Corporate investors rarely back sex startups but as attitudes change and the trend for sexual health and education picks up, are they missing out?

sex startups

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When it comes to investment, the sex industry can be a hard sell. You would think that in 2023 taboos around sexual pleasure would have dissipated, with open education around sex, STIs and pregnancy common worldwide. But corporate investors still appear to find it a difficult topic.

Sex is a booming market, with the sex toy industry alone expected to be worth $80.7bn by 2030, according to market research group Statista. But very few venture capital firms and CVCs are choosing to invest in anything remotely relating to the sex industry —  at least, as far as we know.

It may be a missed opportunity. At a time when investors are scrutinising the time to profit from their portfolio companies, it is worth pointing out that adult content site OnlyFans, founded in 2016, had pre-tax profits of $525m in 2022.

However, the past decade has seen a slow rise in investors seeking out sex-based startups, with the creation of VC firms such as Vice Ventures being solely dedicated to financing ‘sinful’ startups.

Rebranding has been one answer to palatability, with some startups winning investment by choosing to associate themselves with healthcare and education instead of purely sex. LoveHoney, a company that distributes sex toys, now markets itself as a sexual health and wellness brand.

Attitudes are also changing. Gen Z’s more liberal attitudes have made sex-related startups more fashionable to consumers. “What was very ‘exotic’ ten years ago is now en vogue. More apps, tools, and solutions are available, offering a broader range to fulfill the individual needs of users,” says Mariah Freya, a sex coach, co-founder and chief executive of sex education app Beducated.

With a market that holds so much potential, is there a space for CVCs to invest in the sex industry? And would sex-based startups even desire corporate support?

Education and sex startups

Sex companies of the past tended to be two-dimensional. Playboy and Pornhub produce simplistic content that caters mainly to men. The sex toy industry, meanwhile, has a tendency to get stuck in its own gendered avenue, with the majority of products being produced for women.

A new crop of startups are attempting to change the game in the sex industry.

Photo courtesy of Beducated

Sexual education is a growing trend. Beducated, a Germany-based digital platform, for example, offers subscribers a library of 100+ courses on sexual activities, ranging from oral sex to rope bondage tutorials, giving users the option of a personalised sexual journey within the app.

Freya, who founded Beducated in 2018, says that her startup is vital for reigniting couples’ sexual chemistry. “Phil Steinweber, (Beducated’s co-founder and Freya’s partner), and I have been together since 2007 and maintaining a spark in our sex life became more challenging. But instead of giving up, we decided to do something about it. At the time finding high-quality sex education for adults in a practical, easy-to-apply way was tricky.”

She continues: “We realised that a great sex life is trainable and more straightforward than one might think. That was the ‘aha!’ moment that led to the creation of Beducated.”

Freya says the company prides itself on being authentic, productive and raw for users. “We show the real thing with authentic models and couples without being cringy. And we are inclusive, providing teachings for any gender and orientation,” she says.

The startup has not disclosed its total funding but Freya says that they have received support from angel investors.

It’s not sex it’s healthcare?

Sex has been noted as a key tool for boosting health by reducing stress, improving sleep and burning calories, according to an article by Insider. This growing understanding of the physical and mental benefits of being sexually active has caused healthcare to become key to the sex startup scene.

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Freya notes that new sex startups are crucial to help support people in their daily lives.

“Merely purchasing a sex toy is not enough. It is crucial to understand our bodies, desires, and how we can experience pleasure. Sex-focused startups can improve relationships and personal well-being by destigmatising aspects of human sexuality,” she says.

Getting beyond the “sex” label is crucial for many startups in this area. Spanish startup Myhixel, for example, stresses that it is a men’s sexual health company, rather than providing sexual products. The company makes the Myhixel Control device which acts as a treatment for premature ejaculation and erectile dysfunction. But the device is only part of the offering — the problem the company tackles is emotional and tied up with mental health.

Álvaro Molina Bautista, the chief financial officer of Myhixel says that the company’s use of technology is what makes it unique. “Our technology relies on Internet of Things (IoT) and artificial intelligence. Our product involves an integrated app and a stimulation device, combining technology and therapy to offer an effective and personalised approach for individuals seeking to improve ejaculatory control,” he says.

Myhixel’s technology

A big differentiator between Beducated and Myhixel is how they market themselves. Freya openly admits that the startup falls under the category of a sex product. The team at Myhixel, however, are keen to go past the “sex” label. Being classified as a healthcare startup allows Myhixel to be taken seriously in the investment sector, Bautista says.

Myhixel’s total funding and investors have been left undisclosed. “Securing private capital is a challenge, further exacerbated by the challenging macroeconomic context. In response, alternative avenues of private financing, specifically equity crowdfunding and engagement with business angels and family offices, have been explored,” he says.

Fighting the ‘sinful’ stigma

The idea of sex as “sinful” is one that persists in most cultures. That stigma has meant that many sex entrepreneurs have had to develop a thicker skin than other founders – rejection, judgment and misunderstanding are common experiences.

Co-founders of Beducated; Phil Steinweber (left) and Mariah Freya (right)

Freya notes that many sex startups get lumped under the same category as pornography, making it harder to reach their intended audiences.

“There is an issue with the current dependencies on big tech, for example, Meta as an ad platform or the Apple Appstore. There’s only one box for “sexual content” in their terms of services, which puts the same restrictions as on pornography also on us, an education platform” she says.

Bautista says that there has been a greater struggle for sex-based products marketed toward men getting recognition. “There has historically been a stigma surrounding sex-based products for men whereas the female sector is much more open. Our efforts are gradually changing the paradigm, encouraging men to feel more liberated in expressing their concerns,” he says.

Lack of investors is hindering the sector’s ability to become truly innovative, says Bautista. “The lack of appropriate consideration for sexual health within institutional frameworks poses a significant obstacle. This includes limited support from financial entities and accelerators, which can hinder our ability to innovate and expand our offerings,” he says.

Investing in sex

The investment world is slowly beginning to take notice of the world of sex. Amboy Street Ventures was founded in 2021 and seeks to progress sexual health in America and Europe. The firm has invested in 12 companies with eight currently in its portfolio such as US-based sexual audio stories developer Dipsea and Contraline, a US-based biotechnology company producing a male contraceptive implant.

Carli Sapir, founding partner of Amboy Street Ventures

Carli Sapir, the founding partner of Amboy Street Ventures says that the firm aims to empower sex-based and femtech startups. “Our mandate and interest is investing in sexual health and we have seen over the last few years a big trend to bring sexual pleasure to healthcare,” she says.

Sapir says that the investment potential in the sex industry is an ocean of potential and ignoring consumers’ desires around sex products is detrimental. “There is not a lot of funding going into this space because there is a gap between women’s health and sexual health. Society has many unmet needs, a lack of capital in this space is what is stunting innovation and stopping the needs from being met,” says Sapir.

Sapri says that what is deterring CVCs and venture firms from investing in sex startups is reputation and procedure, especially around a firm’s vice clauses.

Vice clauses prevent fund managers from investing in a specific space, such as drugs, alcohol and sex. Sapri says that the ‘sex’ taboo is so strong that even any mention of or sexual words can be enough to stop an investment.

“If the word ‘vagina’ in the immediate description of a startup, it can preclude a fund manager from investing in a company as well as institutional investors too,” she says. “If you are for a generalist fund the vice clause may not be very important but if you are raising specifically for a sexual health company, you have to be cognisant of these restrictions.”

The emergence of these venture firms has provided a safe space and avenue for founders to get funding, but where do CVCs fit in?

The question of corporations

The vice clauses at many parent companies may be a difficult obstacle for CVCs to overcome, and not all sex startups will be able to rebrand to make themselves “safe” for corporates. In some cases, sex startup founders may not even want their money.

While the Myhixel team are open to working with corporates, Freya is not so sure. “We are still weighing out options to get corporate venture capital and VC on board. But with the current climate, we are hesitant. Right now, we are focusing on becoming profitable and sustainable” Freya says.

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However, many founders and sex investors would welcome corporate backers and believe they would see benefit from participating in this sector.

“I think more CVCs are exploring the field and ‘tabootech’ in general,” Freya says. “The potential is enormous, with lots of impact and money to be made.”

One early pioneer is Fable Investments, the corporate arm of Brazilian cosmetics group Natura &Co, which has invested in sexual wellness startup Maude. In addition, Bestnights VC, the venture arm of Jägermeister, is also understood to be considering sex tech investments for its portfolio.

Bautista also believes changing attitudes will help. “This modern scope matches better with the investment criteria of big brands and companies which makes it more appealing to invest.”

Sapri says that corporate venture investors and venture firms will change their attitudes towards the sex industry as soon as they realise its financial potential. “I think there is a shift coming,” she says. “Investors follow money, so as they see that success they will invest.”