How investors can ride the latest Korean beauty wave

For the past two years, the hottest trend for TikTok’s beauty influencers has been the “clean girl” look, characterised by apparently makeup-free but still flawless skin and minimalist accessories. This trend has, as a by-product, catapulted Korean beauty companies to fame in western markets.

“When you think of clean girl makeup, you think of dewy, glassy skin. It’s not about the product that you put on, it’s about what’s underneath. Korean beauty really emphasises that kind of take on self-care,” explains Kelly Lee, investment associate at Signite Partners, the venture capital arm of Shinsegae Group, the Korean retail group.

Almost overnight Korean beauty brands like Laneige, Innisfree, Beauty of Joseo, and Cosrx became household names with western consumers as social media influencers pushed them to viral fame. Demand for Korean beauty — or K-beauty — products increased by 134% on TikTok in the six months to April 2023, according to a Business of Fashion report.

GCV Connect: Korea

GCV Connect Korea takes place December 10-12, 2024, in Seoul. The event is for CVCs seeking to scale investment in Korea. The GCV delegation is a unique chance to connect with local corporates, VCs and portfolio companies.

“For the last 10 years we’ve been seeing many more independent beauty brands coming up. It has never been easier to go to market. I could make some cosmetics in my kitchen and get an influencer to promote them, and I can have a market share in a way that probably wasn’t possible before,” says Jeffrey Lim, managing partner of Signite.

This trend is creating an opportunity for investors, with many VCs now wanting to back beauty brands with the potential to become a global hit. There is also a robust acquisition market for these K-beauty brands. There have been more than 12 acquisitions of Korean beauty brands since the start of the year, including Goodai Global’s purchase of TirTir, and Morgan Stanley Private Equity’s purchase of skincare brand Skin Idea.

“Everyone wants to find the next brand, the next TirTir, the next Beauty of Joseon,” says Lee.

Last September, Signite Partners set up a dedicated, $50m fund to invest in K-Beauty, one of the first Korean investment firms to create this kind of specific vehicle.

“We were the first dedicated fund for K-beauty. Now we have some followers,” says Lim. This summer, for example, Korean venture capital firm Mark & Company launched a dedicated fund to support K-beauty startups.

Lim says, however, that Signite will continue to stand out, despite the growing competition, because it has a slightly different focus.

Investing in the tech behind the “It” brands

Many of the new beauty funds simply want to spot the new “It” brand. Lim, however, sees this approach as too much of a guessing game. Instead, he is focused on investing in the technologies that will be needed by the growing K-beauty ecosystem — technologies that won’t so much find stars as help create them.

“Our goal is building the ecosystem to create a biggermarket in the long-term, rather than just having a few unicorns immediately,” says Lim.

A good example is the company’s investment in CDRI (Cosmetic Data Research Institute), which provides technology that helps Korean cosmetic brands export to other countries. It can take six months and hundreds of pages of documents to get Food and Drug Administration approval to export cosmetics to the US, says Lim. The CDRI system can shorten this to between two and three weeks.

“In less than two years, they attracted more than 1,100+ clients, mostly cosmetic brands but with some distribution companies and manufacturing companies as well,” says Lim.

Another investment was in Silicon2, a marketing and logistics company that helps Korean beauty companies export. The fact that Korea has a number of export technology companies like this to invest in comes from another part of the country’s history — prowess in making semiconductors.

“A fun fact is that Silicon2’s name comes from semiconductors. Before, they were distributing semiconductors to other countries. Now they have pivoted to cosmetics distribution.”

Signite has also backed KDT Diamonds, a startup making lab-grown diamonds, which have become a big fashion trend but which also have extensive and lucrative commercial uses, including as potential building blocks for quantum computers.

Also in the portfolio is Recens Medical, which has created a technology that numbs the skin by blasting it for a few seconds with a burst of CO2. This has uses in Korea’s large plastic surgery market — the country has the highest plastic surgery rate per capita in the world — and Lim sees big potential for adoption of the technique abroad.

Collaboration with Shinsegae — and foreign investors

Lim says Signite, as a corporate VC, often leans on its department-store parent to help its startups. For example, it helped feminine products company Rael, which was previously distributed only through Amazon, get placement in physical stores as well.

The relationship also goes the other way. The team helped Shinsegae group, for example, acquire the Amuse cosmetics brand in August this year.

Lim says he is increasingly getting enquiries from VCs outside of Korea that want to get involved in the Korean ecosystem. His team worked with Japan’s PKSHA Capital, which became a coinvestor in CDRI. Signite is also working with VCs in the Middle East.

Korea’s venture capital ecosystem has expanded rapidly over the past few years, in response to government initiatives. But Lim says that the Korea needs to open the VC ecosystem to welcome more global VCs so that many local and global VCs compete and collaborate to develop Korean startups.

This may require regulatory changes to be more inclusive for foreign investors, both in terms of GPs and LPs.

“We have had fast growth for the last few years, but now we have to catch up with global trends and look at multicultural startups,” he says.