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Investors are shunning many consumer-related industries, but beauty remains attractive, according to a new report.
Early-stage venture fund XRC Ventures surveyed its US and European investor network and found that 80% plan to invest as much or more in beauty in 2024. It has been found.
“Consumer investors are most bullish on beauty products because the category’s multiples have held up, primarily because beauty products are seen as recession proof,” said partner Diana Melencio. “It’s relevant because they have the ability to continue to grow even as consumer tightening occurs.” Report author for XRC Ventures.
“And there is a strong appetite from conglomerates to acquire these emerging brands as a means of growth,” she added.
Recent acquisitions in this space include Unilever’s acquisition of K18, Shiseido’s acquisition of Dr. Dennis Gross, and Puig’s acquisition of Dr. Barbara Sturm.
Melencio added that the investment “must-haves” span a variety of areas, but clear commonalities center around founder beliefs and defensible differentiation.
The report found that in a challenging environment in 2023, with overall venture funding down 42%, the entire consumer sector is becoming obsolete as attention shifts to AI.
This shift continues the trend of generalist VCs shying away from consumer-focused investments, with funding in the sector dropping more than 80% from its 2021 peak to $800 million. This is the first time since 2017 that the sector has not raised more than $1 billion.
However, within the consumer sector, not all segments were equal. For example, the beauty sector will outperform any other general merchandise or consumer packaged goods category in 2023, boasting double-digit revenue growth, an increase in M&A, and a healthy 3x to 7x increase. recorded a high sales ratio.
However, beauty and personal care remain undervalued, with VC funding expected to decline by more than 50% in 2023 compared to the previous year, Melencio said.
“In our view, generalist VCs are missing an opportunity, and consumer experts are clearly bullish. Among consumer product categories, beauty and personal care is a bright spot, with attractive valuations and High selling prices, the proverbial buy low, sell high is an area where there is great opportunity. This is the category most favored by the early stage consumer VCs we spoke to, and a strategy aimed at growth. Because there is continued demand from the sector.”
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