Why VCs Invest in Local Beauty and Cosmetics Startups

The rise of the beauty and self-care industry (beauty and personal care) in Indonesia is marked by many births brand new local. The government noted that there were 797 large cosmetic businesses and small and medium-sized industries (IKM) in Indonesia in 2019, of which 294 were registered with the Investment Coordinating Board (BKPM). This number increased from the previous year which was 760.

Quoting TimeSocial Bella CEO John Marco Rasjid said he was optimistic that the Indonesian beauty industry market would grow rapidly. There are a number of factors driving this growth. First, citing a Euromonitor report, Indonesia's beauty and personal care market is estimated to reach $6,03 billion in 2019 and increase to $8,46 billion in 2022.

Second, as stated by John, the average total spending on beauty products for Indonesian consumers is still around $20 per capita. This figure is smaller than Thailand ($56 per capita) and Malaysia ($75 per capita). Third, Indonesia has a very large female population. Bappenas estimates that the female population will jump to 142 million from the 2010 population of 118,66 million.

To DailySocial, Co-founder and CEO of Base Yaumi Fauziah Sugiharta said that this revival will mark the third wave of the startup industry phenomenon after the explosion of the pioneering vertical, namely e-commerce, ride hailing, and fintech. This trend will be encouraged brands local that uses a Direct-to-Consumer (DTC) approach.

"The technology ecosystem in Asia is becoming more mature and digital literacy is increasing. We also see that throughout 2018-2020 market trends are starting to shift. The startups that are on the rise are startups consumer centric and B2B startups that help business-oriented people consumer. Here, beautytech "is predicted to be part of the third wave of startup revival," said Yaumi. 

Do business people need it? Skincare and cosmetics seeking funding from VCs?

Appearance E-commerce or marketplace such as Sociolla, Tokopedia, and Shopee contributed greatly to the birth brand local beauty with a DTC model. With the increasing trend of online shopping, these business people actually benefit because they don't need to build distribution channels, let alone build retail stores to reach consumers.

Precisely para brand These local funds can allocate funds for other purposes, such as R&D development, marketing channels, and technology. Interestingly, in the last two years a number of brand Local companies are starting to look for external funding options to support and strengthen their business in the industry beautytech.

In our records, there are four startups beauty and wellness in Indonesia who succeeded in obtaining funding from venture capital (VC). They include Base, Nusantics, SYCAand Callista. Even though they target different target markets, all three of them use technology to develop products and identify consumer needs.

Source: Reprocessed by DailySocial

Yaumi revealed that his party had received funding pre seed from Antler in March 2019 and got mentoring for 6 months. Antler can be said to be initial touchbase Base on VC before finally pocketing Seed funding from East Ventures and Skystar Capital.

“We want to bring the best experience and we want to challenge the current norm. Therefore, we need infrastructure to do this build the project ten times better. At that time, we saw financing we don't have enough capital. It's also impossible from family, let alone the bank. Our only option angel investors or VC," he said.

One of the infrastructure in question is the development of technology to understand consumer needs. Base provides services skin profiling with AI algorithms via the website. This explains why Base is not yet interested in marketing its products through marketplace.

Because there is journey in such a way from pre-purchase to post-purchase, this situation requires the Base to rest on one platform just from the algorithm side. The aim is none other than to determine the material Skincare the right one for consumers. This applies to business people who use the DTC business model.

Apart from that, technology really helps the product remain relevant to consumers ten years later. Therefore, it is important for him to always iterate considering that Generation Z tends to be digitally savvy and don't want to be dictated to in buying products.

"In this industry, that's very true rely in product development, of course we need to convince the VC that the product has been tested on the market. Not again testing formula, with a note of continuous iteration. Startups are required to agile. While waiting [funding] until you get consumers and monetization, of course there's no rush. In contrast to other verticals there may be no manufacturing process. That's why from the start we have bootstrapping," he explained.

Meanwhile, local start-up brand Mad for Makeup admitted that it was not interested in seeking funding from VC. Two Founders of Mad for Makeup, namely dr. Shirley Oslan and Tony Tan, revealed that the capital they currently have is still sufficient and their party is still focused on pursuing growth in 2021.

With the achievement of business growth this year, Shirley admitted that her party had been approached by several large VCs. However, according to him he prefers to involve VC as advisor to prepare for a larger scale, although with zero capital for equity.

"There are no specific criteria for capital as long as the strategy used is appropriate. But for certain markets, we certainly need further sources and capital. We might consider next year [external funding], even if we see there are plans for overseas expansion," he added.

Currently, Mad for Makeup claims to have succeeded in obtaining market fit which is good in the Indonesian beauty and cosmetics market with a DTC approach and affordable prices. With initial capital of IDR 800 thousand, a startup with jargon rebel beauty It has sold 26.000 product units in its first year of existence.

The Indonesian beauty industry in the eyes of VCs

Outside Indonesia, the trend of VC investment in business people Skincare and cosmetics are no longer new. In South Korea, this business is an easy target for investors. They succeeded in showing their innovation and unique concept in reaching the younger generation digital native. This Ginseng country has succeeded in becoming the mecca of the world beauty industry.

Take, for example, a startup from South Korea Reziena developing an AI-based platform to generate data that can be utilized in creating personalized self-care services at home. Similar to this, a startup from Singapore Yours also trying to present personalized skincare to its consumers.

Source: From various references / Reprocessed by DailySocial

Contacted separately, Head of Investor Relations & Capital Raising MDI Ventures Kenneth Li said, there are a number of factors why beauty startups are attractive to VCs. First, brand Today's locales use the DTC model to target segments digital natives.

Second, beauty product consumers tend to have user stickiness and repeat purchases tall one. This means that this business can achieve rapid business growth. Of course for VCs, entering this vertical can be a business differentiation. However, investment is still required scalability.

"When investing in technology, scalabilityit could be much faster. They can also [invest] in R&D to create superior product. Take for example in South Korea, this business is one signature they. "In the end, the beauty industry there developed rapidly thanks to investment from VCs/investors," said Kenneth.

Apart from that, he added, strategies to carry out scale up can be done by utilizing AI technology to obtain user journeys and user profiling. From the resulting data, brand local can actually develop marketing channels appropriate and create products according to consumer needs.

Meanwhile Kolibra Capital Senior Investment Analyst William Auwines highlighted another perspective. Many ball local beauty develops strategies marketing different things to build brand equity-his. In addition, what is quite prominent is that beauty products have low production costs so that the decision to buy products becomes easier and easier nature His business will always need constant repurchasing.

He assesses the presence of e-commerce such as Tokopedia, Shopee, and Lazada game changer for this industry because they are able to pocket consumer purchasing journey. As a result, not only beauty industry players have increased, but also supporting businesses, such as sales marketing, and logistics for the SME segment. From this exposure, the beauty industry has become an attractive vertical for VCs because it has shown impressive growth in recent years.

"As VCs, we usually ignore traditional companies, such as fashion and retail. For us, there are many new technology companies that are growing exponentially by keeping costs low, reaching the market through online marketing, and improving their logistics services to gain profits. These factors drive their valuations much higher compared to traditional companies," he explained to DailySocial.

Founder and CEO of Female Daily Network Hanifa Ambadar assessed the brand This local area can actually survive without the help of VC investment. The beauty business model generally targets direct end users so they can immediately sell and get their capital back. The business's margins are also considered large enough so they can use discount strategies to boost sales.

"But of course they can't scale up as soon as possible brands others who have large capital. Moreover, if they want to expand by building retail stores. Not again campaign and product endorsement"This strategy certainly requires more capital," said Hanifa DailySocial.