rounds of financing in one year. One important reason that capitalists are optimistic about Dewy Lab is that Dewy Lab is located in a subdivision of the sector – the clean beauty sector which is still lacking in the Chinese market.

From the perspective of categories, skincare is still a popular sector and capitalists are still “not optimistic” about makeup. According to the incomplete statistics, among the 14 beauty brands that have been invested, only Dewy Lab, which positions at pure beauty. While Y.O.U and Mistine have made good results in both the makeup and skincare categories.

In summary, in the first half of this year, some beauty brands were stuck in dilemma and the pace of capital investment in beauty brands was slowed down, which means that the game of throwing money and traffic at the problem is no longer sought after and the market is gradually returning to rationality. In fact, capitalists are not favouring beauty brands anymore but are looking for more valuable companies or brands. The logic of investment has not changed, beauty is still a sunrise industry whose profits and growth space are still the demand of capitalists who are still very optimistic about this sector, but more cautious and no longer blindly following the trend.



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