The biotechnology: the new lung of the investment and the innovation in the cosmetic industry

The cosmetics industry breathes innovation. It lives from it, and it needs it in order not to be left behind in a competitive and constantly evolving market. In this context, biotech startups have become the new engine driving the cosmetics sector into the future, and the big industry groups have detected this. In Spain alone, during the early 2000s, the number of biotech startups has grown from 50 to almost 900, with an investment that has increased from 17 million euros to more than 140 million. This growth does not seem to be slowing down, and experts predict that, despite the difficulties, startups focused on digitalisation and biotechnology will continue to thrive.Investing in biotechnology: motivations and opportunitiesLarge cosmetics companies have found biotechnology to be an inexhaustible source of innovation. This investment is not accidental, but is driven by several key motivations: Consumer demand: Today's consumers are looking for safer, more effective and sustainable products. Biotechnology offers answers to these demands, developing ingredients that meet high standards of safety and functionality. Trends towards finding solutions that meet sustainability: With the growing concern for environmental impact, biotechnology allows for the creation of more sustainable ingredients, reducing dependence on natural resources and opting for cleaner production processes. This is the case of microalgae, which, as indicated in a report by the consulting firm McKinsey & Company, have become a natural ingredient of increasing scope within the cosmetics industry and which forecasts a growth in sales that will exceed 580,000 million dollars by 2027. Continuous innovation: In a market where differentiation is crucial, biotech ingredients represent a competitive advantage, allowing companies to offer unique and patentable products.Collaboration between large corporations and startupsThe collaboration model between large cosmetics groups and biotech startups is varied and strategic. These partnerships allow large companies to access emerging technologies while providing startups with the resources they need to scale. Direct investments, joint ventures and licensing agreements are some of the most common formats.Shiseido and L'Oréal and the big groups bet on biotechnologyThe French group has been practically the pioneer in its commitment to biotechnology. It has been focusing on it for more than a decade and the company began to show interest in this field in 2010, despite increasing its investment in its research, innovation and development centres.Two years later, with a strategic vision, the French cosmetics group created the BOLD (Business Opportunities for L'Oréal Development) investment fund. In December 2018, this fund was established with the main objective of making investments in startups and innovative companies especially from the fields of biotechnology, sustainability, digital commerce and beauty technology.Since its creation, L'Oréal's integrated venture capital investment fund has made several investments in biotech startups and technologies related to the creation of cosmetic and innovative ingredients. One such deal was the acquisition of a stake in Carbios in 2019, a French company dedicated to developing plastic recycling solutions to produce sustainable ingredients for the cosmetics sector. In November 2022, L'Oréal decided to invest more in its innovation and development area by acquiring a minority stake in the biotech company Microphyt. In this case, the French group's objective was to strengthen its innovation area, especially in the field of sustainable cosmetics and natural ingredients. The cosmetics giant's main aim is to be able to formalise its sustainable objectives for 2030, in which it committed itself to 95% of its ingredients coming from biological origins, derived from minerals or through circular processes. Microphyt and L'Oréal have therefore developed a joint technology platform to create raw materials from microalgae biomass.Further proof of L'Oréal's commitment to biotechnology is the synergy is the collaboration between L'Oréal and French biotech startup Biotherm, which has resulted in the creation of innovative ingredients also based on marine microorganisms. This is an alliance that again demonstrates how biotechnology can open new frontiers in cosmetic formulation.Similar is the case of Shiseido, another leading cosmetics company that has also been investing in biotechnology for several years and shares a focus on improved ingredient innovation and sustainability with L'Oréal. The Asian titan has integrated biotechnology into its strategy, but unlike the French multinational, it does not have a specific entity such as BOLD to carry out this type of action. However, the Japanese group has executed strategic acquisitions with innovative startups in the field of cosmetic technology, such as in 2019, when it acquired Olivo Laboratories, a biotech startup known for its "second skin" technology. This Massachusetts-based startup stood out for incorporating a pioneering technology that simulated a second skin of artificial nature that had numerous applications in the cosmetics sector. Previously, the Japanese giant had also acquired Giaran, another US company specialising in artificial intelligence platforms, and in 2016 it acquired another startup, MatchCo, which was dedicated to innovation in personalisation in the cosmetics sector. Also in the case of microalgae, last year, Shiseido made an investment of 6.4 million euros in the biotech company Chitose, with which it aims to consolidate a circular business model based on the manufacture of cosmetics with microalgae as the main ingredient.Other top companies that have been investing in biotechnology focused on the development of active ingredients to improve the efficacy of their products include Estée Lauder. The US group has for example invested in Skinfix, a Canadian startup that focuses on dermatological products with biotechnology-based ingredients that treat specific skin problems such as eczema or dermatitis. They also bought a majority stake in Deciem, the parent company of the popular brand 'The Ordinary', as well as Atolla, another startup that uses biotechnology to create personalised skincare products. Estée Lauder also invested in Geltor, which explores the use of proteins and collagen and uses microbial fermentation to create biocompatible and sustainable ingredients.Other giants, such as Procter & Gamble, are also imitating previous models and looking for alternatives through biotechnology in the development of ingredients that help improve skin health. Unilever has also done so in personal care, through its Dove brand, to reduce the use of chemical elements that could be harmful to consumption and also to promote the sustainability of its products. Challenges and risks of biotechnology investmentDespite the opportunities, biotech investment is not without risk: Regulatory uncertainty: Startups must navigate a complex regulatory landscape that varies by region, which can slow the commercialisation of new ingredients. Long development cycle: The development of biotech ingredients can be a long and costly process, which entails significant financial risk. This also refers to the process of biotech ingredient production often requiring infrastructure, equipment and specific expertise that may not be commonly available or easily accessible. These issues can impact on the scalability and cost-effectiveness of manufacturing processes. Establishing and maintaining specialised facilities such as bioreactors, fermentation tanks or clean rooms can be costly and time-consuming, as indicated by McKinsey. Market adoption: Despite the innovation, market adoption can be slow, and companies must educate consumers about the benefits of these new ingredients. While it is true, as the Beauty and Personal Care Products Market Size, Share & Trend Analysis Report by Grand View Research points out, the main consumers driving this trend are millennials and Generation Z, who show a greater predilection for organic and natural beauty products compared to the general consumer base. According to an ESW blog from July 2022, within this age group, 43% of consumers express a preference for natural skincare, outperforming 31% of the general consumer population in the US, the region in which this study was conducted.Future Perspectives and Emerging TrendsThe future of biotechnology in the cosmetics industry looks set to be full of innovations that could transform the way we understand personal care and cosmetics. As mentioned above, one of the most promising developments is personalised cosmetics, a trend that is becoming increasingly accessible thanks to advances in biotechnology. The ability to accurately analyse genetic data and individual skin characteristics will allow the creation of tailor-made products, optimising their efficacy and adapting them to the specific needs of each person.Furthermore, biotechnology research is focused on creating regenerative and anti-ageing ingredients that go beyond simply preventing the signs of ageing. These new ingredients are designed to actively promote cell regeneration, using advanced technologies such as peptides, growth factors and stem cells. These components not only have the potential to reverse cellular damage, but can also improve overall skin health, offering a more scientific and effective alternative to traditional treatments.What will be the evolution of biotechnology in the industry?According to TechNavio's latest report (Biohacking Market Analysis North America, Asia, Europe, Rest of World (ROW) - US, UK, Germany, China, Japan - Size and Forecast 2024-2028) the biohacking and biotechnology market is expected to experience significant growth, reaching a value of USD 32.68 billion at a compound annual growth rate (CAGR) of 19.26% between 2023 and 2028.This growth is driven by increased awareness of the benefits of a healthy lifestyle, increased adoption of wearable devices and expansion in the use of smart medicines. These factors are transforming consumer preferences and behaviours, generating a growing demand for products and services aimed at improving health and wellness.

The biotechnology: the new lung of the investment and the innovation in the cosmetic industry

Los grandes grupos de cosmética y cuidado personal cuentan con fondos de inversión destinados única y exclusivamente a la inversión de startups biotecnológicas para desarrollar ingredientes y soluciones innovadoras

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Miriam Mora

Journalist and Editor