Deal focus: L Catterton backs Social Bella to emulate Perfect Diary

L Catterton’s debut Indonesia investment – in online beauty products platform Social Bella – originated from a similar deal in Japan and a concerted effort to explore the rise of local beauty brands in Asia’s emerging markets. In April of last year, the private equity firm confirmed its backing of Japanese cosmetics brand Etvos. Around the same time, Charlotte Chang, who focuses on cross-fund investments and portfolio operations, arrived in Asia to coordinate a consumer sector deep dive.

“We have replicated our consumer insights unit in Asia, a capability which significantly differentiates our approach, and has contributed significantly to the investments we have made,” says Chinta Bhagat, L Catterton’s co-managing partner for Asia.

“It all starts with studying consumption themes, translating these into attractive categories, and then finding investment targets within them. This process underpins how we invest in the US and is now our go-to model in Asia. We try to know as much or more about a category as the founders of companies in our first meetings with them.”

Beauty was one of several logical starting points for the sector specialist GP, alongside health and wellness and food and nutrition. Moreover, COVID-19 has accelerated an ongoing transition towards online sales, creating optimal conditions for brands that are attuned to local tastes and rely on internet-based marketing and distribution instead or in addition to traditional channels.

There are standout examples in each of Asia’s largest emerging markets of beauty e-commerce platforms moving from being pure distributors of third-party products to developers of their own. China-based Yatsen Holding – operator of Perfect Diary – spun this narrative into a US IPO in late 2020 and now has a market capitalization of $6 billion, while India’s Nykaa is said to be nearing a domestic listing. L Catterton sees Social Bella as the Indonesian equivalent.

“There aren’t many pure product companies in the beauty category in Southeast Asia, they tend to be more platform-like. Social Bella has already started to grow their own product brands, building on an already strong B2B distribution and e-commerce verticals in Indonesia. The company is a true omnichannel player with strong offline presence as well,” says Bhagat.

The private equity firm has led a $56 million round for Social Bella, although it is described as a deal curated in between rounds, hence the relatively modest number. Jungle Ventures, Indies Capital, and East Ventures made small contributions alongside L Catterton. Social Bella closed its Series E at $58 million last summer – with contributions from Jungle, Temasek Holdings, and Temasek-owned Pavilion Capital – to take its overall funding past the $160 million mark.

This is part of a push into the high-growth, consumer technology space that coincided with the recruitment of Yock Siong “Song” Tee to lead investments in Southeast Asia and Anjana Sasidharan to do the same in India. It allows L Catterton to capture more of the returns being seen in this segment across Asia, although deals will be done selectively with one eye on portfolio construction.

Founded in 2015, Social Bella operates Sociolla, which is said to be the largest online beauty platform in Southeast Asia with 30 million users by the end of last year. There are two smaller complementary brands, content-driven Soco and mother-focused Lilla, as well as a network of brick-and-mortar stores.

The company has expanded into Vietnam, but this is not material to L Catterton’s underwriting, with Indonesia alone capable of delivering the desired growth. Near-term priorities include scaling up in the domestic market, improving gross margins, and realizing supply chain efficiencies and reducing customer acquisition costs to minimize cash burn.

Bhagat accepts there is always macro risk when investing in pre-profit companies that depend on additional funding – and therefore the broader capital markets environment – to drive business growth and hold up valuations. However, he believes Social Bella’s model is robust.

“Beauty is a high frequency, high gross margin category, and it is easier for companies in this category to start with purely online businesses and build out platforms,” he says. “This is in contrast with other consumer categories like fashion, where there is lesser room for error, given the risks of inventory obsolescence and lower gross margins lead to higher cash burn and the need for more funding rounds.”

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• Topics
• Southeast Asia
• Expansion
• Consumer
• Indonesia
• L Catterton
• Jungle Ventures
• East Ventures
• Temasek Holdings
• TMT
• e-commerce