L’Oréal Establishes Venture Fund To Make Minority Investments In Rising Startups
L’Oréal has joined the corporate parade into venture investment with the launch of a fund making minority bets on startups poised to shake up the beauty industry.
Called BOLD Business Opportunities for L’Oréal Development, the fund’s first investment is in Sillages Paris, an artificial intelligence-powered scent customization concept. Laurent Schmitt, who’s spent six years as global head of corporate finance at L’Oréal, has been named the president of BOLD, which focuses on marketing, digital, retail, communication, supply chain and packaging businesses.
“With the creation of our own corporate venture fund, we will share our expertise, networking and mentorship and provide financial support to promising startups, while preserving their autonomy,” said Schmitt in a statement. “The fund strengthens our open innovation strategy of connecting L’Oréal’s expertise with an ecosystem of enthusiastic entrepreneurs in the beauty sector to address together new consumer needs and aspirations in our industry.”
BOLD isn’t L’Oréal’s only flirtation with startups. It’s sponsored a digital beauty accelerator at Station F, a campus dedicated to emerging firms that nurtured Sillages Paris, and strategically backed incubator Founders Factory. The conglomerate has been a motivated acquirer of beauty startups, too, and recently scooped up augmented reality specialist ModiFace, social media-fueled hair color authority Pulp Riot and Nanda, the Korean firm behind streetwear label Stylenanda and cosmetics brand 3CE.
In the beauty industry, L’Oréal trails Unilever in the introduction of a venture arm. Unilever Ventures was established in 2002 and, according to CB Insights, was among the five most active corporate venture funds in the consumer packaged goods category last year. It’s invested in Beauty Bakerie, Nutrafol, True Botanicals and Gallinée.
“These larger corporations have much to learn from nimble, innovative and disruptive beauty startups. I think that this is a positive development for the beauty ecosystem, and I would expect to see more such ventures in the future.”
Outside of the beauty industry, Google, General Electric, Samsung, Salesforce, Qualcomm and Microsoft have established active venture offshoots. In 2017, CB Insights estimates 243 corporate venture groups executed 1,791 deals worth $31.2 billion in funding. Corporate venture groups participated in 20% of all venture capital deals during the year with an average deal size of $22 million, an amount exceeding the investments venture arms of beauty conglomerates typically inject into their startup targets.
The introduction of BOLD isn’t a shock. Nicole Fourgoux, senior vice president of business development and acquisitions at L’Oréal Luxe, mentioned at the conference BeautyX Capital Summit in August that L’Oréal was considering moving from mentorship relationships with small brands to formal involvement. Estée Lauder is still figuring out how to cultivate its connections with startups. The role of ELC Ventures, an entity designed to nurture budding brands the likes of Rodin Olio Lusso, Le Labo and By Kilian, appears to be morphing.
“These larger corporations have much to learn from nimble, innovative and disruptive beauty startups. I think that this is a positive development for the beauty ecosystem, and I would expect to see more such ventures in the future,” surmises Tina Bou-Saba, an early-stage investor in the brands Mented, Volition and Ellis Brooklyn. Richard Gersten, a partner at Tengram Capital, a private equity firm with investments in Cos Bar, Lime Crime, Algenist and RéVive, says, “This is consistent with what other companies are doing. It is not surprising that larger corporates are trying to find ways to invest in emerging growth businesses with less capital at risk than a later-stage outright acquisition.”
For an indie beauty brand, there are many advantages of funding from the venture arm of a corporate beauty player. Margo Layton Cole, an independent investor with MLC Brands, which has Dirty Lemon, Ursa Major and True Botanicals in its portfolio, explains an infusion from a corporate venture group could provide access to supply-chain assets not customary for small companies, greater negotiating power with key contractors, learnings from brands and executives responsible for achieving massive scale, and conceivably follow-up investments.
The biggest question mark for startups securing investments from beauty corporations’ venture arms is around exit possibilities. “One potential con is that this likely closes the door for other strategics to get involved down the road,” says Layton Cole. “This shouldn’t be a conversation ender, but rather a key consideration for a brand upon entering into investment conversations: Am I open to entering into a potentially lifelong partnership with this group?”