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The Missing Middle: Funding Challenges for Mid-Market Beauty Brands
The beauty industry faces a glaring funding gap, particularly for mid-market brands often referred to as the "missing middle." These brands generate annual revenues between $17 million and $115 million, a range where they are often too large for seed-stage investors, yet not established enough to secure funding from big buyout firms. At a recent Dealmaker Summit in London, industry experts discussed the fragmentation and challenges that make funding these beauty brands particularly difficult.
Why Does the Gap Exist?
Regardless of geography, brands within this middle revenue band face a common dilemma: they struggle to scale while investors miss out on their high potential. In Europe, the situation is compounded by a patchwork market structure, where diverse languages and regulations hinder accessibility to a unified market. Investors like Jeremy Zucker of Harris Williams spotlighted this issue, stating, "European funds have pulled back from consumer packaged goods over the past five to ten years because of opportunity costs. They prefer sectors with greater business resilience and security, like tech."
Comparing U.S. and European Markets
The market dynamics are slightly different in the United States versus Europe. In the U.S., funding tends to cluster heavily at the early and very late stages—neglecting those brands that are poised for growth yet lack the necessary capital. As noted by panelists, while the U.S. presents a more homogenous market, the fragmented nature of Europe creates barriers for mid-market beauty brands to thrive.
Investment Opportunities Amid Challenges
Despite these hurdles, the mid-market beauty segment remains a lucrative opportunity. Olivier Garel from Unilever Ventures highlighted that while early-stage investments are riskier, mid-market brands often present a more balanced risk-reward profile. He affirmed that these brands can grow substantially in just a few short years, claiming, "You are protected on the downside and have a similar upside to venture." Thus, for savvy investors looking for stability and potential high returns, this often-overlooked segment could be highly rewarding.
What's Next for Mid-Market Brands?
As the beauty industry gears up for 2025, experts predict an upswing in mergers and acquisitions. However, investors are becoming increasingly selective, searching for brands that demonstrate not just growth potential but also profitability and operational sustainability. Brands like Topicals, which caters specifically to the skincare needs of people with melanin-rich skin, are examples of companies that attract attention due to their unique value propositions and community-centric strategies.
Your Role as a Conscious Consumer
For those interested in the beauty landscape, understanding the struggles mid-market brands face can inform more conscious purchasing decisions. As consumers become increasingly aware of where their money goes, supporting brands that align with your values—whether that be sustainability, inclusivity, or fair manufacturing practices—becomes a powerful tool for driving change in the beauty industry.
Engaging with brands that are working hard in the mid-market tier gives you, as a conscious consumer, the chance to support innovation and diversity in beauty, making the market more vibrant and reflective of varied consumer interests.
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