Why venture capitalists are putting their money on India’s booming beauty industry

With rapidly evolving consumer demands, India’s beauty and personal care market is becoming a prime target for investors from across the globe

The quest for eternal youth is as old as time itself, yet it’s only in the last decade  that the beauty and personal care sector in India has truly begun to flourish. The beauty and personal care (BPC) industry is abuzz, with everything from SPF obsession to meticulously curated skincare routines dominating both retail shelves and online platforms. 

The desire for aesthetic perfection has propelled the Indian beauty market to unprecedented growth, drawing keen interest from venture capitalists. But this growth is no accident; instead, it’s the result of favourable market conditions aligning, creating an opportunity for investors to engage with a market expected to reach US$30 billion by 2027.  

A market ripe for innovation

According to a 2020 survey, over 35 per cent of millennials earning more than ₹ 100,000 per month expected their income to increase by 75 per cent within the next five years, signalling a rise in disposable income and hence spending power. In the same year, India had over 278 thousand high-net-worth individuals (HNIs)— a figure projected to more than double by 2025. 

This significant rise in income has led to a noticeable change in how young consumers spend. The era of premiumisation has arrived; while spending on beauty and personal care was once considered an indulgence for most, it is now viewed as an essential. Prioritising appearance and well-being is now crucial, and the Indian consumer’s shopping habits mirror this new mindset. This change, however, didn’t happen in isolation. The digital revolution led by Jio, expanded internet access beyond urban India. By 2024, over 52 per cent of India has internet access, up from 14 per cent in 2014. With more than half of the country online, the surge in connectivity introduced a new world of social media and content, fuelling consumer aspirations and a demand for variety and better options.  

“We were a brand-starved country, with high exposure to social media. People were increasingly consuming more content, which led to higher levels of aspiration. Consumers now had very specific requirements; this gave rise to smaller, digital-first brands. Something had to change in the BPC sector, the incumbents remained stagnant, innovation and disruption was waiting to take place,” says Sunitha Viswanathan, partner, Kae Capital,  an early-stage VC firm that has invested in Foxtale—a homegrown skincare brand, among other notable investments in the non-BPC sector.

Historically, Indian consumers had access to a variety of beauty brands, from Pond’s cold cream and Shehnaz Hussain’s  herbal products, to modern brands like Lakmé and L’oreal.  However, these brands didn’t fully cater to the evolving needs of today’s consumer, whose preferences are increasingly shaped by social media and a growing awareness of skincare and beauty products. The mindset of the Indian consumer, who is now more informed and selective, shifted from “I will buy what is available” to “I have a specific need and will not settle for anything less.”

Hariharan Premkumar, Managing Director & Head of India at DSG, a VC fund that has invested in notable BPC brands like The Mom’s Co., Arata, and 82°E, explains the market’s evolution: “Between 2014 and 2019, the initial wave of BPC brands emphasised natural ingredients, responding to the consumers growing concerns about questionable components in existing products. However, since 2019, consumer priorities have shifted towards product efficacy, with a strong demand for items that demonstrate tangible results and are supported by clinical research."

This shift created a gap in the market, leading to the rise of digital-first beauty brands, like  MamaEarth, The Mom’s Co., Juicy Chemistry, and WOW Skin Science among others. These brands catered to the growing demand for high-quality, natural-ingredient-based products at a time when traditional players were not meeting these needs.ol

Speaking about their investment in The Mom’s Co., Premkumar notes, “Back in 2016-2017, there was a need for high-quality, safe products for new mothers and babies. Mothers had to resort to imported products or ask their friends travelling from outside India for products for their babies. The founders, Mallika and Mohit, started the company because of their own struggles as parents. “We love it when a business comes out of a personal pain point, we see founders being very mission driven about it,”  he shares. 

MamaEarth too emerged as a leader in the toxin-free, clean-label skincare brand category and has now become a case study for other digital-first brands. “We’ve made many investments in the beauty and personal care space but the most spectacularly successful one has been MamaEarth. The company has had a phenomenal growth story, it was founded in December 2016, we invested six months later in 2017, and by November 2021, it became a listed IPO [Initial Public Offering]. Currently, they are at a ₹16,000 crore valuation.” said Kannan Sitaram, co-founder and partner at Fireside Ventures, a VC fund that has invested in MamaEarth, Bombay Shaving Company, and D2C haircare brand Moxie.

From then to now: an ever-evolving market

As consumer preferences evolved, a second wave of brands emerged, capitalising  on the growing demand for products that cater to specific needs. This saw the rise of scientifically backed and clinically proven brands like Foxtale, The Minimalist, and The Ordinary, alongside celebrity-backed brands such as Kay Beauty by Katrina Kaif, 82°E by Deepika Padukone, and Akind by Mira Kapoor. “Prior to setting up Foxtale, we conducted in-depth research within the market to understand what problems women were facing when buying skincare products,” says Romita Mazumdar, founder and CEO of Foxtale. “The resounding theme was a lack of effective products that offer a real benefit,” she adds. Consumers weren’t consistently repurchasing products, often switching after a few months. This highlighted a major gap in the market. “We built Foxtale to give consumers highly efficacious products. Today, 50 per cent of our revenue is driven by repeat consumers.”

Similarly, Karishma Kewalramani, founded FAE Beauty in 2018, to fill another gap in the Indian cosmetics market. She explains, “FAE stands for ‘free and equal’. Five or six years ago when I moved back to India, I realised that most beauty brands were catering to only one type of audience—tall, thin and fair, which isn’t an accurate representation of the Indian population . Options for other skin types in the Indian market were limited and international brands came at a higher price point. I wanted to create a brand that offered quality products for individuals with deeper skin tones, and different textures of skin, and without having to break the bank to buy cosmetic products.” 

As homegrown beauty brands flourished online, international brands began entering the Indian market. K-beauty brands like Laneige, Innisfree, and CosRx capitalised on the viral popularity of  Korean skincare driven by beauty influencers while international brand launches like Selena Gomez’ Rare Beauty and Rihanna’s Fenty Beauty were introduced to the market, along with luxury brands like Hèrmes Beauty and Chanel Beauty that were aimed at an affluent consumer segment. This influx of international and domestic brands marked a significant market expansion.

“The influx of international brands in the Indian BPC market is a great validation that this is a large market and they see potential over here. It’s a win for consumers because they now have more choices,” says Viswanathan. “Homegrown brands will need to really stand out and be innovative. Competition only makes you better. Without innovation your brand won’t stand out—that is the reality. But I think it's a great indication of the market depth in the country,” she adds. 

Beauty-focused e-commerce platform Nykaa further revolutionised the beauty landscape in India by offering a one-stop shop for beauty and skincare. As of FY 2023, Nykaa’s BPC revenue reached Rs 4,482 crore.  Recently, Reliance’s Tira Beauty and Tata Cliq’s online stores have also made strides in the market, intensifying the competition in the online beauty retail space.

The Investor Appeal

The large market opportunity and high gross margins make the BPC sector particularly attractive to investors. According to a report by Redseer Strategy Consultants, D2C startups in the BPC sector enjoy an average gross margin of 72 per cent. 

“As a digital-first brand, you are targeting a narrower consumer opportunity. It is going to be expensive for you to acquire and retain these customers. You have to keep innovating and launching new products to sell to that consumer, all of which requires money and therefore you need to have higher gross margins to be able to afford it all. Digital businesses in the BPC sector typically have gross margins in the range of 65-80 per cent,” notes  Sitaram. 

BPC brands often rely on outsourced manufacturing, making them asset-light, capex-light ventures, allowing start-ups to exercise greater experimentation. This flexibility enables brands to quickly adapt to the market's demands and develop products attuned to current trends.

“Two-three months into the pandemic [in 2020], we understood that we needed to expand digitally and needed capital and the ease of cashflow to do so,” says Suramya Jain, co-founder of RAS Luxury Oils.  “We first raised a seed round that allowed us to do a few experiments and boost our sales, which, in turn, resulted in better growth rates, a better top line that helped attract VC investors. In 2022, we raised a larger round from Sixth Sense Ventures; with that infusion of capital we focused more on product expansion, and team expansion as well as undertook more extensive R&D to develop products that meet consumer demands,” highlighting how raising capital supported their growth.

In addition to the agility of the business model, the nature of the BPC sector encourages repeat purchasing behaviour further enticing VC investors. “If a customer likes the product, they will keep coming back , either once in 45 days or once in two months,” says Viswanathan. This frequent contact with the customer boosts lifetime value, making the upfront digital acquisition cost worthwhile, she explains.  “As investors, repeat purchasing behaviour is something we look out for. With repeat purchasing behaviour, we also anticipate referrals to follow,” adds Vishwanath. The exit strategy for investors in the BPC space is clear, typically involving acquisitions from a larger company or IPOs. Notable exits include Marico’s  complete acquisition of Beardo for an undisclosed amount. Marico initially acquired 45 per cent of Beardo in 2017 and bought over the remaining 55 per cent in 2020. Nykaa’s IPO in November 2021, saw shares surge to 89.2 per cent, valuing the company to ~US$13 billion.

"I think both IPOs and strategic acquisitions will continue to happen in the future. The traditional big players in the BPC area are keeping a very tight watch on the start-up world, and whenever an interesting company comes about and the time is right, I'm sure they will come in and buy,” comments Sitaram.

"At the same time, we also have founders like Varun and Ghazal Alagh [founders of MamaEarth], who, from the very beginning, were clear that they wanted to go IPO. Many other founders from our portfolio also have a similar view. They are in it for the long journey, they have aspirations to take the brand to an international level, they have a vision that they want to convert to reality. While possibilities of IPO and acquisition exist, exit strategies really depend on what the founder wants out of the journey," adds Sitaram.

A future-forward approach

Looking forward, trends like personalisation, innovation, and increased digital integration are expected to dominate the beauty and personal care market. The ongoing expansion of e-commerce and social media platforms will continue to shape consumer behaviour, allowing brands to offer more customised solutions.

“For someone to build a large brand that is here to stay for decades, leveraging the offline channel will be important,” says Vishwanath. "Therefore, determining how to successfully venture into offline markets will be crucial; it is different from the digital-first approach most brands take today. There's also going to be deeper tech play and digital brands can capitalise on it. Providing consumers with more personalised routines through visual AI, which can scan a consumer’s image, recognise their facial pattern, on the basis of which the right product or routine can be recommended. While addressing privacy concerns, this tech play gives digital brands a distinct competitive edge over traditional incumbents,” she furthers.

The convergence of beauty and technology will lead to personalistion in its highest form, giving rise to wearable beauty devices, medical-aesthetics, AI-/VR-powered virtual try-ons, and virtual beauty advisors. These trends are already gaining traction in the West and are poised to make a profound impact in the Indian market. Particularly with medical-aesthetics, the growth potential is considerable, with a large base of "on-the-fence" consumers who are expected to try at least one treatment within the next five years, according to a McKinsey report.

“Another area witnessing extensive research but hasn't yet been commercialised in India is that of gut health. The critical role of gut health and its impact on skin and hair has been underestimated so far. A company that focuses on developing products related to gut health could be very interesting,” comments Sitaram.

“Additionally, there’s a growing trend of in-clinic treatments for skin and hair; cosmetic treatments have gained immense popularity recently and are expected to be a major growth driver in the near future,” he adds.

One thing is clear: the next generation of consumers will primarily experience beauty through tech-driven solutions. Whether it's the increasing demands of consumers shaping the industry or cutting-edge technologies anticipating consumer needs before they even arise, this is an exciting time to be a player of any form in the beauty market in India.

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